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September 28, 2022
For almost two decades the M&A market has favored sellers, who have become accustomed to a competitive bidding process with multiple buyers, higher than historical multiples, purchase agreements with favorable terms, and relaxed partnerships with strategic and financial partners. As we head into the second half of 2022, it is clear that the M&A market is transitioning to a buyer’s market. Several strong economic and demographic trends are causing the M&A market to shift to a buyer’s market. The demographic trends are:
To add to the headwinds in the M&A markets, the state of the economy has bolstered talks of a recession heading into 2023. Some of the economic data:
As a business owner, do you have enough gas in the tank to make it to the next recovery and/or until the next seller’s cycle?
Preparedness planning ensures that business owners receive maximum value at sale. It also ensures sellers receive the unlocked value and not the buyer. Below are multiple ranges and how lack of preparedness minimizes value.
Why should owners prepare before selling? In this example, there is a $13.5 million gap between a 4x multiple and 7x multiple at sale.
The average age of a business owner in 2005 was mid-to-late 40s. In 2008, many business owners suffered large losses in value due to the Great Recession of 2007-2009. Over the next ten years, many business owners rebuilt enterprise value, and those that sold between 2018-2019 realized some of the highest valuations and sale prices in 20 years. It is important to mention that business values, deal terms, and multiples were favorable to sellers during this time. A large reason was the $2 trillion in dry powder from financial buyers competing to acquire companies.
Fast forward to June 2023, and we see:
Please read important disclosures here.
Brett Dearing is a Partner and Exit Planning Specialist in the New York office with almost thirty years of experience working with privately-held businesses and...
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