The quarterly International Business Brokers Association (IBBA) and M&A Source Market Pulse Survey was created to gain an accurate understanding of the market conditions for businesses being sold in Main Street (values $0-$2MM) and the lower middle market (values $2MM -$50MM). We want to provide you with some of the key points reviewed in the report.
Why Most Deals Don’t Close and What You Can Do About It
The often-cited industry statistic is that only 25% to 30% of businesses sell to new ownership. But working with an accredited advisor doubles the odds of success. Participants in the Market Pulse survey reports closing ratios of about 50%.
This success can be explained by experienced brokers don’t take on listings that are not viable, through broker education of sellers to help them avoid the most common selling pitfalls, and – of course – the deal-making and financing expertise that comes with the experience of a seasoned broker.
The main reasons that deals don’t close include:
- Poor financials
- Lack of financing
- Unrealistic seller expectations
Of course, there are endless other reasons that deals don’t close, for example, market changes before closing, failure to meet projections, poor preparation for due diligence, and moving too slowly – time kills deals. But significantly more deals close when an accredited advisor is on board!
Business Values Hold in Spite of Lower Demand for Smaller Businesses
In Q4 2022, Buyer demand trended down in deals of all sizes. Rising interest rates and economic uncertainty make it more difficult for buyers and suppress business values.
Business values did not soften, as the trend for Average Selling Price to Asking/Benchmark, is up across all deal sizes. The chart below shows the average selling price to asking price as a percentage, which shows for both main street and lower middle market businesses, the percentage has been steadily rising since 2019.
At the same time, average multiples have remained steady for smaller businesses. Deals above $2 million have trended down over the same period. The larger the deal, the more likely it may be affected by higher interest cost. But it’s clear that there are still qualified, motivated buyers at the table and business owners are still getting strong valuations.
What does that mean for you? If you are looking to sell, it is clear that working with an accredited business broker, such as our team at Transworld, will increase the odds of successfully selling. As a buyer, an experienced broker can help you find the business that is right for your interests and budget. Want to learn more? Click HERE to set up a no-obligation meeting with an experienced member of our team.
