M&A Market Outlook Positive for 2022!
The following is an excerpt from the Market Pulse Survey Report for Q4 2021.
The quarterly 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). The national survey was conducted to provide a valuable resource to business owners and their advisors. The IBBA and M&A Source present the Market Pulse Survey.
The Q4 2021 survey was conducted January 1-15, 2022 and completed by 416 business brokers and M&A advisors. Respondents completed 379 transactions this quarter. This is the 39th edition of this quarterly report.
Deal activity continued at an intense pace in the fourth quarter of 2021, as advisors reported an uptick in both incoming deal flow and completed engagements. More advisors characterized this as a seller’s market than nearly any other time in the survey’s 10-year history.
Businesses with enterprise value of $5 million to $50 million earned an average multiple of 6.0 (another survey peak), realizing an average final sale price at 113% of benchmark. Meanwhile, time to close shrank in nearly all market segments. Time to close was likely facilitated by the higher rate of buyer competition as well as a push to get deals closed before year-end.
A number of economic factors are driving M&A. High levels of dry powder, the availability of debt, and the favorable cost of debt are key factors contributing to market momentum. The competitive labor market may also be playing a role. When organizations can’t find the talent they need to staff expansion plans, acquisition presents an alternate strategy to grow.
Notably, concerns over proposed hikes in the capital gains rate may have driven some sellers to market in 2021. While those tax increases did not come to fruition, some business owners will be watching the 2022 midterm elections to gauge the political winds and time their exit accordingly. Others may still decide to go to market in early 2022 to stay safely ahead of potential changes.
This data shows it is a strong market for sellers! If you are interested in learning more about the market, the sell-side process, or what you can do to ready your business for sale, please contact me for a confidential consultation.
About the Author:
Dean LoBrutto, CBI, is an M&A Broker and Chief Exit Officer at ValueCap Inc. where he helps business owners Maximize Value and Protect Legacy.
He can be reached at (888) 970-7030 or via email at [email protected]