The Merger and Acquisition Market Pulse Survey


The quarterly IBBA and M&A Source Market Pulse Survey was created to gain an accurate understanding of the market conditions for business being sold. The national survey conducted and compiled by the Pepperdine Private Capital Markets Project is intended to provide a valuable resource to business owners and their advisors.

The following graphs and charts provide highlights of the most recent quarter and provide some guidance as we enter 2019 and beyond. If you are interested in the complete report please contact me at mike@vbbadvisors.com.

The intense pace of mergers and acquisitions that shaped Main Street and the Lower Middle Market last year is likely to continue into 2019. But, advisors don’t expect the run to last much longer.

“Increased deal activity is being driven
by in part by the low unemployment rate
which makes it hard for businesses to grow organically,” said Craig Everett, PhD, Assistant Professor of Finance and Director of the Pepperdine Private Capital Markets Project. “There is an increasing trend of companies buying other companies to acquire their skilled labor force. This high demand for labor coupled with strong balance sheets, a positive lending environment, and historically low interest rates are all driving up deal flow and valuations. However, advisors aren’t optimistic that the current climate will last through 2020. Considering that it’s taking about a year to sell a business valued between $2 million - $50 million sellers should consider going to market before the market flips.”

DEAL FINANCING

Advisors indicate the lending market has been conducive to getting deals done, particularly for businesses with revenue of $5 million or more. Dealmakers are struggling however, to help buyers secure financing in the smallest Main Street sector.

Sellers continue to get the majority of cash at close. In this quarter, owners selling businesses valued between $2 million - $5 million received 78% or more cash at close with most the balance being seller financing, along with some earn outs and retained equity to close the valuation gap.

2018 TOP INDUSTRIES

WHERE ARE BUSINESS VALUES TRENDING

In the Lower Middle Market, final sale prices remained above internal benchmarks, outperforming Q4 2017. Excluding the smallest market sector (deals valued at less than $500,000) sellers received an average of 97% of the benchmark. This is a full 15 percentage points higher than the smallest market sector — which also was the only market sector where advisors still say that buyers have the advantage.

Multiples continue to remain strong in all categories, at or near market peak in some sectors. Year-over-year, multiples were generally stable or increasing in most market sectors. Advisors do not predict additional multiple growth in 2019.

The average time to close is 9.3 months, which is trending slower than normal. Months from LOI to close showed improvement over Q4 2017 but is still higher than the three-month average from Q4 2015.

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