Curious about market conditions for landscape business owners who want to sell?
Market update Q3 2022
The IBBA and M&A Source Market Pulse Survey results are in and there is good news despite the uncertain economic times. The good news is that current valuations are strong despite confidence levels dropping. Economic issues including inflation, interest rate hikes, and recession expectations along with persistent supply chain issues are the factors denting business owner confidence.
Huge numbers of sellers
Despite concerns about the impact of these conditions, there is a strong influx of new potential sellers (although slightly less than last year.) Advisors are reporting over 50% increase in the number of sellers seeking buyers in top-performing industries. Among those, landscaping businesses are on the top of most lists. More than 50% said their number of clients “greatly increased” in Q3 2022. If you own a business, now may be a good time to think of selling. If your business is in good shape and the industry is on top, it may mean that a strong market will result in maximum value on exit.
Buyers seeking best-performing businesses
Which businesses are getting a premium price? As you can imagine, it is those companies who are performing well and delivering quality results over time. There is still a huge amount of capital available from corporate and private equity group buyers. While increasing interest rates and inflation will tend to decrease transaction values to some extent, most investors are still actively seeking opportunities with significant amounts of cash available.
Peak Q3/Q4 2021 but values still strong for quality companies
Think of it as the real estate market in the past year. When mortgages were available at very low-interest rates, there was a huge demand for housing, so much so that in some markets there were multiple over-asking offers for even less-than-ideal houses. A real estate agent might not have to be much of a salesperson to sell a property in that kind of market. Now the reality is setting in if you hadn’t worked in a market with higher interest rates before. There are fewer qualified buyers to look at fewer houses. Those houses and buyers who are in tip-top shape and ready to sell or buy will attract the top agents who thrive in any market.
This is true for business sales too. The landscaping companies that are in markets that are not impacted by the rise in interest rates are not seeing a drastic decline in demand for services. Growth may not be as fast and at such a high pace as the past one-two years, but steady growth is predicted, and that profitable growth will be attractive to those best-qualified buyers. Buyers will continue to focus on quality as the uncertainty in the markets continues.
Deal terms and times to close indicate continuing strong offers
In previous downturns, one of the indicators of a weakening market is changes to deal terms. The buyer may have sought to reduce the amount of risk by limiting the amount of cash payment at closing versus earnouts paid over a time period in future based on performance achieved. We haven’t seen that in this market so far. Buyers are still buying and apparently not greatly feeling a depressed market, especially if they are top quality and don’t have weaknesses or issues to be overcome.
Are you interested in exploring the sale of your business? Whether you want to make a complete exit or find a new ownership structure that will allow you to grow your business with support, we would be happy to review your options. Do you have your exit plan in place? If so, you will be working to be ready to take advantage of opportunities that may present themselves in these changing times. An exit plan will keep you on top of your game so that you will be ready. It’s never too early to start working on your options for exiting your business. Give us a call. We help companies prepare for and execute their plans for now and for the future. Working with a trusted advisor can leverage your time.
You can reach me via email: [email protected] or on my cell phone a: 224-688-8838.
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