It’s Still a Sellers’ Market Despite Economic Challenges
First Quarter 2022 Market Pulse Results
While concerns such as global conflict, rising inflation, labor shortages and supply chain issues continued to cause difficulties for businesses, confidence remained high during the quarter. This is reinforced by indicators that sellers should remain positive according to the Q1 2022 Market Pulse Report published by the International Business Brokers Association (IBBA) and M&A Source.
Landscaping businesses have certainly experienced difficulties and frustrations in the last several months (years?) with labor shortages and more recently, inflationary concerns. Add the uncertainty of global conflict, supply chain disruptions and worries about recession and some sellers are reevaluating their exit plans.
Sixty-eight percent (68%) of advisors surveyed say that labor shortages have had the biggest effect on Main Street and lower middle market M&A in Q1 2022, and the landscaping industry is certainly no stranger to those effects.
More than half of advisors (58%) say supply chain issues are having a negative impact on the market. One quarter indicated that interest rates and inflation are having a negative impact on business transitions while 15% say the Russia Ukraine war adds to the uncertainty.
Several facts point to the reasons to be positive in Q2 2022 and beyond, especially for strong performers.
Sellers’ market is competitive among buyers seeking opportunities to buy businesses.
Business valuations held relatively steady in both the Main Street and Lower Middle markets, with multiples consistent since Q1, 2017. Since there is so much demand among active buyers, there are fewer quality deals on the market and buyers are having to compete to win deals. This is showing up in values holding or increasing despite economic challenges.
Other factors indicating that the marketplace is still competitive for business buyers are:
- Businesses having an enterprise value of $5 to $50 million averaged a multiple of 6.0x EBITDA. (Note: this is for all types of companies, not just landscaping businesses.)
- The average time to sell fell slightly. From Engagement to Closing. The average time has shrunk slightly and now varies from between 6-11 months, depending on transaction size.
- The number of months from signed LOI or offer to closing in Q1 2022 is 4 months. This emphasizes the need for sellers and their advisors to be prepared for the due diligence and execution phases of the deal.
- Strategic buyers are seeking additions in the $1 to $50 million range with emphasis on horizontal add-ons at the smaller end and vertical add-ons at the higher end. Acquisitions increase those buyers’ ability to grow in these tight labor markets.
We expect continued interest from buyers in search of lifestyle businesses as well as strategic buyers in the next few months which is good news for sellers who are ready to make their move.
Have you been thinking about selling your business to a third party? As you can see from these results, there are reasons to be positive despite the challenges. Buyers continue to have capital to invest, especially those who are building companies for the long-term. If you’d like to discuss where to begin your exit plan or if you are ready to start the process of selling or transitioning your business, please give us a call to discuss how we may be able to help you with that process. You can reach me via email: [email protected] or on my cell phone a: 224-688-8838. We’re here to help you Harvest Your Potential!
About the Market Pulse Report
The Market Pulse Report compares conditions for businesses being sold on Main Street (values of $0-$2MM) to those being sold on the Lower Middle Market (values of $2MM-$50MM). The Q1 2022 survey was conducted April 1-15, 2022, and was completed by 360 business brokers and M&A advisors. Respondents completed 317 transactions this quarter. This is the 40th edition – marking 10 years of the Market Pulse Survey.