The results of the most recent quarterly report (Q3 2020) from the Market Pulse IBBA and M&A Source survey of business brokers and M&A advisors shows that buyers continue to be eager to look at businesses that were not impacted by COVID 19 or those that we’re able to bounce back this year. Additionally, the CARES Act created additional incentives for buyers via the influx of cash. Buyers continue to act on their pre-pandemic growth plans. While the uncertainty surrounding PPP loans and the election results exists, the most significant concern continues to be the pandemic and its impact on the M&A market with 85% of advisors reporting that the pandemic has had a moderately or extremely negative impact. Fortunately, in most cases, the fact that landscaping is an essential service mitigates that negative impact.
The larger the enterprise value, the more important the right connections in the industry on a national level will be. The crossover point appears to be between $2-$5 million total value and up. As we would expect, larger companies will see multiples increase as their businesses get larger. They are also most likely to generate buyer interest from a larger geographic area.
Business values are trending comparing 2019 to 2020, the data from the survey shows that the median final selling price came in from 90-100% of the preset asking price or internal price. Companies with enterprise values in the $$2-5 million range and the $5 – 20 million range achieved the highest values at 100% of the benchmark.
Multiples (all companies surveyed, not limited to landscaping) have remained essentially flat for businesses selling in the $2-5 million price range, as seen below:
In terms of payout structure, the amount of cash at closing is slightly down with increases in seller financing and earnouts replacing the cash. Time to closing increased from 2019, as expected, due to the interruptions caused by COVID-19.
Advisors were asked whether their selling clients had done any exit planning for their retirement. Even though some sellers were ready to exit their companies before the pandemic hit, there hasn’t been much long-term exit planning happening. The smaller the business, the less likely they have done any exit planning.
It will be interesting to compare these trends to next year as the rest of the economic sectors work through to “normal”. In the meantime, we believe that if you have been thinking of selling your landscaping business, the time may be ideal now. With low-interest rates and the demand for essential businesses, it’s a good idea to check it out.
If we can help you explore your options or if you have other questions about this topic, please email me at [email protected] or call me at 224-688-8838. We’re here to help you harvest your potential!