M&A Market Continues to Improve

The IBBA Survey results below validate what we are seeing at Light & Raphael as there is increased activity, particularly on the sell side. (Now if we could just find a few more willing and able buyers!)

IBBA Survey Reveals Increase in Transactions Across All Valuation Sizes

For Immediate Release                                                                March 23, 2015

Alexandria, VA – Small businesses led transaction activity at the end of 2014, as brokers report the largest increases in business transactions under $499,999 over the previous quarter, according to the 4th Quarter 2014 Market Pulse Survey published by the International Business Brokers Association (IBBA), M&A Source and the Pepperdine Private Capital Market Project. The quarterly report evaluates market conditions for businesses being sold in Main Street markets (values under $2 million) and lower middle markets (values $2 million to $50 million).

Fifty-five percent of transactions closed in 2014 were deals valued under $499,999, while 17 percent were deals between $500,000 and $999,999.

“While we aren’t seeing a complete turnaround in transaction activity, Main Street is definitely regaining some of the traction lost over previous years,”said Mark Wood, Principal, VMW Business Brokers, Inc., Alexandria, VA , CBI and member of IBBA. “These smaller companies are stabilizing operations and cash flow, making them more attractive to lenders and buyers.”

Sixty-nine percent of brokers characterized the Main Street businesses under $500,000 as a buyer’s market, while larger companies – those valued at $1 million and above – were characterized as being in a seller’s market.

“The recovering business environment, coupled with an increased number of qualified buyers in the market, is causing the Main Street market to heat up,” said Lisa Riley, CBI, Principal, LINK Business-Phoenix. “It’s been five or six years since the Great Recession and small businesses have had time to stabilize, creating a greatly improved transaction environment for both buyers and sellers.”

The vast majority of respondents (89 percent) indicated that they expect to close more deals in 2015 than 2014. Only 5 percent of respondents indicated that they expected to close fewer deals, reflecting optimism for a positive business climate into 2015.

In the Lower Middle Market, deal volume also increased in Q4, although at a slightly lower rate than transactions in Q4 2013. Buyers used equity in their financing structure at almost twice the rate as in Q3 (45 percent over 23 percent), with increasing levels of EBITDA multiples over the previous quarter.

“This information validates that the lower middle market is very active, in tune with the rest of the middle market,” said Scott Bushkie, CBI, M&AMI, Principal, Cornerstone Business Services, Inc. “It’s a good deal for sellers-EBITDA is climbing due to increased business performance while market multiples are also rising overall. The rising tide lifts all boats.”      

The Q4 2014 survey was completed by 197 business brokers and M&A advisors, representing 39 states. Half of the respondents had at least 10 years of experience in the M&A industry. Participating advisors reported closing 198 Main Street market transactions and 37 lower middle market transactions in Q4 2014.

Key findings include:

  • Over the past year, business sales have remained strong, and more deals are getting done. Fifty-five percent of advisors report closing more than one deal in Q4 2014, compared to 46 percent of advisors in Q4 the year prior.
  • Business brokers report that Main Street deal volume increased in the last three months, a slight uptick in growth trends reported in Q4 2013. M&A advisors report that Lower Middle Market deal volume increased in the last three months, a slight downtick in growth trends reported in Q4 2013.
  • Meanwhile, expectations continue to rise. Of the brokers and advisors surveyed, 89 percent expect M&A activity to increase in 2015. Main Street brokers also expect that business values will increase somewhat in the next three months.

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