Business Sales Continue Strong, But Inflation Could Create Headwinds - Q1 2022 Market Pulse Report

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We just received the quarterly International Business Brokers Association (IBBA) and M&A Source Market Pulse Survey, which was created to gain an accurate understanding of the market conditions for businesses being sold in Main Street (values under $2MM) and the lower middle market (values $2MM -$50MM). 

Market Headwinds are a Concern

Labor shortages continue to create concerns for buyers, according to 68% of respondents, and of those, 5% say it’s caused deal termination. The other two main concerns to respondents are supply chain issues (58%) and rising interest rates and inflations (25%). Meanwhile most advisors (76%) believe a recession is at least somewhat likely in the next 12 months, with 25% predicting it’s either “very likely” or “extremely likely.”

Small Business Valuations Hold Steady

On average, business valuations have held relatively steady in the Main Street market, with multiples from 2.0-2.8x Seller's Discretionary Income (SDE). These multiples have remained fairly consistent over the past decade. Shifts are more likely in the lower middle market, however, as the larger Main Street businesses become more attractive targets to financial and strategic buyers alike. We have seen this play out, as private equity groups are now looking at businesses under $2MM as the competition for the larger deals increases.

It's Still a Good Time to Sell or Buy a Business

While these continue to be turbulent times, many fundamental drivers of dealmaking activity are still at play. Capital is plentiful and interest rates are still comparatively low. At Transworld, we continue to have more buyers looking for deals than we have available opportunities on the market. Q1 trends show a continued rebound in confidence since the start of the pandemic. It is still a good time to list your business for sale, as there are buyers out there looking to transition to business ownership. 

To learn more about how Transworld can help you buy or sell a business, click HERE to schedule a no-obligation consultation!