01 Oct IBBA and M&A Source Market Pulse Report Points to Increased Activity
In our previous article, “The IBBA and M&A Source Market Pulse Highlights Dramatically Changing Market Conditions,” we discussed how changing market conditions could be an advantage for you and your clients. In this article, we’ll take a closer look at the deals that are currently being made.
While the IBBA and M&A Source Market Pulse report noted that over the last year it took longer for deals to close in most sections, there were exceptions to that rule. For example, in the $5 million to $50 million sector, there has actually been an acceleration. On average, deals in that range are taking a mere ten months to close.
Overall, the difference between 2020 and 2021 is quite dramatic in terms of confidence. Scott Bushkie, President at Cornerstone Business Services commented, “We have doubled our standard deal flow in the market right now, and I’m hearing similar things from advisors around the country. People are the busiest they’ve ever been.” This is an important fact for buyers and sellers alike, as it means that deals are happening and happening fast.
The survey concluded that there is a shortage of sellers. As Kyle Griffith, Managing Partner of The NYBB Group, noted, this condition is “creating a strong competition for deals, and that’s driving more cash at close, despite COVID and tax uncertainties ahead…We think earnouts will increase if burnout drives more sellers to market.” It is important for your sellers to understand that 2021 is shaping up to be radically different than 2020.
Sellers will be pleased to hear that the report concludes that buyers are indeed active, noting that in the Main Street market, personal services were trending. In the lower middle market, it was manufacturing and construction/engineering that dominated industry transactions.
The top buyers in the $0 to $500,000 sector were first time buyers (39%), in the $500K to $1MM range, the top buyers were first time buyers (37%), and in the $1MM to $2MM range, entrepreneurs (29%) lead the way. For the $2MM to $5MM range, it was first time buyers (36%) and serial entrepreneurs (28%) who led the way. For the $5MM to $50MM range, PE firms seeking a platform deal (33%) were the most represented group of buyers. It is interesting to note that with the exception of the $5MM to $50MM range, first time buyers topped the list.
The IBBA and M&A Source Market Pulse report clearly outlines just how much the climate has changed from 2020 to 2021. Today’s market conditions are different than they were a year ago. Your clients can still take advantage of great deals, and your sellers should find increased levels of interest, especially from first-time buyers.