Dealmaking has seen a slight increase since the beginning of 2024. We believe this to be more a function of middle market business buyers already having deals in the pipeline, than being driven by the slightly better interest rates we are seeing now. With this being an election year (and what a year), we believe rates will continue to come down some and rates will become a bigger factor.
Buyers are more cautious across the entire buying process as are banks and other lenders in scrutinizing their loans. It’s a different environment post-covid, with buyers often asking more of sellers from representations and warrants in Asset Purchase Agreements to financing terms and other requests that we were not seeing nearly to this degree before covid. The entire process has become more thorough. And it was thorough before covid.
It’s more important in this environment than ever to have financials reviewed for accuracy prior to going to market, and to continue a high level of performance in operations, and to be working with a Sell Side Advisor that knows the different groups of buyers that are active in this market.
Don’t overlook defining exactly what a “WIN” looks like as the seller nor overlook if a 1031 Exchange could be an advantageous tax and real estate play as you plan your strategic exit. Being well prepared for the selling process is no longer optional with the level of caution on display from today’s buyers. Businesses with an EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) ranging from $300,000 to $5 million fall within the typical definition of the middle market in the United States. We’ll now explore the different types of buyers active in this market. We break these buyer groups into four categories.
1. Strategic Buyers
These are buyers already in your industry looking to grow through acquisition. This is an important category of buyers to attract to your opportunity
2. Private Equity Buyers
This segment with the M&A Industry is responsible for much of the deal making today. Many will look at Businesses with as little as $1Million EBITDA. These buyers have become a large and important part of M&A in the current environment.
3. Family Office Buyers
Family Offices are growing and becoming a larger part of the M&A buyer market monthly. They are now often competing with Private Equity Buyers and winning the deals. This is no longer an overlooked buyer segment at all when a business is being properly marketed for sale. They are aggressively buying businesses in this market and have become an important driver of deals throughout the country.
4. Non-Strategic Individual or Buyer Groups
Not Currently in Your Industry This buyer segment and Strategic Buyers dominated the Lower Middle Markets for years. And they are still important to include in the process. And they can be every bit as sophisticated as the other buyer groups in their approach to acquiring businesses.
Properly approaching these different middle market business buyers, presenting the opportunity of acquiring your business in the best and most straight forward possible light, will result in more and better offers for your business. It’s not just about securing the highest number with the most qualified buyer; it’s about doing so under the proper terms. This requires having the right team: Sell Side Advisor, Accountant/CPA and M&A Attorney makes the difference in a successful closing.
At Burgeoning Enterprises, we work with businesses that generate from $300,000 EBITDA and up. It would be our privilege to learn more about your business, run our three-step consulting process to evaluate your readiness for a sale and to provide you with an up-to-date Valuation; ultimately giving you and your advisors a clear understanding of the value of your business in 2024.
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