If you are considering selling your lower-middle market business (revenues between $5M-$100M), now may be the perfect time to start preparing. It is reported that 70% of lower-middle market businesses are projected to change hands in the next decade and it’s imperative that business owners are prepared to capitalize.
This is an even greater challenge for family businesses, as the decision to sell is not just a financial one. It also balances legacy preservation and succession planning. Between Private Equity firms sitting on $2.5 Trillion in dry powder and increasing consumer and business confidence, we are experiencing a rare confluence of factors expected to power what should be a strong seller’s market in 2024.
There may not be a better time to sell over the next decade – here’s why:
Increased Business/Consumer Confidence
Family businesses can capitalize on the decreasing US interest rates, creating an advantageous environment for deal structuring and financing. This, coupled with the recent surge in the stock market, offers an enticing proposition for sellers, potentially translating into higher valuations.
As buyers pulled back on large M&A deals in 2023 due to higher financing costs, they began to move down-market pursuing lower-middle market deals as “add-ons.” This buyer appetite towards lower-middle market deals is expected to carry through 2024.
Pent-Up Buyer Demand
Many deals were put on hold over the past couple of years due to COVID, relative uncertainty around the global economy, and an inflationary environment. As we are seeing inflation decline, an increase in consumer and business confidence, and wider availability of credit, many stalled M&A processes are becoming active again. Private Equity and Strategic Buyers that were unable to fulfill their acquisition mandates and deploy capital are seeking to increase their M&A efforts in 2024.
Excess Buyer Capital
Financial buyers (Private Equity firms & family offices) have an abundance of capital ready to deploy. Many Private Equity firms have continued to raise capital over the past several years and are collectively sitting on $2.5 Trillion in dry powder.
As the economy bounces back, the need for buyers to invest this capital is more pressing, having not invested over the past few years. Many corporate buyers also have cash earmarked for growth through acquisition.
Reduced Borrowing Costs
Just like the housing market, interest rates for debt are inversely correlated to purchase price. The lower the interest expense, the higher the borrowing capacity (assuming sufficient cash flow from the business to support debt coverage ratios, of course.) The bottom line is that decreasing interest rates enable buyers to pay more for businesses and have ample cash flow to service the debt.
As we guide family business owners through the process of selling their businesses, it’s essential that we balance financial and emotional considerations. By leveraging the tailwinds enabled by interest rate declines, stock market surges, and global economic resilience, family businesses can embark on a journey that not only maximizes financial returns but also protects the family legacy built over decades.
As you consider selling your business, we encourage you to speak with an experienced M&A advisory firm that will help increase the odds of your transaction closing successfully while reducing your stress. Kinected has an 87% success rate in our transactions, well above the industry average of 30%.
If you aren’t ready to sell, Kinected has created an exit planning service called ExitBoost™ where we provide a baseline valuation, benchmarking analysis, salability scorecard and update periodically until you are ready to go to market. Based on successfully helping other clients increase their valuations by 20%-140%, we are confident we will add value and make your business more salable for when you and the business are ready. Let’s have a confidential discussion today.