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MarketPulse survey sheds light on buying trends

by John Howe

A theme emerged in the most recent MarketPulse survey of intermediaries in the lower mid-market: companies continue to expand through acquisition, both to gain market share and to add qualified personnel.

While growing market share seems obvious, continued tightening of the labor market across the country is another motivator. As David Ryan of Upton Financial Group in California observed: “...acquisitions present an efficient way to land a trained and established labor force.”

Several other key points include the following:

  • Most deals during the last quarter involved a multiple of EBITDA* and included working capital left in the company.
  • Common multiples in the $2-$5 million sector are 3.5 to 4.5 times EBITDA.
  • In the $5 million and up sector, multiples are in the 4 to 5.5 times EBITDA range.
  • Time to close, 8 to 12 months
  • 51% of transactions were to existing companies and strategic buyers
  • Manufacturing and business services are the hottest market

While buyers are eager to do deals, the inventory of available companies continues to lag.

Jeffrey Mortimer, an investment strategist at BNY Mellon, spoke to AMAA in Boston recently on valuation trends. Put simply, he said owners thinking of selling should pull the plug now while demand is strong and capital is plentiful. He based this on his view of the normal cycles on the stock market which are approaching an historic high point.

MarketPulse is a survey conducted quarterly by The M&A Source in conjunction with the International Business Brokers Association and Pepperdine University Private Capital Markets Project.

*EBITDA represents earnings before interest, taxes, depreciation and amortization. Though valuations may use other factors, such as sales or gross profit, EBITDA dominates. It is considered a good gauge of how a company would operate under new ownership by an investor or another company.

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