IBA’s Market Pulse Q2 2022
By: Edwin Mysogland, CVA, CEPA, CVB, CMEA
When asked to put together my thoughts about IBA’s Market Pulse Q2 2022, I had to think about the concerns I have heard expressed by so many of our prospective clients and their advisors. This quarter there are 3 areas that business sellers and their advisors are asking us about: recession, multiples, and personal timing of the sale.
For IBA, we are in the camp of indifference. We know that good businesses sell in any economy. For those who choose to wait it out, that’s OK too. The economy has a track record of recovering. Most recessions only last between 6-16 months. Downturns, slowdowns, and recessions are inevitable – this too shall pass. Should you wish, keep working on making your business more salable. Click here to take our complimentary self-assessment to identify where the risks are in your business.
We pay close attention to market multiples. For the quarter, multiples decreased indicating there is more risk in the market for that type of business. To further complicate matters, EBITDA as a percentage of revenue also decreased. While this may be initially troubling for those not familiar with how SMBs valuations work, it isn’t as alarming as it might seem. Most business multiples don’t experience drastic fluctuations. In reviewing 10 years of data, +/- 12% is the typical fluctuation.
Timing of the Sale:
While everyone wants the crystal ball for how to maximize the sale value, it just isn’t as straightforward as you may believe. The timing of business sales tends to be centered around business performance, macroeconomic external factors, and personal timing. As was mentioned above, the business performance will likely drive the value. While a business may be down, it does not mean that the business isn’t salable. I just mean that deal structure to offset the performance becomes critical. Next, the macroeconomic factors can be challenging depending on the type of business. Most of the time it is a waiting game.
Most of the time the sale of a business is rarely due to purely financial reasons but instead is driven by other factors, such as retirement, ill health, family issues, partner dissension, divorce, challenging competitive environment, or burnout. Although some of these events may be foreseen or anticipated, many of these events can occur unexpectedly, triggering the desire to sell.
Most business owners underestimate the length of time to sell a business. The chart to the right shows a typical sale process. If you want to sell your business in 2023, NOW is a great time to begin the process.
Thank you for your time and attention. As always, we are happy to answer questions about your particular situation. We have always had an open shop – meaning we have complimentary exploratory meetings regularly about market conditions and business exit readiness. Most of our revenue is generated from referrals from other professional advisors. We are always happy to help a business owner maximize their exit.
Edwin Mysogland, CVA, CEPA, CVB, CMEA
Managing Partner, Indiana Business Advisors
Indiana Business Advisors
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