Navigating the Current Seller Market: Understanding Trends and Opportunities

At The Exit Group, we have conducted extensive research across various markets, gaining valuable insights into seller behavior and trends. Our expertise in connecting with business owners and private equity firms allows us to understand both sides of the table, ensuring maximum value for all parties involved in a proprietary transaction.

This blog post delves into current seller market trends, identifies targetable areas with positive M&A momentum, and emphasizes the significance of current events in shaping the seller market. The insights provided here stand to benefit both buyers and sellers, empowering you to make more informed decisions, regardless of which side of the market you’re on. 

CURRENT SELLER TRENDS

• Stable Seller Interest: Overall, seller interest remains stable, with no significant decline observed. While some owners have pulled back due to debt market concerns, this is only noticeable on large platforms. For most deals in our sweet spot ($10-75million EV) sellers remain interested if the valuation is reasonable. There is a noticeable increase in activity for smaller deals: $5 million-15 million EV.

• Valuation Challenges: Expanding debt markets have caused some sellers to fall out of sync with current valuations. Despite changing circumstances, some sellers still expect previous price points, and are willing to wait for those to come back. On many of our deals, valuations remain the same as they have been the last few years. On super premium assets, we are not seeing those ‘teens’ prices we were seeing in 2022. This gap is not uncommon in the current economic conditions and historically widens during downturns. Sellers are willing to hold their business rather than sell at a discount. However, for buyers who are active and looking to do deals, they are able to get a lot done. 

• Curiosity in Market Conditions: Sellers are now more curious about how deals are closing in down-market conditions. While these trends may not apply directly to their businesses, sellers are keen to ensure that, now or later, they do not sell at a low price or face undue discounts. Valuation remains a top priority for sellers, and they prefer to hold on if they feel it’s not the right time to sell. 

• Seller Lifecycle Impact: The interest in selling remains consistent, primarily influenced by the seller’s age or stage in life. 

• Add-on acquisitions, also known as bolt-on acquisitions, refer to a type of corporate acquisition strategy in which a company acquires or merges with another smaller company to enhance its existing operations, expand its market presence, or complement its core business. We are seeing more private equity firms focus on add-on acquisitions during this time. They have different ways to finance transactions, and are investing in areas in which they feel most comfortable. 

Overall, investment firms have raised significant capital over the last few years. These funds have a time horizon which tends to lend to the number of transactions to stabilize over time. Even if some firms are on the sidelines due to the debt markets and economic fluctuations the volume of transactions will stabilize over time as they need to put the money to work and are incentivized by deploying capital and raising a larger fund.

Identifying Targetable Areas and Opportunities

As always, keeping tabs on movement within its respective industry is key to highlighting targetable areas or opportunities. We have spent a lot of 2023 identifying actionable areas where we believe a buy-and-build strategy would be effective. 

  FRAGMENTATION AND ACTIONABILITY 

When assessing an industry, it is essential to analyze both its overall structure and the various facets within it. We see many firms judge this primarily by market size and # of targets. While these are very helpful metrics, there is more to know. Instead of focusing solely on the number of businesses in the space, it’s more important to identify actionable companies poised for sale. Identify the # of private equity firms with a similar strategy and how much competition there will be in that market. Trying to find the size of targets and the valuation expectations in the industry. We find these dynamics are just as meaningful as market size and # of targets. Examining the fragmentation aspect and determining the readiness of companies is crucial for leveraging market opportunities effectively.

 CURRENT EVENTS

The health of an industry, economic stability, and market volatility are influenced furthermore by current events. One such event that has recently reverberated through the business world is the collapse of Silicon Valley banks. This financial crisis sent shockwaves across industries, leading to a heightened sense of caution among both sellers and buyers. Uncertainty about the stability of financial institutions and credit availability has made sellers more cautious when considering offers and negotiating deals.

Furthermore, geopolitical tensions and foreign disputes have added another layer of complexity to the market. 

Inflation, too, has emerged as a significant concern impacting the seller market. As prices of goods and services rise, businesses face cost pressures, potentially affecting their profitability and valuations. Sellers and buyers are closely monitoring inflation rates and the implications on their operations and investment decisions.

The cumulative effect of these events has led to a climate of unpredictability and heightened nerves within the market. Sellers are now more vigilant than ever, seeking stability and confidence in prospective deals. Conversely, buyers are treading carefully, conducting thorough due diligence to assess the risks and rewards of their investment choices.

THE BOTTOM LINE

Navigating this complex and dynamic landscape requires expert insights and strategic decision-making. At The Exit Group, our deep understanding of market dynamics and our ability to adapt to changing conditions allow us to guide our clients effectively. 

We help sellers and buyers navigate through these uncertain times, identifying opportunities and mitigating risks to achieve successful transactions. As a result, we have experienced a steady flow of approximately 60 closed deals in the past two years. 

Our commitment to maximizing value for all parties involved remains steadfast, even amidst the challenges posed by current events. Contact us today to explore how we can assist you in making informed decisions in the current seller market.