SURVEY REPORT Q3 2018
The State of the Market
High demand and low supply continue to make this a favorable seller’s market. Buyers are active and competing against each other for quality deals, meaning sellers have choices when selecting their preferred buyer. This kind of leverage contributes to strong valuations and advantageous deal structures with more cash at close.
Several factors are driving the current market climate, including CEO confidence, healthy corporate balance sheets, record amounts of acquisition capital among both strategic buyers and private equity, and the continued relatively low cost of debt to finance deals. According to the NFIB, small business confidence is at a record high, with the longest stream of small business optimism in history.
In an exceedingly tight talent market, strategic buyers are looking to M&A to drive business growth. They’re willing to pay a premium for quality businesses. These buyers continue to compete with private equity firms, particularly in the lower middle market. With private equity fundraising continuing to surge, firms are shifting down market, targeting smaller acquisitions—but greater deal quantity—in order to put their capital to work.
Year-over-year, multiples were generally stable or increasing in most market segments. Looking back over the last five years, multiples remain near or above the historic average. In Q3 2018, in the lower middle market, sellers are walking away with more cash at close.