The Situation

We recently stated that we’ve never seen anything like the burning hot business-for-sale market we’re witnessing at this time in the dozen years that we’ve been working with owners on developing and executing their exit plans. All signs indicate the momentum will continue for the foreseeable future and that the M&A market is rapidly making up for lost time. (You can see some of the more specific numbers in our most recent Market Update on Q2 2021.)

The recently released IBBA and M&A Source Market Pulse Second Quarter 2021 Survey further confirms that it’s a sellers’ market. Additionally, the survey reports that there are multitudes of owners who are now ready to sell after experiencing pandemic-related setbacks and that a new breed of buyers is entering the market.  

The survey also reveals some interesting findings regarding what buyers are looking for in this hot business-for-sale marketplace. Their chief concerns in the due diligence process include employees and financials. Let’s take a deeper look at what this means for owners who are thinking about selling their businesses.

The Details

Continued Strong Momentum Expected in the Market

“The current M&A market is incredibly active, with North American deal volume hitting near-record peaks.” What’s more: “It’s a seller-friendly market and that confidence shows in this quarter’s Market Pulse Survey. Seller-market sentiment is back to levels reported before the pandemic.”

One surveyed business broker explains: “Deal flow is being driven by market confidence, fear of looming capital gains, age, burnout, and post-COVID struggles. We have business owners who delayed a 2020 exit and now see this as a good time to sell. We have owners who preserved through COVID only to emerge fatigued and anxious to be done. And we have those racing against the clock to beat potential tax changes. All in all, there are any number of reasons business owners are accelerating their exit plans.”

During Q2, in the Main Street market, personal service company sales were the most common. In the lower middle market, construction/engineering, manufacturing and consumer goods were dominant.

What Buyers Want

In this edition of the Market Pulse Survey, brokers and advisors were asked to rank the top due diligence items buyers care about most right now.

  • For business sales that closed for less than $2M, buyers were concerned about employees – specifically longevity, loyalty, and work ethic. Buyers’ other concerns included operations, revenue, customer concentration, and management team/key employees.
  • For deals in the $2 to $50M price range, financials barely edged out revenue and management team/key employees for the top spot. The next three were equally important to buyers: employees, customer concentration and operations.

Who Is Buying?

The survey also reveals some interesting findings about the makeup of the buyers who are in the market. In addition to strategic buyers in the Lower Middle Market, first-time buyers are making a strong showing in the Main Street market.

“First time buyers are finding opportunities in the Main Street market. These individuals may be using a combination of stimulus dollars and favorable SBA funding,” explains one broker. “The SBA has offered once-in-a lifetime incentives to help borrowers acquire a business – covering the first six months of payments of principal and interest PLUS loan origination fees for borrowers who have loans approved by September 30, 2021 or until funding runs out. That’s definitely fueling the push in Main Street.”

The Outlook

Buyers are looking for “deep bench strength and leadership who can maintain the business in the owner’s absence. What’s interesting, is that the strength of a business’s general overall employee team is now an even higher priority,” states one surveyed business broker. “Bottom line, your people matter. A lot.”

Another broker explains: “The talent market was tight before COVID, and it remains a leading business concern today. Buyers are keen to acquire firms with a well-established employee team and a corporate culture that retains key talent. Talent shortages, signs of employee burnout, and excessive turnover can have real potential to kill a deal.”

The Bottom Line

While it’s a sellers’ market, it is still a competitive market. And selling owners need to make sure their businesses are ready to go to market, including understanding what buyers are looking for. In our article “Keep Your Key Employees During the Sale of Your Business with Employee Retention Strategies,” we discuss strategies that owners may use to retain their key employees beyond the sale.

Ensuring that your key management team remains intact will definitely impact the value of your business. Buyers want key employees to stay with the business and losing them can kill a deal or decrease the value of your business.

You want to make sure you’re prepared to cash out of your business while this window of opportunity is still open. Get educated on all the things you should do in advance to ensure that you can preserve the continuity of your company, maximize business value, and achieve your exit goals.

*The Q2 2021 survey was conducted July 1-17, 2021 and was completed by 315 business brokers and M&A advisors from 42 states. Respondents completed 269 transactions this quarter. This is the 37th edition of this quarterly report.

Business Transition Academy has the tools, resources, and guidance you need to get started. Our proven six-step planning process and training programs provide you with the roadmap you need to exit your business on your own terms. Download our FREE book and gain access to more FREE business owner education resources, including our:

  • Introductory Course – How to Plan a Successful Business Exit
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  • Real-Life Lessons Learned by Owners

We will show you the steps you need to take to plan for a successful business sale or ownership transfer.

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