The Situation

The mergers and acquisitions (M&A) market remains hot for both small and mid-size businesses, and it’s a seller’s market. If you’re thinking about selling your business in the coming year, it’s time to get your business and yourself prepared to take advantage of these favorable conditions. Let’s take a look at M&A in Q4 2021 by the numbers and trends.

According to the BizBuySell Q4 2021 Insight Report, small business acquisitions picked up in 2021, beating pre-pandemic levels. The International Business Brokers Association® and M&A Source Q4 2021 Market Pulse Report reports that M&A deal activity continued at an intense pace in the fourth quarter of 2021; advisors reported an uptick in both incoming deal flow and completed engagements. More advisors characterized this as a seller’s market than nearly any other time in the survey’s 10-year history.

Both reports indicate that sale prices increased and time to close deals decreased as buyers competed for a limited supply of strong performing businesses.

U.S. business-for-sale transactions bounced back 14% in 2021 even with ongoing COVID-19 fallout, hiring challenges, and supply chain disruptions. After modest gains at the start of 2021, transactions accelerated 28% in the fourth quarter, eclipsing the pre-pandemic levels of Q4 2019. This end of year rally brought annual small business transactions within 11% of 2019, bringing optimism for a strong 2022.

The Details

A number of economic factors are driving M&A. High level of cash that needs to be invested, the availability of debt, and the favorable cost of debt are key factors contributing to market momentum. The competitive labor market may also be playing a role. When organizations can’t find the talent they need to staff expansion plans, acquiring is often an alternative growth strategy.

Notably, concerns over proposed hikes in the capital gains tax rate may have driven some sellers to market in 2021. While those tax increases have not yet come to fruition, some business owners will be watching the 2022 midterm elections to gauge the political winds and time their exit accordingly. Others may still decide to go to market in early 2022 to stay safely ahead of potential changes and other market risks.

Small Business Market

  • 8,647 closed transactions were reported in 2021, compared to 7,612 in 2020.
    • 2,364 occurred in the fourth quarter.
  • Sale prices increased 16% on average as low interest rates and intense demand for strong performers drove sales.
  • The median cash flow of sold businesses grew 10% to $149,099 with median revenue up 2% to $625,943 over the prior year.

Middle Market

  • Businesses with enterprise value of $5 million to $50 million earned an average multiple of 6.0 (another survey peak), realizing an average final sale price at 113% of benchmark.
  • Time to close shrank in nearly all market segments. The average time to sell a small business shrunk slightly in Q4 2021, varying from six to 10 months. Of that time roughly 60 to 120 days are spent in due diligence and execution, after a signed letter of intent or offer.
    • Time to close was likely facilitated by the higher rate of buyer competition and a push to get deals closed before year-end.
  • Advisors reported that 46% of their engagements terminated without closing in Q4 2021. This is one of the lowest termination rates reported in survey history. But owners take note. This is still a lot of missed opportunities. Those owners who have prepared will have a better chance of closing a deal.

2021 Top Industries

Across 2021, IBBA reports that personal services, construction, business services, and consumer goods/retail led the Main Street market in 2021, while manufacturing, construction and wholesale/distribution led in the lower middle market.

Main Street

  • Personal services 15% in 2021
  • Construction/engineering 12% in 2021
  • Business services 12% in 2021
  • Restaurants 11% in 2021 (down from 15% in 2020)

Lower Middle Market

  • Manufacturing led with 21% of transactions
  • Construction at 16%
  • Wholesale/distribution at 12%
  • Business services and consumer goods, both at 9%

The Outlook

Transactions are expected to increase and strengthen in 2022 as more sellers return to market. There are still numerous owners who are looking to sell and retire.

Pandemic burnout is weighing heavily on owners in addition to labor shortages, increasing prices, looming tax increases and geopolitical developments – including Russia’s invasion of Ukraine.

It’s still a seller’s market, which occurs when demand exceeds supply. There are currently more interested, active buyers than there are quality deals on the market. This translates to increased values and more favorable deal terms for the seller.

According to the IBBA report, in Q4 2021, seller market sentiment rebounded, setting a new peak in all but the $5M-$50M sector. “Business confidence, and competition, is high. It’s amazing how fast we rebounded to record levels. This is the strongest upward swing we’ve seen in any 12-month period,” one broker explained.

The Bottom Line

While it’s anticipated to be a sellers’ market this year, it’s also going to be increasingly competitive. While 2021 was a record-breaking year for small business sale prices, many owners remained on the sidelines until financial performance improved, which means there could be even more owners looking to sell in 2022. Selling owners need to make sure their businesses are ready to go to market as buyers are looking for strong, high performing businesses.

If you are a business owner who is thinking about selling and don’t have an exit plan, it is time to get one in place. If we’ve learned anything from the last couple of years, it’s that there are always external factors, beyond our control, that can impact our businesses and the timing of our exits.

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.


P.S. We also invite you to learn more about all of the business owner resources available to you at no cost at Business Transition Academy. Download a full PDF version of our book Cashing Out of Your Business – Your Last Great Deal ($17.95 value) for FREE and learn how to exit your business on your own terms and for the best price.


Material discussed in this communication is meant to provide general information and should not be acted on without obtaining professional advice tailored to you or your company’s individual and specific needs. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used by any person or entity, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This information is for general guidance only and is not a substitute for professional advice. Information presented is believed to be factual and up-to-date; however, BTA makes no guarantee as to accuracy, completeness, suitability, or validity of any information within this communication and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages from its display or use. Any forward-looking statements are believed to be reasonable; however, BTA gives no assurance that such expectations will prove to be correct.

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