The Situation

2021 was a record year in the M&A market, and while 2022 also started out strong, this hot market has been cooling slowly as the year has progressed – due in large part to fears around economic and global and political events. However, PWC’s Deals 2022 midyear outlook reminds us: “Headlines tend to focus on that drop-off, but the bigger picture shows an active market.”

The report continues:

The 2021 deal volume was not a sustainable annual average, and that context is important. Focus not on volume being up or down, but how to get the right deals done well to drive strategic growth and capital returns.

The Firmex Deal Flow Bulletin: Q3 2022, which uses virtual data room activity to forecast the volume of deals, reports that buyers and sellers are actively pursuing middle market M&A transactions, as measured by a rise in data room openings in the third quarter of 2022.

Pitchbook’s Global M&A Report says:

Despite widespread uncertainty, M&A continued apace as strategic buyers and private equity (PE) firms sought to take advantage of market volatility to find attractive growth prospects from companies that are ... under pressure.

According to the International Business Brokers Association® and M&A Source Q2 2022 Market Pulse report, despite concerns over market headwinds, most advisors report seeing a strong influx of new engagements. Roughly two-thirds (67%) say they’re seeing more Baby Boomer business owners trying to exit before the next downturn or macro event. Advisors are also reporting a strong uptick in the number of new clients coming to market. More than 54% said their number of clients “greatly increased” in Q2 2022.

And from our perspective in lower middle market, the market is still driving a premium for quality businesses – in some cases we’re seeing a 10%-20% premium. Let’s take a look at some of the numbers and outlook for the M&A market.

The Details

According to Pitchbook’s Global M&A Report, in Q2 2022, North American M&A continued its modest decline in deal value and volume. Approximately 4,571 deals closed, for a combined value of $547.7 billion, demonstrating a decline of 30.2% and 37.6%, respectively, from Q4 2021.

Middle Market (Firmex Deal Flow Bulletin Q3 2022)

  • Due diligence is taking place, but fewer deals are closing and taking longer to do so. Success rates show that the number of firms that close at least three-fifths of the deals they start fell to 52% from 68% in January.
  • Deal valuations are coming down from their peaks. Prices, most advisors say, have fallen to “above average” from “very high” six months ago. 
  • One-third of advisers said there is less debt financing available, and one-fifth said there was less equity capital.
  • Renewable energy is the sector seeing the greatest increase in activity. The biggest decline is in real estate.

Small Business Market (BizBuySell Q2 Insight Report)

  • Small business acquisitions decreased 3% in Q2 of 2022, but still gained 14% year-over-year.
  • The median sale price dropped 9% below the previous quarter from $345,000 to $315,000 – just 2% below last year's $320,000.
  • Market performance continues to match and, in many cases, outperform pre-pandemic levels.
  • Businesses sold at a median price 17% higher compared to Q2 2019.
  • Businesses possessed stronger financials, with median revenue 16% higher, and median cashflow 15% higher, respectively.
  • Businesses are selling at a faster pace.

Areas of Concern

IBBA reports that advisors say that labor shortages had the biggest impact on deal-making in Q1 2022. In the Main Street market, 92% say it’s had a negative effect (54% “very negative”). Likewise, 92% say labor shortages are having a negative effect in the lower middle market (47% “very negative”).

More than 80% of advisors say inflation, interest rate hikes, supply chain issues, and cost of labor are also having an effect. Labor costs (44%) and supply chain costs (30%) are having the biggest net impact on sellers’ net income, followed by gas costs (8%).

The Outlook

PWC: The established pattern of M&A activity tends to grow during economic expansions, should continue once near-term uncertainty lifts. And economic contraction – either through inflationary and borrowing rate pressure, real wage challenges, consumer spending variability or other factors – will influence transactions but not stifle them. There’s still an abundance of capital in the system for both corporate and private equity (PE) to fund deals.

Firmex: Overall, 48% of advisors said they felt positive about the market for the coming quarter, and 18% said they were feeling negative. Asked to forecast volume over the next three months, advisors are split, with 32% predicting an increase, 21% a decrease and 39% no change. Six months ago, advisors overwhelmingly were predicting they would do more business in 2022 than 2021.

BizBuySell: Deal flow should continue at consistent levels as the backlogged outflow of retiring Baby Boomers continues to fuel the market with enough opportunity to keep buyers engaged. In addition, with sale prices still at historically high levels, owners should be able to discount rates while still walking away with enough to support whatever comes next.

IBBA: Q2 trends show a slight downtick in confidence year-over-year. However, seller sentiment is currently higher or equal to the market dip in 2017 and higher than recession-era sentiment in 2012 when the IBBA survey began. Confidence is also significantly higher than it was two years ago, with the dip in 2020.

The Bottom Line

If you’re a business owner who has been waiting on the sidelines and are still thinking about selling, it’s time get moving. Despite the uncertainty that’s dominating the headlines, we remain positive about the M&A outlook for the near future—especially for solid, high-quality businesses.

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.


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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