Middle-market M&A in a Volatile Environment

There are many factors currently creating a challenging environment for M&A. High inflation rates, high-interest rates, a war in Ukraine, a bearish market, and persisting supply chain issues. And yet, despite all these conditions, the middle market remains ripe for M&A opportunities. Here are several things for business owners to consider in the current financial climate.

Alternative buying processes

During an uncertain market, business owners may want to stay open-minded about alternative methods of payment. Rather than accepting a lower price for the sale of the business, business owners should consider an “earn-out” structure. Within this agreement, the current business owner agrees to “earn” part of the purchase price in exchange for meeting certain goals and staying on until those goals are met. This takes the pressure off the buyer to take on more expensive debt from banks, which can be costly in times of high-interest rates.

Pressure in the market

For many strategic buyers, holding cash in an inflated market means that the value of that cash drops when it remains unused. It makes much more sense to create investments than to keep cash in the balance sheet where it will continue to deteriorate.

Furthermore, many fund managers are given the incentive to invest dollars through fee structures. The pressure of finding a good deal can mean good news for middle-market businesses looking to sell. With the limited amount of middle-market M&A businesses, the need to spend creates fierce competition among buyers.

Keep growing

One of the best pieces of advice for middle-market business owners right now is to focus on continued growth and optimizing internal processes. While the market can vary, one eternal truth is that buyers are always looking for businesses that are performing well. To keep your business desirable, focusing on long-term success is key, regardless of market uncertainty.

Find a valuable partner

M&A is a complicated business, and business owners can struggle with negotiations, paperwork, and financial demands. But there’s no reason to do it alone. Finding a valuable partner is a strong step in the right direction to get the best value for your business, and ease in the transition as you sell your business.

Looking into an M&A strategy for your business? If you’re interested in pursuing this, please contact us for a confidential discussion of your specific situation. We have experience helping business owners across various industries sell their businesses, as well as relationships with buyers interested in partnering with owners.