Below are a dozen recent trends affecting exits (your mileage will vary):
1. Average multiples:
• Lower Middle Market (revenue between $10 million – $100 million): 4.5 – 6.0 X EBITDA
• Main Street (revenue under $5 million): 2.0 – 3.0 X SDE (Seller Discretionary Earnings)
2. 2013 average deals:
• The largest number of deals in the Lower Middle Market closed in the range of $7.5M – $20M
3. Closing ratios:
• Several reliable studies have shown closing ratios hover around 35% for Lower Middle Market transactions and 15% – 25% for Main Street transactions (source: John Paglia, Ph. D., Pepperdine University)
4. Top 3 reasons transactions are terminated before closing:
• Unrealistic valuation expectations of the seller
• Lack of seller preparedness
• Misrepresentation by seller of material facts discovered during due diligence
5. Supply of quality businesses:
• A U.S. Chamber of Commerce study found that Merger & Acquisition (M&A) advisors disqualified 65% to 75% of prospective sellers
• 75% of M&A advisors report the M&A market does not have enough quality businesses for sale compared to the number of buyers, especially in the Lower Middle Market
6. Largest wealth transfer in history:
• Baby boomers will transfer over $10 trillion, much of it in privately-owned businesses
7. Ages of majority shareholders in family businesses:
• 60% are 60 years or older
• 18% are 70 or older (source: Laird Norton Tyee Family Business survey 2007, statistics adjusted to 2014)
8. Three biggest reasons to sell:
• Retirement
• Burnout
• Pursue new opportunity
9 . Closing times:
• Main Street: 4-8 months
• Lower Middle Market: 9-15 months
10. Negotiating leverage:
• Smaller deals = “buyer’s market”
• Larger deals = “seller’s market”
11. Transactions closed each year in the Private Capital Markets:
• Only 0.2% of the 7.5 million privately held companies in the U.S. successfully complete a Private Capital Market transaction each year (strategic and financial buyers)
12. Private Capital Markets’ funds available to pay for companies:
• $500 billion Private Equity “overhang”
• $2 trillion of cash on company balance sheets