2023 M&A Market Outlook
As we navigate 2023, there are some hard-to-ignore uncertainties facing us:
One: Interest Rates
Interest rates are a strategic factor for private equity firms. However not so significant for family and strategic buyers. Needless to say, if you are planning to sell your middle market business in 2023, listing your company in the first quarter will improve the chance to get it sold quickly. Buyers are looking to borrow capital while the rates are still attractive.
Two: M&A Buyers Remain Bullish on Acquisitions
Although buyers are bullish on acquisitions, but rather a tendency to focus on industries such as:
- Construction
- Manufacturing
- Life Sciences
However, other industries in the service business might see buyers shying away for now.
Three: The Strong Availability of Equity Capital
This should support valuations and competition for quality business throughout 2023, which bodes well for lower middle market business owners looking at growth or exit capital.
Four: From a Tax Perspective
Business sales look much safer than they did earlier in 2022 when capital gains increases were a popular discussion topic in Washington. How long that safety continues remains uncertain.
Five: Personal Timing
While external factors are important, oftentimes, personal timing for the business owner can be the most influential factor when considering a business exit or business capital raise.
The average economic cycle lasts 6-7 years, according to the Congressional Research Service. That means business owners might be waiting until around 2028 before seeing valuations as strong as they have recently been.
California business owners in the lower middle market business segment within a few years of retirement should consider whether or not they are willing to wait for the next economic growth cycle to attempt a liquidity event.
In order to maximize valuations, baby boomer business owners in California who are considering selling should look at a couple of options.
The first option would be to evaluate the market in early 2023 for a potential business sale/exit. Interest rates are expected to continue rising and a recession could be on the horizon.
Selling your lower middle market business now might be ideal for an owner looking to take chips off the table before a potential longer-term slowdown. The second option would be to wait out this economic slowdown for 5-10 years when the market picks up again.
Despite these cautionary signals, Rogerson Business Services are coming off a record buy-sell market in 2022.
In fact, in our 16 years of deal-making, Rogerson Business Services have never witnessed a more active, vital, and dynamic merger and acquisition landscape, and believe 2023 will be even better.
Quite simply, the factors contributing to the robust 2022 business trading climate are still in place and are poised to accelerate.
2023 Will Be an Even Better Year to Sell your Lower Middle Market Business in California if the Timing is Right. Why?
Financial Performance Drives Higher Pricing – in many categories, businesses will finish 2022 with record financial results which will lead to stronger cash flow multiples and higher prices. Those results in combination with aging “baby boomer” demographics will motivate many more sellers to head to the exit door.
While many businesses rushed to an exit last year, Rogerson Business Services sees the 2023 buy-sell landscape will be even stronger which will result in significant seller advantages in certain industries mainly:
- Medical Practices- EV/EBITDA Multiples as 11.9x in the health and wellness industry.
- Construction - EV/EBITDA Multiples as high as 12Xbased on different construction business niches.
- Manufacturing - EBITDA Multiples ranges from 5 to 6 times.
These benefits will include higher cash flow multiples, larger buyer pools pursuing deals, and a more efficient and smooth deal process.
Bottom line -- 2023 appears to be a fantastic market for deriving excellent returns from your hard-earned business investment.
California is Poised to Overtake Germany
According to Bloomberg, California is poised to overtake Germany as the world’s 4th largest economy, continuing to outperform the nation and other countries in GDP growth, companies’ market value, renewable energy, and more.
“While critics often say California’s best days are behind us, reality proves otherwise – our economic growth and job gains continue to fuel the nation’s economy,” said Governor Newsom. “California’s values and entrepreneurial spirit have powered this ascent to becoming the 4th biggest economy in the world, and we’ll continue doubling down on industries of the future, like renewables and clean energy. I feel tremendous pride in California’s resilience, leadership, and our formula for success.”
Here are Some of the Top Takeaways From Bloomberg’s data
- “California outperforms the US and the rest of the world across many industries. That’s especially relevant with renewable energy, the fastest-growing business in California”
- “California’s trajectory is most transparent in the growing divergence between its 379 companies with a market value of at least $1 billion”
- “California technology hardware, media, and software saw sales increase 63%, 95%, and 115% the past three years, boosting market valuations by 184%, 54%, and 58%”
- “Job creation is a particularly strong area, with unemployment falling to 3.9% in July, the lowest since data was compiled in 1976 … California’s joblessness dipped below Texas”
What Do you Need to Know?
According to UCLA Anderson Forecast Director Jerry Nickelsburg.
- Unlike the tech meltdown in 2001, when layoffs were concentrated among information technology jobs in the Bay Area, this year’s tech purging has had little effect on the California economy
- Housing construction is an area where California is outpacing the rest of the country
- Defense spending is also helping the California economy
- UCLA Anderson Forecast Director Jerry Nickelsburg projected employment growth of 1.1% in 2023 and 1.2% in 2024 for California if the state does not go into recession and employment growth of .5% in 2023 and 1.3% in 2024 if it does
If you are looking to value and sell your California business in 2023, the fundamentals remain.
Selling your Lower Middle Market Business in 2023
The sale of a business only occurs when there is a motivated buyer and a motivated seller with all details fully disclosed to both parties.
Last year, Rogerson Business Services was able to successfully assist with the sale of a medical practice, an IT Services business, and a consumer services business.
Currently working on closing a moving and storage business that might not close because of the canceled contract with Twitter under Musk's management.
It was the toughest transaction the deal team had brokered as the sale was supposed to close in November/December 2022, but for many reasons and mainly the recent Twitter cancellation of doing business with the storage company that accounts for 25% of total revenues. You guessed it – there were many sleepless nights.
Positioning your Business to Capture the Highest Return on your Investment (ROI)
Buy-Sell Frenzy Continues:
- Construction - how to maximize business valuation for a construction company?
- Medical Practices - How to sell a medical practice in California: Ultimate Guide
- Life Science
- Business Services - How to value and sell a professional services company in California?
The mentioned industry sectors will get the biggest attention from buyers in 2023.
Whether you are in growth mode or just reaping the rewards that come from an established, mature operation, it is important to always have a strong pulse on your business value as well as understand the factors that will enable you to build future value.
The goal of this article is to assist you in positioning your business to capture the highest return on your investment – either through continued value creation or planning to maximize the value of your business when your timing is right for a sale.
As always, Rogerson Business Services thank you for reading and stand ready to assist you in whatever challenge you are facing. As you will see, we are very bullish on the 2023 buy-sell trading landscape …
Moving Ahead
What is the most confidential, profitable, expedient, and stress-free way for a business seller to capitalize on this unprecedented trading climate in 2023?
Choose an experienced, trusted advisor who will help you navigate the complexities of the business valuation, highlight your business value in a compelling marketing package, identify and qualify buyer prospects (while protecting your confidentiality), and assemble a professional deal team that will deliver a successful closing that delivers on your exit goals.
SEE CASE STUDIES OF SUCCESSFULLY SOLD BUSINESSES IN CALIFORNIA - Go To CASE STUDIES
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