Deal Street is the brainchild of Shep Campbell, a seasoned M&A advisor and business broker. With 10+ years of expertise in facilitating sales, acquisitions, and mergers, Campbell has worked with businesses spanning diverse industries and scales. To date, he has successfully negotiated and advised on 100+ transactions, cumulatively valued in the tens of millions of dollars.Deal Street distills this hands-on experience into actionable, trustworthy insights on small business M&A, delivered directly to you. From valuation strategies to exit planning, our content equips you with the knowledge to navigate deals confidently. With Deal Street, you’re not just informed—you’re empowered to master the art of M&A.
Deal Street Digest #2 - 2023 Year in Review
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Issue #2 The Deal Street Digest 2023 Year in Review 2023 Year in ReviewThe IBBA classifies business being sold in the $0 - $2mm range as Main Street deals; and businesses in the $2mm - $50mm range as the Lower Middle Market. Some might extend the “Main Street” range up to $5mm. While these labels may be arbitrary, there is certainly a distinction in the type of deal, buyer, lender, loan, etc. as the transaction value increases. The division above is sufficient for the purpose of analyzing deals, deal structure, loans and buyer types. For business sales, mergers & acquisitions of businesses in this range, 2023 was a year of juxtapositions. Lending TightensOne thing remained consistent across the board last year - lending tightened. No matter the deal size or industry, lenders were much more hesitant to loan. The overwhelming factor was high interest rates. Fifty-four percent (54%) of respondents to an IBBA survey covering 330 transactions reported High Interest Rates as the major headwind to closing deals in 2023. Consequently, 75% of brokers and advisors reported Slightly to Significantly More Restrictive lending by banks. On the flip side of that coin, 86% of respondents claimed Low Interest Rates as the #1 reason for optimism in 2024. Running a close second in both categories is Inflation. Higher inflation, as we saw in 2023, slows down deals, whereas lower inflation is a reason for optimism. Market SentimentWhile the Main Street and Middle Markets remain a seller’s market, ie, demand exceeding supply meaning more buyers than sellers, market confidence still lags behind pre-COVID levels. The chart below is an interesting indicator of buyer-seller sentiment - which is a reflection of valuations and successful closings. Perhaps with the right combination of time removed from the pandemic, coupled with normalized interest rates and moderate inflation, sentiment will fully rebound. From an anecdotal perspective, our firm has seen a tremendous uptick in closings through Q1 of 2024, and currently have three other deals-in-progress. Seven potential closings within Q1 is a tremendous amount of activity. Granted, the above is anecdotal based on one observation. However, it is in-line with national trends. Buyer activity across the board picked up in 2023. Studies show increased NDA’s signed and increased interest per listing year-over-year. However, those same studies also show a decline in actual closings from 2023 to 2022. A Year in TransitionWhile Q4 2023 saw more terminated deals than closed deals by a small percentage, there was an uptick in deal momentum in 2023 evidenced by more and more buyers coming out of the woods and caves. More buyers equals more inquiries and interest, which will result in more closings. With an increased number of buyers in the market, one can reasonably expect for more deals to close. This is a sellers market. The figures for 2023 reflect a year in transition for small-to-medium sized business sales, mergers & acquisitions. While closings were down, listings remained steady. Buyer activity ticked up, at the same time lending tightened. The juxtaposition of these conflicting forces creates an uncertain market. Buyers wanted to buy. Sellers wanted to sell. But banks did not want to lend. Consequently this creates a liquidity shortage to finance these small business deals, which can terminate a deal-in-progress between a willing buyer and a willing seller. The reality is the market for financing small business deals of $5mm or less is, essentially, limited to SBA Guarantees through SBA Loan Programs. Consequently, when there is a shock to the system, ie, massive Fed rate hikes, then the system recoils and those tied to the system feel the impact. This was the case in 2023 for small business deals. While this may seem like bad news, that is not necessarily the case. The buyers are out there, and so are the sellers - thus the market lives on! It is vibrant market with profitable opportunities galore. 2024 - The Year of the DragonIf the Federal Reserve sticks to their projections (don’t hold your breath) then interest rates may stabilize. From 2010 - 2020 the economy lived under a false pretense of free money with near 0% interest rates. While the Fed rise in 2023 was dramatic, and it put the brakes on lending in many respects, the chart below shows that the interest rate is now more in-line with historical averages than it has been in over a decade. Perhaps the market is normalizing. In addition, according to the Chinese Zodiac, 2024 is the Year of the Dragon. The dragon is the most potent and desired animal of the 12 Chinese zodiac animals. This year the dragon will take over for the rabbit, and according to the Smithsonian Magazine, will usher in “a long-anticipated period of prosperity unique to the mythical being.” (Why is the Year of the Dragon Considered So Lucky). Dragons are powerful, and lucky, prosperous. So optimism reigns in 2024. Both from the emotional side of the equation, and hopefully the financial side of the equation. If buyers and sellers remain true, as things stabilize and banks come back on-line, and as inflation is reduced, then 2024 holds the potential for an explosive year in small business transactions. There is reason to be optimistic! 2024 holds much promise. As a broker I find myself drawn to the words of J.R.R. Tolkien; “I desired dragons with a profound desire.”Visit & Like our Facebook Page!Join thousands of others across the globe in our Private Facebook Group! |
Deal Street Digest
Deal Street is the brainchild of Shep Campbell, a seasoned M&A advisor and business broker. With 10+ years of expertise in facilitating sales, acquisitions, and mergers, Campbell has worked with businesses spanning diverse industries and scales. To date, he has successfully negotiated and advised on 100+ transactions, cumulatively valued in the tens of millions of dollars.Deal Street distills this hands-on experience into actionable, trustworthy insights on small business M&A, delivered directly to you. From valuation strategies to exit planning, our content equips you with the knowledge to navigate deals confidently. With Deal Street, you’re not just informed—you’re empowered to master the art of M&A.
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Deal Street Digest DEAL STREET M&A SPECIALISTS INFORMATION RESOURCES Reader, I thought you might find this story interesting. It's relevant on a number of levels. I recently had a deal in progress for $1.5mm on a building supply business, which included the business' real estate. The buyer - "John Doe" - was savvy and had experience in buying & selling businesses. He had recently sold a prior business which he had owned for only 15 months. When I asked why he sold it after only 15 months, he...
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