The Q1 2016 Market Pulse Report showed manufacturing still leading the lower middle market. Good news for retiring owners.
First Quarter 2016 Market Pulse Report – Good News For Retiring Manufacturers
Manufacturing Businesses Are Selling More Than Any Other Sector
The First Quarter 2016 Market Pulse Report showed that manufacturing continues to lead the lower middle market, accounting for 37% of all businesses sold. The quarterly IBBA and M&A Source Market Pulse Survey was created to gain an accurate understanding of market conditions for businesses being sold in the Main Street (values $0-$2MM) and lower middle market (values $2MM-$50MM). The IBBA and M&A Source present the Market Pulse Survey with the support of the Pepperdine Private Capital Markets Project and the Pepperdine University Graziado School of Business and Management.
Buyers Are Coming From More Than 100 Miles Away
The first-quarter Market Pulse Report offered several important insights for manufacturers. Companies valued between $2-$5 million were sold to buyers that came from more than 100 miles away at a rate of approximately 50%. For companies valued between $5-$50 million, this figure jumped to 62%. This shows the importance of using a broker that has more than just a local audience.
Average Time To Close A Manufacturing Company
For Q1 2016, companies between $2-$5 million took 10 months on average to close, with 4 months from receipt of the letter of intent to closing. Companies valued between $5-$50 million closed slightly faster, with an average of 8 months and only 3 months between LOI and closing.
Multiples Are Continuing to Rise
Companies valued between $2-5 million are selling on average at multiples of 4X SDE (Seller’s Discretionary Earnings), while companies valued at $5-$50 million are achieving multiples of 5.5 X, (an increase over 5.1 for Q4 2015). It’s important to note that these multiples apply to all businesses sold, not just manufacturing companies. We are currently seeing higher multiples for both price categories.
The Manufacturing sector continues to dominate lower-middle-market mergers & acquisitions transactions at the start of 2016.