IBBA Market Pulse Survey

Challenges Faced in Quarter 1 of 2023, According to the IBBA MarketPulse Survey

The data from the Quarter 1 MarketPulse Survey was recently released. This publication, which is brought to us by the International Business Brokers Association (IBBA) and M&A Source surveyed 371 business brokers and M&A advisors between April 1 to 19, 2023.

The goal of MarketPulse is to gain an accurate understanding of businesses being sold in Main Street and the lower middle market. Let’s take a look at some of the information that was revealed by their latest survey.

1. Labor Shortages
   If anything has had an impact on making deals, the advisors surveyed say it is labor shortages. In fact, 68 % said labor issues negatively impacted both Main Street and lower middle market. In 5% of deals, labor shortages actually caused a deal to terminate.

2. Unrealistic seller value expectations
   The advisors who responded to the survey agreed that the biggest challenges to successful deals is unrealistic seller value expectations.  Of course, what this means is that business owners think their company is worth more than the market can offer them. Unfortunately, this is quite a serious issue that can put a seller’s success at risk.

3. Recordkeeping
   For the Main Street market, another big challenge was poor recordkeeping that led to a lack of available financial information. Oftentimes, Main Street businesses have their own bookkeeping standards that do not compare with the norm. They may not have an outside accounting firm to keep things streamlined. On the other hand, lower middle market will more than likely have a CFO or accounting firm. Therefore, recordkeeping is far less likely to be a challenge to the lower middle market sector.

4. Interest Rates
   Advisors also pointed to the current interest rate instability being a factor that interfered with recent deals. Buyers are not always getting the financing they are used to receiving. Financial buyers have been negatively impacted by the shakeup in debt financing.

5. Exiting Owners
   When business owners exist, this also can interfere with deals. After all, owners are very involved in their businesses, and they may be necessary for a business to operate. Along similar lines, when businesses have family members who don’t intend to stay, this can lead to problems. These issues put into perspective the importance for business owners to groom their next generation leaders.

6. News/World Events
   Of all the issues reported, news and world events were of least concern. It’s interesting to note that geopolitical issues don’t always affect Main Street and the lower middle market, even if they are affecting global dealmaking.

Consistency in Year-Over-Year Transactions
Despite the fact that there were reports that global M&A was the weakest start in a decade, small and medium size businesses have been selling on-pace. According to Market Pulse respondents, there were 292 transactions this quarter and this was the same deal volume year-over-year. What this data points to is that what is going on with global M&A doesn’t necessarily impact Main Street and the lower middle market. This is a good lesson for why small business owners shouldn’t panic about negative news they might see impacting the business market at large.