Deals: 2023 Wrapped; 2024 Predicted

The 2023 small and mid-size deal space was a whirlwind. Interest rate hikes, capital sourcing transitions, news about buyer cool-downs, and market uncertainty due to bank failures and war made doing deals a bit trickier.

Interest Rates

Yes, money cost almost twice as much to borrow in 2023. Although no one wants to pay higher interest rates, the impact on dealmaking was significant. Increasing rates means that the amount of cash flow that can pay debt in an acquisition decreases. This translates to lower transaction values, lower loan amounts, and higher debt service. The interest rates did not kill deals, but it certainly made them harder to finance and cash flow. The Federal Reserve has signaled an interest rate cut this year , which should accelerate deal velocity and demand.

Bank Failures

Thankfully, there were not widespread bank failures. However, the failure of Silicon Valley Bank increased bank underwriting department's scrutiny of deals. Closings took longer, buyers and sellers were asked for inordinate amounts of information, and equity contribution and collateral requirements increased. Now that the banking environment has stabilized, hopefully SBA and conventional underwriting processes will, too.

Capital Sourcing

Thankfully, private money was and is flush in the market. Many small investors selected to put their liquid cash in business acquisitions versus the market. Institutional investors have also been eager to put their money to work in going concern businesses.

Buyer Activity

Middle market buyer activity slowed in 2023, but small market deal activity has been off the charts. Buyers know that the supply of businesses on the market is increasing and they are hungry for new deals.

Sale Prices

According to the BizBuySell Insight report , sale prices surged in 2023. Even though there is a lot of supply, and high interest rates, deals are still getting done at higher and higher prices.

Election and War Woes

Uncertainty is not good for financial markets. We may experience buyer reticence in Q3 as we get closer to knowing who the U.S. President will be. Multiple wars around the world have also created uncertainty in the market which could lead to a chilling of buyer activity.

Seller Preparedness

The market will not be able to beat a seller's preparation to sell their company. If a business owner has groomed a general manager, kept accurate records, documented systems, created recurring revenue service and products, distanced themselves from business development and operations, and maximized margins and cash flow, buyers will be attracted and their business will sell.

The Silver Tsunami

Is the wave of Boomer retirements real? Google says yes:

Raw search data indicates that searches for how to sell or buy a business have increased sharply over the last few years. The tsunami is here, and service providers, buyers, and sellers must be ready to take advantage of it.

Jamar Cobb-Dennard is a business broker and M&A attorney. To learn more about how to buy and sell a business, listen to Jamar's podcast, "What's it Worth?"