Because of their recent projects, David and Eric give some updates on the current dynamics they are seeing in middle market mergers and acquisitions (M&A). They emphasize factors that influence business valuations and sale-ability. They discuss how external risks like geopolitical tensions and tariffs impact M&A, but stress the importance of focusing on controllable internal factors to maximize business value. There are key strategies for business owners to prepare for a successful exit, regardless of market conditions.
- Over-reliance on the owner: Buyers discount businesses where the owner is too involved in daily operations, as it raises concerns about continuity post-sale. Building a strong team and processes mitigates this risk.
- Customer and supplier concentration: High dependence on a few customers or suppliers reduces valuation. Diversification and long-term contracts help stabilize revenue streams.
- Recurring revenue models: Businesses with predictable, recurring revenue (e.g., subscriptions or contracts) command higher valuations due to lower cash flow risk.
- Market timing vs. controllable factors: While external conditions influence M&A activity, improving business fundamentals ensures better outcomes in any market.
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