Is it a buyers market yet?

searcher profile

May 30, 2024

by a searcher from Northwestern University - Kellogg School of Management in Fort Lauderdale, FL, USA

Is deal flow speeding up or slowing down? Are multiples softening? Is it a buyers market yet?

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Reply by a lender
in Stuart, FL, USA
Personally, I think that's the wrong question. The right question could be, am I looking at good deals that make sense for my buying needs? A lot of people think because interest rates are high, the sellers’ businesses aren't worth as much, therefore are we in a buyers’ market. There are two sides to that coin. The first side is in the financing: buyers are not able to borrow as much because the deal may not cash-flow the same way if interest rates were three points lower. Conversely that doesn't mean the sellers’ business is worth less. It just may mean that it is not as financeable as it was two years ago. If a seller has a strong business with good books and records, long tenure, and a good outlook, they can simply sit on their business and continue to make money and sell it when interest rates go down. If you are a strong buyer and you really want the business because it makes a lot of sense for you personally, and there is a ton of potential to scale this business to greater lengths, it may be incumbent upon you to spend a little more to get the opportunity to buy this business. So, unless you intend to buy every business in a certain vertical across the United States, it really doesn't matter if it's a buyer’s market or not. If you are looking to get started or wanting to add to your existing businesses, you are going to look hard at the businesses that you find that make sense for you. Only then will you be able to determine if the cost and risk and make sense for you to move forward. Another way to put this would be, who cares what everybody else is doing, find a good deal that works for you. Here's a good tip for anybody who hasn't figured this out yet: when a deal is fair and equitable to both parties and you can create win-win situations across the board, deals usually happen. When you're trying to buy a business from the seller and you're looking to steal everything, i.e. A/R, the WIP, seller note, working capital, free training for a year, claw back agreement, or forgivable notes, next to nothing down etc. The deal usually doesn't happen.
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Reply by an intermediary
in Toronto, ON, Canada
I've been holding my tongue since joining this board a couple months ago and taking a few meetings with PE folks since then (one sourced from here).

But I was tagged to comment, so you asked...

TBH - the offers from the PE space were delusional if not insulting.

In my field at least (SaaS / Internet infrastructure) companies are being bought at multiples of ARR, not EBITDA and if EBITDA, double-digits.

The offers I was pitched by PE's were 3X to 4X EBITDA, which in my case, is actually substantially less than I have in cash. Why would anybody sell a growing business at a shitty multiple for less than cash?

When I asked one of the PE's that, he said "We let you keep the cash".

Uh, yeah, ok. If I keep the *business* the cash is mine already anyway.

At least for myself it was enough to dismiss PE and searchers entirely. Sorry.

When the time comes (if it comes), I'll hire an outfit like Corum group and run a process aimed at strategics.

(If anybody is interested, I wrote up my experiences on my blog, which was picked up by Zerohedge:

https://www.zerohedge.com/markets/how-private-equity-adds-value-fiat-financed-world )
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