Q1 2025 M&A Analysis Part 2 with IBBA Data

The IBBA’s latest Market Pulse Executive Summary provides key insights into the small business M&A landscape, reinforcing and expanding on data from Axial and BizBuySell that was mentioned in Q1 2025 Small Business M&A Market Report: Trends, Insights, and 2025 Outlook.

1. Market Activity & Volume

  • Moderate Increase in Deal-Making: IBBA data confirms a 5% rise in closed transactions, consistent with BizBuySell’s report.

  • More Offers Per Deal: Sellers received more cash at closing and higher deal competition.

  • Confidence Trends:

    • Lower Middle Market (LMM) sellers gained confidence.

    • Main Street businesses (sub-$2M) faced lower market confidence but still achieved 94% of asking prices.

2. Valuations & Multiples

  • Valuations Remain Strong: Well-prepared businesses commanded premium pricing.

  • Stable Multiples: Businesses valued at $5M+ averaged 6.0x EBITDA, a level reached only twice in the past three years.

  • Industry-Specific Trends:

    • Technology & Online Businesses: 74% increase in deal volume, but 24% decline in median sale price.

    • Manufacturing & Construction: 32% year-over-year increase in transactions.

  • Buyer Competition:

    • LMM businesses received an average of 4.5 offers per deal.

    • Main Street businesses received 2.5 offers per deal.

  • Higher Buyer Willingness to Pay: Many LMM sellers exceeded their confidential pricing benchmarks.

3. Buyer & Seller Trends

  • Increase in Buyer Interest: More NDAs and LOIs signed, especially for businesses over $5M.

  • Buyer Breakdown:

    • Main Street Market: 38% first-time buyers, 32% serial entrepreneurs.

    • LMM Market: 35% strategic buyers, 24% first-time buyers, 19% private equity firms.

  • Seller Motivations:

    • Retirement remains the #1 reason for selling, consistent with BizBuySell’s findings.

    • Lack of proactive exit planning: Most sellers decide to sell within a year of listing.

4. 2025 M&A Outlook

  • Strong Deal Activity Expected, despite financing challenges.

  • Valuations remain solid, especially in the Lower Middle Market.

  • Tighter Lending Conditions: Seller financing is helping deals close.

  • Buyer Demand Exceeds Supply, driving strong competition for quality businesses.

  • Potential Interest Rate Reductions & Post-Election Stability could boost deal flow in 2025.

 

Eric I. Mendelsohn- Business Broker