As we look at the restoration market today, the view is much different than it was only a year again. As we move into 2024, the fluid, changing dynamics of both Main Street and M&A transactions in our industry are a mixed bag of pleasant surprises and predicted challenges. Now is the time to take note and make important changes as you prepare to bring your business to market in the next year.
Interest rates have increased, which directly affects SBA purchases. Buyers are re-emerging and banks continue lending in the Main Street marketplace. Their search parameters have changed to prioritize quality at every price point.
Steady Deal Flow & Accessible Financing
2023 saw seller financing accounting for a notable portion of Main Street deals, and moving into the new year, this trend appears to hold. In the private equity space where companies are selling for $7M or more, buyer engagement remains strong, and financing is available. New groups are moving into the restoration space and the buyer pool is changing significantly. If you’re selling in a large metro area, you’ll see the traditional roll-up groups may already have staked their claim in the area, and your business is more appealing to new buyer entries into the restoration space.
The restoration market is adapting to economic realities and cash at close has decreased. Instead, you’ll see an increase in seller financing and earnouts in the early months of 2024. Deal structures remain solid, and this dynamic lends itself to flexibility and security for buyers and sellers. For small businesses that fall within SBA lending limits, the shift could prove advantageous in the tightening credit market.
Flight to Quality
The businesses we’ll take to market in 2024 will require an elevated standard of health and performance to stand out in the 2024 market. Flight to quality is real and present and being a contender in the market means paying close attention to your business finances, growth potential, revenue diversity, sales & marketing, net promoter score, and management team.
Buyers will be increasingly selective, seeking the business that aligns with their strategic goals and has established a proven track record of performance. The flight to quality extends beyond financials and will demand deals with enduring value which complement their existing operations.
If you are looking to sell your business in 2024, your focus should be on showing healthy books and profit. Demonstrating long-term viability and growth potential makes your business attractive to the most discerning buyers.
Today’s market is seeing private equity firms focusing on add-ons as opposed to the platform deals, and this, along with roll-up deals will keep M&A transactions steady in the coming year. Understanding where your business stands in the market requires an in-depth valuation and a strategic plan to position your business in a way that maximizes its value.
Emerging Risks with National Expansion
National players and roll-up strategists have spent the last few years moving into major markets. This has changed the competition in major cities and made unique value propositions a must for Main Street businesses. We have a number of ways to differentiate within the restoration space, and expanding services or niching into specialty verticals positions the smaller businesses to maintain their foothold next to national players. While the expansion of these national players opens up potential partnership and acquisition opportunities, new buyers will continue to emerge as big industry names settle into major metro regions. The buyer pool will change, but the potential for exiting well will remain for those sellers who are well represented and seek out the guidance and support of selling professionals.
Preparing Your Business for Exit
Preparing your business for sale well in advance of an exit ensures its appeal to potential buyers. Your selling strategy should include entertaining multiple buyers to maximize the outcome of your sale and minimize the risk of leaving money on the table. In the next five to ten years, close to 65% of the restoration owners in today’s industry will retire. Our experience working with hundreds of owners to value their business shows us that, on average, nearly 80% of a business owner’s wealth is locked in their business, making the business their biggest asset.
In the 2024 market, businesses that will sell well must be strategic in the way they position themselves. Entering the selling process with a reasonable understanding of your business value and your systems, personnel, and diverse revenue mix in place is key to making the most of the markets in 2024 and beyond. The time to start planning is now, whether your exit is imminent or down the road. Engage with a professional to guide you through the process, put the best offers in front of you, and leverage the value of your business into the right sale and exit for you.
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