- 2021 was a record breaking deal year for both capital funding as well as the quantity of deals completed. Valuations increased for premium firms.
The following deals stats update focuses on B2B technology-enabled services businesses with USA HQs.
Deal Stats
Small Business: While overall valuations appear to have increased, close inspection shows that “K shaped” multiples are the reality; i.e. BIG premium for top performers and discounts for average businesses. 2021 valuation multiple discounts for average performers as much as 30% and premium for top-quartile best-in-class performers range from 50% to greater. Owner to Owner Financing via SBA Financing for FY20 of 42,302 7(a) loans, and for FY2021 51,853 deals with an average of less than <$250,000 per deal.
Institutional Midmarket ($10m to $250m EV)
- The US PE middle market had its busiest year on record in 2021
- Increase in the quantity of institutional deals (i.e. EV>$10M) from an average of 15k per year last decade to more than 21k per year over the past 2 years is a 42% increase
Public Companies: There were 1035 IPOs on the US stock market in 2021, an all-time record. It was 120% higher than the 480 IPOs in 2020, which was also a record.
Deal Trends
- Capitalize on the As-A-Service Economy. The rate of investment flowing into US tech-enabled service providers more than tripled over the previous decade yearly average. Premium multiple for tech-enabled providers that deliver recurring subscription solutions are often double traditional business services and professional services
- Capitalize on the abundance of deals and low interest rates.
- $1.7 trillion in capital deployed in 2021
- Increase in the volume of M&A deal transactions across all sizes driven by aging boomers, abundance of capital, and changing service models
- Proliferation of deal structures and types beyond venture and traditional buyouts driving increase in private equity financings
Strategies to Capitalize
Service leaders are leveraging one or more of the following trends; which on average have resulted in DOUBLE their profits and valuation.
- Industry consolidation
- Vertical or horizontal expansion
- Profit expansion through tech-enablement as-a-service model servitization
- Capitalize on low interest rates and abundance of capital to secure long-term deal financing
- Capitalize on the abundance of capital and the increase in private equity deals to recapitalize your business and setup a wealth transfer strategy to take advantage of “Multiple Bites of the Apple”
- Capitalize on the growth in multiple niche and industry verticals
- Take advantage of multiple “Routes to Market” beyond traditional referrals and partners
Wealth transfer starts with a plan to get to the next stairstep stage of your profitability as defined by the financial markets highlighted in the chart above. The best strategic plan takes into consideration your industry Comps and how you compare to industry peers as well as these financial inflection points.
Contact ERGO for a complimentary industry deal briefing on your CorpDev options which will include review of buyers, investors, multiples, and valuation drivers and terms, as well as discussion about your comps and how to capitalize upon the current industry deal trends.
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