The trends in Q4 on mergers and acquisitions in the restoration business.

Welcome to our Q4 report on mergers and acquisitions in the restoration business. Here are four major themes that I want to talk to you about to tee up this report:

1. Labor shortages are decreasing. In Q3, when we polled a lot of our sellers, there was a lot of talk about not being able to get enough people to do the jobs. In Q4, we found that those labor shortages are decreasing. When we talk to owners, they’re getting more and more applicants that show up for interviews. These easing labor constraints are helping revenues and business performance increase. We also predict that those labor shortages will continue to ease throughout 2023.

2. Quality is more important than ever. 32% of the deals that went under contract in Q4 didn’t close. Therefore, it’s more important than ever to get your business ready before you take it to the market. The four main reasons why businesses did not close are that business owners have unrealistic expectations for the market, there’s economic uncertainty, people fail to pass due diligence, and difficulties with financing. Businesses need to ensure that everything is in order because buyers are digging into their numbers a lot more now than they did a couple of years ago.

3. Multiples have shrunk a little bit, but not as much as we thought. For businesses valued between $1.5 to $5 million, the multiple has gone down from about 3.5 to 3. For businesses valued between $5 and $10 million, the multiple has gone down from about 4.5 to about 4. For businesses valued between $10 and $20 million, the multiple has gone down slightly from about 6.5 to 6. However, even though valuations have come down a bit, they are still well above historical values.

4. Seller confidence is down. Last quarter, this was as high as 85%, but it has since gone down to 57%. However, the offers and the multiples that we’re getting are still historically above the 10- to 15-year average. There’s a huge disconnect between how people are feeling about the economy and what we’re seeing in the market.

As always, let us know if you have any questions about the market. And stay tuned for our first quarterly report for 2023, coming next month!