Market Shift: SMB M&A Habits Revealed

𝗧𝗵𝗲 $𝟱𝟬𝟬𝗞–$𝟮𝗠 𝗘𝗕𝗜𝗧𝗗𝗔 𝗺𝗮𝗿𝗸𝗲𝘁 𝗶𝘀 𝗰𝗿𝗼𝘄𝗱𝗲𝗱 𝗮𝗻𝗱 𝗶𝘁’𝘀 𝗾𝘂𝗶𝗲𝘁𝗹𝘆 𝗶𝗻𝗳𝗹𝗮𝘁𝗶𝗻𝗴 “𝗽𝗿𝗶𝗰𝗲” 𝗮𝗯𝗼𝘃𝗲 “𝘃𝗮𝗹𝘂𝗲.” If you’re selling (or buying) a lower-middle-market business today, here’s the dynamic we see again: Buyer count has exploded. It’s no longer just “one local competitor” or “one strategic.” It’s: • ETA/search-fund buyers (Stanford’s 2024 Search Fund Study tracks 681 U.S./Canada search funds since 1984), - We believe that these numbers are higher. We get 2 or 3 requests a day for our Deal Sourcing team. • independent sponsors (a lender view estimates 1,500+ active in the U.S.), • strategics doing tuck-ins, • and a growing layer of “micro-PE” chasing smaller EBITDA. Capital is flowing down-market. The SBA reported a record 85,000 SBA 7(a) + 504 loans totaling $45B in FY2025, that’s real fuel for acquisitions in exactly this size range. So, what happens to valuation? Competition pushes it up even when fundamentals don’t justify it. You can see it in the data: • BizBuySell’s 2025 recap shows businesses selling at ~94% of asking with an average 2.61x cash flow multiple. And yes… BizBuySell is a good source because of their reach. • Market Pulse explicitly notes: “the higher the valuation, the more buyers are competing for a deal.” Our take: In this segment, the market price often reflects buyer competition, not “intrinsic value.” Intrinsic value is what the business can reliably produce after normalizations, and what the capital stack can support without hero assumptions. That’s why the best outcomes are going to sellers who can prove: 1. defensible EBITDA/SDE (clean add-backs, stable margins), 2. transferable operations (not owner-dependent), and 3. a growth narrative buyers can execute (often tech/AI enablement but grounded in reality). If you’re an owner thinking about a sale: prepare the story and the numbers before you test the market because in a crowded buyer pool, the “best” deal is usually the one that survives diligence. https://eight-m.com  

For this week’s Wednesday Wisdom, let’s break down a key concept buyers see on every listing but can overlook. Revenue and cash flow serve different purposes and they influence value in very different ways. Most listings highlight both numbers. Revenue shows how much money moves through the business. Cash flow shows how much a buyer can actually take home after expenses. In many small business purchases, especially owner operated companies using financing, cash flow is the primary driver of value. Lenders and buyers focus on whether the business can support debt and provide a reliable income. Two businesses with similar revenue can be priced very differently if their cash flow is not the same. That said, some businesses are valued more heavily on revenue. High growth companies, software businesses, and models with strong recurring revenue may trade on revenue multiples, even if current profitability is modest. In those cases, buyers are underwriting future cash flow rather than what the business earns today. The stability and scalability of revenue matter more than near term earnings. The takeaway for buyers on this post is do not apply one valuation lens to every listing. A steady service business should be evaluated differently than a growth focused platform. Revenue provides context, but cash flow or the clear path to it is what ultimately supports value. #buyingabusiness #buying #businessbrokerage #businessbroker

There is one critical insight we review on every QofE report that is almost NEVER shown in the broker's listing of the deal: 𝗧𝗿𝗮𝗶𝗹𝗶𝗻�� 𝗧𝘄𝗲𝗹𝘃𝗲 𝗠𝗼𝗻𝘁𝗵 𝗘𝗕𝗜𝗧𝗗𝗔. And over the last year, 90% of businesses we've analyzed have had a DOWN TTM period compared to prior years marketed in the CIM. For the buyers who didn't get a QofE, this is creating a phenomenon that I call a "distressed deal in disguise". First time buyers are taking over thousands of businesses across the country, only to find out that they're walking into a trap that leaves them feeling blind, cash strapped, and over-operated. If you bought a business and are struggling with cash flow + what to do next, I'd urge you to download this special report our team wrote. You are in the hardest stage of the buy + build lifecycle, but I guarantee you there's a way forward. I've dealt with this w/ my clients + I've actually gone through liquidity struggles personally in my own business. If you're going through this, you know that the stress can eat you alive. Your working long hours but even when you're home, your mind is consumed with stress, and your spouse can tell. You've started forgetting important events, and you're getting questioned by people around you on "whether you care about anything other than work". 𝙔𝙤𝙪 𝙝𝙖𝙫𝙚 𝙖 𝙘𝙝𝙖𝙣𝙘𝙚 𝙩𝙤 𝙜𝙤 𝙛𝙧𝙤𝙢 𝙖 𝙙𝙞𝙨𝙩𝙧𝙚𝙨𝙨𝙚𝙙 𝙤𝙥𝙚𝙧𝙖𝙩𝙤𝙧 𝙩𝙤 𝙖 𝙥𝙡𝙖𝙩𝙛𝙤𝙧𝙢 𝙤𝙬𝙣𝙚𝙧, 𝙗𝙪𝙩 𝙤𝙣𝙡𝙮 𝙞𝙛 𝙮𝙤𝙪 𝙩𝙖𝙠𝙚 𝙨𝙬𝙞𝙛𝙩 𝙖𝙘𝙩𝙞𝙤𝙣. This special report has a free gift inside it that is only available for the next 10 days. Comment "Report" if you want a copy and I'll send it over ASAP

Is EBITDA actually the "Gold Standard," or just a shortcut that leads to bad deals? 🚩 If you’re looking at buying or selling a business, you’ve heard the phrase "Multiple of EBITDA" a thousand times. But relying on it blindly is like buying a car based solely on the horsepower—it tells you the strength of the engine, but nothing about the transmission or the fuel leaks. The Case for EBITDA 📈 Earnings Before Interest, Taxes, Depreciation, and Amortisation is popular for a reason: Comparability: It strips out capital structures and tax environments, letting you compare a tech startup in London to a manufacturing plant in Bristol. Operational Focus: It shows how much cash the core "machine" of the business can generate before the accountants and bankers get involved. The "EBITDA Trap" ⚠️ The problem? EBITDA can be easily manipulated (we’ve all seen those "Adjusted EBITDA" reports that add back everything including the CEO's morning latte). More importantly: It ignores CapEx: If a business requires £500k in new machinery every year just to stay afloat, EBITDA ignores that cost. You can’t pay your mortgage with "Depreciation." Working Capital isn't free: It doesn't account for the cash tied up in inventory or unpaid invoices. Debt is real: Taxes and interest are real cash outflows. You can’t ignore them forever. Better Alternatives? 🛠️ To get a "true" price, sophisticated buyers are looking at: SDE (Seller’s Discretionary Earnings): Better for small, owner-operated businesses. Free Cash Flow (FCF): What is actually left in the bank after everything is paid? Revenue Multiples: Common in high-growth SaaS where current margins don't reflect future scale. The Verdict: EBITDA is a great starting point, but it’s a terrible finish line. Use it to screen, but use Free Cash Flow to value. What’s your take? Are you still a fan of EBITDA multiples, or have you moved toward more cash-flow-heavy metrics? Contact Mundo if you are considering exiting your business. #M&A #BusinessValuation #Finance #Entrepreneurship #PrivateEquity #Mundo.

Most founders chase a huge valuation and then watch a bad deal structure steal half of it. I see it again and again. Founders celebrate the headline number. Buyers celebrate the terms. Here’s the thing you have to remember: Buyers buy the future, not the past. They care about: • How safe their money is • When they’re going to see ROI • How clean your business runs without you Some common “good” deals that are not good at all. So do these 5 things to make sure yours isn’t one of those: 1. Prepare early (very early) Build real relationships with likely buyers 18–24 months before a sale. Co‑sell, integrate, run small projects together. You want to be bought, not sold. 2. Get your financial house in order Move to proper accounting. Create a full finance pack and data room. Run a quality‑of‑earnings and due‑diligence “health check”. 3. Make yourself redundant Document processes in sales, HR, finance. Show that the company runs without you. Operational independence = more cash up front with a shorter earnout. 4. Know your walk‑away number Define the minimum cash you need on day one. If a deal structure does not hit that, you walk. 5. Design for future value Push Net Revenue Retention up. High NRR tells buyers your product works and your revenue is durable. Hope some of these tips are useful! I’ll be sharing a few more of these on my webinar with Othrfund today! Looking forward to the session!

The Harsh Truth About the 2025 Business-for-Sale Market (Based on the BizBuySell Insight Report — and what I’m seeing in real time) Trying to sell a business right now? Hot market? Cold market? Buyer’s market? Seller’s market? YES! 2025 finished “stable” on paper — transactions basically flat, prices up slightly. But look under the surface and it’s obvious: Strong businesses accelerated. Average businesses struggled. Here’s what actually happened: • Q1: -1% • Q2: -4% (inflation pressure builds) • Q3: +8% (owners move before valuations slip) • Q4: -2% (government shutdown slowed SBA closings and pushed deals into 2026) Is that a cooling market? Or is that disruption layered on top of strong demand? I believe it’s disruption layered on top of demand. 78% of owners reported rising expenses. Labor. Rent. Insurance. Fuel. Some passed it through and protected margins. Others didn’t. Buyers questioned... That’s why diligence got longer. That’s why forward projections are being challenged. That’s why deal structures are tighter. Meanwhile, businesses with clean margins and defensible numbers still went under contract in weeks. BizBuySell shows: • 34% say buyer-favored • 34% say seller-favored • 27% say balanced That’s the market saying: “It depends what you’re selling.” This isn’t a buyer market. This isn’t a seller market. It’s a QUALITY market. And this is exactly what I’m seeing in my own deals. The report says: • 44% of brokers report increased Private Equity activity • 43% report more ETA/search fund buyers • 44% of buyers now identify as corporate refugees That matches what I’m seeing. Strategics are moving downstream. Searchers are aggressive. PE is circling sub-$5M EBITDA deals that used to be pure owner-operator territory. On strong businesses, competition is real. Multiple buyers. Structured offers. Real money. On messy businesses? Silence. Interest disappears fast. If you want premium pricing, become a quality business: Modernized operations. Documented systems. Transferable relationships. Financials that match tax returns. Margins that make sense. Less owner dependence. If your business is: • Owner-centric • “Adjusted” into profitability • Margin-compressed with no plan • Operationally undocumented You’ll feel like the market died. It didn’t! Preparation did. 80% of brokers expect higher volume in 2026. Boomers are exiting. Buyers are active. Here’s the 2026 reality for SMB owners: The gap between prepared and unprepared sellers is widening. The best time to sell is when you don’t have to. The second best time is before you’re burned out!

Had coffee with a healthtech banker last week. He goes, “My fastest-growing deal is my hardest one to sell.” Because buyers aren’t buying growth anymore. They’re buying a business they can cut into and still keep standing. He said buyers flip to the back of the deck first now, and they’re drilling into stuff founders rarely talk about: What's your sales & marketing expense as a % of revenue? Does this business survive if I cut the sales team? What ARR is each AE actually generating? What does cash-to-accrual conversion look like? Very different questions then what was asked in your latest raise.... The focus is no longer “how fast are you growing?” It’s “what happens if we remove the expensive parts?” You can see it in who gets momentum: The founder who raised a Series A years ago, still has cash in the bank, and is growing profitably? Multiple offers. The founder doing similar revenue but burning through a giant raise? Buyers see a cost structure, not a company. If you think you’re 12–18 months from a process, run the buyer’s tests now: ◉ Cut S&M by 40% on paper. If the business collapses, buyers already know. ◉ Get your cash-to-accrual reconciliation clean before diligence. That alone can add 6–8 weeks. ◉ Know your ARR per AE. That’s the layer the market is underwriting now. The scorecard that got you funded is not the scorecard that gets you sold.

Most deals don’t fail because of price. 📉 They fail because of structure. And a great deal shouldn’t be thrown away just because of a lack of cash on hand. One of the most flexible strategies I use is called the Stack Method. At a high level, it’s a way to combine multiple sources of financing instead of relying on just one. Here’s the simple version: Instead of forcing a deal to fit traditional lending rules, you stack the capital so the deal works for everyone involved. Quick example: Let’s say a seller wants $500,000 for a property. ↳ A primary lender covers the bulk of the purchase. ↳ Short-term funds bridge the gap and closing costs. ↳ The seller carries back part of their equity to replace that short-term money. Together, those pieces “stack” into a complete deal—without the friction that usually kills good opportunities. Why this is powerful: ✅ Sellers: Get their price, plus monthly income and tax advantages. ✅ Buyers: Reduce the cash needed to close and gain massive flexibility. ✅ The Deal: "Dead" opportunities suddenly become negotiable. The key is understanding how to structure the numbers so everyone wins. I use a Stack Calculator to quickly model these scenarios and see what’s possible before anyone's time is wasted. If you’re curious how stacking might work on a real deal, drop a "STACK" in the comments and I’d be happy to share the calculator I use. You’d be surprised how many “dead deals" come back to life. #RealEstate #CreativeFinancing #DealStructure #Investing

One thing that keeps coming up in conversations right now is the gap between what buyers need and what sellers want. On paper, there are plenty of “available” deals. In reality, many of them exist because the original business plans no longer stack up. Cost basis that now sit ahead of market pricing. Capital that has just been caught out a little on cycle timing. In some cases, bank-led processes focused on recovering as much principal as possible. None of that is unusual. It’s part of every reset. Add in a slightly peripheral micro-location, and the impact on viability can be huge. So alignment becomes difficult. What’s interesting is that there is willingness to buy. And there is willingness, or need, to sell. But buyer sentiment remains cautious. It often feels like people are searching for a needle in a haystack. One deal that clears every hurdle, ticks every box, and justifies pulling the trigger. Until that happens, a lot of capital stays “active”. Inspecting. Underwriting. Maybe bidding. But ultimately staying on the sidelines. In my view, part of that is rational. Numbers need to be disciplined. Exit yields, voids, capex and lease-up all need to be stress-tested properly. The fundamentals still matter. But I’m also a believer in judgement. At a certain level, in certain sub-markets, there comes a point where the bricks and mortar is just cheap. Call it below replacement cost. Call it relative value. Call it common sense. When the entry basis is right, the risk profile changes. Lately, I’ve seen what would once have been a downside case treated as the starting point. Very few people want to talk openly about upside right now. It almost doesn’t exist. That’s understandable. But it’s also where opportunity tends to form for those with conviction. Some parts of London feel genuinely good value. And I wouldn’t be surprised if assets trading at £500 psf today are back at £1,200 psf by the end of the next business plan cycle. Right now, I spend most of my time sitting between both sides of this argument. Buyers protecting risk. Sellers trying to preserve value. And the real work is unlocking the middle ground. Where both sides feel like they’ve given something. Because that’s where deals actually happen. It probably takes a bit more movement before the gap really closes. But it feels like the ingredients are there.

🚨 Most Businesses Don’t Have a Revenue Problem. They have a financial clarity problem. Sales are coming in — But decisions are still based on guesswork. If you don’t know: • Your real cash position today • Your monthly burn rate • Your vendor liabilities • Your true profit margins You’re not managing a business. You’re managing hope. Strong businesses measure weekly. Growing businesses forecast monthly. Serious businesses reconcile consistently. Clarity isn’t optional. It’s a competitive advantage. If your numbers aren’t clear, your growth isn’t controlled. #FinanceLeadership #CashFlow #SME #StartupFinance #BusinessGrowth