Deal Volume Fell 10%. The Average Multiple Went Up.

10% fewer businesses sold last quarter and the ones that sold went for more.

Most people read a headline like that and conclude the market is tightening against buyers. Prices up, inventory moving slower, worse time to buy. That is the wrong read, and getting it wrong will cost you a deal you should have made.

What The Q2 Numbers Actually Say

The volume drop is real and it is broad.

Per the latest BizBuySell Insight Report, 2,117 businesses closed in the second quarter, off 10% both from the prior quarter and from the same quarter last year, representing about $1.8 billion in total enterprise value. The decline showed up across every sector, though not evenly. Aggregate transaction values in manufacturing fell 14% quarter over quarter and restaurants fell 16%, which is what you would expect if buyers were pulling back hardest from anything discretionary or thin-margin.

Now the part that does not fit the story. The average cash flow multiple rose 2% year over year to 2.7 times. The average revenue multiple held flat at 0.7. The median sale price slipped 1% to $349,250, which after a year of inflation is essentially unchanged.

So volume collapsed and pricing did not. Those two facts only sit together one way.

The Deals That Never Show Up In The Average

Closed-transaction data only counts transactions that closed. That sounds obvious until you think about what it hides.

Every deal that died in underwriting is missing from that 2.7 times average. Every deal where the buyer could not document the equity injection, every deal where the seller’s add-backs did not survive the lender’s look at the tax returns, every deal where the coverage came in under the bank’s floor. None of those show up as a cheap comparable. They show up as nothing at all.

When credit tightens, the deals that fall out are disproportionately the marginal ones. Weaker earnings, messier books, more owner dependency. Those are also the deals that would have printed the low multiples. Strip them out of the sample and the average multiple rises even if not a single seller raised a price.

The multiple did not go up. The cheap deals stopped closing.

The broker commentary in the report points the same direction. The concerns named are tightening credit and transactional bottlenecks, not a shortage of buyers. Demand did not leave. It got stuck in underwriting.

I watched a buyer last quarter lose a clean deal at a fair number because his file sat with a lender for eleven weeks and the seller took a lower offer from someone who was already approved. That deal closed at a price below the average and it still would not tell you the market got cheaper. It would tell you the other guy was ready.

Financeable Is The New Cheap

The thing you are actually competing on has moved.

Three or four years ago the buyer who won was usually the one who would pay the most. Right now, in a market where a tenth of the deal flow just fell out over financing, the buyer who wins is the one whose file will actually clear. That is a completely different skill from negotiating.

After 35 years of watching credit cycles do this, the pattern repeats: when money gets harder, sellers start valuing certainty over the last five percent of price. A buyer with a lender already engaged, a documented equity injection, and a clean personal file is worth more to a motivated seller than a buyer waving a bigger number and a maybe.

That is leverage, and it is leverage you build before you ever find the deal.

It also changes what a soft quarter is worth to you. The reason a slow market usually helps a buyer is that sellers get nervous and negotiate. That still happens. But it only helps the buyer who can close, and this quarter proved how many cannot. If a tenth of the market fell out over financing, some meaningful share of the people you would have been bidding against are no longer in the room, and the ones who remain are the ones who did their preparation first.

So the competitive field got smaller and better at the same time. That cuts both ways depending on which side of it you are standing on.

What To Do With A 2.7x Benchmark

Use the number as a floor for suspicion, not as a target.

A 2.7 times average sits uncomfortably close to the 3.0 times ceiling I use, which means the gap between a typical closed deal and a deal I would walk away from is now about three tenths of a turn. That is thin. It also means a listing priced at 4 times is not slightly ambitious, it is roughly fifty percent above what comparable businesses are actually closing at. Run the multiple on anything you are looking at and put it next to 2.7. If you are materially above it, you need a specific reason that is visible in the financials, not a story about growth. You can check where any listing lands in about a minute at DealScore Pro.

And do not read a soft quarter as a discount waiting for you. Volume fell because financing got harder, which means it got harder for you too.

A slow market is not the same thing as a cheap one.

What This Means For You

If you are planning to buy in the next six months, get your lender relationship and your equity documentation finished before you make another offer, because certainty is now worth more to a seller than the last few percent of price. And benchmark every listing against 2.7 times rather than against the asking price the broker anchored you to.

Knowing which deals are actually financeable, before you spend three months finding out the hard way, is most of the work. I go through the whole framework in the free 28-minute masterclass.

See you Saturday.

Mike

Want to see how I stress-test every deal against cost shocks, revenue dips, and hidden liabilities before I'd put a dollar at risk? I walk through the entire Bulletproof method in a free 28-minute masterclass.

Forward this email. Tell them to grab Mike's free book - Real Estate Is for Suckers: Buy a Business Instead. Same framework Mike uses to stress-test every deal.