Global mergers and acquisitions activity totalled approximately $3.1 trillion in 2024, according to LSEG (formerly Refinitiv) data — a recovery from the $2.6 trillion trough of 2023, but still significantly below the $5.9 trillion peak of 2021. The middle-market segment — transactions between $50 million and $500 million — has demonstrated particular resilience, driven by private equity sponsors who accumulated $2.6 trillion in dry powder as of year-end 2024 (PitchBook estimate) and who must deploy capital into acquisitions to generate the returns their limited partners expect. For business owners considering a sale, the structural demand from private equity alone creates a more favorable environment than most of the past decade.

The Preparation Window: Two to Three Years Before Sale

The businesses that achieve the highest valuations in competitive sale processes are those prepared to be sold before the sale process began — years before, not weeks. The specific dimensions most directly affecting valuation: the quality of financial reporting (audited financial statements for three years; clear separation of owner compensation and personal expenses that a buyer must normalise to assess true EBITDA; documented recurring versus non-recurring revenue); the strength of the management team below the founder level (businesses in which all key relationships and knowledge sit with the owner are valued at a discount because the buyer is effectively acquiring the owner's personal business, not a standalone enterprise); and revenue concentration (businesses where the top five customers represent more than 50 percent of revenue are valued at discounts reflecting acquisition risk). All three can be improved with two to three years of deliberate effort — and the same improvements that increase business valuation also increase business quality and resilience.

Choosing the Right Process

There are three types of sale process, and the choice should be driven by the seller's strategic goals. A broad auction — circulating a confidential information memorandum to 50–100 or more potential buyers — maximises competitive tension and is most effective for businesses with broad strategic appeal where the highest bidder is likely to be a strategic acquirer whose synergy assumptions justify a premium. A targeted process — the memorandum going to 10–20 curated buyers — maintains competitive tension while reducing management distraction and confidentiality risk. A bilateral negotiation — direct approach to a specific buyer without competitive support — is appropriate when there is one clearly right buyer and the relationship is strong enough to negotiate at arm's length. Investment bankers have a structural incentive toward broad auctions because they generate the maximum number of management meetings and the greatest appearance of thoroughness. The seller's interest is not always aligned with the broadest process, particularly for businesses with significant customer relationship or employee sensitivities where confidentiality leakage risk in a broad process can damage the business regardless of the competitive tension generated.

EBITDA Multiples and What Drives Them

Business valuations in M&A transactions are typically expressed as a multiple of EBITDA. Private equity buyers in 2024 paid median EBITDA multiples of approximately 8–11x for middle-market software and technology businesses, 6–9x for business services, 5–8x for industrial and manufacturing, and 5–7x for consumer businesses, according to GF Data and PitchBook transaction data. Strategic acquirers typically pay premiums of 20–50 percent above private equity multiples where they can identify specific synergies. The multiple a specific business achieves depends on: revenue growth rate (fast-growing businesses command premiums); gross margin; customer quality and contract structure (recurring revenue under multi-year contracts is valued at a premium over project revenue); management team quality and independence from the founder; and the competitive dynamic of the process (competitive processes generate higher multiples than bilateral negotiations because they create the threat of loss that motivates buyers to bid aggressively).

Tax Structure: The Difference Between a Good Exit and a Great One

The tax structure of a business sale can have an after-tax impact equivalent to 20–30 percent of total transaction value — often larger than any improvement in gross purchase price achievable through the process. The most important structuring decisions for a founder-owned business include: whether the transaction is structured as an asset sale or a stock sale (asset sales are typically better for buyers, stock sales for sellers, and the premium a buyer will pay for the buyer-preferred structure depends on the specific tax basis differential); the use of installment sales (IRC Section 453) to spread gain recognition over multiple years; the treatment of personal goodwill (the value attributable specifically to the founder's relationships and reputation may be separable from corporate goodwill in some structures, with different and more favorable tax treatment); and the timing of the transaction relative to anticipated changes in capital gains tax rates. These decisions require qualified M&A tax counsel engaged before the process begins, not after a term sheet arrives. Tax structure cannot be optimised retroactively.

Sources: LSEG/Refinitiv Global M&A Review 2024; PitchBook 2024 PE Buyout market report; GF Data middle-market M&A transaction data 2024; PitchBook private equity dry powder estimate year-end 2024; IRC Section 453 installment sale provisions. This article is editorial commentary and does not constitute financial, legal, or tax advice. Business sales involve significant complexity; consult qualified M&A counsel and tax advisors before initiating any sale process.