With that in mind, he said, he’s seeing EBITDA multiples in a range of low- to mid-teens.

“Beyond that, we’ve heard people talking about 20 times EBITDA, but that’s with a 5% required rate of return, which is hard to justify unless you can achieve some sort of synergy within the business,” he said.

Nesvold said he agreed that valuations haven’t started to drop yet, but he is perceiving a cooling, seen mostly in the level of aggression among buyers.

“We still are seeing that high bid in a process coming in at, or near, historical highs. I’m just not seeing three of them anymore. Maybe I’m seeing one or two,” he said. “What ends up happening in downturns is that sellers are backward-looking, saying, ‘Well, I was worth X just a couple of months ago,’ and buyers are forward-looking, and they say ‘Yeah, but you’re worth Y now.’ So there is a bit of a split there, and that evidences itself more in deal structure.”

Shifting Deal Structures

Nesvold said that deal structures are now including more earnouts, more deferred compensation, to incentivize the seller to hit future targets.

In addition, Bhattacharyya said, other deal terms are shifting away from “the seller’s market” where they were a year ago, and there is better risk alignment between buyer and seller on many of the points that used to be very much in the seller’s favor in the past.

One area of notable difference, he said, are the kinds of stakes buyers are acquiring.

“Buyers don’t need control of the business. It’s the advisors who control the business. It’s whomever is servicing the client. That’s where control really resides. And so we’re seeing more deals for minority stakes of 25% or 30%,” he said. “In minority deals, there will be more minority protections—at least information rights, maybe a board seat, and the right to say no on a number of things. But surprisingly on valuations, not a massive discount.”

In one sense, buyers have been becoming more selective—not because they’re not seeing quality firms coming to market, but because deal flow is so good that many of the bigger consolidators have as many as 15 or 20 firms in the pipeline for letters of intent, Nesvold said.