By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source has recently published their second quarter market research for 2018. The report is a statistical analysis of 277 respondents who answered a 25-question survey. This is the first of a three-part series where I will examine the IBBA’s and M&A Source’s analysis of the market.
The respondents were asked if they believed it was a market is a buyer’s or seller’s market for all the different price ranges. For businesses valued under $500K, 55% of the respondents answered it was a buyer’s market. Additionally, 46% responded it was a buyer’s market for business valued between $500K and $1M. 30% answered it was a buyer’s market for the $1M to $2M range, and 19% answered it was a buyer’s market for the $2M to $5M range. When comparing 2Q18’s responses to 2Q17’s, the community of respondents clearly believe that the market is shifting towards a seller’s market this year. This year, 45% of the respondents believe that it is a seller’s market for businesses valued under $500k, while last year at this time it was only 26%.
For businesses sold for under $500K, the median number of months from listing to close is seven months. For businesses sold between $500K and $1M, the median number is eight months. $1M to $2M takes nine months and $2M to $5M takes nine and a half months. Overall, the time from listing to close has risen this year, and can vary significantly by transaction depending on the specifics and uniqueness of the company.
The Seller’s Discretionary Earnings (SDE) multiple paid has remained the same in almost all the price ranges when compared to 2Q17. In 2Q18 and 2Q17, the SDE multiple for businesses sold is 2.0. In the $500K to $1M range, SDE multiple has increased slightly from 2.3 to 2.5. In the $1M to $2M range, the SDE multiple has remained consistent at 3.3. Finally, in the $2M to $5M range for both years, the SDE multiple is 3.0.
Most of the businesses this quarter sold for under $5M have used SDE not including working capital as the multiple type. For businesses sold under $500k, 78% used SDE not including working capital. 81% use SDE not including working capital in the $500K to $1M range. In the $1M to $2M range, 61% used SDE not including working capital and 26% used SDE including working capital. Lastly, in the $2M to $5M range, 23% used SDE including working capital, 40% used the SDE not including working capital, 20% used EBITDA including working capital, and 17% used EBITDA not including working capital.