By Brandon Mack
Recently, the M&A Source and the International Business Brokers Association updated their survey results for the second quarter of 2016; the report included 378 respondents. This is the first part of a three part series where we will examine how the market is changing.
Currently, the market is having a shift from a buyer’s market to a seller’s market. Across the board for businesses of all sizes, the market is becoming more and more of a seller’s market. The market has shifted by as much a 7% from buyer to seller, with 59%responding that it was a “seller’s market”.
In Quarter 2, businesses valued under $500,000, have been selling in a shorter amount of time: on average half a month shorter, or in 6 months. On the other hand, business valued over $1 million are taking longer to sell by one month, or 9 months. In Quarter 2, on average it took a month longer for businesses valued over $1 million between the Letter of Intent and closing, taking 4 months.
Businesses sold in Quarter 2 were valued more than in Quarter 1. All sizes of businesses were sold for a higher value, because their Seller’s Discretionary Earnings (SDE) multiple was higher, averaging 2.3 for businesses valued under $500,000, 2.8 for businesses valued between $500,000 and $1 million, and 3.3 for businesses valued between $1 million and $2 million. Specifically, the multiple increased by 15% for businesses valued under $500,000.
The market is also shifting in the type of evaluation being used. SDE including working capital has almost doubled in its usage for businesses valued under $2 million (from 12.6% to 21.5%), and EBITDA including working capital has increased in its usage for businesses valued over $2 million (from 23.8% to 31.5%).