By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source has recently published their second quarter market research for 2017. The report is a statistical analysis of 293 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. This quarter is interesting in comparison to last quarter, because the values have become more dramatic by about 5% in each category. For businesses valued under $500K, 74% of the respondents answered it was a buyer’s market. Additionally, 61% responded it was a buyer’s market for business valued between $500K and $1M. 52% answered it was a seller’s market for the $1M to $2M range, and 70% answered it was a seller’s market for the $2M to $5M range. Furthermore, the respondents were asked how many offers were received for their most recent closing: 28% received one, 26% received two, 23% received three, and 23% received over four.
The amount of time from the listing to the close has shortened in this report. For businesses sold for under $500K, the median number of months has dropped from seven months last quarter to six months this quarter. For businesses sold between $500K and $1M, the median number is also six months. $1M to $2M takes seven months and $2M to $5M take nine months.
The Seller’s Discretionary Earnings (SDE) multiple paid has overall decreased in all the price ranges when in comparison to Q1 of 2017. This quarter, the SDE multiple for businesses sold under $500K has dropped from 2.3 to 2.0. In the $500K to $1M range, SDE multiple has dropped from 2.8 to 2.3. In the $1M to $2M range, the SDE multiple has remained consistent at 3.3. Finally, in the $2M to $5M range, the SDE multiple has dropped from 3.4 to 3.0. The SDE multiples are the median of each group and can often greatly vary depending the business’ characteristics and the number of companies in the sample size.
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 $1M, 70% used the SDE not including working capital. In the $1M to $2M range, 56% used SDE not including working capital and 24% used EBITDA not including working capital. Lastly, in the $2M to $5M range, 19% used SDE including working capital, 28% used the SDE not including working capital, 23% used EBITDA including working capital, and 23% used EBITDA not including working capital.