By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source just published their third quarter market research for 2016. The report is a statistical analysis of 278 respondents. In a three part series, I will examine the International Business Brokers Association (IBBA) and M&A Source’s analysis of the market.
In comparison to last quarter, the market has shifted to a buyer’s market. For businesses under $500k, last quarter an average of 62% of the respondents reported it was a buyer’s market. This quarter, 69% of the respondents reported a buyer’s market. The buyer’s market percentage has increased for businesses of all sizes.
The average length from the listing to close for all businesses under $5M has been 8 months. This has evened out since last quarter where businesses under $1M took 6 months and businesses between $1M and $5M took 9 months.
The Seller’s Discretionary Earnings (SDE) multiple paid has been increasing every quarter this year. In the third quarter, the SDE multiple for businesses sold between $500k and $1M rose from 2.8 to 3.0. Businesses under $500k has stayed the same at 2.3, and businesses between $1M and $2M also stayed the same at 3.3.
This quarter, the majority of businesses under $5M used SDE as a means of valuing the price of a business. The price used does not include working capital. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) including working capital is used by most of the respondents in order to value business over $5M.