By Ethan Parker and Ron Buck
The International Business Brokers Association (IBBA) and M&A Source have recently published their first-quarter market research for 2023. The report is a statistical analysis of 371 respondents who answered this quarter’s 25-question survey. This is the first of a three-part series.
Market Analysis – Buyer’s and Seller’s Market Evaluation:
The respondents were asked if they believed it was a buyer’s or seller’s market for different price ranges. The following business ranges are believed to be a buyer’s market: 75% for businesses valued in the $500K to $1M range, and 59% for businesses in the $1M to $2M range. And the following business ranges were believed to be a seller’s market: 54% for businesses in the $2M to $5M range, and 60% for businesses in the $5M to $50M range.
Median Deal Closing Time by Price Range:
The median number of months from listing or engagement to close was 9 months for the $500K to $1M range, 7 months for the $1M to $2M range, 9 months for the $2M to $5M range, and 10 months for the $5M to $50M range.
Key Obstacles to Deal Closure:
The top reasons deals do not close by deal size are as follows: For deals valued from $500K to $1M: 23% unrealistic seller value expectation, 19% poor financials, 11% economic uncertainty, and 10% unrealistic seller length of time to sell. For deals valued from $1M to $2M, 23% unrealistic seller value expectation, 14% economic uncertainty, 12% financing, and 8% unrealistic buyer value expectation. For deals valued from $2M to $5M, 24% unrealistic seller value expectation, 14% economic uncertainty, 9% poor financials, and 9% unrealistic buyer value expectation. And for deals valued from $5M to $50M, 21% unrealistic seller value expectation, 17% economic uncertainty, 10% poor financials, and 7% unrealistic buyer value expectation.
Changes in SDE and EBITDA Multiples Across Price Ranges:
Seller’s Discretionary Earnings (SDE) and Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA) median multiples had some movement from last quarter’s multiples. In the $500K to $1M range, SDE decreased from 2.8x to 2.5x and EBITDA stayed at 3.0x. In the $1M to $2M range, the SDE decreased from 3.3x to 3.0x, and EBITDA increased from 3.5x to 4.0x. In the $2M to $5M range, the SDE multiple increased from 3.0x to 3.3x, but EBITDA decreased from 4.1x to 4.0x. And lastly, in the $5M to $50M range, the SDE multiple increased from 3.5x to 4.5x, and EBITDA increased from 4.1x to 4.3x. Buyers and sellers should be careful when using generic multiples, as multiples are not only just one of several valuation methodologies but also vary greatly by industry, so the mix and quality of businesses in the analysis can impact the quarter-to-quarter change.