M&A Market Pulse 3Q24 – Part 1: Key Trends for Buyers and Sellers

By: Reizchel Oasay and Ron BuckThe M&A market is dynamic, and the third quarter of 2024 has revealed some noteworthy trends. The International Business Brokers Association (IBBA) and M&A Source have released their latest market research, providing valuable insights for buyers and sellers.

Buyer’s or Seller’s Market? It Depends.

The market dynamics vary significantly depending on the price range of the business:

• $500K – $2M: This segment is currently considered a buyer’s market, with 65% for $500K-$1M to 52% for $1M – $2M of respondents indicating so.
• $2M – $100M+: Businesses in this range are generally experiencing a seller’s market, with percentages ranging from 62% for $2M-$5M businesses to 65% for those valued at $5M-$50M to 66% for $50M-$100M.

Deal Timelines and Offers

The time it takes to close an M&A deal can vary widely:

• $500K – $1M: Median closing time is 7 months.
• $1M – $2M: Median closing time is 7 months.
• $2M – $5M: Median closing time is 10 months.
• $5M – $50M: Median closing time is 10 months.

The number of offers received also fluctuates across price ranges, with businesses in the $500K-$2M range typically receiving 1-3 offers, while those in the $5M-$50M range often receiving 3-6 or more offers.

Valuation Multiples: SDE and EBITDA

Key business valuation metrics include Seller’s Discretionary Earnings (SDE) and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). Q2 2024 saw some notable shifts:

• $500K – $1M: SDE decreased from 2.8x to 2.5x, while EBITDA decreased from 2.8x to 2.4
• $1M – $2M: SDE increased from 2.8x to 2.9x, and EBITDA stayed at 3.3
• $2M – $5M: SDE decreased from 3.5x to 3.2x, but EBITDA increased from 3.5x to 3.9x.
• $5M – $50M: SDE increased from 2.8x to 5.4x, while EBITDA decreased from 3x to 4.5x.

These changes highlight the importance of using industry-specific multiples and considering multiple valuation methodologies when buying or selling a business, as the mix and quality of businesses in the analysis can impact the quarter-to-quarter change.

Key Considerations for Buyers and Sellers

• Buyers: Be aware of the competitive landscape in your target price range and factor in a detailed analysis of valuation multiples for the specific industry you are looking at when making offers.
• Sellers: Price your business competitively, and be prepared for varying deal timelines and offer volumes depending on your business’s value.

In Part 2, we’ll explore the motivations and demographics of buyers and sellers in the current M&A market.