By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source have recently published their fourth-quarter market research for 2017. The report is a statistical analysis of 264 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 are happy with the current general business conditions at a 53% increase from twelve months ago as well as future general business conditions with a 60% increase in the next twelve months. Next, 65% of respondents agree that the new SBA requirements of a minimum of 10% instead of 25% will lead to more business sales. This quarter, deals valued under $500K represented 56% of the total deals, 18% of deals were between $500K to $1M, 14% of deals were between $1M and $2M, and 9% of deals were between $2M and $5M.
In comparison to Q4 of 2016, fewer respondents agreed that it was a buyer’s market for all price ranges. In fact, the respondents on average answered that it is a seller’s market for any business deal valued over $500K. For deals valued under $500K, 66% agreed it was a buyer’s market; this is still lower than last year’s 69%. Additionally, in comparison to Q4 of 2016, business deals valued under $1M have sold in a shorter amount of time; 6 months for under $500K and 7 months for $500K to $1M. Deals over $1M have overall taken longer; 9 months for $1M to $2M and 10 months for $2M to $5M.
The Seller’s Discretionary Earnings (SDE) multiple paid has overall decreased in all the price ranges when in comparison to last year. The SDE multiple this quarter for businesses sold under $500K has dropped from 2.3 to 2.0. In the $500K to $1M range, SDE multiple has dropped from 3.0 to 2.5. In the $1M to $2M range, the SDE multiple has dropped from 3.3 to 3.1. Finally, in the $2M to $5M range, the SDE multiple has dropped from 3.8 to 3.1. The SDE multiples are the median of each group and can often greatly vary depending on the business’ characteristics and the number of companies in the sample size.
Most of the businesses this quarter sold for under $5M used SDE (not including working capital) as the multiple type. For businesses sold under $500K, 79% used SDE (not including working capital). 66% used SDE (not including working capital) for the $500K to $1M range. In the $1M to $2M range, 51% used SDE (not including working capital). Lastly, in the $2M to $5M range, 43% used SDE (not including working capital), and 38% used EBITDA (including working capital).
