By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source have recently published their second-quarter market research for 2020. The report is a statistical analysis of 361 respondents who answered this quarter’s 25 question survey. This is the first of a three-part series.
COVID-19 has had a tremendous impact on the global economy. The pandemic has had a unique impact on business brokers and their clients. Respondents reported that 16% of their listings, engagements, LOIs, and purchase agreements were canceled, 36% were delayed, 40% were unaffected, and 9% increased in value. Out of the canceled deals, 53% was because the buyer decided to cancel, 21% was because the seller decided to cancel, and 15% was because bank financing was no longer available. 40% of businesses that responded are operating at partial capacity, 26% have returned to operate at full capacity, 13% are temporarily closed, 16% are still unaffected, and 6% have benefited. 88% of respondents answered that the pandemic will have a negative effect on business values. 24% of respondents believed that it will take until 2021 Q1 for M&A activity to return to pre-March levels; 22% believed it will take until 2021 Q2. However, here in the Carolinas, we are seeing a resurgence in the second quarter and up through August, in buyer interest for solid companies.
For businesses sold for under $500K, the median number of months from listing to close was seven months. For businesses sold between $500K and $1M, the median was nine months. From $1M to $2M the median from listing to close was seven months, and from $2M to $5M the median was 12 months. In the $5M to $50M range, it was 11 months.
Seller’s Discretionary Earnings (SDE) and Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) median multiples are not far off from last year’s multiples. In the under $500K range, the SDE median multiple paid decreased to 1.8x. In the $500K to $1M range, the SDE multiple increased to 2.8x. In the $1M to $2M range, the SDE multiple increased to 3.3x. The EBITDA multiple paid in the $2M to $5M range stayed the same at 4.0x. In the $5M to $50M range, the EBITDA multiple decreased from 5.9 to 5.5x.