Market Pulse Report 1Q22; Part 1 of 3

Buying a business For Buyers For Sellers Selling a business Valuation

Posted by Ron Buck on

By Reizchel Oasay and Ron Buck

The International Business Brokers Association (IBBA) and M&A Source have recently published their first-quarter market research for 2022. The report is a statistical analysis of 360 respondents who answered this quarter’s 25-question survey. This is the first of a three-part series.

The respondents were asked if they believed it was a buyer’s or seller’s market for different price ranges. For businesses valued under $500K, 52% of the respondents answered it was a buyer’s market. The following business ranges were believed to be a seller’s market: 61% for businesses valued in the $500K to $1M range, 69% for businesses in the $1M to $2M range, 78% for businesses in the $2M to $5M range, and 80% for businesses in the $5M to $50M range.

The median number of months from listing or engagement to close was 6 months for under $500K and 7.5 months for $500K to $1M range. For the $1M to $2M range and the $2M to $5M range, the median number of months was 8 months. And for 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 had some movement from last quarter’s multiples.  SDE stayed at 2x for the under $500K transactions, and EBITDA increased from 1.8x to 2.1x. In the $500K to $1M range, SDE increased from 2.6x to 2.8x, and EBITDA stayed at 2.9x. In the $1M to $2M range, the SDE multiple decreased from 3.3x to 2.8x, but EBITDA increased from 3.5x to 4.0x. In the $2M to $5M range, the SDE multiple decreased from 3.3x to 3.0x, but EBITDA increased from 4.0x to 4.4x. And lastly, in the $5M to $50M range, the SDE multiple decreased from 3.5x to 3.3x, and EBITDA stayed at 6.0x.  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.