Market Pulse Report 2Q22, 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 second-quarter market research for 2022. The report is a statistical analysis of 355 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. The following business ranges are believed to be a buyer’s market: 63% for businesses valued under $500K and 56% for businesses valued in the $500K to $1M range. And the following business ranges were believed to be a seller’s market: 56% for businesses in the $1M to $2M range, 71% for businesses in the $2M to $5M range, and 74% for businesses in the $5M to $50M range.

The median number of months from listing or engagement to close was 6.5 months for under $500K and 7 months for $500K to $1M range. For the $1M to $2M range, $2M to $5M range, and $5M to $50M range, the median number of months was 8 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 2.0x for the under $500K transactions, and EBITDA decreased from 2.1x to 2.0x. In the $500K to $1M range, SDE decreased from 2.8x to 2.5x, and EBITDA decreased from 2.9x to 2.0x. In the $1M to $2M range, the SDE increased from 2.8x to 3.3x, but EBITDA decreased from 4.0x to 3.4x. In the $2M to $5M range, the SDE multiple increased from 3.0x to 3.5x, but EBITDA decreased from 4.4x to 3.3x. And lastly, in the $5M to $50M range, the SDE multiple increased from 3.3x to 4.1x, and EBITDA decreased from 6.0x to 5.3x. 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.