Market Pulse Report 3Q 2022, 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 third-quarter market research for 2022.  The report is a statistical analysis of 499 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: 72% for businesses valued under $500K and 63% for businesses valued in the $500K to $1M range.  And the following business ranges were believed to be a seller’s market: 51% for businesses in the $1M to $2M range, 62% for businesses in the $2M to $5M range, and 65% 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, 8 months for the $500K to $1M and $1M to $2M ranges, 9 months for the $2M to $5M range, and 10 months for the $5M to $50M range.

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, and EBITDA stayed at 2.0x for the under $500K transactions.  In the $500K to $1M range, SDE stayed at 2.5x, but EBITDA increased from 2.0x to 3.3x. In the $1M to $2M range, the SDE stayed at 3.3x, but EBITDA increased from 3.4x to 3.5x. In the $2M to $5M range, the SDE multiple decreased from 3.5x to 3.3x, but EBITDA increased from 3.3x to 4.3x. And lastly, in the $5M to $50M range, the SDE multiple decreased from 4.1x to 4.0x, and EBITDA decreased from 5.3x to 5.0x. 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.