Articles

 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 last of a three-part series where I will examine the IBBA’s and M&A Source’s market analysis.

Sellers do not always get their asking price.  Overall, sellers received an average of 92% of their asking price.  For businesses sold for under $500K, the average was 87% of their asking price.  For businesses sold in the $500K to $1M range, it was 94%.  For businesses sold in the $1M to $2M range, it was 97%.  For businesses sold in the $2M to $5M range, it was 96%.  And for businesses sold in the $5M to $50M range, sellers received an average of 102% of their asking price.  In general, buyers received a bit percentage of their asking price in 3Q2022 compared to 2Q2022.  At Murphy Carolinas, our average runs about 96% (before earn-outs) – pricing the business correctly on the front end, with the ability to back up the price with data, greatly improves this metric – as does focusing on revenue and growth while the company is for sale.

For businesses sold for under $500K, the most common industries in this range were 28% restaurants, 19% personal services, 16% consumer goods and retail, and 11% business services.  In the $500K to $1M range, the most common industries were 19% construction and engineering, 15% consumer goods and retail, 10% business services, and 11% other services.  The most common industries in the $1M to $2M range were 19% construction and engineering, 13% consumer goods and retail, 11% manufacturing, 10% personal services, and 11% other services.  The most common industries in the $2M to $5M range were 15% consumer goods and retail, 15% construction and engineering, 14% business services, and 20% other services.  And in the $5M to $50M range, 26% manufacturing, 20% construction and engineering, and 11% other services.

In terms of seller financing and earnouts, in the under $500K range, 12% consisted of seller financing with 1% as an earnout.  In the $500K to $1M range, 9% consisted of seller financing and 0% was earnout.  In the $1M to $2M range, 12% consisted of seller financing and 0% was earnout. In the $2M to $5M range, 10% consisted of seller financing and 0% was earnout.  And in the $5M to $50M range, 12% consisted of seller financing and 1% was earnout.  The four-quarter average was 11% seller finance for the under $2M range, 9% for the $2M to $5M range, and 9% for the $5M to $50M range.

Seller’s Discretionary Earnings (SDE) and Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA) remained the primary valuation metrics/multiple types.  Specifically, SDE (vs. EBITDA) was used 91% of the time for the under $500K, 83% of the time for the $500 to $1M range, 74% for the $1M to $2M range, 64% for the $2M to $5M range, and 19% for $5M to $50M range.  Multiples excluding working capital (vs. including it) were used 75% of the time for the under $500K, 80% for $500 to $1M range, 75% for the $1M to $2M range, 65% for the $2M to $5M range, but only 33% for the $5M to $50M range (which is historically where the shift occurs).

In terms of expectations for business valuation multiples in the next three months, most multiples are expected to stay the same for the following ranges: 49% of respondents for deals valued under $500K, 47% of respondents for deals valued in the $500K to $1M range, 52% of respondents for deals valued in the $1M to $2M range, 55% of respondents for deals valued in the $2M to $5M range, and lastly, 53% of respondents for deals valued in the $5M to $50M range. If not staying the same, most expect multiples to decrease.