Market Pulse Report 4Q 2021 (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 fourth-quarter market research for 2021. The report is a statistical analysis of 416 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, 57% of the respondents answered it was a buyer’s market. The following business ranges were believed to be a seller’s market: 57% for the businesses valued in the $500K to $1M range, 72% for the businesses valued in the $1M to $2M range, 83% for the businesses valued in the $2M to $5M range, and 85% for the businesses valued in the $5M to $50M range.
The median number of months from listing or engagement to close was 6 months for under $500K. The median number of months from listing or engagement to close was 8 months for the $500K to $1M range and $1M to $2M range. For the $2M to $5M range, the median number of months was 9 months, and for the $5M to $50M range it was 10 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. In median SDE and EBITDA, SDE stayed at 2x for the under $500K transactions, and EBITDA declined from 2.5x to 1.8x. In the $500K to $1M range, SDE increased from 2.3x to 2.6x, and EBITDA increased from 2.8x to 2.9x. In the $1M to $2M range, the SDE multiple stayed at 3.3x, but EBITDA declined from 3.8x to 3.5x. In the $2M to $5M range, the SDE multiple stayed at 3.3x, and EBITDA stayed too at 4.0x. And lastly, in the $5M to $50M range, the SDE multiple decreased from 4.25x to 3.5x, and EBITDA decreased from 6.8x to 6.0x. These quarterly movements showed significant change when compared to previous quarters, likely due to continued disruption from COVID and unusual 2020 financial results that are not reflective of the company’s ongoing prospects. 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.