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 2022. The report is a statistical analysis of 493 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: 83% for businesses valued under $500K, 74% for businesses valued in the $500K to $1M range, and 56% for businesses in the $1M to $2M range. And the following business ranges were believed to be a seller’s market: 57% for businesses in the $2M to $5M range, and 57% 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, $1M to $2M ranges, and $2M to $5M range, and 10 months for the $5M to $50M range.
The top reasons deals do not close by deal size are as follows: for deals valued under $500K: 22% unrealistic seller value expectation, 20% poor financials, 14% economic uncertainty, 11% financing, 10% deal fatigue, and 10% unrealistic buyer value expectation. For deals valued from $500K to $1M range: 24% unrealistic seller value expectation, 17% poor financials, 15% economic uncertainty, and 15% financing. For deals valued from $1M to $2M range, 22% unrealistic seller value expectation, 20% economic uncertainty, 15% financing, and 10% unrealistic buyer value expectation. For deals valued from $2M to $5M range, 26% unrealistic seller value expectation, 19% economic uncertainty, 11% financing, 11% poor financials, 11% unrealistic buyer value expectation, and 10% deal fatigue. And for deals valued from $5M to $50M range, 25% unrealistic seller value expectation, 19% economic uncertainty, 14% unrealistic buyer value expectation, 11% deal fatigue, and 11% financing.
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 increased from 2.5x to 2.8x but EBITDA decreased from 3.3x to 3.0x. In the $1M to $2M range, the SDE decreased from 3.3x to 3.0x, and EBITDA decreased from 3.5x to 3.0x. In the $2M to $5M range, the SDE multiple decreased from 3.3x to 3.0x, and EBITDA decreased from 4.3x to 4.1x. And lastly, in the $5M to $50M range, the SDE multiple decreased from 4.0x to 3.5x, and EBITDA decreased from 5.0x to 4.1x. 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, so the mix and quality of businesses in the analysis can impact the quarter-to-quarter change.