Articles

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 2023. The report is a statistical analysis of 382 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.

 Asking Price vs. Actual Sale Price:

Sellers do not always get their asking price. Overall, sellers received an average of 91% of their asking price. For businesses sold in the $500K to $1M range, it was 93%.  For businesses sold in the $1M to $2M range, it was 94%.  For businesses sold in the $2M to $5M, it was 96%. And for $5M to $50M ranges, it was 110%.  In general, buyers received a lesser percentage of their asking price in 4Q2023 compared to 3Q2023. At Murphy Carolinas, our long-term average is running 97% (not including earnouts) – 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.

Common Industries for Business Sales Across Price Ranges:

For businesses sold in the $500K to $1M range, the most common industries were 16% construction & engineering, 15% personal services, 13% business services, 13% other industries, and 10% manufacturing. The most common industries in the $1M to $2M range were 25% were business services, 16% construction & engineering, 15% other industries, and 13% consumer goods & retail. The most common industries in the $2M to $5M range were 22% manufacturing, 17% other industries, 15% construction & engineering, 15% wholesale & distribution, and 10% business services. And in the $5M to $50M range, the most common industries were 26% manufacturing, 17% business services, 13% construction & engineering, and 13% other industries.

Seller Financing and Earnouts in Business Sales:

In terms of seller financing and earnout, in the $500K to $1M range, 15% consisted of seller financing and 1% was earnout. In the $1M to $2M range, 12% consisted of seller financing and 2% was earnout. In the $2M to $5M range, 15% consisted of seller financing and 1% was earnout. In the $5M to $50M range, 4% consisted of seller financing and 10% was earnout.

Primary Valuation Metrics and Multiples Used in Business Sales:

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 85% of the time for the $500 to $1M range, 91% for the $1M to $2M range, 64% for the $2M to $5M range, and was not used this quarter for $5M to $50M range (which is historically where the shift occurs).

Is Net Working Capital Included in the Price?

Multiples excluding working capital (vs. including it) were used 78% of the time for the $500 to $1M range, 76% for the $1M to $2M range, 61% for the $2M to $5M range, but only 30% for the $5M to $50M range (which is historically where the shift occurs).

Expectations for Business Valuation Multiples in the Next Three Months:

In terms of expectations for business valuation multiples in the next three months, most multiples are expected to stay the same for the following range: 75% of respondents for deals valued in the $500K to $1M range, 74% of respondents for deals valued in the $1M to $2M range, 71% of respondents for deals valued in the $2M to $5M range, and 73% of respondents for deals valued in the $5M to $50M range. If not staying the same, most expect multiples to increase.