Business Brokerage/M&A Market Pulse 3Q17 – Part 1 of 2

Buying a business Selling a business Valuation

Posted by Ron Buck on

By Brandon Mack

The International Business Brokers Association (IBBA) and M&A Source have recently published their third quarter market research for 2017. The report is a statistical analysis of 334 respondents who answered this quarter’s survey. 35% of the respondents had at least 10 years of experience.  This is the first of a two-part series where I will examine the IBBA’s and M&A Source’s analysis of the market.

Unemployment is at a pre-recession level, and 55% of the respondents expect the dwindling labor market will create more acquisitions. David Ryan, an advisor with Upton Financial Group, says “Talent scarcity is driving M&A activity…For businesses looking to grow, acquisitions present an efficient way to land a trained and established labor force. When we talk to corporate M&A teams, we increasingly hear that talent acquisition is a key part of their strategy.”

81% of those surveyed reported that uncertainty over Trump’s tax plan will have “little impact” for mergers and acquisitions for deals under $50M, although there was some consideration that there is a possibility of increased buyer demand because of more cash available for deals.

Across the board, Seller’s Discretionary Earnings (SDE) and EBITDA median multiples have not changed much from last quarter, however, the multiples continue to stay solid. Secondly, the respondents were asked if they believed it was a buyer’s or seller’s market across three different price ranges. Every price category has become more of a seller’s market since last quarter. For businesses valued under $500K, 35% of the respondents answered it was a seller’s market. Additionally, 45% responded it was a seller’s market for business valued between $500K and $1M. 60% answered it was a seller’s market for the $1M to $2M range; this is an all-time high since the survey began in Q2 of 2012. Finally, 65% answered it was a seller’s market for the $2M to $5M range.

The amount of time from the listing to the close has become slightly longer this quarter. Businesses sold for under $500K have taken 6 months to sell; this has remained the same from Q2. For businesses sold between $500K and $1M and $1M to $2M, the median number has risen from 6 months to 6.5 months and from 7 months to 7.5 months. The $2M to $5M bracket has stayed the same at 9 months.