Business Brokerage/M&A Market Pulse 1Q20 – Part 1 of 3
Buying a business For Buyers For Sellers Selling a business ValuationPosted by Ron Buck on
By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source have recently published their first quarter market research for 2020. 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.
COVID-19 has had a large global economic effect. The pandemic has had a unique impact on business brokers and their clients. Respondents reported that 11% of their listings, engagements, LOIs, and purchase agreements were canceled, 46% were delayed, 36% were unaffected, and 7% increased in value. Out of the cancelled business, 46% was because the buyer decided to cancel, 25% was because the seller decided to cancel, and 12% was because bank financing was no longer available. 40% of businesses that respondents are working with are operating at partial capacity, 35% are temporarily closed, 21% are unaffected, and 4% have benefited. 81% of respondents answered that the pandemic will have a negative effect on business values.
For businesses sold for under $500K, the median number of months from listing to close was six months. For businesses sold between $500K and $1M, the median was eight months. From $1M to $2M the median from listing to close was nine months, and from $2M to $5M the median was ten months. In the $5M to $50M range, it was 12 months.
Seller’s Discretionary Earnings (SDE) and Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) median multiples are similar to last year’s multiples. In the under $500K range, the SDE median multiple was 2.0x. In the $500K to $1M range, the SDE multiple increased to 2.6x. In the $1M to $2M range, the SDE multiple stayed the same at 3.0x. In the $2M to $5M range, the median SDE multiple increased to 3.3x compared with 3.0x a year ago. From $5M to $50M, the SDE multiple increased to 4.3x compared with 3.8x a year ago. The EBITDA multiple paid in the $2M to $5M range decreased to 4.0x from 4.3x. From $5M to $50M, the EBITDA multiple decreased from 6.0 to 5.5x.