Business Brokerage/M&A Market Pulse 3Q20 – Part 1 of 3
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By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source have recently published their third-quarter market research for 2020. The report is a statistical analysis of 352 respondents who answered this quarter’s 25 question survey. This is the first of a three-part series.
There was an increase in deals that happened in Q3. Advisors completed 301 transactions, an increase of 71% from last quarter and 43% year over year. The CARES Act incentives have been driving some of the acquisitions in Q3, as the SBA provided a six-month subsidy of principal and interest for acquisitions that were completed before Sept 27th.
The pandemic has had a unique impact on business brokers and their clients: 35% of businesses are operating at partial capacity, 34% have returned to operate at full capacity, 6% are temporarily closed, 16% are unaffected, and 9% have benefited. 7 6% of respondents answered that the pandemic will have a negative effect on business values. 14% of respondents believe that it will take until 2021 Q1 for M&A activity to return to pre-March levels (down 10% from last quarter); 29% believe it will take until 2021 Q2 and 17% believe it will take until 2021 Q3. However, here in the Carolinas, we are seeing a resurgence in buyer interest for solid companies.
For businesses sold for under $500K, the median number of months from listing to close was eight months. For businesses sold between $500K and $1M, the median was ten months. From $1M to $2M the median from listing to close was ten months, and from $2M to $5M the median was nine months. In the $5M to $50M range, it was ten months.
Seller’s Discretionary Earnings (SDE) and Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) median multiples are not far off from last year’s multiples. In the under $500K range, the SDE median multiple paid increased to 2x. In the $500K to $1M range, the SDE multiple decreased to 2.5x. In the $1M to $2M range, the SDE multiple decreased to 3.0x. The EBITDA multiple paid in the $2M to $5M range stayed the same at 4.0x. In the $5M to $50M range, the EBITDA multiple increased back to 5.9x from 5.5x.