The Pepperdine Capital Markets project conducts ongoing research concerning the cost of private capital across market types and the investment expectations of privatelyheld business owners. The International Business Brokers Association (IBBA) and M&A Source Market Pulse Quarterly Survey Report for the third quarter of 2015 (3Q15) examines the market conditions for businesses being sold in Main Street (values $0 to $2 million) and the Lower Middle Market (values $2 million to $50 million) sectors.
Pendulum shift: “The market is moving to a seller’s market in each sector, especially as deals get larger,” says Cress V. Diglio, Transworld Business Advisors and IBBA chair. “Business owners who are selling now are ‘ahead of the curve’ and are getting rewarded with very strong valuations. Eventually, as more and more baby boomers seek to retire and put their businesses on the market, there will be an oversupply of sellers and the market will most likely swing back to a ‘buyer’s market.’”
Looking at the data the last five quarters, valuations are similar for all sectors. The report found “a slight decrease” in the $1 million to $2 million valuation range. The median multiple paid (SDE) was 2.8 for 3Q15 (down from 3.3 in 3Q14) and the median multiple paid (EBITDA) was 3.5 for 3Q15 (down from 3.8 in 3Q14). “This tends to be the price range at which individual buyers are priced out and existing businesses owners are inclined to buy, but only when it can add to their current operations,” says the report.
The survey for 3Q15 was completed by 192 respondents, representing 20 regional and international M&A and business broker associations.
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