Mergers and Acquisitions, Mergers and Acquisitions, Small business

Small Business Valuations Still Rising


Although the number of small businesses sold dipped a bit in 2015, the average asking price and sale price rose significantly, according to BizBuySell, a business for sale marketplace.

Much like an eBay for entrepreneurs, BizBuySell helps company buyers and sellers to find each other and then broker deals. Among the marketplace's key findings for 2015:

  • Annual small business transactions stabilized in 2015, ending the year down just 3.6 percent from 2014's record high.
  • A total of 7,222 closed transactions were reported in 2015, nearly matching the 7,494 transactions in 2014, which was the highest year-end total reported since BizBuySell started tracking data in 2007.

Of course, BizBuySell tracks small business M&A across all verticals -- not just service providers. And most of the data involves micro-businesses (sub-$1 million companies). Still, the data shows an overall healthy appetite for M&A, and those deals typically involve healthier and healthier businesses. For instance:

  • The median revenue of sold businesses in 2015 was $449,462, up from $417,562 in 2014.
  • Median cash flow was $102,000, up from $100,000 in 2014.
  • Median asking price grew 12.5 percent from $200,000 in 2014 to $225,000.
  • Median sale price rose 7.6 percent year-over-year, from $185,000 to $199,000.

In terms of valuation:

  • Businesses with a cash flow under $100,000, for example, received a sale price multiple of cash flow around 1.97.
  • Those with $100,000 to $300,000 cash flow received 2.28 times cash flow.
  • Businesses showing between $300,000 and $500,000 received a 2.81 multiple.

Again, the data points represent small businesses from all verticals, not just service providers. ChannelE2E expects the current M&A wave involving IT service providers to rise at least through 2022. Valuations for IT service providers, VARs and MSPs have also remained historically strong, according to Service Leadership Inc. CEO Paul Dippell.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.