Midsize Businesses Sell for Higher Multiples

A few weeks ago I pointed out the strong market for the purchase and sale of small businesses.

It turns out that the market for midsize businesses in North America is strong and optimistic, also.

Buyers are plentiful. Prices are up. Financing is available.

That’s according to the IMAP 2004 merger & acquisition (M&A) pricing survey for midsize businesses (PDF).

IMAP is an industry association of intermediaries who serve the midsize business market. IMAP stands for the International Network of Merger and Acquisition Partners.

“Multiples” are the primary way that the sales price for buying and selling a business is calculated. A number called a “multiple” is multiplied by another number, usually “earnings before interest and taxes” or EBIT as it is known in accounting parlance.

Selling multiples of privately owned middle-market companies increased dramatically over the past two years. In 2004 the median selling multiple for businesses under $10 Million in annual revenues sold through the IMAP network was 5.6 times earnings-before-interest-and-taxes. For businesses of $50+ Million in revenues, the median multiple was 7.1.

What are some other trends? Check out the comments in the Survey results for North America (page 6):

  • Corporate buyers are relying more on acquisitions for growth.
  • Financing is readily available. “Lenders galore.”
  • The transportation business is doing well — the best in 20 years.
  • Large price differences exist between high-tech manufacturers with proprietary technology (high prices), and ordinary manufacturers (lower multiples).

And the outlook for 2005? Also expected to be strong. Seventy-five percent (75%) or more expect to see more sellers and more buyers in the market, and over 90% expect to see similar or better access to financing.

Check out the survey, which also includes European and Asian results, in addition to North American results.

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Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.