Does Instability Impact Multiples?

Reader,

The obvious answer would seem to be yes. That makes sense. Instability impacts interest rates, economic conditions, trade agreements, supply chains, etc. All of these impact a small business significantly and can impact the bottom line. The bottom line helps define value.

All of this is true. The data, however, shows that despite the uncertainty that may exist in the world, small business valuation multiples tend to stay relatively the same.

In small business valuation SDE can be substituted for EBITDA in many cases. Oftentimes SDE and Adjusted EBITDA are the exact same number. This cash flow is the primary factor behind small business valuations.

The IBBA issues data and reports using SDE & EBITDA cash flow multiples. The reports use SDE multiples for transactions less than $2mm in value. In the value range of $2mm to $50mm the reports will use EBITDA, or Adjusted EBITDA. Adjusted EBITDA and SDE are interchangeable in practice.

For example, in an IBBA Q3 2023 Market Pulse Report the median multiples of EBITDA and SDE were compared for each range of transaction value. Both EBITDA and SDE are listed below.

<$500k = 1.8x Adj. EBITDA and 1.8x SDE
$500k - $1mm = 3.0x Adj. EBITDA and 2.5x SDE
$1mm - $2mm = 3.5x Adj. EBITDA and 3.0x SDE
$2mm - $5mm = 4.0x Adj. EBITDA and 3.0x SDE
$5mm - $50mm = 6.5x Adj. EBITDA and 3.8x SDE

In an IBBA Q4 2022 report looking at the prior 4 years, deals of <$500k had a 2.0x SDE multiple. This range's multiple has been the same since Q4 2019.

The multiple in the $1mm - $2mm deal range was 3.0x SDE for two years, and 3.3x SDE the other two years. From Q4 2019 - Q4 2022 the $2mm - $5mm range multiple varied from 4.0x - 4.3x SDE Adj. EBITDA.

The same report lists EBITDA multiples ranging from 4.0x to 6.0x for businesses in the $5mm - $50mm range of value. In Q4 2019 the average multiple used for deals of $5mm - $50mm was 5.8x Adjusted EBITDA. In Q4 2024 that same range value was at 6.0x Adj. EBITDA. Multiples since 2019 have remained very consistent from year-to-year.

Each of the last 6 years have held its own challenges economically. In ’21 - ’22 COVID was the dominant influence. Soon after, the interest rates spiked, supply lines tightened, and then the election dominated the landscape.

In the first half of 2025 tariffs, global trade, and global wars have dominated the landscape. Despite the volatility of the news cycle, and in some cases the economic cycle, small business valuation multiples have remained consistent from one year to the next.

Actual valuations tend to change and fluctuate on the cash flow level. The better the economic environment, oftentimes the better the margins. Better margins equals more income. More income equals higher cash flows. Higher cash flows equal higher valuations.

Cash Flow (EBITDA/Adj. EBITDA/SDE) is the primary figure which reflects the business’ value. Cash flow levels can fluctuate wildly. Cash flow can be drastically impacted by interest rates and other economic factors, which in turn can alter the figure being multiplied.

But the multiples used to assess cash flow and value tend to remain stable. According to the various IBBA Market Reports, economic or political instability does not impact small business valuation multiples.

Thanks for being a member of Deal Street. Check out the free articles and information being posted on our various social media outlets.

Sincerely,

Shep

P.S.

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