Small to Mid-Size Businesses and the IBA Transaction Database

As of April 1, 2008, the IBA Transaction Database contained information from more than 33,700 transactions involving the sale/purchase of closely held businesses. Most of these transactions related to small to mid-size businesses.

Before proceeding with a detailed discussion of the IBA Transaction Database and the Direct Market Data Method (DMDM), it would be helpful to define a small to mid-size business. Even though most people have an intuitive sense of what a small to mid-size business is, there is no statutory or regulatory definition.

Here are some common definitions of small and mid-size businesses:

Criteria used by the Small Business Administration (SBA):

Very small: any business with fewer than 20 employees

Small: any business with 20 to 100 employees

Medium: any business with 101 to 500 employees

Large: any business with more than 500 employees
Criteria used in the 1998 Business Reference Guide:

Small: any business priced at less than $1 million

Mid-size: any business priced between $1 million and $20 million

Large: any business priced at more than $20 million
Criteria utilized in Mergers and Acquisitions Handbook for Small and Mid-sized Companies:

Small: any business with less than $1 million in annual sales and fewer than 10 employees

Mid-size: any business with between $1 million and $20 million in annual sales and with between 10 and 249 employees

Large: any business with more than $20 million in annual sales and with more than 249 employees
As can be gleaned from the above discussion, there is no precise definition of a small to mid-size business. However, the referenced sources are somewhat consistent in terms of definitions, and the definitions make sense. The IBA Transaction Database contains useful valuation information for small to mid-size businesses and the DMDM can be of great assistance in valuing these types of businesses.