The latest data from BizBuySell.com indicates a small uptick in the sales of small businesses, likely spurred by lowered prices. Observers believe the 3.5% increase from July through September 2011 is the result of business sellers growing more comfortable with lower prices, or growing to accept lower valuations of their companies and assets in a struggling economy. Many of these sellers may have been attempting to wait for a recovery that never came. Meanwhile, this has shift has also spurred growth in sales of larger businesses as buyers look to get more for their dollar while the market is in their favor. For more on this continue reading the following article from Blue MauMau.
Cheaper prices for businesses fueled a 3.5 percent increase in completed transactions of businesses for sale from July through September, 2011 compared to last year. According to BizBuySell, while the market for business succession has been decimated by the down economy and the chronic dearth of acquisition financing, the encouraging news is that this is the fourth straight quarter of positive year-over-year trending in business exits.
According to the online dealer that has over 45,000 current businesses to bid, many sellers appear to finally be willing to accept lower business valuations, allowing the market to clear.
The report, which aggregates business-for-sale transaction data provided by participating business brokers, shows slight improvement in business succession activity, as closed transactions increased 3.5 percent from 1,586 in Q3 of 2010 to 1,642 in Q3 of 2011.*
This number is down slightly from the 8% year-over-year increase reported in Q3 of 2011.
"We’re glad to see the year-over-year upward trend that we’ve been reporting in the business-for-sale market continue into Q3," said Mike Handelsman, Group General Manager, BizBuySell.com and BizQuest.com. "However, there’s no denying that Q3 was somewhat turbulent for the overall economy, so it’s not a surprise that we are down slightly versus last quarter."
Sold Businesses Reporting Lower Valuations
While closed transactions showed a slight increase over Q3 of 2010, the average multiple of annual revenue that a small business sold for on BizBuySell.com was .60, a decrease of 10.9% versus the same quarter a year ago. The average multiple of annual cash flow that a business sold for was 2.42, a decrease of 4.7% vs. the same quarter a year ago. According to Handelsman, this decrease in valuation multiples is likely a result of sellers becoming more realistic about their asking and selling prices.
"The trend toward more realistic expectations regarding valuations is a primary driver of the increase in closed transactions," said Handelsman.
"Business owners who may have been holding out for an economic recovery or waiting for their business to recover are now opting instead to exit their businesses, even if that means accepting a lower sale price."
Larger Businesses Selling in Q3 than Previous Quarters
Notably, BizBuySell.com is seeing an increase in the average size of sold businesses, with the median sale price for Q3 reported at $150,000, up 7.1% vs. a year ago. Handelsman notes that this increase in sale price is likely the result of a combination of two factors — changes in both financing and valuations.
"As valuations decline, buyers are able to purchase larger businesses than in previous quarters for the same purchase price," Handelsman explains.
"Also, as the lending environment improves and financing slowly becomes more available for business buyers, they are able to buy slightly larger businesses."
BizBuySell expects the current slight but steady upward trend to continue through the remainder of 2011 and into 2012 as the lending environment continues to improve.
"We’re seeing more attention being paid to business funding though both government programs and legislation, which will help to drive more closed small business transactions," Handelsman said.
This article was republished with permission from Blue MauMau.
*Note: Data collection methodology changed in Q3 2011. To enable historical transaction volume comparisons, BizBuySell calculated adjusted historical figures that account for methodology revisions. For further explanation, please contact the media contact listed below.