San Francisco, CA — BizBuySell.com, the internet business for sale marketplace, reported that small business transactions remained at high levels in the first quarter of 2014, continuing the growth trend that began in Q1 of 2013.
Participating business brokers reported 1,726 closed transactions in Q1 2014, marking the fifth straight quarter to exceed 1,600 transactions, a benchmark that had not previously been reached since before the start of the Great Recession in 2008. In fact, immediately after the recession began, reported transaction activity dropped significantly, with transaction totals for 2009 and 2010 dropping to an average of 1,126 reported transactions per quarter. There was only a very small improvement in the next few years as an average of 1,182 businesses changed hands per quarter in 2011 and 2012. At the outset of 2013, the recovery finally truly took hold and in the last 5 quarters, an average of 1,756 small businesses have closed, an average of 52% more per quarter than seen during the 2009 to 2012 period.
This quarter’s transaction volumes also represent a 4.8 percent increase from last quarter (Q4 2013), marking the first quarter-over-quarter increase since Q1 2013. On a year-over-year basis, transaction volume in Q1 2014 did fall 9 percent from last year’s impressive first quarter total of 1,897. This decrease, however, was expected as transaction volumes in early 2013 were amplified by the carryover impact of the capital gains rate that expired at the end of 2012 – changes that motivated more small business owners to seek a sale in late 2012 even if though many sales weren’t realized until the first part of 2013.
“While expected, it’s encouraging that the 2014 business-for-sale market is starting the year strong,” Curtis Kroeker, Group General Manager of BizBuySell.com and BizQuest.com, said. “It shows that, despite 2013’s surge in business sales, we haven’t yet worked through the pent up supply and demand created during the Great Recession. It’s clear that buyers and sellers remain confident and ready to enter the market.”
Transaction Volumes Show it is a Good Time to Sell, but Financial Multiples Show it is a Great Time to Buy
Strong small business transaction volume, median asking price continuity, and median sale price show that sellers are enjoying healthy demand for their businesses. In Q1 2014, the median asking price of sold businesses was $199,000 – a figure equal to that seen in three of the prior four quarters. Moreover, the median sale price in Q1 2014 remains strong at $175,000 and is approximately $25,000 higher than the median sale price witnessed during the 2010 to 2012 period.
However, sales price multiples reveal that it remains a buyer’s market. While sellers are getting much higher prices than they did just a few years ago, buyers are getting better value for their business-buying dollar. This is shown by multiples that remain at historic lows. The average multiple of revenue for sold businesses in Q1 slipped 1.2 percent year-over-year to 0.59 and the average multiple of cash flow fell 0.6 percent to 2.21.
Buyers are also benefiting from buying small businesses that are performing well. The median annual revenue of businesses changing hands in Q1 fell slightly (0.3 percent) to $400,000 and the median annual cash flow for sold businesses dipped 4 percent to $96,000. However, the longer-term trend for both of these metrics remains positive with the Q1 figures well above pre-2013 levels.
“The most recent numbers and the longer-term trends show that both small business buyers and sellers are confident that they can work out a mutually beneficial deal in today’s market.” Kroeker said. “As the economy continues to, hopefully, strengthen and access to acquisition financing continues to improve, 2014 should be a good year for small business transactions. Simply put, the depressed transaction activity from late 2008 through to the end of 2012 created the fundamentals for a sustained recovery.”