BizBuySell’s annual year-end report finds more small businesses were sold in 2011 than in 2010, spurred by slightly decreased valuations, improved business performance, and slow improvement in capital access.
San Francisco, CA – January 4, 2012 — BizBuySell.com, the Internet’s largest marketplace for buying or selling a small business, today released its Full-Year and Fourth Quarter 2011 Insight Report on business succession trends. The report, which aggregates business for sale transaction data provided by participating business brokers, shows that small business sales were up slightly in 2011. This continues a trend of gradual year-over-year growth that began at the beginning of 2009.
For 2011, the number of small businesses reported as sold to BizBuySell.com across the U.S. was 6,703, an increase of 3.3 percent over the 2010 total of 6,486.* This follows a similar 3.0 percent jump in closed transactions from 2009 to 2010 (see following graph for quarter-by-quarter sales).
2011 Q3 Closed Small Business Transactions
The slight rise in closed transactions was accompanied by an equivalent 3.3 percent increase in the median selling price, from $150,000 in 2010 to $155,000 in 2011. However, median revenue for sold businesses was up more (6.7 percent) indicating that improved business performance contributed to increased sales activity. This also shows that business owners are adjusting their pricing expectations and selling their businesses for less relative to revenue and cash flow to get deals done.
“While 2011 continued to be a tough year for the nation’s small business owners, we were pleased to see that business performance is improving and more people are buying small businesses,” Mike Handelsman, group general manager of BizBuySell.com and BizQuest.com said. “Helping this is the fact that business sellers are adjusting their value expectations, something that should continue to spur deals in 2012.”
Buyers Getting More for their Money
Transactions reported to BizBuySell.com showed that buyers are getting more for their money and that favorable market conditions continue to exist for buyers who have or can secure necessary funding. The average revenue multiple for small businesses sold in 2011 was .60, down 8.8 percent vs. 2010 and the average cash flow multiple was 2.36, down 8.2 percent (see following graph for average valuation multiples by quarter).
2011 Q3 Small Business Sale Price Multiples
Fourth Quarter of 2011 in Line with Annual Trends
The final quarter of 2011 showed similar results to the full year. Closed transactions were basically unchanged, from 1,699 in Q4 2010 to 1,696 in Q4 2011. This is encouraging, as the fourth quarter of 2010 saw increased selling activity due to the expected end of the reduced capital gains tax rates that were set to expire at the end of 2010 (note: late in Q4 2010, the reduced tax rates were extended until the end of 2012). In Q4 2011, businesses sold for a multiple of revenue of .60, down 8.6 percent vs. Q4 2010, while the multiple of cash flow was 2.39, down 2.3 percent. Meanwhile, the median asking price in Q4 2011 for small businesses sold dropped $5,000 year-over-year to $175,000 (see following graph for median asking and selling prices by quarter).
2011 Q3 Small Business Sale Price vs. Asking Price
“We are seeing improved small business transaction activity driven, at least in part, by the fact that small business owners are lowering prices to attract buyers,” says Handelsman. “It’s slowly becoming a better time to be a seller, but it’s already a good time to be a buyer.”
Continued Gradual Growth Expected
Fundamentals point to a continued slow, but-steady, growth in the business-for-sale market in 2012 barring unforeseen global economic issues. Small business performance is improving and sellers who haven’t been able to sell for the past few years should start to reach performance levels that make a sale possible. Added to this is the fact that sellers are becoming increasingly realistic about valuations to more aggressively seek a sale. Finally, underlying all of this is the very favorable long-term conditions of latent supply (e.g., the large number of U.S. baby boomers reaching retirement age) and demand that will continue to fuel transaction growth, especially as credit restrictions ease.
“The Federal Government and Small Business Association are continuing to focus on helping ease bank lending restrictions and providing more capital to the small business market,” Handelsman said. “As more buyers and sellers begin to take advantage of these initiatives, we expect the gradual increase in business transactions to continue in 2012.”