BizBuySell has released its quarterly Business Insights Report for the second quarter of 2013, showing a dramatic 61.8% jump in small business transactions closed in the quarter compared to the same quarter of 2012.
In BizBuySell’s “landscaping and yard services” category. there 149 reported sales, but we should note that this is heavily weighted toward very small transactions. The median sales price was $122,500 and the median total revenues was $263,500. Based on these 149, mostly very small, transactions, the average multiple to cash flow was 1.88 and the average multiple to revenues was .65. Not only do these numbers reflect mostly very small transactions, they also cover a wide variety of types of businesses. They are not particularly indicative of multiples for larger transactions within the green industry, including lawn and landscape businesses.
The report does provide a great deal of insight into the overall small business market place and the much higher level of activity we are seeing. Here s the full text of BizBuySell’s summary report:
San Francisco, CA – July 8, 2013 — BizBuySell, the Internet’s largest business-for-sale marketplace, reported today that small business transactions jumped 61.8% in the second quarter of 2013 as compared to the same period of 2012. This continues a strong upward trend in the business-for-sale marketplace, building on a 55.7% increase in the first quarter of 2013.
In total, 1,827 closed transactions were reported in Q2 2013, a significant spike over the 1,129 transactions recorded in Q2 of 2012. The 61.8% bump is the largest year-over-year jump since small business sales bottomed out in mid-2008. The results are included in BizBuySell.com’s Second Quarter 2013 Insight Report, which aggregates business-for-sale transactions reported by participating business brokers nationwide.
In recent years, small business sales have been improving, but were doing so slowly due to a variety of economic uncertainties. The significant boost occurring now appears driven by a recovering economy, strong supply/demand fundamentals (i.e., an aging business owner demographic and an increase in the number of qualified business buyers) and continued small business performance improvement.
Latent supply and demand in the small business succession market has existed for some time now. A large percentage of small business owners are Baby Boomers eager to retire. As such, many small business owners were ready to sell their businesses a few years ago, but were either unable to sell or delayed plans to sell in the hopes of a better sale price once the economy improved. With the long-awaited strengthening of the economy underway and small business health continuing to improve, these owners now appear confident that they can receive a sufficient exit price for their business. At the same time, many entrepreneurs were ready to purchase a business a few years ago, but were hesitant to buy a business in an uncertain economic environment or found that business acquisition financing was simply not available. The improved economy and increased availability of financing have brought many buyers into the market. Also, recent gains in home prices and the stock market mean that more would-be entrepreneurs finally have the financial means needed to buy a business.
“Since the recession hit in 2008, a large supply of sellers and buyers has been waiting for the right time to transact,” Curtis Kroeker, Group General Manager of BizBuySell.com and BizQuest.com, said. “With the economy improving, small business performance rising and acquisition funding becoming more available, the stars are aligning for these buyers and sellers to finally achieve their business transaction goals in 2013.”
In addition to these market factors driving an increase in business ownership transitions, the fiscal cliff at the end of 2012 is likely continuing to positively impact business sales. As the possibility of higher personal and business taxes loomed at the end of 2012, many owners started their business sale process. Many of these sales likely didn’t get done by December 31st, 2012 (selling a small business typically takes eight months or more), but are closing in the first half of 2013 and, thus, are contributing to the dramatic year-over-year increase in small business transaction levels.
Small Business Financials Continue to Strengthen
Small business health has improved steadily over the past few years and BizBuySell’s second quarter data indicates this trend continues. The median revenue of businesses sold during Q2 was recorded at $393,700, a 9.4% increase over the $360,000 median revenue in Q2 2012. Similarly, the median cash flow of sold businesses rose 7.5%, from $85,508 last year to $93,000.
These improving financials are allowing business owners to both ask for and receive more money during the sale process. The median asking price of businesses sold in Q2 2013 was $195,000, up 8.3% from Q2 2012. Most importantly for business owners, the median sale price of businesses that changed hands during the quarter jumped 16.7% to $175,000, a strong increase from the $150,000 reported in Q2 2012.
“Small business owners are growing more confident in the sellability of their business as these financial numbers continue to improve and it’s showing in both their asking and final sale price,” Kroeker said “At the same time, these strong financials are also giving buyers confidence that they are purchasing a growing, sustainable business. It’s a true win-win for both sides of the deal.”
It’s Still A Buyers Market, For Now
Despite strengthening small business financial performance in recent years, sales price multiples continued to slide creating a very strong buyers’ market. Buyers who were fortunate enough to have adequate capital lined up to pursue a business acquisition found lower buyer competition and were able to buy good businesses for historically low multiples of revenue and cash flow. While it is still very much a buyers’ market today, sale price multiples have started to increase suggesting that sellers’ negotiating power may finally be strengthening. The average sale price as a multiple of cash flow, for example, had been on a steady decline since the start of 2011 indicating that buyers of small businesses were getting increasingly better value each quarter. That trend has reversed the past two quarters, however, and in Q2 2013 the average multiple of cash flow reached 2.23.
The cash flow multiple is still far below pre-recession levels, but slowly strengthening multiples could indicate that the pendulum is starting to swing back toward the seller side of the market. The trend follows a similar path as that seen recently in residential real estate in which prices are beginning to recover to prior levels in many markets. In both cases, the economic recovery is pushing prices back to more reasonable values with small business price recovery likely lagging the home price recovery trend slightly.
“Multiples provide a great look at where the power lies at the business-for-sale negotiating table,” Kroeker said. “The pattern emerging means that we expect multiples to continue their rise as the economy continues to recover and the marketplace balances out. While it’s still a great time to be a business buyer, sellers are starting to get more value from their exits.”