Q1 data indicate most business sale transactions since fourth quarter of 2008
San Francisco, CA – April 4, 2012 — BizBuySell.com, the Internet’s largest business-for-sale marketplace, reported Wednesday that nearly four percent more businesses were sold in the first quarter of 2012 compared to the same period last year. The results were included in BizBuySell’s First Quarter 2012 Insight Report.
The report, which aggregates business-for-sale transactions reported by participating business brokers nationwide, showed continued improvement in the business-for-sale market. In total, 1,729 closed transactions were reported in the first quarter of 2012, a 3.9 percent increase from Q1 2011.
The 1,729 businesses that were reported sold in the first quarter of 2012 mark the largest number of transactions since the fourth quarter of 2008, making this quarter the most active in over three years. Additionally, the quarter marks the third straight period of increasing business transactions after both Q3 and Q4 of 2011 saw improving conditions.
“Seeing small business transaction totals reach 2008 levels bodes well for the upcoming months,” Mike Handelsman, group general manager of BizBuySell.com and BizQuest.com said. “While we are not out of the woods yet, economic factors are slowly improving and have given the business-for-sale marketplace a nice boost to start 2012.”
Lower Valuations Lead to Lower Prices
A main driver of the increase in transactions is that business owners were willing to accept lower prices than in previous quarters. While total closed transactions increased in Q1 of 2012, average sale price as a multiple of both revenue and cash flow decreased compared with the same period last year. The average sale price as a multiple of annual revenue fell over 10 percent to 0.59, the lowest since the financial crisis at the end of 2008. The average sale price as a multiple of cash flow decreased by 4.7 percent to 2.36.
These falling multiples may point to business owners becoming more realistic about final sale prices. While median asking prices for sold businesses actually increased by $1,000, the median final sale price dropped 3.2 percent, from $155,000 in Q1 2011 to $150,000 in Q1 2012.
“Business owners are continuing to adjust their pricing in order to expedite a sale,” Handelsman said. “While some may still be holding out for an economic recovery, many more are trying to exit at acceptable prices, even if it means settling for a lower number than they originally expected.”
Better Financing Options, Unemployment Create Demand
Throughout the recession, one of the main obstacles for buyers to overcome was financing the transactions. Over the past year, credit market conditions have become more favorable. Banks are lending and more business owners are offering seller financing to prospective buyers. High unemployment rates also continue to create demand as out of work entrepreneurs seek to invest in new businesses.
“Lack of available financing is consistently named as one of the top reasons for a slow recovery by our audience of leading business brokers,” Handelsman said. “As buyers find more ways to fund their business acquisitions, we expect the increase in business transactions to continue.”
Continued Growth Expected for Rest of 2012
While valuation multiples dropped in Q1, median revenue for sold businesses grew from $346,000 to $360,000 compared to the same quarter last year. As these financials continue to improve, owners may finally have the confidence that their business is healthy enough to sell. Also, with many Baby Boomers reaching retirement age, the latent supply held over the past couple years could hit the market in the remainder of 2012.
“There are certainly small business owners who have been biding their time since the recession hit in 2008,” Handelsman said. “With better financing available for buyers and a larger supply of businesses ready to hit the market, we may finally have the right conditions for a more significant bump in the number of closed transactions.
About the BizBuySell.com Insight Report
BizBuySell.com is the Internet’s largest marketplace for buying or selling a small business. The company releases its BizBuySell.com Insight Report on a quarterly basis, reporting changes in closed transaction rates, valuation multiples and other economic indicators for the small business transaction market. Closed transactions are reported to BizBuySell.com by business brokers nationwide.