Sales of small businesses jumped 56 percent between the first quarter of 2012 and the same period this year, according to information gathered by BizBuySell.com, an Internet marketplace for businesses for sale. Nearly 1,900 small business transactions closed in the first three months of 2013, versus about 1,100 last year. “It’s by far the strongest increase we’ve seen,” says Curtis Kroeker, group general manager with BizBuySell.com and BizQuest.com, also a business marketplace.
The jump is similar to the one that occurred between the first quarter of 2013 and the last quarter of 2012, when nearly 1,200 business transactions closed. (All these numbers reflect transactions voluntarily reported by brokers to BizBuySell.)
Several factors likely account for the increase, Kroeker says. First are “fundamental supply and demand dynamics.” For the past several years, a number of business owners had hoped to sell their ventures and retire, but decided to hold off. In some cases, the businesses’ performance had deteriorated, which likely would have held down the price the business would capture. In others, suitable buyers weren’t able to get financing.
As many businesses’ performance have improved, they’ve become more sellable. And, while access to capital remains tight, it has shown some improvement, Kroeker says.
At the same time, some of the macroeconomic and political uncertainty involving the European economies and the U.S. presidential election has cooled off.
And, of course, the pending fiscal cliff and the potential for high tax rates prompted a number of business owners to initiate transactions late last year. However, it’s likely that not all were completed by midnight on December 31, Kroeker adds. Some would have spilled over into 2013.
As a result, “Q2 will be a telling quarter,” Kroeker says. If the number of transactions remains elevated, it likely will signal steadily improving business fundamentals and access to capital. A drop in the volume of deals would likely indicate that the spike seen so far this year was largely related to the fiscal cliff.
Along with the jump in transaction volume, the media sale price also ticked up, although by a smaller amount. The median sale price during the first quarter of 2013 was $180,000, up 20 percent year-over-year.
Brokers sounded cautiously optimistic about the remainder of the year. More than half – 54.2 percent – expect slight to significant improvement going forward.
For would-be entrepreneurs, this is “a great time” to get into the market, even though uncertainty remains, Kroeker says. The economy is recovering, boosting businesses’ performance. Indeed, the median cash flow of a business sold so far this year was $100,000, up more than 20 percent from the first quarter of 2012.
In addition, while sales prices have inched up, cash flow multiples remain low when compared to historical trends, Kroeker says.
One big concern, however, remains access to capital. “It’s still tight,” Kroeker says. And, that’s holding back the economy. “The more capital available to help enable people to pursue their dreams, will help accelerate small business selling, and accelerate the economic recovery as well.”