[IMGCAP(1)]The trend is up in the business-for-sale marketplace, according to the latest BizBuySell survey of business brokers.
This is good news for baby boomers who want to sell their businesses so they can retire, and for those who want to buy themselves a job by buying a business.
In the survey, more than 63 percent of brokers responding reported a year-over-year increase in the number of small business transactions. When asked for the top factor causing the increase in business transactions, most brokers identified an increase in the number of interested buyers on the market.
More than 70 percent of brokers surveyed expect more deals to get done over the remainder of 2014 than have already closed in the first few months of the year. Seller financing is either important or essential to completing the sales process, according to 80 percent of the respondents. This is slightly down from previous years, driven by improved availability of other funding sources. The national debt and political gridlock were identified as top issues that could endanger the small business market’s recovery, according to 30 percent of respondents.
“There seems to generally be a lot more enthusiasm in the small business community,” said Bob House, general manager of BizBuySell.
“There’s a pipeline of businesses for sale,” he said. “Deals are getting done, and we expect more to be done the remainder of this year. More buyers are coming into the market, and sellers are more realistic in their expectations regarding pricing.”
Moreover, House indicated, buyers are in a better position to make purchases because of increased access to lending and finance options, and generally increased personal net worth.
“The stock market is strong, home prices have rebounded so buyers feel more capital is available to them, so that they can secure the necessary financing,” he said.
More than half of the current sales are attributable to baby-boomer sellers, House observed.
“Many of them have been waiting out the poor conditions in the market over the past five years,” he said. “Business performance is improving, which helps garner a higher sales price. They waited until they could show revenue growth over the last three years rather than a decline. Many of them probably did have worsening performance during the recession, so it was not the best time to sell.”
“While the economic recovery has made it more possible for potential buyers to secure financing for their purchase, sellers are also more comfortable to offer a portion of that financing through seller-financing,” House said.
Underscoring the key role of seller financing, less than 2 percent of the brokers surveyed thought seller financing was unnecessary in today’s market. When asked about their sales, 26 percent said nearly all (90 to 100 percent) of their closed sales included seller financing, while another 32 percent noted that most (60 to 89 percent) included it.
So, while economic improvement has clearly benefited buyers and sellers in the business-for-sale market, seller financing remains important for funding and closing deals, House indicated.