Small Business Exit Transactions Remain at Strong Levels

 
 
By Nathan Eddy  |  Posted 2014-04-09
 
 
 

Small business transactions remained at high levels in the first quarter of 2014, continuing the growth trend that began in the first quarter of 2013, according to a report from business-for-sale online marketplace BizBuySell.

Strong small business transaction volume, median asking price continuity, and median sale price indicated that sellers are enjoying healthy demand for their businesses.

In the first quarter of 2014, the median asking price of sold businesses was $199,000, a figure equal to that seen in three of the prior four quarters.

In addition, the median sale price in the quarter remains strong at $175,000 and is approximately $25,000 higher than the median sale price witnessed during the 2010 to 2012 period.

This quarter's transaction volumes also represent a 4.8 percent increase from last quarter, marking the first quarter-over-quarter increase since the first quarter of 2013.

However, on a year-over-year basis, transaction volume in the first quarter of 2014 fell 9 percent from last year's impressive first quarter total of 1,897—a decrease that was expected, as transaction volumes in early 2013 were amplified by the carryover impact of the capital gains rate that expired at the end of 2012.

"While expected, it's encouraging that the 2014 business-for-sale market is starting the year strong," Curtis Kroeker, group general manager of BizBuySell.com and BizQuest.com, said in a statement. "It shows that, despite 2013's surge in business sales, we haven't yet worked through the pent up supply and demand created during the Great Recession. It's clear that buyers and sellers remain confident and ready to enter the market."

However, sales price multiples reveal that it remains a buyer's market. While sellers are getting much higher prices than they did just a few years ago, buyers are getting better value for their business-buying dollar.

This is shown by multiples that remain at historic lows. The average multiple of revenue for sold businesses in the first quarter slipped 1.2 percent year-over-year to 0.59 and the average multiple of cash flow fell 0.6 percent to 2.21.

"The most recent numbers and the longer-term trends show that both small business buyers and sellers are confident that they can work out a mutually beneficial deal in today's market." Kroeker continued. "As the economy continues to, hopefully, strengthen and access to acquisition financing continues to improve, 2014 should be a good year for small business transactions. Simply put, the depressed transaction activity from late 2008 through to the end of 2012 created the fundamentals for a sustained recovery."

Participating business brokers reported 1,726 closed transactions in the first quarter of 2014, marking the fifth straight quarter to exceed 1,600 transactions, a benchmark that had not previously been reached since before the start of the Great Recession in 2008.

In fact, immediately after the recession began, reported transaction activity dropped significantly, with transaction totals for 2009 and 2010 dropping to an average of 1,126 reported transactions per quarter.

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