More small business owners are offering their firms for sale this year while more interested buyers are appearing.
Respondents to a survey cited the willingness of sellers to finance the purchase and increased buyer vitality were cited for the rise in activity.
These are the conclusions of a survey of company brokers by BizBuySell.com, an internet marketplace for buying or selling a small business.
Of the brokers surveyed, 54 percent said that business-for-sale market conditions have improved so far in 2012. 58 percent believe that conditions will continue to get better over the remainder of the year. Only seven percent of respondents expect the market to worsen.
According to survey responses, the two factors contributing most to this optimistic outlook are the increasing number of interested buyers (cited by 72 percent of respondents), followed by the growing number of owners looking to sell (cited by 58 percent of respondents).
“Sellers who contemplated selling last year, but who decided to wait are starting to come into the marketplace now,” noted one broker in the survey. Another broker commented that the market is finding workarounds to the scarcity of acquisition financing, noting that “sellers are more receptive to seller-financing when financial statements are not adequate to obtain bank financing.” Other ways the market seems to be showing signs of vitality include better sale prices and improved buyer financing options.
“It’s encouraging to see that 58 percent of respondents are optimistic about market conditions through the rest of the year,” Curtis Kroeker, General Manager of BizBuySell.com said. “The fact that we’re starting to see improvements on both sides of the transaction—for both buyers and sellers—is a turning point. As long as buyers and sellers retain realistic expectations for the sale process, the market is set to grow.”
Market Conditions and Financing Availability Still Impede Full Recovery
Despite the slightly improving market and noticeable increase in interested buyers, 37% of brokers surveyed cite the challenging small business environment as the #1 reason even more transactions aren’t closing. A difficult business environment makes many would-be business buyers nervous, and buyer risk aversion remains a top factor slowing down recovery.
“Buyer prospects talk a good game, but they ultimately back off due to fear of things getting worse,” one broker noted.
“Sellers still want several year-ago values; buyers expect a deep discount. The exceptions are the better businesses, which are few, but they get a better multiple and move [more] quickly,” said another.
Lack of available financing is another common impediment to closing business transactions according to 28 percent of survey respondents. Other brokers, however, cited improvement in the availability of acquisition capital.
“Although it is still the number one issue preventing deals from closing, financing is becoming less of an issue each year,” Kroeker said. The underlying truth here is that buyers, sellers and banks have yet to regain trust in the economy. Until that trust is fully reinstated, we are unlikely to see a complete recovery in the business succession market.”
Still Waiting on Economic Recovery and 2012 Election Results
Many business brokers don’t see business transaction volumes returning to pre-recession levels for at least another two years. 46 percent of brokers surveyed indicate that full volume restoration will occur in 2014 at the earliest, down nine percentage points from last year.
“We have a new economic paradigm,” one broker indicated. “The recent economy constitutes a ‘reset,’ meaning that the current economy will improve gradually. Achieving pre-recession transaction volumes anytime soon is not likely.”
The top threat to economic recovery, according to 24 percent of respondents, is ongoing long-term unemployment, followed by gas prices and the national debt. The 2012 political race is also expected to influence the country’s economic and business future. When asked which presidential election outcome would be most favorable to the business-for-sale market, 46 percent indicated that Mitt Romney’s election as president would most benefit transaction conditions.
“The state of the economy is and has been a roadblock for business buyers and sellers, and whether or not the election will dramatically alter the situation is still to be determined,” explained Kroeker. “Many of the improvements we are seeing now will likely continue regardless of election results.”
Full survey results are available to interested members of the media. Local business brokers can be provided as story sources upon request.
BizBuySell is the Internet's largest and most heavily trafficked business for sale marketplace, with more business for sale listings, more unique users, and more search activity than any other service.