December 30, 2014
BizBuySell survey of brokers reveals optimism that 2014 improvement will continue next year; respondents in East & Midwest more optimistic than those in West
San Francisco, CA - December 30, 2014 -- In a nationwide survey of business brokers conducted by BizBuySell.com, the Internet's largest business-for-sale marketplace for buying or selling small businesses, roughly 67 percent of respondents say they experienced a year-over-year increase in transaction activity during 2014. This is consistent with BizBuySell's quarterly Insight Report, which shows the business-for-sale website is on pace to record the most small business transactions since data tracking began in 2007.
The main driver of this growth appears to be an increase in the number of qualified buyers on the market, as more than 35 percent of brokers selected that as the top factor helping business transactions close. That's an 18 percent increase from the number of brokers who said the same thing in last year's survey.
Another 26 percent of surveyed brokers credit this year's transaction activity to general improvement in the small business environment.
"The businesses for sale have improved their financial performance," one broker noted.
Improved business performance is likely behind the rise in buyers as well. Of the brokers who saw more buyers in the market, over 43 percent said the buyers were drawn in by an increased confidence in the economic recovery.
Those buyers are likely excited about the availability of more financially successful businesses on the market. Brokers agree there is opportunity for today's buyers as more than 59 percent of survey respondents believe today's business-for-sale conditions favor buyers over sellers.
"It's encouraging to see that brokers are finding an increasing number qualified buyers in the market," Bob House, Group GM of BizBuySell.com and BizQuest.com, said. "Having buyers willing to step in and take over the ongoing supply of businesses on the market shows how far we've come since the lows experienced during the recession."
Younger Generation Taking Over Businesses From Baby Boomers
The increase in small business owners looking to sell over the past few years has been driven by the growing number of Baby Boomers reaching retirement age. Brokers witnessed this first hand. More than 78 percent of brokers attributed a minimum of 25 percent of their closed transactions to Baby Boomers. More specifically, 38 percent of brokers said between 50 and 74 percent of their transactions were generated from Boomers. With still many more in this generation reaching retirement over the next few years, brokers are confident this trend will continue as is evident by the 78 percent of brokers who expect a larger amount of Baby Boomers to sell their businesses in 2015 than did in 2014.
Naturally, as the Baby Boomer generation sells off their businesses, the most common buyers are from a younger age group. Nearly 75 percent of brokers indicated their buyers were most likely to be between 30 and 49 years old. Sellers, on the other hand, were most likely to be between 50 and 64 years old.
West Coast Brokers Not As Optimistic as Midwest, East Coast
While overall the transaction market continues to flourish, business brokers in the West appear slightly less positive regarding both what they have observed in the last year and what they expect to happen in 2015.
Perhaps most noticeable was the difference in the number of brokers who believed transaction activity has already returned to pre-recession level. While the majority of respondents still believe there is still some work to do, a significant number of brokers in the East and Midwest regions (22 percent) believe transactions have already hit the levels they saw before the recession. Those in the West, on the other hand, were less positive as only 12.5 percent said the same thing.
That may be due to the activity level each region witnessed last year. When asked to look at 2014 specifically, 21 percent of brokers in the East and Midwest say transaction levels improved "greatly", indicating a significantly higher number of deals were closing compared to 2013. Less than 10 percent of brokers on the west coast agree as they were more likely report only "some" increase in 2014.
Finally, when asked to predict transaction activity in 2015, a similar trend appeared. Many in the East and Midwest (22 percent) were confident in a "significant" increase of closed transactions. In the West, however, just 10% expected the same spike.
Overall this highlights how small business conditions can vary across the nation. While brokers in the West were less optimistic than others, we know that things can change fast in the business-for-sale market so it will be interesting to track how perceptions change in early 2015.
While Economy Improving, Seller Financing Remains Key To Closing Deals
While economic growth has boosted transaction activity, conditions are still not ideal for buyers trying to obtain funding. There remains a financial gap that must usually be filled through seller financing.
More than 80 percent of brokers call seller financing either important or essential to completing transactions in today's market. That is nearly the exact same number of brokers that expressed the same sentiment in a May 2014 survey, showing that while more buyers and sellers might be entering the market, seller financing is still a big reason why they agree to deals.
Further exemplifying that need, just under half of surveyed brokers said between 60 and 100 percent of their closed transactions include seller financing. Another 30 percent of respondents estimated between 30 and 59 percent of their final agreements contain seller financing. In short, it is clear that sellers should still expect to offer financing if they want to expedite the sales process in 2015.
Brokers Still See Room For More Growth in 2015
Although 2014 was a record year for small business transactions, brokers are overwhelmingly optimistic that 2015 may be even better. In fact, 82 percent expect transaction activity to improve in 2015. Those brokers expect growth due to a number of factors, including an increase in the number of owners looking to sell (26 percent), seller expectations becoming more realistic, thus improving sales prices (22 percent), an overall improvement in the small business environment (22 percent) and an increase in the number of buyers (20 percent).
Surveyed brokers also predict sold businesses would return a higher price in 2015 due to the overall increase in small business performance. More than 45 percent of respondents said they expect final sale prices to increase in 2015 while just 12 percent believe it will decrease.
That is likely due to the belief that the current buyers market will begin to shift back toward the sellers, creating a more balanced market overall. In fact, some brokers may be seeing this occur already. While 59 percent of survey respondents said the current market favors buyers, another 20 percent believe it is already balanced and 18 percent even say it favors sellers.
"While we've experienced high business transaction levels for two consecutive years now, it's great to see industry experts' belief that it has not yet plateaued," House said. "As sellers continue to grow more confident in their business' value and buyers step in to help close deals, we expect 2015 to continue the trend of steady improvement in the business-for-sale market."
BizBuySell is the Internet's largest business for sale marketplace. Since 1996, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams. BizBuySell currently has an inventory of approximately businesses - spanning 80 countries - for sale at any one time and receives more than monthly visits. The site also features an extensive franchise directory as well as an easy-to-use business valuation tool. Please visit www.bizbuysell.com for more information.
BizBuySell was founded in 1996 and in 2012 became a division of CoStar Group, Inc. (NASDAQ - CSGP) - commercial real estate's leading provider of information and analytic services. CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information and offers a suite of online services enabling clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. For more information, visit www.costar.com.
Let us serve as expert sources for you on buying a business, selling a business, valuing a business and small business trends. Email us here or call Bob House at 844-420-0508