The number of closed business-for-sale transactions reported in Q3 2011 rose 3.5% year over year, fueled by lower business valuations.
San Francisco, CA -- BizBuySell.com, the Internet's largest marketplace for buying or selling a small business, today released its Third Quarter 2011 Insight Report on business succession trends. The report, which aggregates business-for-sale transaction data provided by participating business brokers, shows slight improvement in business succession activity, as closed transactions increased 3.5 percent from 1,586 in Q3 of 2010 to 1,642 in Q3 of 2011.* This number is down slightly from the 8% year-over-year increase reported in Q2 of 2011.
"We're glad to see the year-over-year upward trend that we've been reporting in the business-for-sale market continue into Q3," said Mike Handelsman, Group General Manager, BizBuySell.com and BizQuest.com. "However, there's no denying that Q3 was somewhat turbulent for the overall economy, so it's not a surprise that we are down slightly versus last quarter."
Sold Businesses Reporting Lower Valuations
While closed transactions showed a slight increase over Q3 of 2010, the average multiple of annual revenue that a small business sold for on BizBuySell.com was 0.60, a decrease of 10.9% versus the same quarter a year ago. The average multiple of annual cash flow that a business sold for was 2.42, a decrease of 4.7% vs. the same quarter a year ago. According to Handelsman, this decrease in valuation multiples is likely a result of sellers becoming more realistic about their asking and selling prices.
"The trend toward more realistic expectations regarding valuations is a primary driver of the increase in closed transactions," said Handelsman. "Business owners who may have been holding out for an economic recovery or waiting for their business to recover are now opting instead to exit their businesses, even if that means accepting a lower sale price."
Larger Businesses Selling in Q3 than Previous Quarters
Notably, BizBuySell.com is seeing an increase in the average size of sold businesses, with the median sale price for Q3 reported at $150,000, up 7.1% vs. a year ago. Handelsman notes that this increase in sale price is likely the result of a combination of two factors - changes in both financing and valuations.
"As valuations decline, buyers are able to purchase larger businesses than in previous quarters for the same purchase price," Handelsman explains. "Also, as the lending environment improves and financing slowly becomes more available for business buyers, they are able to buy slightly larger businesses."
BizBuySell expects the current slight but steady upward trend to continue through the remainder of 2011 and into 2012 as the lending environment continues to improve.
"We're seeing more attention being paid to business funding though both government programs and legislation, which will help to drive more closed small business transactions," Handelsman said.
About the BizBuySell.com Insight Report
BizBuySell.com is the Internet's largest marketplace for buying or selling a small business. The company releases its BizBuySell.com Insight Report on a quarterly basis, reporting changes in closed transaction rates, valuation multiples and other economic indicators for the small business transaction market. Closed transactions are reported to BizBuySell.com by business brokers nationwide.
* Note: Data collection methodology changed in Q3 2011 affecting the number of transactions reported. To enable historical transaction volume comparisons, BizBuySell calculated adjusted historical figures that account for methodology revisions. These revised figures are reflected in the charts and discussion included herein. For further explanation, please contact the media contact listed below.
Walker Sands Communications
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 48,000 businesses - spanning 80 countries - for sale at any one time and receives more than 1 million 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.