BizBuySell.com's Second Quarter 2017 Insight Report indicates 2017 is on track for record-breaking year of small business sales as deals close faster
San Francisco, CA - BizBuySell.com, the Internet's largest business-for-sale marketplace, reported today a record number of businesses changing hands in the second quarter of 2017. The full results are included in BizBuySell's Q2 2017 Insight Report, which aggregates statistics from business-for-sale transactions reported by participating business brokers nationwide.
A total of 2,534 closed transactions were reported in the second quarter of 2017, a 31 percent increase from this time last year. This brings the year-to-date total to 4,902 closed transactions. If this pace holds up, 2017 will easily surpass 2016, when BizBuySell reported a then record 3,775 transactions in the first half of the year.
Businesses sold in Q2 grossed a median revenue of $490,000, an 11 percent increase from $441,331 in the second quarter of 2016. Median cash flow also increased 10.5 percent year-over-year to $116,000 from $105,000. Both figures, however, mark a slight fall from Q1 2017 when median revenue and median cash flow hit record levels at $518,159 and $117,275, respectively. At the same time, the average multiple of cash flow increased 5.1 percent year-over-year to 2.34, while the average multiple of revenue remained steady at .62.
"Our recent conversations with brokers and previous research shows both buyers and sellers are confident in today's business-for-sale environment," said Bob House, president of BizBuySell.com and BizQuest.com. "This streak of record-number transactions confirms this sentiment and suggests many are capitalizing on today's hot market."
Higher Sales Prices and Fewer Days on Market Benefits Seller's Market
In addition to more transactions taking place, it appears the sellers of those businesses are also benefiting from today's market, which shows increasing sale prices and faster deals.
Improving financials continue to allow sellers to demand more for their businesses. The median sale price in the second quarter increased from $199,000 in Q2 2016 to $229,000. At the same time, the median asking price for closed deals increased 12.6 percent to $250,000. While the average sale to asking price ratio remained essentially flat at 0.92, this strong number indicates buyer and seller perceptions remain in line.
Despite higher asking prices, sales are closing at a faster pace. In the second quarter, the median days on market stood at 168, marking a 5.6 percent decline year-over-year from 178 days. Traditionally, the second and fourth quarters are the busiest sales seasons of the year. Since 2013, Q2 closed transactions on average have the second-lowest median days on market at 169 days while Q1 has the longest at 184 days.
These seller friendly conditions are happening despite an increase in competition. Total listings increased 13 percent from last year, continuing a multi-year trend since 2012. For owners thinking about exiting their business, the data suggests now is a good time to act. Owners that can show improving financials will find interested buyers and gain more leverage at the bargaining table.
Restaurants Experience Greatest Sales Spike; Sale Prices Rise Across the U.S.
Looking into specific industries, the restaurant sector experienced major growth in the second quarter. The number of closed restaurant transactions increased 34 percent year-over-year, and the median sale price jumped from $165,000 to $195,000. Improving financials likely contributed to higher sale prices. The median revenue of restaurants nationwide increased 7 percent year-over-year from $504,500 to $540,000, while cash flows increased 2 percent to $100,000.
Franchises are also increasingly seen as desirable acquisition targets. Established operating franchises for sale comprised 7 percent of active listings and 9 percent of closed deals in the second quarter of 2017. In addition, the median sale price of franchise businesses in the second quarter was $232,500, slightly higher than the median $229,000 for all transactions.
The average cash flow multiple for franchises was 2.44, compared to 2.34 for all transactions. Franchises also reported higher revenues compared to the median of all businesses, despite comparable sale prices (although this may be attributable to royalty fees paid to franchisors which affects profitability). For closed deals, median franchise revenue was $609,966 compared to $490,000 for all businesses. This data suggests that despite royalties, established franchises for sale offer additional revenue and marketing benefits, at sale prices comparable to non-franchises.
While sale prices rose across the U.S., they rose most dramatically in the Northeast, where the median sale price increased 31 percent to $292,500. The Northeast also saw the number of closed transactions jump sharply from 333 deals in Q2 2016 to 473 in Q2 2017. On the other hand, the Midwest saw the smallest bump in median sale price, rising just 2 percent to $245,000.
Perhaps unsurprisingly, the most expensive market in the U.S. to buy a business is the New York City metro area, with a median listed asking price of $295,000. This is followed in order by Philadelphia, Denver, Atlanta and Chicago.
2017 Outlook Remains Strong
As we move into the second half of 2017, all signs point to continued growth in the business-for-sale market. Newly-listed businesses boast growing median revenues and cash flows, suggesting there's still a strong supply of healthy businesses available for buyers. Interestingly, the median asking price of businesses listed for sale of $250,000 remains unchanged from Q2 2016, indicating sellers may be looking to close deals quickly while the market is hot.
Small business buyers and sellers should keep a close watch on regulations like health care and tax reform as well as global market conditions, and determine if these changes could affect their exit or acquisition strategies.
"The latest quarterly data indicates the business-for-sale market is in great shape," House said. "Barring unforeseen factors, we anticipate 2017 will set a new record for the number of businesses sold in a single year since we started reporting on this data in 2007."
About the BizBuySell.com Insight Report
BizBuySell.com is the Internet's largest marketplace for buying or selling a small business, with over 1.4 millionmonthly visitors. 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 on a voluntary basis by business brokers nationwide. To find a qualified business broker in your area, visit www.bizbuysell.com/business-brokers.
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.