BizBuySell's Third Quarter 2016 Insight Report shows 2016 on pace to have highest number of businesses changing hands since report inception in 2007; Active for-sale listings reach record high too.
San Francisco, CA - BizBuySell.com, the Internet's largest business-for-sale marketplace, reported today that third-quarter small business transactions reached the highest levels since the second quarter of 2008, right before the recession hit. The full results are included in BizBuySell.com's Q3 2016 Insight Report, which aggregates statistics from business-for-sale transactions reported by participating business brokers nationwide.
A total of 2,090 transactions were reported in the third quarter this year, representing a 15.2 percent increase from last year. This marks the highest number of small business sales recorded in a third quarter since BizBuySell first started tracking data in 2007. The 5,865 to-date transactions positions 2016 for a record breaking year of small business transactions.
As transactions have risen, sellers continue to supply the market with a high number of listings. The total number of businesses listed for sale in Q3 2016 reached a record-level and increased 5.1 percent above last year's inventory. The strong listing count is possibly fueled by small business owners who waited out the recession and want to take advantage of this hot market, rather than take the risk associated with waiting. In fact, according to BizBuySell's Buyer-Seller Confidence Index, sellers are slightly less confident about the future than they were a year ago, with just 48 percent believing they could wait a year and receive a higher price for their business.
Buyers on the other hand are less concerned about an economic downturn and are ready to jump into the action. According to the Buyer-Seller Confidence Index, only 29 percent of buyers believe they can get a better deal if they wait a year to purchase.
With both sellers and buyers wanting to act now, transactions are also taking place at a faster rate. A business sold in Q3 was on the market for an average of 171 days, a 4.5 percent decrease from 179 days in Q3 of 2015 and a steady drop from Q1 of this year when the average days on market sat at 188 days.
"With closed transactions reaching post-recession records, listings at an all-time high and time-to-sell data showing quicker sales, all indicators are pointing to a robust business-for-sale environment that is beneficial to both buyers and sellers," Bob House, President of BizBuySell.com and BizQuest.com, said. "After a few years of strong, steady activity, it's good to see there are still plenty of quality listings available for interested buyers to enter small business ownership."
Gap Between Asking Price and Sale Price Shrinks, Financials Continue Improvement
While the post-recession market leaned in favor of buyers thanks to reduced confidence and tighter access to capital, today's environment is much more balanced. A good indicator of this is the fact that sellers received a final sale price much closer to their original asking price than in previous years.
The median asking price of a business sold in Q3 grew to $216,000, from $200,000 in Q3 2015. At the same time, the median sale price in the third quarter of 2016 increased nearly 7.6 percent from $185,000 last year to $199,000. The difference between these figures marks an average sale-to-asking price ratio of 93 percent, a 3.3 percent increase year-over-year. This strong ratio likely points to the following two key things.
First, sellers are gaining more leverage at the bargaining table. That comes from showing that their business is financially healthy and has a strong future. In Q3 2016, the median revenue of sold businesses grew 4.3 percent year-over-year from $438,000 to $456,768. At the same time, the median cash flow grew 5.7 percent from $100,000 to $105,730. These numbers are giving sellers the leverage they need to get a good sale price. In fact, according to the same Buyer-Seller Confidence Index, nearly 60 percent of sellers said they are confident that they could receive a price that met expectations if they sold their business today.
The second thing a higher sale-to-asking price ratio shows is that sellers may be more motivated to sell and therefore, set a more realistic asking price. Baby Boomers, in specific, are reaching retirement age, and are likely more motivated to sell now rather than drag the process out or risk having to wait out another economic downturn. Overall, sellers may want to exit before the year ends, especially as new overtime regulations kick in Dec. 1. In the same Buyer-Seller Confidence Index, 73 percent of prospective buyers said they can purchase a business at an acceptable price this year. When asked why this year was better than the previous, the top response was that sellers were setting more realistic asking prices. More acceptable asking prices are also likely a result of increased choice for buyers as indicated by the record number of business listed for sale this past quarter.
Changing Regulations and Political Uncertainty Could Impact End of Year Transaction Activity
While a strong Q3 and 2016 as a whole, is a great precursor for a strong 2017, there are a few upcoming issues that could affect how things move forward. Small businesses will be forced to deal with changing overtime regulations from the Department of Labor starting on Dec. 1. This change is concerning many sellers, with nearly half (48%) saying the new overtime regulations will decrease the value of small businesses. And of course before that is the Presidential election, which has certainly drawn the interest of small business owners.
In fact, according to BizBuySell's Buyer-Seller Confidence survey, a significant number of buyers and sellers say they will actually change their ownership plans based on who wins. One in five sellers said they would be more likely to sell their business if Hillary Clinton is elected President. Similarly, 31 percent of buyers said they would be less likely to enter small business ownership if Clinton wins, compared to 15 percent who said the same if Trump wins. However, among both buyers and sellers, Trump is seen at the candidate most likely to improve the small business environment (57% and 54%, respectively).
It remains to be seen whether or not Trump's latest controversy impacts these opinions, and if the election's final results will truly impact the business-for-sale market, or if buyers and sellers are just speaking out of emotion. For now, however, all indicators point to a record-setting 2016 that will likely carry momentum into early next year.
"We are well on our way to the most reported transactions in BizBuySell history so it's great to see there is still room for growth despite the few years of strong activity we've seen since the recession ended," House noted. "The final quarter of 2016 and the first few of 2017 will now tell us if we've reached the peak of activity or if the number of buyers and sellers entering the business-for-sale market will continue to grow."
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.