Company News

Business-for-Sale Activity Improving

Median sale price for U.S. businesses stabilizing, but no financing for c-store buyers
SAN FRANCISCO --BizBuySell.com, a leading Internet marketplace for buying or selling small businesses, has released its first-quarter 2011 Insight Report on business succession trends. The number of reported closed business-for-sale transactions in the United States rose by 2% overall, from 1,149 transactions in first-quarter 2010 to 1,172 in first-quarter 2011. For the convenience store sector, the report--which aggregates business-for-sale transaction data provided by participating business brokers--shows that median revenue [image-nocss] and sale price were down dramatically."The reason that the median revenue and sale price is down dramatically is because there is no financing for buyers," Mike Handelsman, group general manager, BizBuySell.com and BizQuest.com, told CSP Daily News. "So, the only transactions that can close are those where the buyer can come up with all cash, or convince the seller to finance part of the deal. That means that lower-priced businesses can move, but higher-priced ones (below the level of private-equity purchases, where they have cash on hand) have a hard time getting sold. So, the data for c-stores [is] in line with what we're seeing for all businesses, as well."

The drop is likely not an indication that the c-store industry is suffering, he said, but only that small c-stores were selling this quarter (something they have seen across all industries). Because there is not financing available to buyers, they cannot afford the larger-priced c-stores. The smaller deals are more easily completed because the buyers have that cash in hand and do not need to finance the deal. Revenue and cash flow numbers remain similar, so what likely happened this quarter is that more small, quick deals were completed than in the past, he added.

The report also shows a slight increase in business succession activity in first-quarter 2011 over the same period in 2010.

"We've been predicting for quite some time that the business-for-sale market would improve as more financing becomes available to buyers," said Handelsman. "While the market is not picking up as quickly as some would like, we expect a modest recovery to continue throughout 2011."

BizBuySell.com also reports positive changes in the metrics that are used to value companies. Median revenue for businesses sold increased 8.1% from $320,000 to $346,000, while median cash flow increased 5.2% from $80,000 to $84,175. Notably, this is the first quarter in at least a year where both median revenue and median cash flow of sold businesses were up versus the prior year.

According to Handelsman, these significant increases demonstrate that struggling businesses are finally stabilizing their revenues and recovering from profit declines experienced during the recession. "You can't sell a business that's in distress, but these positive changes suggest that small businesses are becoming healthy again, and many more business owners may now be able to address the opportunity to exit."

According to the Insight Report, the median sale price for closed business transactions was up from $150,000 in first-quarter 2010 to $155,000 in first-quarter of 2011, an increase of 3.3%. The median sales price for last quarter represents a recovery to a level not seen since second-quarter 2010, but is still much lower than the quarterly median sales levels reported in 2009, which peaked at $180,000.

"We seem to have hit the bottom in terms of sale price, as pricing has leveled out over the past several quarters, and is even up slightly relative to what it was a year ago," Handelsman said.

BizBuySell.com projects that these positive changes in the business-for-sale market will continue through the year. The increases in median revenue and cash flow suggest that businesses looking to sell are getting healthier, allowing many business owners to exit their businesses. In addition, as lending institutions ease their restrictions, capital will become more readily available, expanding the base of qualified business buyers and making it easier for brokers and business owners to close sales.

San Francisco-basedBizBuySell.com releases its 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. BizBuySell currently has an inventory of more than 45,000 businesses for sale, and more than 725,000 monthly visits. BizBuySell also has one of the largest databases of sale comparables for recently sold businesses and a leading franchise directory.

BizBuySell was founded in 1996 and acquired by LoopNet Inc. in 2004. LoopNet operates one of the largest commercial real-estate listing service online, with more than $450 billion of property listed for sale and 6.8 billion square feet of space for lease. With more than four million registered members, LoopNet attracts one of the Internet's largest communities of commercial real-estate professionals.

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