While the business-for-sale market has bottomed out, it is experiencing a very slow recovery, BizBuySell.com, an Internet marketplace for buying or selling a small business, reported with the release of its third quarter 2010 economic data.
According to the BizBuySell.com Insight Report data, the number of closed transactions nationwide in Third Quarter 2010 was 1,117, exactly equal to the 1,117 closed transactions reported for this same time period a year ago. This number is a slight 1% increase compared to the 1,106 closed transactions reported for Q2 of 2010.
“This data suggests that the business-for-sale marketplace has flat-lined,” explained Mike Handelsman, group general manager for BizBuySell.com and BizQuest.com. “Unfortunately, the signs of recovery that we saw earlier this year are stalling out in the second half of 2010. Although we do see a slight increase in transactions over last quarter, it looks like a recovery is going to be much slower in coming than we thought.”
The market remains significantly down compared to pre-recession numbers, with the number of closed transactions down 47% from the high of 2,098 reported to BizBuySell.com in Q2 2008.
The main concern for business brokers and business owners looking to sell continues to be the lack of available credit for small business acquisitions. A recent BizBuySell.com survey of the nation’s business brokers confirmed this issue, with 49% of brokers reporting the lack of available capital as the primary driver of lower transaction volumes. Other factors reported by brokers were seller unwillingness to lower their asking price (19%) and lack of qualified buyers (18%).
BizBuySell.com’s Insights data suggests that the lack of available credit is forcing business owners to lower their selling price if they want to close a deal today. In addition, those businesses that are closing tend to be those with lower sales prices, as they require lower levels of financing to get the transaction completed. The median sale price of $140,000 is the lowest level reported since BizBuySell.com began compiling this data in January of 2007. This number is 30% lower than the high of $200,000, reported in Q1 and Q2 of 2008.
Seller financing and recent government initiatives may have averted a larger crisis in the business-for-sale marketplace, but another boost is still needed to promote a true recovery. “The Small Business Jobs Act, recently signed by President Obama to provide up to $30 billion in increased lending by small banks may help provide this needed boost to restart a recovery in the marketplace,” added Handelsman. However, brokers are not optimistic that conditions will improve in the near future. Eighty-five percent of business brokers surveyed do not expect transaction volumes to return to pre-recession levels until at least 12-18 months from now. Until financing becomes readily available, the business-for-sale market will remain sluggish, and sellers will have to continue to resort to seller financing and lower asking prices if they want to close deals.