The small business-for-sale market continued to make gains in the second quarter of 2021, with closed transactions up 5% over the previous quarter, according to BizBuySell’s Q2 2021 Insight Report.
Transactions are up 38% over the same time last year at the height of pandemic lockdowns, but they are still 16% below Q2 2019 pre-pandemic levels, which indicates that there is room for recovery.
The $320,000 median sale price in Q2 was 19% higher than Q2 2019 pre-pandemic levels, matching last quarter’s record high.
The first half of 2021 shows that buyers are broadening their interest to re-opening sectors such as restaurants, bars, and other retail businesses, a stark contrast from last year. Businesses in these sectors are responsible for the increase in transactions in Q2:
- Restaurant acquisitions were up 17%, with median sale prices jumping 34% to $200,000, and average revenue multiples up 23%.
- Retail business acquisitions were up 14% compared to the first quarter. However, the median sales price dropped 11% to $262,000 as median cash flow and revenue decline 5% and 9% respectively.
- Service business acquisitions were up only 1%.
- Manufacturing acquisitions experienced a 9% decline.
Labor and supply shortages, in addition to increasing costs, hindered growth for many businesses.
- 47% of business owners surveyed say they are having difficulty hiring or retaining employees.
- 48% have experienced a shortage of goods and supplies.
- 76% of owners are seeing rising costs. These issues began in 2019 due to U.S.-China trade tariffs and have only worsened during the pandemic.
“After 2020’s unexpected turn of events, and the now lingering uncertainty of COVID variants as a potential change to trajectory, anything is possible,” write the authors of the report. “However, all signs point to the business-for-sale market headed toward recovery.” They further report that buyers in the market have been plentiful and active – even as the pandemic has disrupted nearly every aspect of the economy. “While listing supply has been limited and slow to follow, this has presented a tremendous opportunity for some owners to get out on top.”
From the Buyer Perspective: According to the report, 58% of surveyed buyers are looking for businesses that have sustained pre-pandemic values; 46% are considering one that has exceled over the last year. 58% of business brokers expect more owners to sell in the second half of the year, with another 21% expecting significantly more.
From the Owner Perspective: Most owners are feeling optimistic about the market, with 42% saying now is a good time to sell versus 25% who do not, and 34% are still unsure.
22% of brokers and owners still expect the business-for-sale market to fully recover within 10–12-months.
The Bottom Line
According to the report, the primary reason the market has yet to fully recover is that there are still many business owners who find themselves in a less desirable position. According to brokers, the number one element needed to propel the market is revenue. Owners who have been impacted by the pandemic still need to recover their losses.
It appears that the market is on the right track for recovery, but economic volatility remains high. In addition to the reverberating effects of the pandemic, tax reform and new government policies may still be on the horizon, which could cause further complications or alternatively stimulate activity.
Baby Boomer business owners are still seen as a driver of future activity in the market. “These Boomers will need to sell over the next few years. Most owners wanted to navigate the pandemic but now face a time where labor shortages are stifling further business growth and some of the fun of business ownership. For that and other reasons, older business owners will decide it’s time to move on,” says one surveyed business broker.
If you are a business owner who is thinking about selling and do not have an exit plan, it is time to get one in place. If we’ve learned anything from this last year, it’s that there are always external factors, beyond our control, that can impact our businesses and the timing of our exits.
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