Sales of Small to Medium Business are Up
by Terry Stidham, President of Target Search Group
In total, 1,897 closed transactions were reported in the first quarter of 2013, a dramatic bump over the 1,218 recorded in the same period of 2012. The number represents the highest number of businesses sold in a quarter since the second quarter of 2008. The 56% year-over-year jump is also the largest such increase since small to medium sized business (SMB) sales bottomed out in mid-2008.
Across the board for all industries, the average selling price was 2.2 times the company’s discretionary cash flow or approximately 60 percent of gross annual revenue.
The spike in SMB sales can be attributed to a couple of factors:
- For a few years now, SMB's financials have been improving as the economy slowly recovers. Business owners who have been looking to exit their business, particularly baby boomers ready to retire, finally have their businesses in sellable shape and are more confident that they will receive an appropriate financial return on their sale. This proved true in the first quarter of 2013 as the median sale price of a sold business was the highest level since 2009.
- Business transaction fundamentals are strong with a latent supply of owners ready to sell and improving buyer demand due to ongoing unemployment, recovering stock portfolios and the slowly improving lending situation. Just last month a survey of national business intermediaries found that 75.2 percent of respondents said they are seeing the same or more deals getting done as compared to 2012.
Top 2 factors driving increased valuations and sale prices are:
- Increased number of buyers
- Low cost of capital
As the stock market and overall economy improve, so do the financials of SMBs across the country. According to the data, the median cash flow of a SMB sold in the first quarter of 2013 increased 20.45% from the same quarter in 2012. Median revenue also improved by 11.45% from the same quarter last year.
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