The number of businesses being bought and sold continues to increase with the third quarter seeing a 17% rise in acquisitions from the previous quarter, according to BizBuySell’s latest Insight report.
The report also indicates that sellers are feeling more confident that they can receive a good price for their businesses. The median revenue of businesses sold in the third quarter was $671,713, up by 6% from last year. While the median asking price for businesses was $350,000 up from $345,000 from the previous quarter.
The report which surveyed some 2,400 business owners, buyers, and brokers also reveal buyers are paying record-high prices for businesses that have continued to perform well during the pandemic.
Small Business Acquisitions Hit Record High Prices in Q3
- Some 19% of transactions sold for a price of $1 million or higher during the third quarter of 2021. These businesses had a median cash flow of $500,000 and were on the market for 178 days.
- 49% believe they could receive a higher sale price today compared to a year ago, with 46% saying the top factor is improved sales or revenue.
- With a limited supply of profitable businesses and regret over missing last year’s lower prices, buyer confidence fell to 48%, down from 60% in 2020.
- Some 49% of business owners say labor shortage is affecting their small businesses.
- Despite shipment delays and rising costs for material and labor, 47% of small-business owners say their business is performing better than in 2020.
Business Acquisition Trends
The supply of businesses for sale is expected to grow as more Baby Boomers retire. Almost half (43%) of the acquisitions occurred in the service industry, followed by retail (16%), manufacturing (12%), and restaurant (4%) sectors. With COVID infection rates dropping, retail sales are picking up. In September alone, it increased by 13.9% from last year. However, many businesses still struggle to attract or retain employees. Some 49% of owners say the labor shortage is impacting their business, while business brokers see it as the number one concern facing small businesses.
What’s Fuelling the Demand
Some 44% of surveyed business buyers say they want to leave their current job to be more in control of their future, with an additional 13% being newly unemployed. Buyers are also looking for high-performing businesses. Transactions for these businesses is growing by 29% with the same period in 2019.
Due to the pandemic more and more businesses are also opting to permanently shift online to capitalize on more market share. Some 50% of small business owners have pivoted to going digital by opting to serve customers virtually through online ordering, and delivery apps.
Some 76% of small business owners are considering these digital changes to be part of their permanent operations. Buyers also agree with 64% of them saying that it’s important for a business to have a strong online footprint in their buying decision.
With many business owners focusing on recovery, the supply of businesses for sale is still limited, according to the report. Seller confidence climbed to 57% this year, up from 45% in 2020, which is the highest mark since 2018’s high of 58%.