If you are in the market to buy a business or sell a business, you want to know what the market is for business sales and the end of the year is a good time to review the current situation. I’m writing about the market for businesses with revenues under $5,000,000 located in the greater Eastern Massachusetts area.
A third-quarter report from BizBuySell – the leading website for businesses-for-sale — shows the year over year comparison in number of sales improving, but still lower than the same period in 2008. Also, the multiples of sales price to cash flow and sales price to revenue were down about 12% and 11%, respectively in the quarter, versus the same period in 2008. The report can be read at http://www.bizbuysell.com/news/article064.html.
This is national data; we saw a better market locally. We saw a drop in number of sales versus 2008 primarily in the first half of the year. The last half of the year has been active with a number of business sales. We have several businesses under agreement. We are not seeing a drop in selling price multiples. A business that has not experienced a drop in revenue and profits during the recession should sell for the same price as prior to the recession.
Another trend that we are seeing, which is also reported by an ACG/Thomson Reuters survey, is more strategic deals. According to this report: “Overall, strategic merger activity accounts for 94% of total announced M&A this year, the highest percentage since 2001.” For us, these are deals where the seller’s business is making little or no income, but has a valuable customer base. We are seeing a strong market for these deals with multiple offers, frequently including employment for the seller.
We are not finding financing to be an impediment to getting deals done. There are many healthy community banks in this area and many offer SBA loans. Part of the stimulus plan was a waiver of upfront fees and raising the SBA guarantee to 90%. This has been extended to the end of February, 2010. The vast majority of our deals have involved little or no seller financing.
If you are thinking of selling your business and wondering whether to wait, you should also consider the change in tax rates which are likely to go into effect at the end of 2010. The Bush tax cuts will expire and normal income and capital gains rates will go up unless Congress extends them. Indications are that they are likely to go up after this year.
If you are thinking of selling your business, contact us. We will not charge you to discuss your situation. We will normally provide a free estimate of the likely selling price. Of course, any discussion or information you give us will be kept confidential.