The 3Q 2020 Insight Report from BizBuySell, which is the result of extensive surveys of business brokers on small business purchase and sales activity, as well as buyer and seller confidence levels, provides the best information on what is going on in the market.
First, we have the good news! There continues to be a steady upward trend in small business sales since the pandemic hit back in March. From a 51% year-to-year decline back in April, in September 2020, there were only 5% fewer deals closed than in 2019. A lot of the upward trend is driven by buyers who are opportunity seekers, as 57% of the buyers surveyed felt that they could purchase a business for a better value now than last year—these are the opportunity-seekers.
On the other hand, small business owners are facing a vastly different landscape as they have had to adapt to COVID-19. For businesses negatively impacted by the pandemic, those who were able to pivot and adapt were more attractive to potential buyers. We saw that in our own practice, when we sold a pizza shop that pivoted from dine-in and corporate catering to emphasize takeout & delivery.
Here are a few of the key takeaways:
- According to the report, "the most sought-after businesses are "essential", meaning pandemic-proof, performing well and unlikely to come at a discount." Since these businesses are more popular, the median sales price of businesses sold in 3Q quarter grew 20% versus a year ago.
- The most recent driver of business sales in the past several years has been retiring baby boomers. Many of these business owners whose businesses were negatively impacted by COVID-19 have decided to hold onto their businesses for now, with 67% of business owners in this age group extending their exit timeline.
- Ironically, the increase in demand in buyers is a direct result of higher unemployment of baby boomers. According to BizBuySell's 2020 Small Business Confidence Study, 27% of buyers are newly unemployed, and for many experienced baby boomers, entrepreneurship is much more attractive if retirement isn't an option.
According to the report, 2021 will be the perfect storm for business sales. With each passing day, 10,000 Americans turn 65, many of whom are business owners with excellent businesses. These owners have seen the pandemic as a signal for them to let someone else take over, and the fundamentals of an attractive business do not change. As long as these profitable, stable operations are available, plenty of buyers will be waiting.
To read the entire report, including the background statistics, click HERE.
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