The market for buying and selling small businesses showed signs of continued growth through the first half of 2012. BizBuySell, the world’s largest online business-for-sale marketplace, reported in its Q2 Insight Report that the number of businesses sold in the first half of 2012 grew by 1.2% over the previous year. The report aggregates transaction data reported by business brokers nationwide and is viewed as a leading indicator of the small business transaction marketplace.
“Based on what we have heard from brokers, as well as our own experience, we are expecting a strong second half for 2012 that will continue the slow but steady improvement we’ve seen since small business sales activity began to strengthen in mid-2009,” says Mike Handelsman, group general manager of BizBuySell.com and BizQuest.com.
We were pleased to see the results of the report – but we weren’t surprised. From our perspective, two primary factors, one long-term and the other temporary, contribute to this trend. First, many business owners who originally planned to sell between 2008 and 2010 were negatively impacted by the recession and chose to delay their sale in order to allow both their companies and their 401(k)’s to rebound. As the economy continues to improve, valuations return to their pre-recession levels, and business owners feel confident in their choice to sell. Furthermore, buyers were hit equally hard and delayed purchase decisions because they lost confidence, could not qualify for a loan, or both.
The second contributing factor is the looming changes to the capital gains tax rate. Even if Congress decides to extend the Bush tax cuts another year, few people believe that the current 15% rate will remain intact over the long-term, so many owners are planning an exit now in order to take advantage of the lower rates. BizBuySell predicts a sharp uptick in transactions during the fourth quarter of 2012 as a result of this sentiment, and we agree with their forecast.
The long-term prospects look equally bright. The average age of a small business owner in the United States is approximately 51 years old, and almost 8 million small business owners are age 55 or older. As this group continues to age, transaction volumes will increase as more businesses hit the market. Barring another economic collapse, expect to see this growth trend continue.