The small business acquisitions landscape has reached a significant milestone in the second quarter of 2024, marking a 5% growth over the past year and a 3% increase from the previous quarter. According to BizBuySell’s Insight Data, which meticulously tracks U.S. business-for-sale transactions and sentiments from owners, buyers, and brokers, a total of 2,448 businesses were sold, amounting to an enterprise value of $1.9 billion—an impressive 20% increase from the same period last year.
After experiencing a 13% decline in 2022 due to rising interest rates and high inflation, transaction volumes have rebounded robustly, now matching pre-pandemic levels of 2019. This resurgence in demand has pushed the median sale price up by 25% year-over-year to a record high of $375,000, as buyers continue to prioritize businesses with solid financial performance. The median revenue and cash flow of businesses sold in Q2 2024 have grown by 4% and 7%, respectively, highlighting a trend of moderate growth and increased demand for premium businesses.
As inflation cools, with the Consumer Price Index (CPI) dropping to 3.0% and unemployment rising to 4.1%, the business-for-sale market is poised for further growth. Many buyers are waiting for expected interest rate cuts before making a purchase, as indicated by 24% of respondents in BizBuySell’s recent survey.
Savvy Buyers and Strategic Financing
Despite high borrowing costs, most buyers are actively pursuing business opportunities, employing various strategies to mitigate these expenses. According to the survey, 58% of buyers are negotiating lower purchase prices, 42% are seeking lower interest rates or alternative financing methods, 30% are increasing down payments, and 21% are opting for shorter loan terms. For high-quality businesses, deal structures are becoming more flexible to accommodate these financial strategies.
Max Friar, managing partner of Calder Capital, notes, “This year is characterized by a lower supply of high-quality businesses versus persistent demand from buyers. Despite high rates, valuations and deal structures remain strong as buyers compete for quality deals.”
Seller Financing and Earnouts
The high interest rate environment has prompted many sellers to offer more accommodating deal structures, including seller financing and earnouts. Banks’ tightened lending standards and businesses’ sensitivity to higher borrowing costs have necessitated these adjustments. Sellers are increasingly willing to structure deals to include financing and performance-based earnouts, with some deals involving up to 50% of the purchase price in earnouts.
Sam Scharich, buy-side director at Calder Capital, highlights this shift, stating, “Deal structures now reflect less senior debt appetite due to higher rates. More seller financing and earnouts are common, with the volume of earnouts in deals increasing significantly.”
This trend is beneficial for buyers, with 65% considering seller financing extremely or very important. Among sellers open to offering financing, 23% are willing to finance up to 50% of the purchase price, easing the financial burden on buyers.
Prioritizing Financial Performance and Stability
When evaluating businesses, buyers prioritize financial performance, growth potential, and location. Stability remains a key factor, with 69% of buyers favoring recession-resistant businesses. This preference reflects a broader trend of buyers seeking secure, high-performing opportunities amid economic uncertainties.
For Small Business Acquisitions: Contact Rocky Mountain Business Advisors Today
As the market for small business acquisitions continues to evolve, it presents lucrative opportunities for both buyers and sellers. For those looking to navigate this dynamic landscape, Rocky Mountain Business Advisors offers expert guidance and support. Contact us today to learn more about how we can help you achieve your business acquisition goals.