Small Business Sale Market in 2022
Small business sales are hot! It’s time to prepare your business for the next year if you are thinking of selling your business. Let’s look at Q4 2021 from the numbers and trends.
BizBuySell Q4-2021 Insight Report reports that small business acquisitions rose in 2021, surpassing pre-pandemic levels. According to the International Business Brokers Association (IBBA) and M&A Source Q4 2021 Market Pulse Report, business deal activity continued to increase in the fourth quarter 2021. Business Brokers reported an increase in both incoming and completed deals. This was the most seller’s market in the survey’s 10 year history.
Both reports show that sales prices rose and closing times decreased due to buyers competing for a small number of high-performing businesses.
Despite ongoing COVID-19 fallout, challenges in hiring, and disruptions to supply chains, U.S. business-for sale transactions rebounded 14% in 2021. After modest gains in the beginning of 2021, transactions increased 28% during the fourth quarter. This is more than the pre-pandemic levels for Q4 2019. The rally at the end of 2019 saw annual small business transactions in the range of 11% to 2019, giving hope for a strong 2022.
Small business sales are driven by a variety of economic factors. Market momentum is influenced by the availability and cost of debt, as well as the high level of cash needed to invest. A role may also play in the competitive labor market. Acquiring is often an alternative strategy for growth when organizations are unable to find the talent they need in order to expand their plans.
Some sellers may have been motivated to sell in 2021 because of concerns about proposed increases in the capital gains rate. While tax increases have yet to materialize, business owners will still be monitoring the midterm elections in 2022 to see how the political winds change and plan their exit. Some may decide to remain ahead of market changes by going to market in the early 2022.
Small Business Sales Market in 2021
In 2021, 8,647 transactions closed were reported, compared with 7,612 in 2020. In the fourth quarter, 2,364 were recorded.
As low interest rates and high demand for performers drove sales, average sale prices rose 16%. Median cash flow for sold businesses increased 10% to $149,000. The median revenue increased 2% to $625 943 over the previous year.
2021 Top Industries
Across 2021, IBBA reports that personal services, construction, business services, and consumer goods/retail led the Main Street market in 2021, while manufacturing, construction and wholesale/distribution led in the lower middle market.
Top Main Street Industries
- Personal services 20%
- Construction/engineering 12%
- Business services 12%
- Restaurants 11% down from 15% in 2020
Top Lower Middle Market Industries
- Manufacturing accounted for 21% of all transactions
- Construction starting at 16%
- Wholesale/distribution at 12%
- Both business services and consumer goods are available at 9%
Market Outlook for Small Businesses
As more sellers return to the market, transactions are expected to rise and strengthen in 2022. Many owners are still looking to sell their property and retire. Pandemic burnout, rising prices, tax increases, and other geopolitical developments, are all weighing on owners.
It is still a seller’s marketplace, which happens when there is more demand than supply. There are currently more buyers interested and active than there are quality deals. This results in higher values and better terms for sellers.
According to IBBA’s report, the seller market sentiment rose in Q4 2021. This was a new high in every sector except the $5M-$50M. High levels of business confidence and high competition. It is amazing how quickly we have rebounded to record highs. One broker said that this is the strongest upward swing in 12 months.
It’s expected to be a small business sellers market this year but it will also be more competitive. Although 2021 was a record year for small business sales prices, many owners remained largely untapped until their financial performance improved. This means that there may be more owners who are looking to sell in 2022. Sellers need to ensure that their businesses are ready for the market. Buyers are looking for high-performing, strong businesses.
It is time to create an exit strategy if you’re a business owner and are considering selling. As we have seen, external factors have a significant impact on our businesses and the timing for our business sales. Consequently, be ready to sell your business sooner rather than later. Learn all you need to know in order to preserve your company’s continuity, maximize your business value to exit your business on your terms.