BizBuySell Insight Report shows that small business acquisitions grew by 2% during Q3 2023, compared to the same period last year. This modest growth comes after a 13% decline in Q4 20, indicating that the market has stabilized despite high interest rates and inflationary pressures. According to the report, 2,281 companies were sold with a total enterprise value of $1.65billion in Q3-2023. This is up 4% compared to $1.59billion in Q3-2022.
Deal structures have evolved to bridge funding gaps, even though prime-based SBA loans rates have increased. Lenders are requiring more seller financing. Typically, 10-20% of purchase price is required over a period of 5-10 years. Cash buyers have the advantage today, when speed is crucial. Median days on market decreased from 182 in Q1 to 164 in Q3 due to motivated buyers and sellers finding ways to close deals.
The median sale price rose by 10% to $329,000 reflecting a steady demand from healthy businesses. Cash flow multiples fell by 1.4%, while revenue multiples only rose 1%. This shows that buyers are still cautious in the face of economic uncertainty.
Seller confidence is low. It remains unchanged since 2022, at 46. This score is near the previous record low of 45 set in 2020. The majority cite rising overhead costs and minimum wage increases for negatively impacting their profits. High interest rates are another concern, as 64% say it has affected their business. In response, 46% raised their prices and 40% delayed expansion plans.
The buyer confidence dropped, but remained mildly optimistic. At 52, 73% of buyers believe that they can purchase at a reasonable price. In Q3, manufacturing saw an increase in both demand and prices. The median sale price was up by 28%. Retailers struggled to compete with 18% lower prices, but also 6% more bargains as shoppers seized the opportunity. Restaurants saw revenue increase by 20% but losses due to increased costs.
The Insight Report predicts that the high interest rate environment will persist until 2024. In order to close valuation gaps, seller financing will be increasingly important. SBA loans remain the most popular financing option, but they are more difficult to close. A steady stream of new businesses is expected in the next few years, as 38% of business owners are nearing retirement.
