A Positive but Uncertain future for the Business Transfer Market, says BusinessesForSale.com

Aug. 11, 2010 - PRLog -- The survey results point to many prospective business buyers being keen to capitalise on low credit rates and a perceived buyers market for business opportunities.

By far the most common reason given by the 86% who believe it’s the right time to buy a business is that continuing economic uncertainty promises low prices, with about half (49%) citing this reason.

The overall picture is far from clear though, conversely an overwhelming majority (97%) of business brokers said that the sales cycle was taking longer than before the financial crash in 2008, with 43% saying it was “taking significantly longer” to sell a business. In 2008, 17% of business brokers said it took less than four months to sell a business, compared to 2% today.

Huge budget deficits in Europe means the recovery is particularly fragile, so it’s an uncertain situation in the businesses-for-sale market. Positive signs include the fact that same amount of buyers thought it was easy to obtain credit as those who found it difficult, 28 and 26% respectively, suggesting that credit constraints have eased.

Whilst there are more businesses on the market than before – 63% of brokers reported a rise in the numbers of businesses on their books, there is a growing mismatch between buyer and seller expectations, particularly when it comes to the valuation of a business for sale.

Some business owners see economic green shoots as justification for putting higher prices tags on the sale of their business, whilst buyers see continuing economic turbulence as license to push prices down. This has led to a rise in incidences of buyers pulling out of deals, with 55% of worldwide brokers reporting an increase. Interestingly only 16% of buyers felt that the economy had stabilised and better times lay ahead.

60% of buyers surveyed believe that sellers’ asking prices are too high, while only 37% feel they are about right, and 79% of business brokers reported that their sellers have to accept less than their initial asking price.

The businesses-for-sale market has always provided a useful economic indicator. Previous research from http://www.BusinessesForSale.com has shown a rise in business values and the quality of businesses has often presaged an economic improvement a few months later and vice versa.

Though there was little overt positivity about the economic climate, 64% of buyers said they were felt they were more likely to buy a business over the next 12 months than at the same juncture 12 months before.

Traffic statistics from BusinessesForSale.com are striking, in particular enquiries since the financial crisis began at the tail end of 2007. The high watermark over the past four years was December 2007, when there were just over 70,000 enquiries made on business opportunities. As the crisis took hold, enquiries fell steadily until reaching a nadir of around 33,500 during the month of November in 2008.

A significant rise was recorded the following April, from 49,500 to 57,800. This recovery in enquiries presaged the economic recovery by around six months, as the country started pulling itself out of the recession in the second quarter of 2009.

However, several business transfer agent commented that they’d seen an appreciable rise in the amount of consolidation in industries, which offers evidence that the global recovery strengthening.

In terms of which sectors are performing strongly; property-related businesses - always a bellwether for the economy’s health, so it’s notable that only 11% of global agents observed a sales rise in this sector compared to 30% of brokers witnessing a fall in sales.
54 % of brokers reported a surge in sales of food businesses, the largest rise posted, which could be dubbed a ‘flight to safety’ to an industry widely considered as relatively recession-proof. The second steepest sales rise was reported in services with 33%.

Retail and leisure, which are more susceptible during downturns as consumers reign in their spending, were the biggest fallers, 36% and 33% respectively, in the UK. There’s a clear discrepancy with demand here because these sectors are very much in demand among buyers, as 29% and 25% respectively are interested in retail and leisure businesses. Evidence points to a shortage of quality businesses in these sectors.

Jeremy Mandell, head of marketing at Dynamis, which runs BusinessesForSale.com suggests the following reason for the shortage of mid-market vendors: “Owners of high quality businesses could be delaying their exit until their business’s value improves along with the economic climate. Owners of struggling businesses naturally have good reason to sell up – to get out before they go under.”

Another business transfer agent observed: “Extremely low interest rates deter business owners from selling their businesses as they can nowhere near replace the income they derive from their businesses when they come to investing the capital in the proceeds of sale.”

One possible and worrying conclusion is that perhaps then buyers are too optimistic about the market, and sellers are keen to get rid of lower quality businesses before they go under. The fact 80% of sellers are willing to drop their asking prices backs this up.

If buyers flood the market, prompted by unfounded optimism, it could re-inflate the asset bubble and push us into a double-dip recession if the businesses they have bought go bad.

If, as some brokers fear, the quality of businesses is low and the economy does return to recession, then a surge in liquidations and a deluge of bad debt could follow.

Another conclusion of course is that this is just part of the natural cycle of boom and bust, and we’re about to see a new wave of successful, new business owners drive the economy through its next phase of growth.

Certainly if traffic statistics from BusinessesForSale.com are to be believed – and in the past they seem to have always predicted the market a good six months in advance – then current traffic points to a strong sustained rise in the business-for-sale market and consequently the economy.

Notes to Editors
1.   BusinessesForSale.com was established in 1998 and is published by Dynamis plc – a privately owned company based in London, UK.
2.   The site features over 54,000 businesses for sale in 130 countries.
3.   More than 1.2 million users visit the site every month.
4.   For more information please contact Jo Dalton on 020 7324 1948.

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Dynamis is an online publisher responsible for titles such as www.BusinessesForSale.com, www.FranchiseSales.com, www.BusinessOpportunities.com and www.BusinessWings.co.uk