BizBuySell has released its second quarter 2010 Insight Report reflecting increased business succession activity.
According to the report, the number of closed transactions in the second quarter rose significantly, 6.3 percent, as compared with the same time period in 2009 — from 1,040 transactions to 1,106.The market is continuing to improve, making it a good time to list a business for sale. “It’s encouraging to see ongoing recovery in the business-for-sale marketplace,” commented Mike Handelsman, general manager of BizBuySell.com. “The market is continuing to improve, making it a good time to list a business for sale.”While transaction volume is up in comparison to 2009, the market remains down compared to prior years. In Second Quarter 2008, business brokers reported 2,098 closed transactions. Relative to two years ago, the market is still down 47% versus its peak.Business Valuation Multiples Rise in Second Quarter 2010In addition to an increase in completed deals, the report notes slight changes in the metrics that are used to value companies. Compared to the same quarter last year, revenue multiples declined while cash flow multiples increased, suggesting that sellers with cash flow positive businesses may be seeing more qualified buyers bidding to buy companies. This puts upward pressure on business sale prices, which is reflected in the higher cash flow multiples. Sellers are clearly valuing cash flow more than revenue, as evidenced by the decline in revenue multiples.Specifically, revenue multiples on reported closed transactions in Second Quarter 2010 declined from 0.68 to 0.66 compared against Q209, representing a 2.3% decrease. In contrast, cash flow multiples increased nicely from Second Quarter 2009’s 2.59 to Second Quarter 2010’s 2.81, representing an 8.5% increase. The revenue and cash flow multiples are calculated by dividing the selling price of the business by its reported annual revenue or cash flow.