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The latest BizBuySell’s Insight Report reveals small business acquisitions increased by 2% in Q3 2023 compared to last year. This modest growth follows a 13% drop in Q4 2022, indicating the market is stabilizing despite high-interest rates and inflationary pressures. The report says 2,281 businesses were sold in Q3 2023 with an enterprise value of $1.65 billion, up 4% from $1.59 billion in Q3 2022.

While prime-based SBA loan rates have increased, deal structures are evolving to bridge financing gaps. Lenders require more seller financing, typically 10–20% of the purchase price over 5–10 years. Cash buyers still have an advantage in today’s environment, where speed is critical. The median days on the market dropped from 182 days in Q1 2023 to 164 days in Q3 as motivated buyers and sellers found ways to close deals.

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Median sale prices rose 10% to $329,000, reflecting steady demand for healthy businesses. Small business valuations remained relatively flat as cash flow multiples declined 1.4% and revenue multiples rose just 1%. This indicates buyers are still cautious amid economic uncertainty.

Seller confidence remains low, unchanged from 2022 at a score of 46, near the record low of 45 in 2020. Most cite inflation, rising overhead costs, and minimum wage increases as negatively impacting profits. High-interest rates are also concerning, with 64% saying it has hurt their business. As a result, 46% have raised prices, and 40% have delayed expansion plans.

Buyer confidence also dropped but remains mildly optimistic at 52, as 73% believe they can buy at an acceptable price. Manufacturing saw a surge in demand and prices, with the median sale price up 28% in Q3. Retail struggled with 18% lower prices but 6% more deals as buyers scooped up bargains. Restaurants grew revenue by 20%, but profits dropped due to higher costs.

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The Insight Report expects the high-interest rate environment to persist into 2024. Seller financing will become increasingly important to bridge valuation gaps. SBA loans are still the top financing method, though they take longer to close. With 38% of owners nearing retirement age, a steady stream of businesses are expected to come to market in the coming years.

Digging Deeper into Key Sectors and Trends

The manufacturing sector led in growth and financial performance. Acquisitions grew 13% and median sale price jumped 28% in Q3, while median revenue rose 9.5% and median cash flow grew 10%. With more companies reshoring production, manufacturing should continue expanding.

Conversely, the retail sector struggled amid shifts in consumer spending and weaker sales. Transactions grew 6%, but median prices dropped 18%. Median revenue declined 15%, and cash flow fell 5.4%. More deals suggest opportunistic buyers are acquiring discounted retail businesses.

Restaurants saw a 7.4% increase in median prices as sales grew, with median revenue up 20%. But median cash flow dropped 3.6% as higher food and labor costs squeezed profits. While the leisure sector added over 90,000 jobs in September, profitability remains challenged.

Service business demand cooled slightly, with transactions down 4% and median prices off 6.4%. Median revenue dipped 6%, while cash flow was flat at 1% growth. This could signal a correction as buyers diversify into sectors like retail and restaurants.

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Evolving Financing Landscape and Deal Structures

With capital costs rising, the financing landscape is evolving. Seller financing is bridging valuation gaps, with buyers expecting to carry 10–20% of the purchase price. Creative earnouts and seller notes are also being utilized.

As rules tighten, SBA loans still dominate but can take 60–90 days to close. Lenders are requiring higher debt service coverage ratios, leading to more seller financing. Overall, deals are taking longer, but buyers and sellers are finding ways to adapt.

Silver Lining for Buyers: Opportunity for Value

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Despite economic headwinds, healthy businesses remain in demand. Buyers who are able to act quickly with all-cash offers have an advantage.

The median days to sale dropped to 164, showing motivated buyers and sellers. With valuations flat, buyers are finding opportunities for more favorable pricing.

Almost 40% of buyers see current conditions as a chance to acquire quality businesses amid the wave of Baby Boomer retirements. And over half of buyers have prior business ownership experience, signaling an experienced pool of entrepreneurs ready to pounce.

The BizBuySell Insight Report provides an in-depth quarterly view into the health of the small business transaction market. As the landscape evolves in 2023, buyers and sellers adjust strategies to transact despite macroeconomic challenges.

The BizBuySell Insight Report

The BizBuySell Insight Report provides a quarterly pulse on the health of the U.S. small business economy. Analyzing data from 50,000 businesses for sale and sold nationwide, the report tracks closed transactions, valuation multiples, and other key indicators.

With transaction data reported voluntarily by brokers, the Insight Report covers 70+ markets across 65 industries. As the largest online business-for-sale marketplace, BizBuySell leverages its platform to produce this nationally recognized benchmark report.

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