Number of businesses for sale soars to record levels as baby boomers look to cash out
The number of private businesses for sale has reached a record level of 29,060 for the last quarter, according to the BizExchange Index for Private Business Values.
The index recorded an 18% increase in the volume of businesses for sale, which coincided with an increase in values at the smaller end where businesses with earnings before interest and tax ratios between one and two increased from 35% to 48% of listings.
Listings with an EBIT ratio of less than two remained constant at 75% of listings.
BizExchange chairman David Bird told SmartCompany that a lot of private business sales are not advertised and so the figures were conservative and there could be another 10,000 or more private businesses for sale.
"That is one of the problems with trying to get these figures, the private market is very secretive," he says.
"Uncertainty continues to be the dominant feature with negative net sentiment and an increasing number of those surveyed indicating that they did not know which way the market was heading."
Bird says the increase in the number of businesses for sale is underpinned by businesses being sold by baby boomer business owners moving into retirement.
"The baby boomers haven't really hit the market in a big way, when they do you will expect 40,000 to 50,000 sales a quarter, what slowed them down was the global financial crisis, which slowed the prospects of sale down and also knocked their own superannuation," he says.
Bird says the children of business owners are reluctant to take on the business as they may have done in the past, with a "gradual decline" in the number of businesses being carried on by children.
"Fewer businesses are going through children than used to be, there has been a gradual decline," Bird says.
"One of the problems with children taking over is that the children are not interested in the older style businesses and, secondly, they don't have the money."
BizExchange has been monitoring private business sales since March 2006 when there were 6,300 sales compared to the 29,060 sales in the most recent quarter.
Bird says September 2007 to September 2008 saw business values in many sectors almost halve due to an oversupply of new listings combined with worsening business conditions.
The years 2009 and 2010 saw a period of relatively stable values, with much of the fluctuation in the index value attributable to the quality of businesses for sale at a particular time.
However, 2011 saw a dramatic rise in the number of businesses for sale, particularly the number of micro-businesses, culminating in the record number of sales in the last quarter.
"This end of the market is strongly influenced by equity markets, with mergers and acquisitions the primary source of buyers," Bird says.
"While retiring micro-business owners flood the smaller end of the market it continues to ensure it remains a buyer's market."
Bird says the volume of business owners considering putting their business up for sale is expected to continue to increase because even this new level is well below the average volume required to transfer ownership from the baby boomers to the next generation as they move into retirement.
"While market sentiment continues to be negative it is worth noting that the majority of business owners expect prices to remain steady," he says.