Biz Sales Pick Up In Metro Detroit

Bigger business were selling late in 2010 in metro Detroit than a year earlier, according to data gathered by a San Francisco-based Web site that currently has 144 Detroit-area businesses listed for sale.

BizBuySell.com says that if you want to buy a business in metro Detroit, the current median asking price of businesses for sale is $198,500. One year ago, the median asking price for businesses in Detroit was $237,000.

The listed businesses in the Detroit area had a median revenue of $344,000, down from $420,000 at this same time last year.

The median cash flow, meaning the money that comes out of the business over the course of a year, is $70,712, versus median cash flow of $78,000 last year.

According to BizBuySell.com, business owners in the Detroit area will typically ask for, on average, a revenue multiple of .88 (changed from .77 year over year) and a cash flow multiple of 3.44 (changed from 4.16 year over year).

However, the actual closed transactions was up from 16 in 2009 to 30 in 2010. And the median actual sale price nearly tripled, to $399,500, from $127,500 a year earlier.

"Looks like some larger businesses definitely sold in 2010," said Mike Handelsman, group general manager, BizBuySell.com and BizQuest.com. "Certainly things look like they improved from 2009 to 2010 ... It looks like Detroit had a pretty good rebound in small business transactions."

The listings that drive these statistics include listings from local business brokers, as well as "for sale by owner" listings that have been listed by the business owner without the assistance of a business broker.

Detroit residents who are interested in buying a local business can view the Detroit area business-for-sale listings at www.bizbuysell.com/michigan/detroit-businesses-for-sale/. Also, business owners who are interested in selling a business can list their business at www.bizbuysell.com/sell.

For all the data, visit www.bizbuysell.com/news/insight_reports/Detroit-Warren-Livonia,%20MI.xls

Nationwide, the number of closed business-for-sale transactions in the United States, as reported by business brokers, rose by 3 percent in 2010.

"Spurred on by a strong showing in the fourth quarter, the business-for-sale market showed some promising signs of recovery heading into the New Year," Handelsman said. "In 2010, we saw more deals getting done. One of the key drivers for that growth was that business sellers were more realistic about their business valuations."

The increased business-for-sale market activity came at the expense of a decline in business valuations. The median closed-transaction sale price for 2010 dropped 6.3 percent year-over-year, from $160,000 in 2009 to $150,000 in 2010. Key metrics used to value companies also fell slightly in 2010, with the average revenue multiple falling 2.1 percent and the average cash flow multiple falling 0.6 percent.

According to Handelsman, declining business valuations suggest continued softness in the economy and constrained capital access reducing the number of qualified buyers.

"While access to financing for business acquisitions began to loosen up in the second half of 2010, it remains difficult for many business buyers to get the financing necessary to purchase a company," Handelsman said.

With financing sources still in short supply, the growth in acquisition activity in 2010 was powered largely by a growing number of smaller business-for-sale transactions in non-manufacturing industry sectors.

It appears likely that uncertainty regarding tax code changes may have also contributed to increased sales activity in the fourth quarter. Seller concern regarding the potential expiration of lower tax rates and the corresponding decrease in the business owner's after-tax proceeds from the sale of a business could have spurred sales. Transactions completed in the fourth quarter were up 11 percent from the same quarter a year earlier.

BizBuySell.com projects that 2011 will witness an accelerating recovery in the business-for-sale marketplace, citing the following industry drivers:

* Latent Supply. While many business owners have hesitated to sell their businesses in the midst of a recession and flat to declining business performance, the recovering economy should reverse this trend and drive an increase in the number of businesses listed for sale. A compounding factor is that the earliest members of the U.S. baby boomer population, many of whom are business owners, have reached retirement age.  As an increasing number of small business owners near retirement, this trend will continue to bring an above average number of small businesses to the sale market.

* Latent Demand. Business brokers nationwide report a growing number of buyers looking to purchase a company. This is driven in part by declining business valuations, which makes buying a business more affordable, and in part by the nation's high unemployment numbers, which have convinced many laid-off employees to give entrepreneurship a try. According to Handelsman, the principal obstacle to making the transition from unemployment to business ownership remains a lack of available financing for business acquisitions.

* Easing Credit. The federal government and the SBA have recently focused on helping banks ease their lending restrictions to provide necessary capital to the small business market. As capital becomes more readily available, it will be easier for brokers and business owners to close sales.

"It's very simple," Handelsman said. "When credit is more readily available, the wheels of business succession will start to turn again. Until then, we can expect a moderate recovery in the business-for-sale marketplace."

BizBuySell.com is the Internet's largest marketplace for buying or selling a small business. The company releases its BizBuySell.com Insight Report on a quarterly basis, reporting changes in closed transaction rates, valuation multiples and other economic indicators for the small business transaction market. Closed transactions are reported to BizBuySell.com by business brokers nationwide. BizBuySell currently has an inventory of more than 45,000 businesses for sale, and more than 725,000 monthly visits. BizBuySell also has one of the largest databases of sale comparables for recently sold businesses and one of the industry's leading franchise directories.

BizBuySell was founded in 1996 and acquired by LoopNet Inc. in 2004. LoopNet operates the largest commercial real estate listing service online, with more than $450 billion of property listed for sale, 6.8 billion square feet of space for lease and more than four million registered members.

More at www.bizbuysell.com.