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Q4 BizBuySell Insight Report

Acquisitions Drop 22% in 2020, Thriving Businesses Sell at Record Prices as Pandemic Reshapes Economy

The number of small businesses reported sold in 2020 dropped 22% compared to 2019. This was the largest year-over-year drop since 2009 at the start of the Great Recession when transactions dropped 28%.

A total of 7,612 businesses were reported as acquired in 2020, compared to 9,746 in 2019. Conversely, the median sale price rose 12% to $279,950, with revenue and cash flow reaching record highs, according to BizBuySell’s Insight Report, which tracks and analyzes U.S. business-for-sale transactions and sentiment of business owners, buyers and brokers.

While transactions slowed, the median cash flow of sold businesses grew 10.7% over 2019 to $135,567, while revenue increased 8.2% to $613,341. The impressive financials speak to the quality of businesses changing hands – specifically, the spiking demand for pandemic resistant businesses, while weaker deals remained sidelined.

Heading into 2020, the business-for-sale market was strong, with a steady supply of profitable businesses from retiring Baby Boomers being scooped up by a new generation of buyers. Then in March, as much of the U.S. went into lockdown, owners postponed transitions and buyers paused their search, while banks froze lending. By the end of the month, March transactions had dropped 43%, swinging first quarter sales down 11% year-over-year.

Jay Offerdahl, President of Charlotte-based Viking Mergers & Acquisitions, described Q2 2020 business market activity as “a giant pause”, with fear of the unknown paralyzing all parties.

The market continued to contract in April, with transactions dropping 51% year-over-year which would mark the market bottom. Then, as the country began reopening and businesses resumed operations, buyers returned to the market, anxious to acquire either distressed businesses at a discount or those unaffected or boosted by the pandemic.

By June, the number of buyers searching on BizBuySell eclipsed pre-pandemic levels due to record confidence and the growing desire to acquire businesses unhindered by the pandemic. In fact, the 60% of brokers who experienced more sales volume in 2020 attribute it to higher demand for businesses performing well during the pandemic.

Brian Elkin of Elkin & Lee Realty & Business Advisors in New York identifies growing demand specifically for high-volume delivery restaurants such as bagel and pizza stores. While the pandemic has taken a notable toll on many sectors such as gyms and full service dining, there are a number of sectors experiencing quite the opposite, notes Elkin.

Larry Lee, owner of Larry Lee Heating, A/C and Electrical in Ohio, explains this trend, “We are essential services and we have more business opportunities than capacity to do all the work.” while June K Bush, owner of Lothar’s Butchery in Virginia adds, “The nature of our business being essential, we have been very lucky to do well. In fact, it has been the best year of operation in 7 years.”

Compounding a growing number of buyers in the market, the CARES Act Debt-Relief Program provided an unprecedented financing opportunity. Its lending rules propelled an urgency to close deals by the end of the 3rd quarter. In this program, the SBA covered 6-months of principle and interest on 7(a) acquisition loans closed before September 27th, 2020.

“Many of our 2020 business buyers took advantage of the CARES Act SBA incentives, with borrowers saving over $50,000 on average, which was just enough to create urgency and bridge the gap between the seller asking price and the desire of buyers to find a good deal during an uncertain time,” said Michael Baumann, Founder and CEO of

Transactions trended upward as the CARES Act deadline approached, shrinking the year-over-year deficit to 21% by July, and then to just 5% fewer deals in September. With Congress unable to agree on an extension, Q4 transactions again slowed, dipping 21% as attention shifted to the election and restrictions increased on business operations to combat rising COVID cases. Not helping matters, confusion over repayment and transfer of Paycheck Protection Program (PPP) loans impeded sales for those looking to act, with 12% of owners delaying their exit for this reason, according to BizBuySell’s Q3 Insight Report. The tumultuous year ended with 54% of surveyed business brokers reporting fewer deals compared to the prior year, while 28% reported more closed deals.

A Seller’s Market for ‘Pandemic-Proof’ Businesses

While many businesses were hit hard by the pandemic, some sectors instead found favorable conditions. The economic disruption caused by the virus changed consumer behavior, and ‘pandemic-resistant’ businesses, such as delivery and logistics companies, fast-casual restaurants, e-commerce websites, and manufacturers of certain goods saw revenue soar in 2020.

These businesses that continued to perform well despite the pandemic created a golden opportunity for sellers. According to surveyed brokers, 54% of businesses that sold in 2020 were immune to the pandemic, with almost half (24%) thriving. However, the fallout from the pandemic left far fewer businesses on the upswing.

At the onset of the pandemic in April, BizBuySell reported that 78% of surveyed business owners were experiencing reduced customer demand. Since then, recovery has been uneven and modest, as BizBuySell’s January 2021 survey of small business owners shows 52% are still experiencing reduced demand, while 25% say they are unaffected by the pandemic, and 23% report an increase in customers. This has empowered those more fortunate owners to command a higher price

“We have found multi-offer scenarios, almost all where the business has been stable or growing during COVID,” said Max Friar of Calder Capital, LLC in Michigan. “There is clearly a shortage of quality opportunities versus the many buyers.”

One indicator of this trend, the median sale price in 2020 increased 12% over 2019. Another is the correlation between higher prices and higher performance. The median cash flow of businesses sold in 2020 rose 10.7% with the median revenue rising 8.2%. This peaked in the 4th quarter with sale prices increasing a dramatic 19.6% year-over-year, tied to median cash flow and revenue spikes of 15.6% and 16.2% respectively.

Not only are these businesses performing at a higher level, the low supply and high demand is making each dollar earned more valuable than years past. The average multiple of revenue for businesses sold in the 4th quarter increased 6.7% year-over-year with the average cash flow multiple increasing 5.7%.

“Businesses that have thrived during the pandemic are in high demand and can seek premium valuations,” said Matt Baas of Small Business Deal Advisors in Michigan, while also cautioning “If they are interested in selling, there is no time like the present. The future leads to further uncertainty from a regulatory and tax perspective and beyond.”

A New Set of Buyers Emerge During COVID-19 Pandemic

The pandemic has no doubt rocked the small business landscape; however, it has also brought tremendous opportunity for those with the means to take advantage.

With unemployment in 2020 reaching heights not seen since the Second World War, one group seeking out acquisitions are corporate refugees. According to BizBuySell’s survey, 21% of buyers identify as newly unemployed with an additional 36% unhappy with their job.

“Of 14 million reported as currently unemployed, a small percentage are executives who now need to replace income and our aggressively pursuing acquisitions,” said Robert Flynn of United Brokers Group LLC of New England. “Most have $500,000 to $1 million to invest and plenty of time on their hands to call on opportunities.”

Kenneth Sussman of adds, “Many buyers have been laid off and have always wanted to go into their own business but were afraid to leave what they used to feel was the security of a job. The pandemic has given these people the opportunity to make their dream a reality.”

Another group entering the market in waves are existing business owners looking to expand or upgrade their location. The high availability of businesses unable to withstand the pandemic are providing a great incentive for acquisitions. In fact, business brokers attribute 30% of 2020 buyer inquiries to owners looking to expand.

“Some corporate types looking to finally own their own business; however, I found many more business owners are looking to expand and drive great bargains,” said Gregory J. Carafello of First Choice Business Brokers of Manhattan.

Age is another factor. Many older buyers are not so quick to hang up their boots. Nearly a quarter of current business owners searching for another acquisition are Baby Boomers (born between 1944 and 1964). In addition, 30% of new business buyers are Baby Boomers. Clearly, many in this seasoned group prefer business ownership over retirement or as a means of additional income or staying active.

“I am tired of retirement. I want a business that is a money maker that I can run for a few years and then hand off to my grandson,” says H Lee Wilcox of California.

The pandemic is also providing a great entry point for creative, opportunistic buyers to acquire depressed or closed businesses as reclamation projects. Of buyers surveyed, twenty-seven percent (27%) are specifically looking to buy a depressed business. Eighty-three percent (83%) would consider a business that has remained open but negatively impacted by the pandemic, while 62% would consider a closed business.

As these impacted businesses carry more risk, the buyer has the negotiation power. Due to the broad availability of impacted businesses, most business brokers believe that today’s market favors buyers, with 36% saying buyers have a slight edge, and 31% a significant edge. For this reason, brokers are advising owners of negatively impacted businesses to take a long look in the mirror while evaluating how to proceed. According to Sussman, impacted owners willing to persevere must pivot and find a way to take advantage of current conditions.

“Do your best to bring up your sales volume. It will be difficult, but because many businesses have closed permanently, that also means that you have less competition. There is always opportunity out there…don’t give up,” says Sussman.

Federal Relief Expected to Re-Ignite Urgency and Demand

As was the case last year, federal stimulus benefits are expected to be a powerful catalyst driving buyers to the market in 2021. On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 (HR 133), a $2.3 trillion spending bill, with $900 billion specifically for COVID-19 relief in the United States. A portion of the relief funds will be used to extend the popular CARES Act Debt Relief SBA 7(a) loan program.

According to Baumann, the extension includes additional benefits providing buyers with even more incentive to take advantage:

  • Six months of payment forgiveness for SBA 7(a) loans closed after February 1, 2021 and before September 30th, 2021. This includes principal and interest up to a maximum of $9,000 per month.
  • The SBA is waiving the guaranty fee charged to lenders and passed on to borrowers. This fee is typically around 3% and is now zero for loans closed after February 1, 2021.
  • The SBA is increasing the loan guarantee to lenders from 75% to 90%, which decreases risk to lenders. Along with new wording allowing lenders to adjust for temporary COVID-19 downturns, lenders should be able to take on additional risk.

Baumann urges buyers looking to take advantage of the extension to learn from the time crunch to meet last year’s deadline which required coordinated alignment between buyers, sellers, intermediaries and lenders. “The lesson learned is to start now and not procrastinate,” says Baumann.

The new bill also includes an extension to the PPP for new applicants, as well as allowing a second draw for those who previously secured a PPP loan. The program also expands eligibility to non-profits and news organizations, while also prohibiting SEC-registered companies, and simplifies the forgiveness process. These may be especially important enhancements as according to BizBuySell’s survey, just 33% of owners have decided to take advantage of this next round of PPP loans, whereas 40% will not and 27% are unsure. The top reasons for owners unsure or not wanting to apply include business not qualifying (37%) and unfavorable terms or fear the loan will not be forgiven (21%).

As it relates to the business-for-sale market, the PPP’s ability to provide businesses with cushion to withstand the pandemic is crucial to improving the supply of opportunities for buyers. Hopefully the new iteration will build upon the 48% of owners who said the first round of PPP loans provided enough money to support their business.

2021 Market Outlook: A Pathway to Recovery for Sellers

After a historically challenging 2020, there is reason for optimism in the months ahead. As more Americans are vaccinated and the pandemic footprint decreases, more businesses will regain customers and their value and allow owners to move forward with exit plans. Eighteen percent (18%) of surveyed owners delayed selling their business due to the pandemic, with 9% specifically waiting for their business to recover before entering the market.

“Many owners felt that 2020 was the wrong time to sell due to the pandemic. What resulted was a disproportionate level of buyers compared to sellers. It feels like more sellers will feel comfortable selling in 2021,” said Baas. “Plus, Baby Boomers will only continue to retire and sell.”

It’s important to note that regaining value is just the first step for business owners aiming to sell. The next step is proving to buyers that the value will be sustained. Ray Leblanc of Murphy Business & Financial Services in Missouri recommends business owners have had at least two quarters of financials that are in line with pre-pandemic value before attempting an exit if seeking full value.

Politics and how successful the new administration will be at controlling the pandemic will also play a key role in the small business recovery. Most owners (42%) believe the Federal Government has done a poor job controlling the pandemic compared to the 30% indicating good. The remaining 28% assign an average score to government response. Looking forward, skepticism exists for a speedy improvement. Forty percent (40%) of owners expect the Biden Administration to delay the economic recovery versus 33% expecting an accelerated timeline.

Concern over the new administration appears tied to regulatory fears. Thirty percent (30%) of owners believe new or extended COVID-19 operating restrictions represent the number one threat to small businesses, with an additional 25% specifying increased government regulations and taxes. Just 15% identified a lengthy vaccine rollout as their top concern. According to Sheila Spangler of Murphy Business & Financial Mountain West, speculation of increased regulation may contribute to more owners exiting in 2021. In fact, a resounding 87% of business brokers expect more owners to sell their business in 2021, with 35% expecting significantly more.

“I think there will be more sellers for three reasons. Baby boomers are aging out; COVID fatigue and the uncertainty; a new administration that has signaled higher taxes are on the way. This could provide a lot of incentive for owners to sell,” said Spangler.

Kendell Anderson, owner of Integrity Place Realty & Property Management, is planning on exiting California specifically due to political regulations, stating, “I plan to sell my California business, due to the political climate here, and buy the same type of business in Utah where the political climate is more business friendly and property owner friendly,” said Anderson. “I already have buyers wanting my California business. I just need opportunities to acquire businesses in Utah.”

Ultimately, individual circumstance and business performance will be the final factor in exit plans. Fifty-four percent (54%) of brokers expect the business-for-sale market to return to pre-pandemic levels within a year, something owners should consider when evaluating timelines.

If the business is in a depressed state but able to withstand and with a path to recovery, waiting to re-establish value may be the best move. Those with thriving businesses might want to capitalize on high valuations. Generally, the best advice for either scenario is to start by seeking out an expert. John D. Chaffee of Transworld Business Advisors Eastern NC offers this advice:

“If your business is doing well, get your financial records in order. Talk with a broker. Pull together the other information about your business & property that will be needed sell your business. This will be a great year to sell. If your business is struggling, do the same, except talk with a broker or other business advisor (SBTDCs or SBDCs) about strategies to improve the business. I’ve noticed businesses that adapted early have done relatively well – improved website (or development of a website), get more active in promoting business through social media, more flexible in delivery mechanisms, etc.”

2020 Small Business Financial Health

The median revenue of sold businesses was $613,341 in 2020, up 8.2% from 2019, while the median cash flow of sold businesses was $135,567, up 10.7%. These financials represent the highest annual revenue and cash flow since BizBuySell started measuring this data in 2007.

As the year progressed these figures increased, showing how demand for high performing businesses grew during the pandemic. For example, the median revenue of sold businesses grew from $550,000 in Q1 2020 to $640,346 in Q4. The median cash flow followed suit, increasing from $122,736 to $142,000 during the same period. The data also suggests less demand for depressed businesses or an increasing amount of owners who chose not to enter the market. The bottom line is that the deals that crossed the finish line were stronger businesses, while fewer marginal business transactions were completed, which raised the median revenues, cash flow, and ultimately sale prices of businesses sold in 2020.

“Businesses that have thrived during the pandemic are in high demand and can seek premium valuations. If owners are interested in selling, there is no time like the present. The future leads to further uncertainty from a regulatory and tax perspective and beyond,” said Matt Baas of Small Business Deal Advisors in Michigan.
2020 Q4 Sale vs Asking Price of Sold Small Businesses

2020 Small Business Values

The $279,950 median sale price in 2020 represents a 12% increase from the $250,000 in 2019. Prices continued to build as the pandemic took hold and demand for profitable businesses spiked, growing from $250,000 in Q1 to $299,000 in Q4 2020. The reduced availability of profitable businesses tacked on a premium to fundamental financial-based valuations.

According to BizBuySell’s recent survey, 6 out of 10 businesses are now fully operational. Roughly half have managed to avoid pandemic damages, with 25% experiencing no customer impact and 23% exceeding pre-pandemic levels. The high demand, low supply environment and resulting bidding wars are driving up multiples, most notably a 6.7% and 5.7% Q4 year-over-year increase in average revenue and cash flow multiple respectively.

Fortunately, the extension of the CARES Act incentive, which provides six months of payment forgiveness for eligible SBA 7(a) loans, can help offset rising prices to the tune of $9,000 per month. It’s for this reason that Spangler considers the current business-for-sale market to favor buyers.

“I think the market benefits buyers slightly due to SBA’s incentives to waive the loan guaranty fees and make payments for 6 months. This may help offset the buyer’s perceived risk to buy a business in these uncertain times,” said Spangler.
Q4 2020 Small Business Sales by Sector

2020 Industry Breakdown

With profitable ‘pandemic-proof’ and essential businesses in high demand, the service sector, which includes delivery services, auto repair, HVAC, professional cleaning, health services, etc., were the most popular among buyers. Service business transactions experienced the most drastic come back from the depths of the pandemic, down just 8% year-over-year in Q4 compared to a 31% drop in Q2.

Retail businesses also saw a revival, nearly halving the 42% year-over-year transaction drop in Q2 to a 23% decline in Q4. Specific hot commodities in the retail sector include convenience stores, liquors stores, and gas stations.

“If I would have had more gas stations, I would have sold all of them,” said Matthew Porter of Mountain West Commercial. “Because of COVID, hotel buyers came into the c-store market, making it even more competitive.”

Manufacturing businesses also saw improvement, down 28% in Q4 versus a 47% year-over-year decline in Q2. These businesses also commanded an impressive price point, doubling in price during Q4 versus the same time in 2019, and up 33% for entire year of 2020 which is near 3x the average growth rate for all transactions.

Most impacted by the pandemic, restaurants have made the slowest climb to normalcy with transactions down 42% year-over-year in Q4, not far off from the dramatic 54% drop in Q2. Most interestingly, the restaurant sector contains two polarizing business models; dine-in versus quick serve with the former out of favor and the latter extremely in demand.

“We’ve been doing this for almost 20 years, and 2020 ended up – to our surprise – being one of our best ever. We closed several businesses pre-COVID, and then two large companies at the end of the year, both construction-related: HVAC and Insulation. The restaurants and travel business we have on the market, on the other hand, have had pretty much zero interest since March,” said Pat Detmer of The Quincy Group in Washington.

2020 Regional Breakdown

On March 18th, 2020, California Governor Gavin Newsom issued the country’s first “stay-at-home” order. Two days later, New York Governor Andrew M. Cuomo signed the “New York State on PAUSE” order, shutting down all non-essential businesses. In a matter of weeks, the COVID-19 outbreak was devastating the largest cities in the Pacific and Northeast, halting almost all aspects of normal life. As such, it’s no surprise that transactions in these regions felt the largest impact in the second quarter, down 56% year-over-year in Northeast and 51% in the Pacific. This compared to decreases of 36% in the South, 28% in the Midwest and 22% in the Mountain, regions comprised of states which would later enact generally less severe restrictions.

Fast forward to Q4 2020 and transactions in all regions have bounced back to varying degrees. Those areas hit the hardest by the pandemic have made impressive rebounds, with Pacific and Northeast regions cutting the quarterly YOY transaction deficit by 61% and 51% respectively. The Midwest also made a notable recovery, improving by 49%, followed by 37% for the Southern region and 22% for the Mountain region.

Q3 2020 Metrics by Sale Price

2020 Differences by Deal Size

During 2020, 15% of transactions sold for a price of $1 million or higher. These businesses contained a median cash flow $517,510 and were on the market for 203 days, compared to $135,567 and 193 days nationally for all businesses. In the 4th quarter specifically, $1M+ deal sizes accelerated slightly to 200 days, a 16-day decrease from the 216 days in Q3.

In addition, larger businesses averaged a .88 revenue multiple and 3.55 cash flow multiple, significanlty higher than the .61 and 2.38 multiples, respectively, for all businesses. Most of the $1M+ businesses in 2020 occurred in the service industry (43%), but larger sales can also be found in the retail (16%), manufacturing (11%) and restaurant (5%) sectors.

About the BizBuySell Insight Report

The BizBuySell Insight Report is a nationally-recognized economic indicator that tracks the health of the U.S. small business economy. Each quarter, BizBuySell analyzes sales and listing prices of small businesses across the United States based on approximately 50,000 businesses for sale and those recently sold, reporting changes in closed transaction rates, valuation multiples and other economic indicators for the small business transaction market. Closed transactions are reported to on a voluntary basis by business brokers nationwide. Each report includes real small business data on over 70 major U.S. markets and across 65 small business industries.

BizBuySell is the largest business for sale marketplace online, receiving over a million visitors a month. Since 1996, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams. The website also features an extensive franchise directory as well as an easy-to-use business valuation tool.

The BizBuySell Insight Report is a nationally-recognized economic indicator that tracks the health of the U.S. small business economy.