Sales of small businesses fell sharply in the second quarter of 2020, according to new data from BizBuySell. Specifically, there were 1,481 closed small business transactions in Q2, the lowest quarterly total since 2012 and a 39 percent decline compared to this same period last year. The large drop, though, was actually not as severe as the 50 percent plunge seen during the “Great Recession.” This was in part due to demand holding up relatively well, which is perhaps another example of how the current crisis is unlike typical economic downturns caused by a buildup of imbalances. Indeed, the bulk of the damage occurred in April when basically the whole country was in some form of lockdown that prevented most “non-essential” activities from occurring.
When the restrictions were lifted demand started to quickly recover, enough so that the report even noted that the number of buyers searching and inquiring about businesses has now “eclipsed pre-pandemic levels.” In many ways this is similar to what we have seen in the real estate market recently, where supply is struggling to keep pace with an influx of buyers hoping to take advantage of historically cheap borrowing costs. Moreover, the report confirmed that the dearth of “high-performing businesses has given sellers the edge at the negotiating table,” and the gap between the median asking price and sales price narrowed considerably last quarter. There were of course distressed sales going on during Q2’s economic tumult but such transactions accounted for only a small fraction of total sales. However, the crisis is not over and any older owners who were already thinking about retirement might have moved up their timetables due to the coronavirus. One broker in the BizBuySell report even said that “We’ve barely scratched the surface of Baby Boomer supply and as the pandemic continues, any increase in uncertainty will propel these owners into the market.”