2020 Review and 2021 Look Ahead
The number of small businesses (less than $5M in annual revenues) reported sold in 2020 dropped 22% compared to 2019 (BizBuySell). Heading into 2020 the business-for-sale market was strong, with a steady supply of profitable businesses from retiring Baby Boomers being acquired by a new younger generation of entrepreneurs. Then in March, when most of the US went into lockdown, owners (sellers) postponed transactions, buyers paused their searches and purchases, and lenders froze lending. Transactions dropped dramatically to almost none. Then as the country began reopening and businesses resumed operations around May/June, previously teed up deals closed, plus, buyers returned to the market, anxious to acquire either distressed business at a discount or those unaffected or boosted by the pandemic – mostly “essential” businesses.
While many businesses were hit hard by the pandemic, some sectors found favorable conditions. The economic disruption caused by the virus changed consumer behavior and “pandemic resistant” businesses, such as delivery and logistics companies, delivery-oriented restaurants, e-commerce businesses and home pool and gym equipment businesses, to name a few, saw revenues soar in 2020. Businesses that have continued to perform well despite the pandemic will be highly sought out by 2021 buyers and will be seeking and obtaining premium sales prices.
The pandemic has no doubt impacted the small business landscape; however, it has brought tremendous opportunity for those with the means to take advantage. Newly unemployed executives of impacted business are seeking businesses of their own rather than pursue another corporate position. Many surviving business owners, including baby boomer business owners not yet ready to retire, are seeking to expand and/or diversify pursuant to opportunities they are seeing.
Stimulus money and a never seen before aggressive SBA lending will fuel activity. SBA lending offers 90/10 loans up to $5M with forgiveness of the initial 6 months of payments up to $9,000/month (in some situations, up to 9 months).
“Essential” prospering businesses will create a Seller’s market; fast moving sales at premium prices. Depressed businesses will create a Buyer’s market, still fast-moving sales but at depressed prices.
Concerns over the continued pandemic situation should decrease as vaccinations increase and the economy continues to open up. Concerns over the new administration’s anticipated increased regulations and taxation will need to play out. Such could cause business owners to want to sell but could also cause buyers to hesitate.
Overall, 2021 is anticipated to be a banner year in small business sales and BNO will be here to assist its seller and buyer clients.
- John A. Naayers