Some U.S. Small Businesses Selling for 6% Premium in Pandemic

The wildest quarter in years wound up a seller’s market for pandemic-proof small businesses in the U.S.

Median sale prices rose by about 6% to $286,500 in the second quarter on the nation’s largest online marketplace for businesses, BizBuySell.com. While transactions slumped 39% from a year earlier, Covid-19 ruthlessly picked winners and losers, delaying the retirement of full-service restaurant owners and allowing firms that aren’t hampered by social distancing to command higher prices.

One California butcher — emboldened by blowout sales of takeout sandwiches — yanked his shop off the market recently, bumped up the price and listed it again, said Steve Zimmerman, a San Francisco-area restaurant broker. In Charlotte, North Carolina, business broker Jay Offerdahl said buyers are returning after noticing that many essential businesses saw only a small drop in revenue since March.

“As soon as they saw where the floor was, they immediately got on the phone and reengaged their attorneys,” Offerdahl said. “We’ve never had more deals under contract.”

The buyers are a mix of people who’ve lost jobs, existing owners looking to expand and those hoping for a bargain in the pandemic’s small-business wreckage, according to Bob House, president of BizBuySell, which is owned by real estate services firm CoStar Group.

Troy Ross, 55, is in the former camp. An engineer recently let go from a Seattle-area lighting company, Ross got a bank loan and paid around $1 million for a precast concrete company. Nowadays, he’s building stairways for commercial construction projects, which have stayed robust in tech-heavy Seattle, and feeling satisfied that he got a good deal even without negotiating the price down.

“Watching the revenue stay steady and knowing it was undervalued, we didn’t feel like saying, ‘Hey, there’s a pandemic. We want 10% off,’” Ross said.

For businesses that were hard hit by the pandemic, like gyms, the outlook is darker. Last quarter’s decline in overall transactions on BizBuySell was in fact the biggest drop since the Great Recession. Lenders are skittish about financing when Covid-19 has so fouled up their outlooks.

Dave Didion, a fitness club broker in Virginia who had $36 million in listings earlier this year, has seen most of the owners pull their gyms off the market. He’s turned off by the low-ball offers some opportunists are making.

“A lot of them are coming in with offers so ridiculous I could get more by closing it and selling the equipment and memberships for more than they’re offering,” said. “It’s not a pretty picture.”

In the New York City area, Andrew Hoffman was negotiating to buy an Oregon-based travel firm before the seller pulled the business off the market as the pandemic hit. Hoffman is still looking for opportunities and hoping a seller will be open to something creative, such as taking only a partial payment for now and collecting the rest after the business has hit certain performance metrics. Meantime, the 38-year-old Hoffman has set up a virtual community for entrepreneurs like him.

”If a business was making $400,000 last year and now they are gonna make zero, the valuation of the business is going to be significantly less,” Hoffman said. “The business value became intrinsically less. The market conditions completely changed.”

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