Seller Negotiation Strength During COVID – From Jordan Zweigoron

COVID has impacted businesses in profound, yet in uniquely different ways.

While some businesses were effectively closed during COVID (think movie theaters, event management companies, hair salons), other businesses have weathered the storm with little impact.  A few have even thrived through the pandemic.

How has the impact of COVID impacted the negotiation strength of Sellers throughout the pandemic?  BizBuySell recently conducted a survey and found some interesting results.

Negotiation happens between buyers and sellers, in ways which are measurable on a macro scale. As you might expect, buyers tend to negotiate for a lower price, so it’s common that businesses sell at some reduced amount from the asking price (in most, but not all cases).

BizBuySell tracks the Asking Price vs the actual Selling Price of businesses, which resulted in a curious finding in the 2^nd quarter of 2020.

As you can see in the chart above, the blue line shows the actual Sale Price, while the black line shows the Asking Price. In Q2 2020, it’s evident that, across the board, buyers only managed to reduce the Asking Price, on average, by 10%.   In other words, buyers cumulative paid 90% of the Seller’s Asking Price.

Comparing this statistic to the same period of 2019 for a year-over-year comparison, in the 2^nd quarter of 2019  (before the pandemic even began), buyers were able to negotiate much more favorable discounts, averaging in the 15% range.

In a time when businesses are struggling to maintain revenues during an unprecedented economic shutdown, it seems counter-intuitive at first blush, that Sellers would gain an upper hand in negotiating price with Buyers.

What BizBuySell discovered is that businesses which have maintained revenues or thrived during the pandemic were very much in demand.  With fewer of these performing business for Buyers to choose from, those businesses which met this important performance criteria were valued more highly by Buyers.

And as you might also expect, those companies which fell into the category of “distressed businesses” tended to sell at Buyers’ risk-adjusted discount (if they sold at all).

If your business has been maintaining consistent revenues year over year through the pandemic, your company is currently a rare breed, and one which is obviously in demand. Therefore, if you’re considering selling in the near future, it may not be necessary to ride out the pandemic before starting the process. Give us a call to further explore the best timing for your exit strategy.

Jordan Zweigoron is a Senior Advisor with Sunbelt Business Brokers. He can be reached at (408) 436-1900, or at [email protected]. Or connect with Jordan on LinkedIn.