Five years ago, Sunbelt Business Brokers was booming.
“We were growing year after year after year. Just massively growing until the recession hit in November of 2008,” said Chief Executive Officer Robert Bourgeois. “And then things really fell off. I mean they really fell off.”
The value of a business is based on its current earning capacity. The recession took a chunk out of every business’ profit. The baby boomers who planned to sell and retire couldn’t. Bourgeois’ business still made money, but the boom, and the boomers, vanished.
But in the last 12 to 18 months, the boomers have resurfaced. Sales of businesses are accelerating. Sunbelt has already sold 28 businesses this year, and the company has fielded offers on nine others.
But two weeks ago, a Lafayette-area mobile home firm went for $2.2 million. A scrap metal dealer with five locations drew an offer for $9.5 million. An oilfield service company, which builds board roads for drillers, was offered $5 million.
Boomer retirements — for those born 1946-64 — are driving sales of small businesses nationwide. The first quarter of 2013 saw 56 percent more sales close than in the same period last year, according to BizBuySell.com, an online small business marketplace.
The No. 1 factor in business sales from September to March 31? Retirement, according to a survey by Pepperdine University, the International Business Brokers Association and M&A Source.
Baton Rouge businesswoman Pat Crocker, who recently sold two of her three child care centers, is part of the trend, as well as a Sunbelt client.
Crocker got into the business in the mid-1990s because she wasn’t satisfied with the child care options available. A few years ago, Crocker decided to take a step back. Then the recession hit. Financing for prospective buyers evaporated. Crocker postponed her plans. But a recovering economy allowed Crocker to revisit her exit strategy.
It took about six months for Adventureland in Brusly and Oak Grove Childcare & Learning Center in Prairieville to sell.
“I didn’t get what I would have gotten five or six years ago …. But now it is becoming more of a seller’s market,” Crocker said.
Still, Crocker said credit remains tight. Business owners who want to sell have to be more creative when it comes to financing. Closing a deal may require an owner to completely finance the sale or part of it, with a bank loan making up the difference.
In owner financing, sellers typically require a larger down payment; 20 percent or more is common.
It’s important for sellers to protect themselves in this type of arrangement. The first step is getting a good attorney to craft the agreement.
“So if the buyers can’t fulfill their end of the deal, you get the business back, hopefully intact,” Crocker said.
Lafayette businessman Chad Cole said the availability of bank funding prompted his most recent acquisition: Universal Manufacturing and Sign Co. in Scott.
Cole bought his first business, a Chevron station in Port Allen, just before the 2008 crash. He bought Universal just a few months ago.
Both sellers were in their 50s or 60s. Neither had embraced the technology curve, and it got harder for them to keep up. Both were looking to get out. Cole provided the means.
“We’re truly at a point in history where the paradigm has shifted so much, so fast that those that can’t embrace the technology of everything today, they’re really going to get left behind at a rapid rate,” Cole said.
Bourgeois said one of the biggest differences in the current climate is buyers’ willingness to pull the trigger.
The owners of small companies, costing $1 million or less, were willing to sell throughout the recession. But buyers were hesitant. There was more shopping going on than purchasing.
“Now they’re no longer shopping. They’re coming in and buying,” Bourgeois said.
Richard Jackim, author of “The $10 Trillion Opportunity: Designing Successful Exit Strategies for Middle Market Business Owners,” said there has been more movement the past two years.
The premise of Jackim’s book is that the retirement of baby boomers will result in huge numbers of businesses changing hands over the next two decades. The sales of those companies offer a wealth of opportunities for business advisers, including brokers, estate planners, wealth managers, accountants, attorneys and real estate professionals. Most of those opportunities remain.
There is still a big gap between the return sellers want and what buyers expect on their investment.
In addition, a lot of owners are hanging on because of the uncertain returns the financial markets offer. One 74-year-old client’s company generated a 10 percent to 12 percent return each year, and he couldn’t get anywhere near that in the markets.
The client looked at his business as a 10 percent annuity that would last the rest of his life, Jackim said. His children could deal with it after that.
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