Market for small businesses on the upswing

Baby-boomer owners, ready to retire, meet firms wanting to grow
2013-05-19T00:00:00Z Market for small businesses on the upswingThe Associated Press The Associated Press
May 19, 2013 12:00 am  • 

Baby boomers preparing for retirement are driving a surge in small-business sales, as they find more and more buyers confident enough in the improving economy to expand their own businesses through acquisitions.

In the first three months of this year, the number of sales that closed jumped 56 percent from the same time in 2012, says BizBuySell.com, an online marketplace for small businesses.

Retirement was the No. 1 contributor to business sales in the fourth quarter of last year and the first quarter of 2013, according to a survey by Pepperdine University and two trade groups, the International Business Brokers Association and M&A Source.

"It was almost like a light switch went on in January," says Michael Schuster, a broker with World Business Brokers in Miami. "We started getting a lot of activity with sellers who said, 'I don't want to go through another downturn or tough time. I want to see if I could sell my business.' "

Three-quarters of the sellers or potential sellers that Schuster's brokerage sees are baby boomers, most of whom don't have family members willing to take over their businesses. Some of these owners want to sell just part of their firms, essentially taking on a partner, because they don't want to keep carrying all the risk themselves.

Honey Rand fits the category. After 17 years of running her Tampa, Fla., public relations firm, Environmental PR Group, she's starting to think about selling. The 55-year-old wants to get away from the administrative work that goes into running a business and focus on working with clients.

She's optimistic that she'd be able to sell, because she was approached twice by prospective buyers in the last 10 years. Rand expects that she would remain with the company for a period following a sale to help with the transition to new management - something that many business owners do.

She plans to talk to a broker soon. "When the time comes, or if it comes, I want to be ready. I don't want to feel like it's a fire sale."

Pent-up demand

In California, too, "baby boomers are where we're really seeing the growth. It's pent-up demand," says Dave Richards, owner of Keystone Business Advisors, a brokerage in Westlake Village, Calif.

One of those boomers is Walt Pocock. In late 2011, Pocock met with a broker to discuss possibly selling his Chino, Calif., business, Palo Verde Landscape Management Co. But he and his wife, Dee, who also worked with the company, weren't quite ready to let it go. However, selling became "something we were thinking about from then on," Pocock said.

Within a year, the 70-year-old decided he was ready to retire, and Dee, 78, agreed. The difficult business climate was a factor in their decision.

"The economy had not been good and it had been a struggle and we got tired of the struggle," he said.

They put the company on the market in January and quickly had several bidders. Pocock got his full asking price, and the deal closed April 1. Now he and his wife are looking forward to traveling around the country in their motor home.

Sellers like Pocock are going to keep the market for small businesses thriving for years to come.

"Trillions of dollars of business value are going to change hands in the next 10 to 20 years," says Bob Balaban, managing director at Headwaters MB, an investment bank based in Denver.

Looking for a good fit

He believes so-called "strategic acquisitions" - purchases by companies looking to expand - will be a key factor in that trend. In a tight economy, companies looking to grow feel that it would take years to build up their businesses.

"They have to do acquisitions to continue to grow and grow quickly," Balaban says.

Buyers appear to be ready to step up and are looking for companies that will be a good fit with their existing operations.

Health-care-related businesses like medical-billing firms, pharmacies and even medical and dental practices are particularly in demand, says Keystone's Richards.

He's seeing less interest in restaurants and retailers, industries where profit margins are thinner and where many companies are still struggling.

Schuster, the Miami broker, says he sees people who were waiting for the economy to pick up, and they've decided that business is good enough for them to take the plunge.

"There's a lot of people who were sitting the sidelines and could not do that anymore - the election's over and things are getting better," he says.

Sellers are benefiting from this trend because buyers are willing to pay more money if a deal will quickly get them into the markets they want to serve, says Mike Carter, CEO of BizEquity, a company that helps businesses calculate their sales price.

"For a growth company, we're seeing them getting almost 15 percent more than what they were getting four years ago (during the recession)," he says.

Expanding services

Creative Kidstuff, a toy retailer based in Minneapolis, just expanded by buying a 26-year-old online and catalog toy retailer, Sensational Beginnings. Roberta Bonoff, CEO of Creative Kidstuff, said the owner was tired and ready to sell. Bonoff declined to disclose the purchase price but said "everybody walked away from the purchase with their needs met."

Both companies serve similar markets, but 87 percent of Creative Kidstuff's revenue comes from its six traditional brick-and-mortar stores. Buying Sensational Beginnings will allow it to expand its online operations. And Bonoff has her ear to the ground for more opportunities to expand.

BCER, an engineering firm in Arvada, Colo., bought another engineering business, Rimrock Group, which specializes in designing technological systems for new buildings and renovations. The purchase allowed BCER to immediately expand into an area of expertise it didn't have - and that would have taken it years to develop by putting a staff together one by one, says Marc Espinosa, president of BCER.

Some buyers are looking to expand into a new geographic area. Jodi Hamilton now owns both of the Dream Dinners franchises in Chicago, giving her the entire territory for the stores where customers assemble ingredients for dinners that they can pack up and take home to cook.

It took Hamilton only about a week to say yes to buying the second franchise. She nailed down a private loan and closed the deal.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Deals, offers & events

View more...

Lemonade Days of Summer Smoothies!

Flavors: The Pucker, The Squeeze, and The Crunch - for a limit…