Sellers return to small-business market
It’s becoming easier to buy a business. Why? More sellers.
“Sellers are coming in,” says Bill Wentz, a transaction attorney and senior attorney at Huck Bouma, PC, a Wheaton law firm.
“From mid-2008 to last fall, there were very few businesses on the market,” Wentz says. “Sales and profits had declined, and it was hard for buyers to get loans. But now we’re starting to see three years of pent-up seller needs” coming to the fore.
Wentz isn’t alone in his observation. Palatine business broker Linda Purcell, president of Purcell Associates, LLC, notes that, “We’re coming out of an extraordinarily quiet period. If an owner wants to sell, there are buyers — even for distressed properties.”
Part of the buyer availability is linked to financing. “Financing is available,” Purcell says. “SBA lenders are especially active.”
Interestingly, business owners apparently ready to sell are “giving more thought to the sale,” Purcell says. For example, she says, sellers are more likely to know they need longer lease terms — or at least lease extensions.
“The length of the loan term (a buyer can get) is tied to the length of the lease,” Purcell explains. “A three-year lease? That’s a three-year loan that is difficult (for the buyer) to pay off. A three-year lease with an extension or two is better.”
Wentz sees several factors driving seller return to the mergers and acquisitions marketplace. One, of course, is an improved economy and therefore improved bottom line results that make a business more attractive to a potential buyer.
In many instances, Wentz says, larger businesses are making “strategic purchases, cherry-picking smaller companies that provide a strategic edge — proprietary technology or a position in the market.”
Those larger businesses, he says, typically have “loads of money to spend.”
At the same time, Wentz continues, “Many banks are pushing owners to sell. The banks want out” of existing and often weak loan contracts.
Even so, Wentz says, “The business owner’s situation drives the selling decision. The Baby Boomer generation is heading to 65. Medical situations are coming into play; some just want to retire. And we have those three years of pent-up demand.”
Purcell is happy that sellers are doing a better job of putting a transaction team together. Among the people she likes to see on a seller’s team are an accountant; a tax adviser, who may not be the accountant; a wealth management specialist who can advise the business owner about what to do with the sale proceeds; and a transaction attorney.
The transaction attorney probably isn’t the seller’s regular business lawyer. “You need an attorney who can help you get to the closing table,” Purcell says, “not one who needs to research the law at every step.”
Ÿ Contact Jim Kendall at JKendall@121MarketingResources.com. © 2011 121 Marketing Resources, Inc.