A Seller's Market For Businesses?
We
have all seen in the news about GM layoffs and tough economic times
ahead. Though many economic forecasters are showing some positive
signs, that's generally not the mood on Main Street. With revenues
down and likely profits as well, business owners know the value of there
business would be lower, too. Most business owners are hunkered down
and surviving the best they know how.
So this is a seller's market? Yes, if recent trends in the business
brokerage industry are any indicator. Most local brokers claim their
inventory of listed businesses is down, while the activity and inquiries
from potential buyers is markedly up. These two trends point to one
inescapable fact: Buyers are buying businesses! Our own office has one
of the highest percentages in our history of businesses under agreement
and one of sharpest drops in available listings. In some cases we have
buyers competing and bidding for the same business. This is good news
for a seller! True a business is usually worth a particular multiple of
the total adjusted cash flow. While that cash flow may lower, the
multiple is creeping up. You are getting a better bang for your buck.
But why are buyers buying? There are a number of reasons, some can be
verified and others are merely speculation. First, interest rates are
at some of the most attractive levels in recent history. Money is
cheap, if you can get it. But secondly, you can get it - at least a
little easier. Banks are again showing a profit. Believe it or not,
this is one of the best times to open a bank. If you open a bank today,
you have no toxic assets, so your balance sheet is strong. Many new
banks have sprouted up and are making loans. The SBA has waived fees
that in the past could cost a borrower over $50,000 on some loans! There
is a surplus of buyers we believe partly due to layoffs of middle
managers who have great resumes and down payment money as well as a
desire to control their own destiny. In addition recent discussions with
several Private Equity Groups state that strong profitable companies
are selling at a premium, so they now look for value in companies that
do not have the same financial luster but good future potential.
Lastly, the best time to start a business is in a recession. You start
lean and clean. Better times are ahead as a rising tide lifts all
boats. The smart buyers know this and when buyers start opening their
wallets, the economic engine begins to hum a little faster. A
self-fulfilling prophecy begins.
The bottom line is many people find it a great time to buy, so we are
finding this makes it a great time to sell as well. In fact we have over
850 active buyers searching with us today and not enough good
businesses to satisfy a small fraction of the market place.