By: Patricia Orsini
Small business owners who put off selling their businesses
during a down economy are reconsidering in 2012.
A
recent survey of business brokers around the country by BizBuySell found that
54 percent of
respondents said that business-for-sale market conditions have
improved in the first quarter of 2012; 58 percent of those surveyed said they
expect that conditions will continue to improve throughout the year.
Among
those signs: An increase in the number of interested buyers, along with an
easing of lending restrictions that is making it easier for buyers to get
financing.
That's
good news for a cohort that has been waiting for conditions to improve.
“It’s
the baby boomer phenomenon,” said Curtis Kroeker, general manager of BizBuySell,
an online marketplace for buyers and sellers of small businesses and
franchises. “There’s a big boomer group that’s ready to retire, and they’ve
been waiting for conditions to get better before they sell.”
There's
one more motivating factor: The potential rise in the capital gains tax. The
uncertainly stems from the fact that the Bush era tax cuts expire on Dec. 31,
2012, and what that rate will be in 2013 and beyond is still anybody's guess.
"If
you have owned a private company for a long time, and seen the value rise, and
the economy is growing at a 1.5 percent or 2 percent clip, a lot of people are
saying, 'I'll sell a little earlier than I thought,' to realize the gain,"
said Jose Rasco, senior investment strategist for HSBC Private Bank.
Rasco
notes a "trifecta" of events that could spur more business owners to
sell in 2012.
"We've
heard more of our clients talking about selling, and seen more clients who have
more liquidity due to the sale of their companies," he said. "The
better valuation — the rise of the stock market, which improves values of
private companies, as well — the tax structure, and the low growth in the
economy are all working together to make business owners think about selling."
Scott
Talbott, senior vice president for government affairs, Financial Services
Roundtable, a financial services lobby group, agreed that the capital gains tax
could be a motivator among business owners on the cusp of retirement.
“We
are hearing from small business owners looking to get out before the end of the
year,” he said. “It can take nine months to a year to find a buyer for a small
business, so that uptick is starting now.”
While
his group does not track sales of small businesses, he said that along with more
interest in selling, they are seeing an increase in buying businesses, as well.
The combination of motivated sellers, along with the easing of credit
restrictions and low interest rates, make it an appealing time to buy, he said.
According
to data from BizBuySell, its brokers reported a total of 1,729 closed
transactions in the first quarter of 2012, a 3.9 percent increase from the
first quarter of 2011. This was the largest number of transactions reported
since the first quarter of 2008, and the third straight quarter of increased
activity.
The
survey, conducted in the first quarter of 2012, received responses from 262
brokers nationwide who reported a variety of factors that should help
kick-start selling, including an increase in the number of interested buyers:
72.1 percent said they are getting more inquires. But the survey was a mixed
bag. While there may be more interest in buying businesses, it's still a
challenging economy for the sellers. Brokers noted that business owners who
cannot produce good profit margins will have a difficult time selling their
companies.
For
those who are pricing their businesses to sell, there is some success on the
sell side. Nearly 42 percent of brokers in the BizBuySell survey said sellers
are doing a better job of pricing their businesses.
“In
this challenging economic environment, sellers’ expectations have been reset,”
said Kroeker. “They’ve been more realistic about the price they can get.”
In
the franchise arena, which tracks transfers between franchisees and franchisers,
2011 was a busy year, according to the International Franchise Association.
In
2011, it reported that 21,817 existing franchise establishments were sold to
new franchisees or back to franchisers. That number is expected to be about
15,000 in 2012.
“Last
year, we had more desire by franchisees and franchisers to sell,” said Matthew
Haller, vice president of public affairs for the IFA. “This year, there’s more
appetite to grow. The industry has stabilized, and there’s more confidence in
terms of franchise operators to invest in additional franchises.”
And
boomers may be coming into play from the buyer side, as well. “For retirees,
buying a franchise is often a second career,” said Haller.
William
Dunkelberg, chief economist of the National Federation of Independent Business,
agreed that boomers could be a driver of purchases as much as sales, and that
"the tax motivation is certainly a player." While the NFIB does not
track sales of businesses, Dunkelberg says the slowly improving economy that is
motivating sellers could motivate buyers, as well.
“An
improved economy could be making enterprises look more valuable to a buyer now.
With the low interest rates, it might be that people are more willing to take
the risk,” he said. “If you’re a retiree looking for something else to do,
buying a business might be it.”
Still,
challenges remain for both buyers and sellers. "There is an abundance of
supply," said Kroeker. "The market is better than a year ago. As
business performance continues to improve, as financing for buyers continues to
improve, there are a lot of reasons to believe that transactions will continue
to accelerate."
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For more information call me at 888-925-5055 ext.206
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