| Impact of the Current Economy on Business Sales |
Over the past months, we’ve often been asked how the current economy is impacting the sale of
businesses with revenues of less than $15 million. Below are a couple of trends we continue to
see as we speak with sellers, buyers, bankers and others involved in the purchase and sale of
businesses:
Former Corporate Executives As Buyers
We have recently seen an increase in the number of former corporate executives who are
considering purchasing a small business rather that continuing to search for other employment
opportunities. We feel this is a trend that will likely continue in the New York City area given the
number of recent layoffs in the financial sector.
Strategic Buyers with Cash to Invest
We are seeing an increased number of companies with cash available on their balance sheets
considering opportunistic acquisitions of smaller competitors. Buying a smaller competitor can be
an easier method to boost revenues than organic growth, and a larger company can often cut
expenses of the company they are acquiring by merging HR, marketing, office space, etc with
their existing operations. However, while strategic buyers have historically paid top-dollar to
acquire smaller competitors, the current economy gives cash-rich strategic buyers more
negotiation power to push down valuations.
Private Equity Looking at Smaller Deals
With the exception of some specialized private equity groups that focus on the low end of the
middle market, financial buyers have historically had limited interest in acquiring companies with
revenues below $10 million. However, as less financing is available to leverage acquisitions, we
are seeing some private equity groups reduce the size of the companies in which they are
considering investing.
SBA Challenges
Although the SBA recently reduced lending fees, obtaining financing continues to be challenging.
Banks want larger down payments, increased cash flow to cover debt-service, and require
buyers to have excellent credit and personal assets available as collateral. The amount of seller
financing required to bridge the gap between the price of the business and the amount of
external financing a buyer can obtain is also increasing.
Increased Due Diligence
Limited appetite for risk and increased focus on due diligence. In today’s risk-averse
environment, buyers are carefully scrutinizing every aspect of a potential acquisition with a fine
tooth comb, requiring more preparation on the part of sellers to ensure that every area of their
business has detailed, easy-to-verify, and easy-to-understand records, and increasing the
amount of time between signing a letter of intent and closing.
Cost Cutting
Cost cutting across the board. With reduced revenues, business owners continue to look for
ways to reduce costs. While we have not seen layoffs, we are seeing many business owners who
are moving to less expensive office space, eliminating retirement contributions, and reducing
inventory levels.
Please feel free to contact us with any questions or insight. We always welcome your thoughts
and comments.
businesses with revenues of less than $15 million. Below are a couple of trends we continue to
see as we speak with sellers, buyers, bankers and others involved in the purchase and sale of
businesses:
Former Corporate Executives As Buyers
We have recently seen an increase in the number of former corporate executives who are
considering purchasing a small business rather that continuing to search for other employment
opportunities. We feel this is a trend that will likely continue in the New York City area given the
number of recent layoffs in the financial sector.
Strategic Buyers with Cash to Invest
We are seeing an increased number of companies with cash available on their balance sheets
considering opportunistic acquisitions of smaller competitors. Buying a smaller competitor can be
an easier method to boost revenues than organic growth, and a larger company can often cut
expenses of the company they are acquiring by merging HR, marketing, office space, etc with
their existing operations. However, while strategic buyers have historically paid top-dollar to
acquire smaller competitors, the current economy gives cash-rich strategic buyers more
negotiation power to push down valuations.
Private Equity Looking at Smaller Deals
With the exception of some specialized private equity groups that focus on the low end of the
middle market, financial buyers have historically had limited interest in acquiring companies with
revenues below $10 million. However, as less financing is available to leverage acquisitions, we
are seeing some private equity groups reduce the size of the companies in which they are
considering investing.
SBA Challenges
Although the SBA recently reduced lending fees, obtaining financing continues to be challenging.
Banks want larger down payments, increased cash flow to cover debt-service, and require
buyers to have excellent credit and personal assets available as collateral. The amount of seller
financing required to bridge the gap between the price of the business and the amount of
external financing a buyer can obtain is also increasing.
Increased Due Diligence
Limited appetite for risk and increased focus on due diligence. In today’s risk-averse
environment, buyers are carefully scrutinizing every aspect of a potential acquisition with a fine
tooth comb, requiring more preparation on the part of sellers to ensure that every area of their
business has detailed, easy-to-verify, and easy-to-understand records, and increasing the
amount of time between signing a letter of intent and closing.
Cost Cutting
Cost cutting across the board. With reduced revenues, business owners continue to look for
ways to reduce costs. While we have not seen layoffs, we are seeing many business owners who
are moving to less expensive office space, eliminating retirement contributions, and reducing
inventory levels.
Please feel free to contact us with any questions or insight. We always welcome your thoughts
and comments.
| Hughes Klaiber LLC | 28 West 44th Street, Suite 1600, New York, NY 10036 | Tel 646-654-0458 |
The impact of the current
economy on business
sales
Maximizing the selling
price of your business
Financing an acquisition in
the credit crunch
economy on business
sales
Maximizing the selling
price of your business
Financing an acquisition in
the credit crunch
| More Information |
 |  |  |  |  |  |  |