Business-Sales Market Rebounds As The Mega Merger Returns

The economic recovery is well on track if the business-sales market is a reliable bellwether. A raft of recently announced multibillion-dollar M&A deals suggests 2013 could be a …

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The economic recovery is well on track if the business-sales market is a reliable bellwether.

A raft of recently announced multibillion-dollar M&A deals suggests 2013 could be a bountiful year for the lawyers who advise blue-chip companies.

The mooted merger between US Airways and American airlines, which would create the world’s biggest airline, and Berkshire Hathaway’s $23bn bid for HJ Heinz have strengthened a growing body of evidence that the mega merger is back after five dormant years.

It’s only the end of February and Chinese conglomerate Bright Foods has already purchased a controlling interest in Weetabix, while Walgreen Co has bought a 45% stake in UK pharmacy group Alliance Boots.

Mom-And-Pop Rebound

A rebound is also evident at the ‘mom-and-pop’ end of the market, according to BusinessesForSale.com’s latest state-of-the-marketplace report. Many business brokers who oversee the sale of small to medium businesses have reported a surge in activity.

“We’ve experienced a dramatic increase in closings in the third and fourth quarter of 2012, making up for 2010 and 2011, with high expectations for 2013,” one survey respondent enthused.

 “There is more activity in the marketplace this year as compared to the post-crash period,” concurred another.

A third professional intermediary noted “improving demand for businesses that generate more than $100,000 cash flow.”

There were dissenting voices, however. A “business broker for over 40 years” witheringly dismissed “the so-called rebound in the USA” as a “joke, media hype. Business owners are in real trouble.”

These sentiments would no doubt resonate with the average American, who is still earning and worth less than he or she was four years ago.

Asking Prices

Nearly a third (31%) of the hundreds of buyers polled in the BusinessesForSale.com global survey said a failure to find businesses that interested them was the biggest barrier to buying a business. That was the most popular answer of the five posed to buyers, followed by asking prices being too high, cited by nearly one in five buyers (18%).

However, one broker disagreed with the notion that sellers were the worst offenders when it came to misjudging the market. “Buyers need to be realistic about price,” he said. “The number one obstacle to getting a deal done is not financing, but expectation of sales price.”

Buyers were also asked to indicate which reason, from a choice of five, most accurately described their motive for buying a business at this particular point in their lives.

The most popular motive, with 38%, was a belief that they had reached the right age and level of experience; 20%, meanwhile, were seeking an acquisition to strengthen a business they already owned; 16% were bored of their job and needed a new challenge; 13% had recently sold a business and were searching for a new opportunity; 6% were newly redundant; and 6% were unable to find a job that excited or interested them.

Sectors To Watch

Asked which kinds of business were most readily finding buyers, business brokers frequently cited manufacturing; senior care; energy, particularly green energy; non-discretionary retail and services (because “people still have to eat, wear clothes and let off steam”); and maintenance and repair businesses (“because people are keeping things longer”).

The unlocking of new oil and gas reserves is fuelling – in both senses of the word – a renaissance in a sector that had hitherto seemed consigned to decline. "The cheapest energy in the world" could more than offset the labor-cost advantage enjoyed by China, BP Capital founder T. Boone Pickens told CNBC two weeks ago.

Small wonder that savvy investors are bidding for manufacturers in droves. Small, niche manufacturers, subcontractors, light manufacturers and producers of widely-used consumer products were all tipped for strong growth by brokers.

A professional intermediary from Certified Business Brokers told BusinessesForSale.com: “I believe small manufacturing companies in Texas are excellent investments at this time. We find that when a profitable one comes along, it is purchased more quickly than the average time it takes to sell a business.”

It’s not all rosy, however, with another intermediary lamenting the struggles of “custom manufacturing of composites and metals. This sector has been ravaged by the move to China and is badly needed to sustain basic growth for all industries.”

Another broker said “discretionary household expenses are getting hit the hardest, from high-priced hair salons to travel and other expensive forms of entertainment”. Another said “free-standing restaurants are bad investments as their margins are razor thin.”

Other business types cited as difficult to sell were retailers generally, golf courses and Medicare-dependent or other government-dependant businesses, among others.

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