Investment groups and baby boomer corporate executives looking to get into action with companies of their own are making small businesses hot prospects these days. Buyers have money to spend and are turning more frequently to the local landscaping company or delivery company as good investments.
There is no question that Houston-area small businesses are becoming more frequent targets for seasoned buyers currently combing the marketplace for investment opportunities. Houston’s business-friendly climate is an attractive incentive for these categories of buyers who are more sophisticated about gauging the risks of acquiring small businesses. As a result, they are going after privately-held, well-oiled enterprises with an annual profit of at least $100,000. Manufacturing, trucking, distribution, and service-sector businesses are a few on the list of popular targets.
Proof that the buying spree has heated up in Houston is partly in the growing ranks of business owners consulting with business brokerage firms about the marketability and valuation of their business. Business brokers are intermediaries who assist business owners sell their business in a confidential manner to qualified buyers. They will review the business operations and financial records to advise their clients on what they could expect in the marketplace. They also advise clients of the drivers that add value to a company, how to prepare their business for sale, and help them understand the factors that might impact the net proceeds they could receive from the sale.
More people are looking to acquire profitable small businesses than are available for sale. This is further validation of this surge of acquisition interests in Houston. Our statistics indicate that the ratio of qualified buyers to available target businesses are, on an average, ten to one. It has been our experience recently to have three or four offers on the table within a two-to-three week period of going to market for hot businesses that are properly run, have good financial histories, and are priced right. An increased number of deals are being done with businesses in the $250,000 and up range in annual profits due to these well-capitalized buyers.
This group of buyers is looking to Houston for small business acquisitions because the future economic outlook in Houston is one of the most promising in the nation. “The Houston economy is the talk of the town in the rest of the country,” according to the Wells Fargo February 2007 Texas Economic Report and the Census Bureau April report “predicts the continuing growth of the city.” The Houston Chronicle also reported on this buying surge mirrored in the real estate sector. This same group of investors is buying up downtown buildings and real estate in many other areas of Houston. Furthermore, unemployment rates in Houston are at the lowest level in seven years. The fuel that is firing this robust job market is small business growth and expansion.
Because of our daily interactions and relationships with Houston’s small business owners and our receipt of buyer inquiries from across the U.S. who want to be part of the commerce engine in our market area, we are barometers that measure the pulse of the local economic climate of the small business community. Of note is that we have many more investment and strategic buyers and high net-worth individuals in our database of prospective buyers these days who are searching for acquisitions in Houston.
Since small business is under the radar of investment groups, these groups need to connect with available acquisition candidates through business brokers in the city. The growing phenomenon of corporate boomers who want to buy existing businesses is a trend we see firsthand through the increased level of inquiries from this category of buyer as well. We are seeing the first ripples right now. These individuals are healthy, wealthy and wise and have business acumen. They typically have resources to invest in business ventures, and they have the energy and long-term vision to be successful. Business brokers assist them through the process of how to purchase a small business and explain the approach that is needed to reach their goal.
Small business owners who are pondering the possibility of selling should consider a number of things. Among them and of major importance is not to procrastinate. If you are waiting for a sign to tell you the time is right, well this is it. Economic conditions in Houston are still ripening and the wave of buyers is not yet at full swell. You do not want to wait until these trends are on the downside of the bell curve. This competitive environment makes it a seller’s market. A business brokerage firm can provide all the resources needed to assist in the decision-making process through the final sale if the decision leads to the business-selling path.
One thing that investment groups and corporate executives might not recognize and has been one of the barriers to successful deals is that much of the value owners of small businesses derive from the business is not financial. It’something they get out of it on which one cannot put a price. It’s what the business adds to the personal life of the owner. This is the difference between acquiring public corporations or companies that have hundreds of employees versus a privately-held smaller businesses. It’s the human element, the emotional personal attachment the owner has to his or her business, his employees and customers. If these buyers understand this factor, the chances that negotiations will go well and a deal consummated is much improved.