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Bullish Baby Boomers Help Fuel Burning Small Business M&A Market

For Mitch Hughes, CEO of Vizz, a construction management software company he founded in 1996, the pandemic has created ideal conditions for acquisitions.

Vizz, which runs a visualization platform that helps developers create realistic virtual models, was not very present on the manufacturing side. Manufacton, on the other hand, had software used for modular construction, compatible software, and a “dream team” of people. Yet, as a relatively small start-up, it lacked the strength to respond to the sudden surge in demand.

“Covid created a barrier for them, but it created an opportunity for us,” Hughes said. At the start of this year, Vizz acquired Manufacton, retaining all of its employees.

While many small baby boomer-owned businesses have been hit hard by the pandemic, there is also a large cohort of baby boomer businesses that have used the pandemic and are recording low interest rates as an opportunity to develop.

According to a study by the New York Fed and AARP, business owners aged 45 and over entered the pandemic with more of a financial cushion than their younger counterparts. This cushion is more important than ever when the world is changing. According to a survey by BizBuySell, an online sales marketplace, 30% of buyers are baby boomers.

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A pandemic may seem like a strange time for a booming M&A market. Many small businesses have suffered and many have failed. The data shows that government aid also did not flow through the system fairly. Meanwhile, the latest CNBC | SurveyMonkey Small Business Survey for Q2 2021 showed that many entrepreneurs expect better business conditions and increased incomes despite negative net confidence overall and fears. widespread concerns about a tight labor market and rising cost of goods.

But some business and investment experts say business owners are at great risk of not being optimistic enough after the pandemic. The brokers noted that low interest rates, PPP loans and other government aids have all helped fuel acquisitions for entrepreneurs able to take advantage of the terms.

“They see a way to buy a business and get a really good loan. There’s just a ton of opportunities. A lot of credit,” said Andrew Cagnetta, managing director of Transworld Business Advisors in West Palm Beach, in Florida.

Main Street Transaction Prices Rise Dramatically

Prices have risen dramatically due to bullish corporate buying. According to the NFIB Small Business Optimism Index, the net percentage of owners raising average selling prices rose 10 points to 36%. This is the highest reading since April 1981, when it was 43%. In its quarterly report, BizBuySell said the median selling price was $ 350,000 in the first quarter, a 30% jump from a year ago.

“It’s going to sound crazy, but last year was my best year,” said Sheila Spangler of Murphy Business Sales in Boise, Idaho, which primarily focuses on companies valued at less than $ 2 million. She adds that this year is also “super busy”.

Of course, price fluctuations vary a lot by region and industry. Cagnetta said he has seen average selling prices double in the past year.

I have run businesses for other people for most of my career. I always felt that if I could run a business for them, I’m pretty sure I can run my own very successful business.
Kevin Glass, New Pinch Franchise Owner at Penny Pool Patio Spa

Buyers tend to outnumber sellers, but the pandemic has exacerbated this situation. Cagnetta said he saw growth in a few categories of buyers. There are private equity buyers and SPAC (Special Purpose Acquisition Corporation). Then there are the business owners who are already doing well and looking to grow. Another emerging group is the baby boomer buyers who were previously corporate employees. The pandemic has forced many people to rethink their lives – either through layoffs or rethinking their priorities. The same trend happened after the Great Recession ten years ago, when there was a “wave of dislocation,” said Bob House, president of BizBuySell. “People are looking at business ownership as a way of making a living, as a kind of reset,” House said.

Kevin Glass became the owner of the Pinch franchise at Penny Pool Patio Spa in Conroe, Texas, after being put on leave at the start of the pandemic. With 35 years in the oil and gas industry under his belt, Glass had already thought about the next chapter in his career. He knew he was in a vulnerable position even before the pandemic and had explored options. Once he was put on leave, that research shifted into high gear.

Glass says he received a retirement package when he was laid off, but couldn’t have continued living his current lifestyle with it. He used the retirement package to finance the acquisition of the business. Glass looked at franchises specifically because of the support of an established business model. He also considered the resale value. Pinch a Penny’s fixed interest financing program sweetened the deal further.

“I’ve run businesses for other people for most of my career. I’ve always felt that if I could run a business for them I’m pretty sure I can run my own very business. prosperous, ”said Glass.

Sectors of activity where deals are exploding

Although the number of transactions has not yet reached pre-pandemic levels, it is starting to increase, especially for businesses that have performed well throughout the pandemic, such as liquor stores, home improvement companies, e-commerce sites, medical companies, manufacturers and distributors. Yet brokers say the expected generational wealth transfer with baby boomers selling their businesses has yet to take place.

Baby boomer kids don’t necessarily buy. Baby boomer entrepreneurs can usually pass their business on to their kids, but some find that their kids don’t want the business. Baby boomers make up 41% of small business or franchise owners, followed by Gen X at 44%, according to a survey by Guidant and the Small Business Alliance.

“The vendor tsunami has yet to happen,” Cagnetta said. “Business was very good until the pandemic hit and then everyone was stuck. But I think they are going out to sell now,” he added.

One of the main factors reported by brokers is the anticipated increase in taxes. Biden’s tax proposals would raise capital gains taxes to more than $ 1 million. The plan provides an exemption for small businesses as long as they remain family-owned and operated. While it’s too early to say how the plan will work or if it will come to fruition, brokers say it puts pressure on business owners to sell.

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