Small business buyers find M&A targets plentiful
BY Mark Sanchez Sunday, March 03, 2019 09:45pm
Matt Emery felt ready to move on from the automotive industry after 15 years, so last fall he began looking around for a business to buy.
After considering a contract manufacturer, machine shops, an HVAC business and others, Emery found the "perfect fit" in Think Chromatic LLC, a Comstock Park-based small company that does 3-D rendering and animation.
Emery, who immediately identified a "huge opportunity" to grow Think Chromatic and enter new markets such as the automotive supply chain, found the market offered him a decent inventory of small businesses available for sale.
"I was able to be pretty selective on what I went after," said Emery, who has experience in M&A from his time in the automotive industry. "There's definitely a lot of stuff out there right now."
Think Chromatic's sale was among the recent transactions in the West Michigan market.
Brokers who specialize in the sale and acquisition of small businesses currently describe a market in which buyers like Emery can find a fit for themselves, although they surely would like to see more active sellers.
"It's still a healthy market, but we could use more inventory," said Eric Seifert, the principal of Muskegon-based Left Coast Capital Resources LLC. "There's not a real huge inventory out there right now."
Michael Greengard, president of Praxis Business Brokers LLC in Wyoming, views the present market for small businesses as having plenty to offer prospective buyers. The difficulty comes in finding a quality company to buy, he said.
The market is full of small businesses for sale with declining sales, low cash flow, low profits, and "business environments that are not attractive and exciting," Greengard said.
"There's no shortage of businesses for sale or business opportunities. The problem is there is a dire shortage of good businesses for sale," Greengard said. "I'd like to see more 'good' inventory."
Praxis most recently worked on the sale of plastics molder and light assembler JIMDI Plastics Inc. The Allendale-based company had growing revenue, long-term contracts, is "nicely profitable," and sold to an entrepreneur in Birmingham who planned to move to West Michigan, Greengard said.
Manufacturing represents one sector in which the M&A market could use more quality sellers to meet the appetite of prospective buyers, advisers told MiBiz.
"This is Michigan. People love manufacturing, so there's always a shortage of good manufacturing businesses," Greengard said. "Manufacturing continues to be the high-growth area for us and the high-interest area."
A matter of size
Max Friar, managing partner of Grand Rapids-based Calder Capital LLC, also sees a shortage of sellers in certain areas of the market, with "buyers struggling a little bit right now with inventory." Higher quality businesses that have come to market are under contract and moving toward a closing, he said.
"If you're looking for a high cash flow, established manufacturing company, you're probably still a little bit frustrated at the lack of good deals that are out there and just (the shortage of) quality businesses that are available for a buyer," said Friar, who represented seller and Think Chromatic founder Jay Hoelscher in the deal with Emery.
"I would imagine there are buyers out there that are frustrated because they can't find better deal flow," he said.
Among the smallest of businesses — restaurants, bars, franchises, retail stores and small service companies — there's "pretty much always a good supply there," Friar said.
"If you are a buyer that does not have a lot of liquid capital and/or your motivation is to buy a job to gain independence and become your own boss, there is plenty of inventory at the Main Street level," he said. "In this market, which could be classified as the sub-$500K purchase-price market, there may be more sellers than buyers and the ratio may become more imbalanced as Boomers want to retire."
Nationally, the online small business listing service BizBuySell.com recorded a record number of transactions in 2018. The 10,312 deals the website recorded last year grew about 4 percent from 2017 and was up 31 percent compared to 2016.
Half of the sellers put their businesses on the market so they could retire, according to BizBuySell.com.
Timing question
As he searched for a business to buy, Emery talked to "a lot of people who are at the point in their life where they're ready to move on."
"They knew it's a good time to sell," he said.
Among the business brokers nationally surveyed by BizBuySell.com, 70 percent said they expect more transactions in 2019.
In West Michigan, Seifert at Left Coast Capital expects more small businesses to come to the market later this year. That's partly driven by some economic outlooks that raise the prospects of a potential downturn in the U.S. economy within the next two or three years.
Small business owners in particular who are "on the fence" about selling are weighing the future economy, he said.
"Everyone's getting calls from people who think it's time to pull the trigger right now. They're thinking, 'I don't want to go through another recession, even if it's a shallow one,'" Seifert said.
At Calder Capital, Friar expects a "really robust" spring and summer. Winter typically tends to see less activity and some owners may wait to determine how they come out on their taxes.
Lately, the firm has experienced a higher volume of inquiries from potential sellers that could lead to more listings and heightened activity in the months ahead as the season turns, Friar said.
"The number of seeds we're planting, the number of prospects, conversations, analyses and things like that, I don't know if it has ever been as high as it's been the last couple months," he said. "I would encourage buyers to be optimistic about the spring and summer, if they're feeling down now about the lack of things to look at. In the spring and summer, you always see more inventory come on the market."
'Paradox of choice'
Friar says many small business owners are not necessarily concerned about the economy, but are worn down and trying to figure out whether now is the right time to sell. Some wonder whether they should maintain ownership and bring in someone else to run the business as they decide what to do next.
"We do hear a lot of people say, 'I'm thinking now is the right time.' But when times are good, it's tough to make that longer term decision, especially when you want to work and you don't know necessarily what you're going to do," he said. "A lot of owners are struggling with that paradox of choice right now."
Read 2824 times Last modified on Tuesday, 05 March 2019 11:09
Matt Emery
Think Chromatic LLC
Left Coast Capital Resources LLC
Praxis Business Brokers LLC
JIMDI Plastics Inc
Calder Capital LLC