Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
1, It’s a seller’s market. The stock and real estate markets are performing well. So, getting a bargain is unlikely.
2, Interest rates, even if they rise, will be in a historically low range. Bank and U.S. SBA debt are inexpensive forms of capital available to finance transactions.
3, Be disciplined. Expect to look at a lot of opportunities before finding the right one. Whether buying a business or a building, spending too much now can increase your risk and reduce your reward over the long haul.
4, Use both technology and personal contacts to aid your search. Find online listing consolidators and set up alerts, but also work your LinkedIn and Facebook contacts for leads.
The best part of my job is meeting interesting and successful people that are contemplating something “big.” Maybe they want to quit their job to buy or start a business. Or, they are already a business owner considering a larger expansion or buying their first building. Common wisdom might say that right now is a bad time to try to do anything big. With so much uncertainty in our lives today, why take the risk?
What I have discovered over the last two years is that uncertainty has actually increased my customers’ appetite for change. With so many outside influences on our daily lives, making a big change feels like self-determination. My customers are as motivated and impatient as I have ever seen them and uncertainty has increased their desire to have as much influence as possible over the events around them.
So, what do you need to know to make this big jump? Some of those conditions are fairly straightforward right now. Here are some that might help:
Surprisingly enough, we are still in a seller’s market in most areas of the economy. The stock market and real estate markets are at or near all-time highs, employment demand is strong and prices are high across the board. So, while it may be possible to get a bargain, it is not likely. If you find a good business opportunity, odds are it won’t be cheap. And while interest rates are likely to be increasing in the near future, they are still very low historically, and bank and U.S. Small Business Administration (SBA) debt are inexpensive forms of capital.
In a seller’s market, it is important to be a disciplined buyer. Expect to look at a lot of opportunities before finding the right one to pursue. Whether buying a business or a building, spending too much now can increase your risk and reduce your reward over the long haul. A typical search can take many months and include looking at dozens of listings. No matter what you want to buy, use technology to your advantage by finding online listing consolidators and setting up alerts for your listing criteria. And while technology is important, don’t neglect your own network and platforms such as LinkedIn and even Facebook. Get to know brokers or other intermediaries that can aid your search.
Some decisions are easy. If you are currently unemployed and have decided to buy a business rather than find a new job, there is very little risk in announcing that to your network and the world. But if you are currently employed and plan to leave your employer at the point of an acquisition, you want to refrain from an announcement on LinkedIn. Similarly, business owners need to be very careful about when to let their landlord, employees or customers know they may be moving locations. In today’s market, retaining staff can be a very important consideration in any move, so the timing and content of your communication is important.
The more conservative among us may want to avoid going beyond our personal capacity to manage multiple changes at one time, but I see many entrepreneurs take on both major business and life changes all at once. A business purchase might include a relocation and a need to pick up the family and move across the country. A real estate purchase and build-out will certainly require a business owner to spend significant additional time managing the purchase, design, construction and transition to a new place of business. You can certainly outsource a portion of this process to your advisers and vendors, but such moves still can add significant responsibilities over a long time period. Add this to the regular daily responsibilities of business, kids, school and aging parents and it can be overwhelming.
Still thinking big? While there are a lot of challenges, you do have significant control over your own circumstances, which are key drivers of how well the big move plays out. I see three key things for buyers to manage to get off to a great start:
Do you have the experience and/or education to take on this challenge? And can you articulate that skill and experience? The greater and more relevant your skills and experience, the more likely you are to get funding and be successful over time. Whether you are looking for SBA funding or other forms of capital, you will likely need to paint a picture of your capacity to manage the business you want to buy and fund.
Being financially well positioned to make a large purchase is the single most important thing business and real estate buyers can do to both ensure a good outcome and reduce uncertainty. Personal net worth and liquidity are a great antidote to anxiety. Your lender or capital partner should work with you to establish an appropriate capital position for both the business and its owners, from closing through ramp-up or construction and to normalized cash flow. Maintaining a solid cash position so that you can manage cost overruns or longer than anticipated ramp-up will help you manage the uncertainty of today’s slower supply chains.
I have seen buyers that get desperate to leave an unhappy employment situation or landlord relationship. Desperation does not usually lead to good decisions. Work with outside advisers to validate that you have thoroughly analyzed the opportunity, examined both the opportunities and risks and made sure it is a good fit for your situation. I see very few transactions that are an immediate “yes” for financing, but I see many requests that are a pretty quick “no.” I am talking about understanding both bank and SBA credit policies and qualifying criteria. But I also personally want to be confident buyers are making a dramatic improvement in their daily lives rather than helping them into a situation that increases their uncertainly and anxiety. If you keep these factors in mind and follow them closely throughout the process, you can definitely follow through on doing something big.
