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Baby boomers looking to retire find a healthy climate for cashing in

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Production operator Robert Bembo measures a sheet at Emabond Solutions. Emabond was sold in 2006; Steve Chookazian, who bought it, is staying on after selling it last year to a Michigan company.
Production operator Robert Bembo measures a sheet at Emabond Solutions. Emabond was sold in 2006; Steve Chookazian, who bought it, is staying on after selling it last year to a Michigan company. - (Aaron Houston / NJBIZ)

Gerry Kelly spent 21 years building her North Brunswick medical transcription company, All Type Medical Transcription Services Inc., into a substantial business. It's the type of success story shared by so many baby boomers.
Less than two years ago, she cashed out, selling the company to Tennessee-based M-Modal.

"I found the right buyer," she said.

And the right market.

Baby boomer entrepreneurs in New Jersey who've spent years growing middle-market businesses can now take advantage of perfect market conditions — plenty of eager buyers and low interest rates — to cash out on their hard work. Just ask Kelly.

"In certain industries, there is a lot of consolidation still going on," she said. "There are plenty of investors and companies who are interested in buying small to midsize businesses — particularly ones that have an existing, loyal client base — that additional products or services can be sold to. So if, as a business owner, you have been thinking about cashing out, now is a good time to explore options."

Experts agree.

"If you are interested in selling your business, there are many opportunities out there," said Alan Sobel, managing member of the accounting and consulting firm Sobel & Co. in Livingston. "Many companies have cash on their balance sheet, and they have the resources to move forward on strategic acquisitions."

Alongside those strategic buyers — companies looking to expand by purchasing another company in their industry — there are financial buyers, such as private equity firms "that are chomping at the bit to get into the marketplace," Sobel said.

Interest rates remain low, but their slow creep upward is only helping the trend as it is motivating the buyers to get deals done.

Jay Trien, a partner in the accounting and consulting firm Raich, Ende, Malter & Co., of Chatham, agrees the time is right for baby boomers to cash out.

Trien said there is plenty of capital available to buy companies, which is welcome news for owners who decided not to sell following the 2008 recession. They now see better offers emerging as the economy recovers.

"Every year, there are more owners who started businesses or inherited family businesses and who are reaching retirement age and want to sell," he said.

And while such deals can follow a traditional model — a business owner finds they have no family to take over the business so they are forced to find a buyer — experts say other scenarios are present.

A new development Sobel said he's seeing these days is the midsized business that wants to acquire because it's finding it difficult to grow organically.

"These are midsized businesses, $15 million to $20 million (annual revenue), that are looking to go out and do acquisitions," he said.

Trien, who also serves as the president of the Venture Association of New Jersey, said consolidation also can come into play.

He related the story of how a company in the printing sector — generally considered to be declining — uses the weaker interest in the industry combined with a higher interest in getting out to expand.

"(The client) saw an opportunity to buy equipment inexpensively," Trien said. "It's capitalism at its best: the redeployment of underutilized assets. Someone else comes in and buys (the equipment) and serves the market."

Not everyone is convinced the trend is moving upward.

George Hansen, managing director of the New York investment banking firm Dominick & Dominick, advised Kelly in selling her business and works with middle-market firms in the area. He said for small and midsized companies, M&A sales volume and pricing have been stable: "It is not a weak market; it's just not a strong market," he said.

"There are tons and tons of family-owned businesses and small companies and industries that need to consolidate for efficiency reasons, and it's not happening at the pace a lot of people thought it would," he said. "Pricing is flat from last year. It's OK, but nowhere near where it was at the peak before the recession."

And Sobel said while companies are doing better, many aren't back to pre-recession levels, making it difficult to "get the highest price they could potentially get if the economy were stronger, and their earnings reflected that strength."

Still, when a high-quality company goes up for sale — a growth business with good cash flow — "they are getting a significant amount of attention: everyone under the sun is bidding on those businesses," said Jeremy Swan, a principal in the CohnReznick Advisory Group in Roseland.

The demand for quality assets exceeds the supply, Swan said, so prices are being bid up.

"We've been involved with a number of transactions where we've been advising a potential buyer, and very quickly, the price has gotten to a level where our buyers just have to walk away," he said. "A lack of supply of quality deals is making the market much more competitive."

Swan said the state's geographic location is an advantage because the New York metropolitan area has plenty of private equity firms looking for deals, as well as "a substantial number of public companies that are being fairly aggressive on the acquisition front."

So if a company has good revenue growth and solid cash flow and has some reason to consider a transaction, "now is probably a good time for them to start contemplating whether or not they want to get out in the market."

Or get back in.

Kelly, 52, remains with the company she sold, but the self-described entrepreneur is always on the lookout for a new company to run.

Finding the right fit might be her toughest task.

"From a buyer's perspective, money is cheap right now," she said.

E-mail to: beth@njbiz.com
On Twitter: @bethfitzgerald8

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Beth Fitzgerald

Beth Fitzgerald

Beth Fitzgerald reports on health care, small business and higher education. She joined NJBIZ in 2008 after a 34-year career at the Star-Ledger and has been reporting on business in New Jersey since 1978. Her email is beth@njbiz.com and she is @bethfitzgerald8 on Twitter.

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