Buy Now -- Avoid the Rush

The proliferation of entrepreneurs buying and growing businesses instead of starting them.

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Why smart people aren't starting businesses -- they're buying them

No doubt about it, Stephen McDonnell would qualify for membership in any Real Entrepreneurs' club. Runs his own business; has for three years now. Plans to run a few more before he's through. What he doesn't do is start companies. "I'd be a little afraid of a start-up," he muses.

Then there's John Vinton. In his late forties, a career of high-powered corporate management under his belt, he's ready to run his own show. But please: don't send him a handbook on how to incorporate. "I don't want to start a company," declares Vinton.

Who are these guys? Going out on your own used to mean founding a company of your own. Start-up and entrepreneurship were nearly synonymous. For company builders, the 1980s were the years of living dangerously, on the edge, in brand-new enterprises struggling to get off the ground.

Ah, but that was then and this is now. And now, curiously, a new idea of entrepreneurship and a new generation of entrepreneurs are making their appearance. Instead of starting companies, they're looking to buy them. Instead of setting out for the fringes of the marketplace, they're staying firmly in the middle, often taking over mature businesses in old-line industries.

Make no mistake: these are not near-retirees buying a job and a dividend check until they're old enough for full-time golf. These are men and women in the prime of life, with experience, savvy, and access to money. Their plans are not just to buy companies but to grow them, to transform them, often to branch out from one market niche to another and then another. Entrepreneur is not a sobriquet they would take lightly.

Though statistics are hard to come by, McDonnell and Vinton belong to an apparently sizable group of buyers and would-be buyers. There's Dorothy Serdenis, 10 years at Merrill Lynch, now shopping for a company of her own. There's a man we'll call Bob Cluster, a dozen years with Federal Express, searching for a business to buy and run. Phil Harris, 20 years at Xerox and Wang, has set up a buying partnership with the giant Hambro International financial concern. "My job," says Harris, "is to find a company I'd like to run and bring it to Hambro for the equity." John Thorbeck is a couple of steps ahead of Harris. In partnership with a venture capitalist and several other investors, the former vice-president of Timberland and former president of G. H. Bass bought the Geo. E. Keith Co., an old-line Massachusetts shoe manufacturer. The deal closed just last spring.

At the moment, the business-buying marketplace as a whole is spotty. "This business is as dead as last Thanksgiving's turkey," complains an Arizona business broker, quickly asking not to be named. The retail stores and other small ventures typically handled by business brokers aren't moving, and the brokerage industry itself has come upon hard times. At the far upper reaches of the marketplace, the high-leverage megadeal typified by the RJR Nabisco buyout has also virtually vanished.

In the vast middle market, however -- sales of businesses with a purchase price between $1 million and $50 million, according to one rule of thumb -- the slowdown isn't anywhere near as pronounced. Statistics gathered by Merrill Lynch's Mergerstat Review showed transactions in that category off 1989's pace by only 3% in the first nine months of 1990, compared with a 39% drop in transactions of $100 million or more. "The middle market is likely to stay brisk and lively," confirms Martin Sikora, editor of Mergers and Acquisitions magazine. "There's plenty of buying interest out there."

Besides, what's happening is a trend that will stretch well beyond the current slowdown; indeed, as the 1990s get a little older, we will probably witness the biggest, brassiest, fastest-moving bazaar of businesses you'll ever want to see. The reasons aren't hard to fathom. The marketplace has changed dramatically in the past 10 years, and those changes will be percolating through the economy for years to come. The number of businesses for sale will be mounting. The number of buyers will be rising even faster. A whole new group of investors and intermediaries will be only too eager to bring both sides together, lubricating the meetings with plenty of cash.

It's all this buying and selling that will foster that new model of entrepreneurship -- typified, as we'll see in a moment, by such new-breed business buyers as John Vinton and Steve McDonnell.

The 1980s were boom years, bringing the longest period of economic growth in recent memory. The decade also witnessed an astonishing proliferation of start-ups. Result: if you were looking for a business to buy, you'd want to be looking in the 1990s.

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