Jul 1, 1999

When It's a Seller's Market

 

What can potential sellers do to increase their prospects? Here are three tips that might help close profitable deals:

  • Consider setting up an employee stock ownership plan. Because ESOPs have tax advantages and are likely to get bank financing, it's relatively easy to start the process of selling out to your employees (who may well be your company's most motivated buyers). One advantage is that you will have more control over the selling price, at least initially, since the ESOP's stock value will be tied to the independent valuation that you, as the business owner, obtain.
  • Don't talk to strangers. Instead, focus your sales pitch on the companies that already know your business--and its prospects--best. Those might include key suppliers, large customers, and potential strategic corporate partners.
  • Make friends with enemies. Although this ploy takes some finesse, it sometimes helps to put out feelers to competitors. As the featured computer reseller learned, a merger with a rival business can often pay for both parties.

Where are they now?
A listing of additional companies that appeared in the Business for Sale column from June 1997 to March 1999

Company Date Featured Annual Sales Asking Price Number of Inquiries Result
WESTERN HOT- SPRINGS RESORT June 1997 $3.3 million $7.2 million 26 Postponed sale and expanded business
PACIFIC NORTHWEST COMPUTER RESELLER Sept. 1997 $14 million $6 million 41 Sold in spring '98 to a competitor (terms not disclosed)
COLORADO OFFICE- SUPPLY STORE Oct. 1997 $1.4 million $945,000 50+ Sold in Dec. '97 for close to the asking price, to an Inc. reader who bought it for his son
SOUTHERN DIRT- TRACK SPEEDWAY Nov. 1997 $410,000 $680,000 12 Drew interest from lots of "romantic would-be buyers" but no offers yet
NORTHERN CALIFORNIA RECYCLER Dec. 1997 $4.5 million $6 million 25+ Received two offers, but seller couldn't agree on terms with buyers
FLORIDA MULTIMEDIA- AD-DESIGN FIRM Jan. 1998 $1.8 million $2.2 million 150 Carried out strategic merger instead with a software developer
MID-ATLANTIC INTERNET- SERVICE PROVIDER April 1998 $150,000 $210,000 80 After owner nixed several offers, sold for a lowball bid of $25,000
WEST COAST EQUIPMENT- RENTAL COMPANY May 1998 $5.6 million $6 million 44 Received plenty of offers, but owner decided this fast-growth company was too good to sell
HISTORIC SOUTHWESTERN EVENTS HOUSE June 1998 $132,700 $795,000 10+ Remains on the market, but profit margins have tripled and the price is down to $744,000
NORTH CAROLINA CHILD- CARE CENTER July 1998 $430,000 $270,000 25+ Closing scheduled for a sale at $250,000
ROCKY MOUNTAIN HUNTING OUTFITTER AND GUEST RANCH Sept. 1998 $402,000 $1.5 million 140 Received several offers, but because sales have doubled, the owner is considering repricing
WESTERN CREDIT- REPORTING AGENCY Oct. 1998 $1.5 million $1.2 million 42 Remains on the market, but with sales and earnings up, the price is too: to $1.6 million
MAIL-ORDER CATALOG COMPANY Jan. 1999 $2.1 million $1.9 million 138 Sold in March for $1.8 million
WELSH HUNTING LODGE Feb. 1999 $412,000 $1.3 million 25 Got lots of interest, but with sales up and profitability within reach, the price is now $1.32 million
SOUTHWESTERN MOVING AND STORAGE COMPANY March 1999 $1.3 million $600,000 15+ After an accepted bid fell through, seller lowered price to $450,000

The brokers' dog list

Although the market has generally been strong for small-business sales, certain types of companies are languishing. What follows is an admittedly random sampling of the industries in which, brokers tell us, for-sale signs currently fail to attract much attention:

  • florists
  • travel agencies
  • hair salons
  • mailing/packaging companies
  • semiconductor-related businesses
  • restaurants
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