GRAND RAPIDS — As older entrepreneurs increasingly seek to sell their small businesses and retire, Max Friar saw a business opportunity.
He noticed that owners of so-called Main Street or “mom-and-pop” small businesses have few places to turn to broker a sale for their companies. So Friar, the managing partner of Grand Rapids-based M&A firm Calder Capital LLC, formed a new division to focus specifically on small business transactions.
The River City Partners division handles transactions for small businesses with annual cash flow of $200,000 or less. Friar considers that segment of the market as underserved because business brokers naturally tend to want to focus on larger transactions with higher commissions and upfront fees.
“What we found in the market is there is really not a lot of good representation for these businesses,” Friar said. “There are not enough intermediaries to help small businesses sell.”
River City Partners charges an upfront, one-time fee of $749, plus $299 per month for as long as the firm handles the listing, and a discounted 4-percent commission rate when a transaction closes. The fees pay for preparing the business for sale, including providing price and valuation guidance, performing a confidential business review, preparing sales materials, listing the business online, making introductions to prospective buyers, readying documents such as nondisclosure agreements, and coaching clients through the process.
The firm leverages the administrative structure at Calder Capital — which typically handles deals for companies with cash flow of at least $400,000 — for transactions involving small businesses. The modified model used by River City Partners automates aspects of the process and is less hands-on than what larger companies typically receive during the proceedings leading up to a sale.
Where a personal touch is not directly required in the sales process, “we’ve taken it out and let the system do it for us,” Friar said.
“The whole theory behind this model is how to keep your costs low and how to serve this market, and at the same time how to keep your incentives aligned,” he said. “It’s built with being able to help a broader base of small business owners who are looking at trying to sell and wondering what are they going to try to do.”
River City Partners began taking listings in the spring and closed this month on its first two transactions.
In one of the deals, River City Partners advised Gaylord-based Skate Fenders — a designer, manufacturer and distributor of foot-protection systems for hockey players — on its sale to SPI Products, an Indianapolis-based investment firm that targets specialty plastics companies. Terms of the deal were not disclosed.
Current listings on the firm’s website include an e-commerce company, a grocery delivery service, a dog trainer, a precision tooling company, a hair salon, an industrial spray painter and an environmental lab and consultancy.
Friar formed the division as retiring Baby Boomers drive a sizeable portion of the volume in the M&A market.
Online brokerage Bizbuysell.com reports that it is on pace to handle a record number of transactions in 2017. Nearly 2,600 transactions that Bizbuysell.com listed closed in the third quarter, up 24 percent from the same period a year ago.
Through the first nine months of the year, the online broker handled a record 7,491 transactions, an increase of nearly 28 percent.
The company reported more prospective buyers have entered the market and that the median sale price for a small business is up 15.7 percent from a year earlier, although prices have “softened” during the last two quarters.
Baby Boomers who want to sell and retire continue to drive “a high percentage of available inventory.”
“Specifically, Boomers who held strong through the last recession are now looking to capitalize on higher prices and a strong market before retirement,” according to the quarterly Insight report from Bizbuysell.com. “It will be interesting to see if the recent trend of softening sale prices encourages even more Baby Boomers to list their business rather than risk an uncertain future.”