Over the last couple of years, Eric Seifert has started hearing from past clients whom he helped get commercial loans to start their businesses more than two decades ago.
Just like him, they’re approaching retirement age, want out of their businesses and are looking to Seifert to help them through the process.
“They’re calling me and it seems to be, ‘Eric, you got me into this, now get me out,’” said Seifert, who founded Left Coast Capital Resources LLC in Muskegon late last summer. “It’s kind of fun going full circle with those people.”
A former commercial banker and consultant with the Michigan Small Business Development Center, the 64-year-old Seifert formed his own firm after he saw an opportunity to work with aging entrepreneurs who now want to exit their businesses.
Left Coast Capital Resources works with small business owners on short- and long-term exit planning and securing capital or credit, plus represents buyers and sellers in the M&A market. The firm’s “sweet spot” is companies with $3 million or less in annual revenue.
Seifert looks to take advantage of a strong M&A market driven by baby boomers focused on retirement, a good economy, readily available bank credit and an abundance of prospective buyers.
“It’s a great time to do it right now. Us baby boomers, a lot of us want to get out now. We want to get out before the next recession,” said Seifert, who spent a decade working with the SBDC along the lakeshore before forming Left Coast Capital Resources.
“It’s like the perfect storm: These huge factors are coming together,” he said. “The market is great right now for an exit. There’s a lot of buyers out there, both individual buyers and strategic buyers, and banks are very aggressive in their financing of acquisitions, so it’s a great market.”
Those factors that Seifert cites have been at work across the U.S., driving M&A at all levels.
The online marketplace BizBuySell.com reports a record number of closed transactions in 2017 for small businesses nationally. The website recorded nearly 10,000 closed transactions last year, up 27 percent from 2016, according to a quarterly report from BizBuySell.com.
In a survey BizBuySell.com conducted with 5,000 business brokers across the U.S., eight in 10 respondents expect the number of transactions to grow again in 2018, and three-quarters see more baby boomers entering the market.
SERVING THE MARKET
That high level of deal activity spurred Seifert to form Left Coast Capital, as well as drove other moves from established M&A firms in West Michigan to position themselves down market to serve small business owners.
Max Friar of Grand Rapids-based Calder Capital LLC formed a new division last year, River City Partners, to focus specifically on small business transactions. River City Partners handles transactions for small businesses and charges a flat fee, plus a discounted commission when a sale closes.
Since the first of the year, River City Partners has been receiving inquiries daily from prospective clients, Friar said. Many are from owners who are worn out and ready to move on to something else or retire, he said.
Rua & Associates LLC in Zeeland offers small businesses what founder and President Randy Rua calls a non-commission “coaching model” that assists and prepares a business owner for a sale process. The company charges reduced fees and automates the process for services such as listing the business for sale and drafting non-disclosure agreements in an effort to keep costs down.
Rua started the service about two years ago for small businesses with $2 million or less in annual revenue whose owners seek assistance to sell but often cannot afford the traditional fees of a business broker. At that size, he said, business owners “need every dollar they can to retire on.”
“We’ve been doing it for a while. We haven’t been actively marketing it, but we’re going to start. The demand is there,” said Rua, who expects this year to spin out Rua Transaction Services into a separate business. “There’s just so many business owners who are looking for help to figure out how to transition.”
The firm offers those clients an informal valuation and sale listing. The small business owners handle the transactions on their own and can tap Rua & Associates for guidance and assistance as needed.
The market demand today is driven by not just aging business owners who want to retire but also people who see now as the time to get out before the next economic downturn hits, Rua said.
“A lot of people are sensing now might be a good time to come to market with the way things are in the economy,” he said. “There’s a bit of fear of another downturn and that fear is starting to drive more sellers to say, ‘Hey, I better look at this now or I have to wait for another five to 10 years,’ and a lot of them don’t want to wait that long.”
However, brokers say that small business owners cannot just decide one day to sell and expect a transition to go quickly, even in a strong market. Owners need to plan out their exit from a company, consider issues such as tax implications and take the time needed to position the business for sale.
Seifert at Left Coast Capital notes that “very few” small business owners plan their exit.
“They usually determine they want to exit and then start going about doing it and finding it’s a huge mountain to climb,” Seifert said. “But if you plan it out over two, three, five years or more, you can position the company better for sale and improve the value.”