Houston Business Brokers Predict Buying, Selling of Companies to Grow in 2008
If you are looking to buy or sell a business in Houston, 2008 will see a wave of activity and be a year of great opportunities.
We have already kicked off the New Year with a bang, closing four businesses between New Year’s Eve and the day after the Holiday. And, we currently have a record number of businesses scheduled to go to the closing table over the next two months.
The celebrating, enthusiastic freshly-crowned business owners are bullish on the Houston economy and have grand plans for growing their new acquisitions. As for the former proprietors, now retired former baby boomer business owners, are to be congratulated for their successful achievement and having been in the driver’s seat that has helped steer our city’s economy to its top status as one of the best in the nation. The diversity of our small business community is the backbone of the city’s robust commercial health.
We fully expect business transfer activity to continue its uptrend here. We have seen accelerated momentum over the last few years. A good deal of the activity is linked to the baby boomer generation. Just as many boomers are looking to sell their businesses and retire, younger people, young retirees, private equity firms, and strategic corporate buyers are looking to acquire privately-held companies in Houston. It’s a great combination, a perfect storm.
Nationally, more than 65 percent of small and medium-sized businesses are expected to change hands over the next decade. This number will certainly hold true for Houston enterprises. They are already targets for those looking to get a toe-hold in our world-class city’s economic powerhouse that is predicted to flourish for the foreseeable future, according the Houston Business Journal’s November forecast.
A variety of industry sectors are popular as acquisition candidates. Many of those in the individual buyer category with whom we are currently working are looking for commercial service companies such as freight/delivery, janitorial, landscaping/lawncare, and vending firms, to name a few. Service companies such as these are always in demand because they have recurring revenue streams, potential for growth, and relatively short learning curves — thereby bringing the largest pool of interested acquirers. Of particular interest in Houston are medical and energy related firms due to Houston’s position as a major player in these sectors of the economy.
Restaurants are of particular interest to individual buyers as well. Texas has the second highest restaurant revenues and the second largest number of restaurant-industry employees in the nation according to the National Restaurant Association’s December news release. A good restaurant, just like any other solid business, will sell quickly in Houston — especially in the current market with so many people looking to buy a restaurant. On the other hand, the failure rate amongst restaurants is rather high. Therefore, someone not experienced in the industry should educate themselves about critical issues to help insure their success as a new restaurant owner.
The strategic buyer and private equity buyer groups are asking for wholesale, distribution, logistics, storage & warehousing, manufacturing, and medical & health-care related firms. As the hub of the energy sector, Houston-area oil service companies are strategic targets of corporate buyers. Each buyer category has distinctive characteristics that correlate to the motivation behind their purchases. In addition, the price each is willing to pay for a company is directly proportional to the motive.
First-time buyers need to be cautious when evaluating buying opportunities. You just have to sift through, do your homework and figure out what the pros and cons are. A self-assesment will help you figure out what types of businesses would work for you and how much money you have as a down payment.
Company owners need to work hard to make their businesses attractive to potential buyers. This includes increasing your cash flow, keeping good records, getting a business valuation, and understanding who your potential buyers would be.
Buyers and sellers of businesses should consult with professionals, such as business brokers/intermediaries, attorneys, and accountants who have experience in the marketplace and structuring deals.
The more you educate yourself on the process, the better the outcome will be.