Motivated Business Sellers

Quite often, motivated investors seeking to buy a business approach our firm directly. This request can take different forms. Investors might respond to a particular business we have advertised for sale (naturally without our firm disclosing the name or location of the company for sale). Another instance an investor might reach out is the desire for an investment in a specific geographical location or market segment/niche for acquisition – and hire us under our Preferred Investor Program (PIP).

“Over the years we have seen many different buy-side inquiries, “ says Achim Neumann, President of A Neumann & Associates, a leading Mergers & Acquisitions and business brokerage advisory firm, headquartered in New Jersey, “however, the number of such inquiries by and large depends on changing macro-economic factors such as available equity funds, favorable lending and good taxation. At this point, buyer inquiries out-number seller offerings by a ratio of 5 to 1 – with buyer inquiries having tripled in the past three months.”

So where are the motivated sellers in this market to satisfy this buyer demand?

One of the key constraints in the market is that sellers have been very busy with keeping their companies afloat during the challenges of the Covid pandemic over the past two years.

Naturally, there were demands to ensure liquidity for their companies when sales dropped significantly, but then there are also structural challenges. For example, many companies have experienced significant shifts in their customer behavior; whereas the best example applies to retail where consumers started to shift from brick & mortar visits to online purchases. Another example is the hospitality industry undergoing tremendous challenges with consumers staying home.

Changes were not just limited to shifts in customer behavior alone: employees, too, stayed at home, demanding tremendous changes in the communications structure of companies and giving rise to the popularity of video conferencing platforms like Zoom or Teams.

Not surprisingly, many business owners had to address the day-to-day challenges first – some of which are here to stay – before allocating time to selling their businesses.

It typically takes one year, beginning to end, to sell a business. Detailed preparation is a “must” which includes things like a business valuation, development of marketing materials for investors and the execution of a well-defined marketing campaign. Despite our firm making this one of the easiest processes in the industry, it takes some time on the seller’s part, nevertheless.

Once a marketing campaign has been launched and investors are being approached, then such investors are introduced to a seller, after they had previously reviewed the company’s prospectus. Again such introductions typically take an hour, even though our firm is in the fortunate position to often limit such introductions to 3 or 5 investors before a deal is struck.

Finally, the due diligence will require the seller to extract certain materials and documentations from his operations for the buyer to verify what was previously presented.

The good news is that our firm has streamlined the entire process over the past twenty years in order to minimize the time requirements imposed on business sellers.

As time progresses and business owners have increasingly moved their companies back onto strong footing, more business sellers have the time to focus on a sale and will enter the market, increasing the competition for viable investors. Accordingly, we now see the pendulum slowly swinging back to a more balanced ratio of investor inquiries to available businesses for sale.

Motivated business sellers, however, should not wait too long to entertain the idea of retirement. At this time, it is still an excellent market to sell a business, nobody knows what it will be in 6 to 12 months from now, in particular, if the often-discussed recession does indeed strike. This might be one of these times, where good timing is everything!