Boomers driving sales of small businesses as buyers seek growth by acquisition

NEW YORK—Baby boomers in the U.S. preparing for retirement are driving a surge in small business sales, as they find more and more buyers confident enough in the improving economy to expand their own businesses through acquisitions.

In the first three months of this year, the number of sales that closed jumped 56 per cent from the same time in 2012, according to BizBuySell.com, an online marketplace for small businesses. Retirement was the top contributor to business sales in the fourth quarter of last year and the first quarter of 2013, according to a survey by Pepperdine University and two trade groups, the International Business Brokers Association and M&A Source.

“It was almost like a light switch went on in January,” says Michael Schuster, a broker with World Business Brokers in Miami. “We started getting a lot of activity with sellers who said, ‘I don’t want to go through another downturn or tough time. I want to see if I could sell my business.'”

Sales are so strong in Florida that Schuster’s brokerage is opening two more offices in the state. Three-quarters of the sellers or potential sellers that his company sees are baby boomers, most of whom don’t have family members willing to take over their businesses. Some of these owners want to sell just part of their firms, essentially taking on a partner, because they don’t want to keep carrying all the risk themselves.

In California, the pace of sales is more of a “slow pickup, not a huge spike,” says Dave Richards, owner of Keystone Business Advisors, a brokerage in Westlake Village, Calif.

“Baby boomers are where we’re really seeing the growth. It’s pent-up demand,” Richards says.

And these sellers are going to keep the market for small businesses thriving for years to come.

“Trillions of dollars of business value are going to change hands in the next 10 to 20 years,” says Bob Balaban, managing director at Headwaters MB, an investment bank based in Denver. He believes so-called ‘strategic acquisitions’—purchases by companies looking to expand—will be a key factor in that trend. In a tight economy, companies looking to grow feel that it would take years to build up their businesses.

“They have to do acquisitions to continue to grow and grow quickly,” Balaban says.

Buyers appear to be ready to step up and are looking for a good fit with their existing operations. Health-care related businesses like medical billing firms, pharmacies and even medical and dental practices are particularly in demand, says Keystone’s Richards. He’s seeing less interest in restaurants and retailers, industries where profit margins are thinner and where many companies are still struggling. Schuster, the Miami broker, sees people who were waiting for the economy to pick up, and they’ve decided that business is good enough for them to take the plunge.

Sellers are benefiting from this trend because buyers are willing to pay more money if a deal will quickly get them into the markets they want to serve, says Mike Carter, CEO of BizEquity, a company that helps businesses calculate their sales price.

“For a growth company, we’re seeing them getting almost 15 per cent more than what they were getting four years ago (during the recession),” he says.