Every environment creates business opportunities and challenges. An unexpected midafternoon summer rain generates umbrella & rain poncho sale opportunities for retailers who previously purchased the now impulsively desired inventory, taxicab & Uber revenue from previously content pedestrians, and unanticipated food & beverage orders between traditional mealtimes for restauranteurs and bar owners from people attempting to stay dry.
Unfortunately, since the start of the current decade it has been monsoon season for the United States population. The nation entered 2020 with record low unemployment, affordable, abundant fuel, and a strong economy that was facilitating increased home ownership, new business start-ups, and general optimism about the future. That changed with the arrival of COVID-19 in America. Owners of privately held companies and family businesses had a choice in 2020 & 2021 as restrictive, pandemic government policies and public perception of risk evolved, they could quit ending their relationship with their customers, employees, and communities or attempt to navigate through the turbulence in an effort to protect the entity they had invested significant time, energy, and resources creating, developing, and managing.
As an advocate for entrepreneurship and the President & CEO of the oldest business brokerage firm in the Pacific Northwest, I am happy to report that from my 50-yard line seat in the business community, I found resolve to survive strong and many up to the challenge.
Before focusing on the business owners, I want to first recognize one of the best public policy programs for small businesses I have witnessed in my approximately thirty years working with this demographic group, the PPP loan program that allowed entrepreneurs to cover labor and occupancy costs during periods they were detrimentally impacted. This well thought out program executed with assistance from the banking community served as a life preserver for many businesses during the worst of the storm allowing them to actively engage again as entrepreneurs once solid footing was obtained. Business casualties would have been much worse in America without the program. We all should be thankful for this intelligent deployment of national resources.
The pandemic detrimentally impacted many main street and middle market businesses. However, as a firm that regularly meets with business owners and reviews company financials, our large team of professional M&A intermediaries also has witnessed numerous incredible success stories where entrepreneurs pivoted and adapted to the benefit of their staff, suppliers, customers, service areas, and balance sheets. It was evident by the 2nd half of 2021 which business owners had the knowledge, experience, and ability to succeed when challenged. Business is the ultimate competitive sport. Not all companies are destined for success. The pandemic in many cases identified entrepreneurial stars and put out of business parties who were not headed for success with their business models.
The end result as we enter the second half of 2022 is an unique business environment exists where this year could be the best time to buy a business since before the turn of the century. Why is it an excellent time to buy a business in the Pacific Northwest?
The following are ten reasons:
- Business models have been stress tested.
- New competition is not entering the market.
- The Baby Boomer population is retiring, bringing many quality, successful businesses to market for the first time.
- Pent up demand exists for products and services not purchased during the pandemic.
- The best place to be in an inflationary economy is ownership of a business where you can control pricing and expenses.
- One of the best times to borrow money is in an inflationary period.
- The population size of the region is growing creating more potential customers.
- The corporate economic engines in the region are some of the strongest and most dominant in the world (e.g., Microsoft, Intel, Amazon, Boeing, etc.).
- The region has abundant water resources.
- The region has less expensive electrical energy than many areas.
Focusing on numbers five and six, the following example is provided.
Company ABC, Inc. in 2021 had gross revenues of $5 million and an EBITDA of $750,000 (15%). 2022 saw the company increase pricing with inflation by 8%. 2022 sales are now projected at $5.4 million and EBITDA at $864,000 (16%) as a result of many expenses staying stagnant or increasing at a lesser amount than inflation (e.g., wages, rent, insurance, etc.). The company is acquired September 30, 2022 for $3.5 million. 2023 is another 8% inflationary year. Revenues climb in the year to $5,832,000 with an EBITDA of $962,280 (16.5%). Inflation drops in 2024 to 4% through prudent Federal Reserve and government policy. The worst is over of this inflationary period. However, the SBA loan is now being repaid with dollars that have been enhanced significantly over the principal amount borrowed. The business is also worth significantly more than its purchase price if the same EBITDA multiple is applied in 2024 that was used in 2022 at time of acquisition.
Windows of opportunity open and close in business on a regular basis. Entrepreneurs with knowledge and strong business acumen execute when conditions are right. If you are interested in exploring the business acquisition opportunities currently on the market with IBA, the members of our business brokerage team would welcome the opportunity to talk with you. Transaction activity is robust. It is not uncommon for businesses to enter and exit the market with IBA in only a couple of months.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family-owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.