A "silver tsunami" is coming.
But it's not a surge of water that will be expected. Instead, say multiple business brokers in the region, it will be a surge of retirements among baby boomer private business owners. That in turn will cause a wave of sales of privately held businesses, both small and large.
There are 77 million baby boomers in the United States, according to a May 2022 report by Butcher Joseph and Co., a Missouri-based business-sales advisory firm. The generation, born between 1946 and 1964, are from 59 to 77 years old today.
"An estimated 12 million have ownership in privately held businesses," the report says. "Roughly 10,000 Baby Boomers reach retirement age every day, meaning all members of this generation will reach age 65 by 2030. As the Baby Boomer retirement era continues and ownership stakes are passed to next generation of leadership, an estimated $10 trillion worth of business assets is expected to be transferred."
A small sampling of business brokers in Florida shows some disagreement as to the condition of the business-selling market. Some say buyers are plentiful; some say there has been a slowdown because of interest rates and the type of businesses up for sale.
Investor Sly Buford, the CEO of Tenth Street Group, is a Lakeland native based in Boca Raton. He seeks to sell and buy businesses "in the sweet spot" — businesses with cash flow between $1 million and $5 million — that large private equity entities tend to ignore, and that smaller buyers cannot afford.
But he says there's a slowdown in buyers coming to the Florida market for non-digital businesses.
One example he gives is a man over 90 years old trying to sell his mirror-selling business. His son is not interested in taking up the business, so the owner has to try to find a buyer, Buford says.
Buford says it's been tough, especially as some of the businesses he seeks to help sell are not related to the tech sector.
"There's nothing sexy about them," says Buford. "They don't want to shut down, but they don't want to sell to a fancy investment company."
Buford sees an opportunity in such businesses, as some have solid cash flow and earnings before interest, taxes, depreciation and amortization. The problem: who will buy them? Another problem: can smaller investors raise enough money to buy a portfolio of them?
Some business brokers and advisers thought the silver tsunami would accelerate sales, especially during and after COVID-19.
"We thought it was going to be sooner," says Emery Ellinger, founder of Aberdeen Advisors, a mergers and acquisitions advisory firm based in St. Petersburg. "A lot of them have hung onto their businesses longer."
Ellinger says businesses just had a record amount of mergers and acquisitions in the world and U.S. markets.
"But now we have a very slow M&A market due to the Federal Reserve increasing interest rates so quickly over such a short amount of time," says Ellinger. "We have never seen that historically."
Despite those higher interest rates, buyers are available and there is a large amount of money for such loans, Ellinger says. But banks are being careful.
"We think the Federal Reserve will pause raising interest rates. That will hopefully be very, very good to the market," says Ellinger. "And we hope the M&A market will really pick up again."
But who is interested in buying a business from a baby boomer? Many sellers often look at people close to them first, including family members and employees. When business owners come to Ellinger for advice on getting the best price, they soon find out it's not an easy process.
"Even if it's a small company, and you go to Bank of Tampa or Wells Fargo to do the loan, they're going to have a big diligence list," says Ellinger, "before they make the loan to the new buyer."
Ellinger says banks are usually prepared to make loans to buyers of small, cash-heavy businesses (think: car washes and bars) because those lenders have departments that can work with the U.S. Small Business Administration, which can often guarantee a significant part of loans.
Ellinger, who actually wrote a book on selling business — "Turn Your Blood, Sweat and Tears Into Cash: A Guide To Sell Your Business" — has been in the business of selling businesses for 20-plus years. His firm recently brokered the sale of a large manufacturing distribution company.
Ellinger says business owners should seek advice of professional advisers and brokers before they sell, especially since they have likely been working at their business for decades, but might not have prepared their business or their financials for a possible sale. (Even if they have a good accountant, often financials have mistakes. "All kind of stuff comes up ... That comes as a big surprise to them," says Ellinger.)
Even after getting Ellinger's advice, many business owners think they can sell without him — or another professional broker. Ellinger tells the story of a client who met with Ellinger several years ago but said he could still sell the business on his own because he had four offers. Ellinger "talked him down from the ledge," and won the seller an extra $10 million for the business.
The reason for that extra money is simple: While business owners know their business, they have no particular expertise in actually selling the business itself, and they don't have large networks or databases of interested buyers.
"Our firm is all former business owners who know what they're doing," says Ellinger. "We know where the buyers are ... We know who will pay more. That's why people hire us."
Speak the language
Another challenge in selling business is to speak the correct language in the various parts of the transaction, says Scott Zelniker, a UBS private wealth management managing director with offices in Sarasota and New York City. He has found there are differing languages in the process, which can have challenges for the seller as they enter a relatively complex sector they were never really a part of.
"It is a niche business," Zelniker says of selling privately held businesses. "I find there are three languages. There's business owner language. There is investment bankers' language — who sells the business. And then there's wealth management language. I pride myself on speaking all three, bringing it down to the business owner's level."
Zelniker isn't sweating the market: He says between individuals, private equity and publicly held companies that want to grow, there are plenty of buyers. But like owning a large cache of gold, owners often do not know where or how to sell the asset, or there is a sentimental attachment preventing final action. Zelniker says to then probe sellers' hesitancies.
"Many times when they are not getting sold, it's a lot more than the value of the business," says Zelniker.
There are human pieces to the puzzle, he says, which must be addressed. One puzzle piece is some people are afraid to leave their jobs as business owners. Or they are afraid of where their annual income will come from in the future.
Or there is a sense of family obligation to sell to a child, even though there is doubt the child can run the business. (In such cases, owners will often put off the family decision, Zelniker says.)
Zelniker guides his clients toward "preferred premium buyers," and away from "not premium" buyers. Those "not premium" buyers could be employees, competitors, suppliers and even customers — persons who know the company but don't have the right price in mind.
To spot a preferred premium and qualified buyer Zelniker looks for three signs: people who want to buy the company; people who have the financing or cash for the price asked; and people who will actually hand over the check when the process ends.
But that final criterion can be flipped. Will the sellers sell their cherished businesses? Zelniker says he asks business owners what their plans are once they sell. If they don't have an answer, often sellers will delay or cancel the sale, he says.
Sometimes it's just that a seller has an unreasonable valuation in mind, such as $500 million, when $300 million has been offered. (This really happened.) Zelniker has seen deals fall apart because of overvaluations, and he tries to assure sellers they don't need to overcompensate by asking for too much for the company.
"We tell people you only have to get rich once," Zelniker says. "You don't have to do it multiple times. But (owners) feel like that's when it's going up ... it will keep growing up."
If it sounds like a lot of analysis, it is.
"Our business is psychology as much as it is numbers," says Zelniker.