On the roller coaster that has been the U.S. economy during the past two years, one of the top questions we get from business owners is “what kind of businesses are selling?”
The unfortunate short answer – it depends!
The clearest answer we have on what is moving are profitable businesses with headroom for revenue growth, digital transformation, and/or private equity roll up. The pandemic has hit hospitality and travel businesses hard, while health care and manufacturing have rebound. Anything that thrived during the pandemic is definitely a hot commodity. We saw businesses that were “pandemic-proof” – things that will always be in demand, regardless of the vagaries of changing public health guidelines. Then there were businesses that enjoyed a COVID boost: construction and home improvement businesses had an initial pause, then thrived as many people turned their focus on making life and work from home more appealing. More and more buyers are interested in identifying and purchasing these right place/right time businesses.
The segment we see with the highest upside is manufacturing and B2B business services. Refined further, the most in demand are businesses that have experienced 5-15 years of continued profitability AND are well suited for digital transformation to fuel growth. For example, a small manufacturer, energy or heating, ventilation, and air conditioning services company that can implement digital sales and operation enablement technologies to shorten the sales cycle, increase market reach, and improve customer service, all resulting in better top line revenue and bottom line earnings.
We routinely see great companies built over decades by baby boomers who are nearing retirement and have not yet spent the time, money, and effort to modernize operation or create a management team succession plan, which is a great opportunity for the right buyer with the right background and vision to take the reins.
Here are just some examples of businesses Exit Equity has seen through ownership transitions in the last year:
- Hydraulic pump/spray manufacturer
- Plastics manufacturer and distributor
- 3rd Party Logistics (3PL) Provider
- Home healthcare solutions
- Residential construction contractor, door, window, and millwork manufacturer
The Pacific Northwest has seen tremendous growth over the past five years, and the pandemic has not slowed down the population influx. While other industry segments around the nation are stalled, businesses in the upper left corner of the US continue to thrive. Large companies like Microsoft, Amazon, and Boeing lead the way, but the vendor ecosystem and supply chain within these categories has grown in stride. We continue to see buyer opportunities, and roll ups, in e-commerce development, healthcare, manufacturing, and construction – all consistent with market research from the International Business Brokers Association. If a business is for sale in a part of the US with a growing population, there is a higher likelihood of a stronger valuation multiple and more robust marketplace for active buyers.
As the baby boomer generation of business owners transition to retirement, businesses within the previously mentioned categories are primed for a new owner to insert energy, capital, and renewed passion into a long standing business. For buyers, they might have no idea that certain businesses can be bought at a reasonable rate AND have a huge upside potential, while sellers might not have the optimal game plan to convert business value into liquidity for retirement.
Business sales is an area where most people “don’t know what they don’t know” because most people will only have a few of these transactions in their lifetime. But for Exit Equity, we do this every day. We are thrilled to be putting our experience to work during this era of the “Great Resignation” as the market is showing unparalleled opportunity for parties on both the buy and sell side.
This is the second in a series on business ownership transitions from Exit Equity. Follow us on LinkedIn and other social channels to get the latest installments