As baby boomers near retirement, the trend of business mergers and acquisitions is expected to continue.
It isn't easy to sell a company you have created and run for many years.
Next year, the youngest baby boomers, those who were born between 1946 and 1964 are 60 years old. According to AARP, approximately 10,000 baby boomers reach 65 each day in the U.S.
Many entrepreneurs are driven people. They have a lot of routines that revolve around work. Owners' work could make up a large part of their personality.
It's not just a job for them; it's a personal thing.
"The emotional component is huge." Pat McClain is co-founder and CEO of Allworth Financial, a Folsom-based financial planning firm. The retirement planning company has acquired 28 businesses in the last five years. Many of them were purchased by business owners who chose to retire.
McClain said that selling a business was like sending a child to college.
You know that everything will be fine. You know that they will be okay. It will be a major change. You know that your life will never be the same.
He said that the owners are more likely to consider joining a large company if the selling is not due to retirement or succession plans.
Three types of sellers
McClain stated that there are three different types of sellers.
First, the owner has reached their maximum risk tolerance for reinvesting in the business. They sell in order to expand their business.
A seller who wants to sell in the next two to five year may also want to have a succession plan.
McClain says that the third type of seller would be an owner who is burned out from running their business.
They love their work, but don't enjoy running the business. They want to return to the reason they started their business, which is to meet clients.
McClain explained that the reasons why people consider selling their home are weighed against the uncertainty about what it would mean for them to sell. "They ask themselves if they will have to punch in a timer. Do I need to ask permission? How will my life be after this transition?
McClain can reassure owners by referring to those who have sold to Allworth, and then stayed with the company.
He said that the more a buyer paints a picture of the life the seller will lead after the sale, he believes the better the deal.
According to the Small Business Administration Office of Advocacy, the trend of selling businesses is affecting many people. The 4.2 millions small businesses in California are home to 48% of California's workforce. According to the SBA, a small company is one with fewer than 500 workers.
According to Census data, the total California payroll of small businesses was $415 billion dollars in 2019.
According to the SBA, between March 2020 and march 2021, 180 829 new businesses were opened in California and 171 061 closed.
According to BizBuySell's online marketplace for business, BizBuySell conducted a study in Sacramento, Placer and Yolo counties last year. This was an increase of 19% from 2020 and 36% over 2021.
"I'm not surprised at the mergers." Sanjay Varshney is a professor of finance at California State University Sacramento and the founder and principal of Goldenstone Wealth Management, El Dorado Hills.
Varshney stated that in addition to a possible retirement, an economic turn could also motivate owners to sell. Varshney said that interest rates are rising, making it more difficult to do business in an environment of increasing rates.
These rising rates could also indicate that now is a good time to sell your business, rather than wait to get a lower value later.
Varshney explained that while some business owners may consider selling, others will hold on until the very end, because they simply can't part with their company.
He said, "They die and leave their children everything. They never receive the liquidation from their business." "They never get to enjoy the business they built."
Moving on is a decision.
Bob Perry-Smith has been in the accounting field for over 40 years. He started his own accounting firm in 1984. Perry-Smith LLP became the largest local accounting firm.
When Perry-Smith sold to Chicago-based Crowe Horwath LLP, it had an annual revenue of $30 million. It also employed 146 people in San Francisco.
Perry-Smith stated that it was never the intention to sell. "We had a great group of partners and a fantastic team."
In 2010, four potential buyers lined up to purchase Perry-Smith.
He said that "all businesses have a certain life cycle, and that you need to reinvent them. We did this," adding that "the offers eventually became too good."
He thought Crowe had a great reputation and was a great company.
He said that selling the company with his name was a major change.
He said, "Anyone who's part of a group that is great, you're just so invested in them." You miss the relationships you have with your team and with clients.
He worked for Crowe Horwath as an employee for one year, then served as a consultant for another year before retiring from the company.
"We expected there to be a fairly large cultural change. He said that no matter how great you are and how well you think you do business, their way becomes yours.
He wonders "where we would be if we hadn't sold it. He said that we'd be a big company. "We were now a regional company." We had clients in Oregon, Nevada and Northern California."
Perry-Smith specialized in auditing regional and community banks. After leaving Crowe, Perry-Smith continued consulting and became a board member at Presidio Bank San Francisco. In 2014, he became chairman of the board at Folsom's Sierra Vista Bank. He served on the boards of both banks until they were sold. Both banks did not compete on the same market. He is now on the board directors of Five Star Bank and will become chairman in May.
He said, "I am still pretty busy."
Norm Hudson is the chairman of Inszone Insurance Services in Rancho Cordova. He said that many owners sell their businesses after retirement because they have fallen behind with technology, or because the company has grown so much they are now required to handle a great deal of administrative, human resource and management work.
Hudson founded Inszone, and as CEO he oversaw over 50 acquisitions in a period of nearly 10 years.
"That is the first thing I say to a seller whenever we meet." He said, "I tell them that this will be a much more emotional process than they think." When we first start talking they may be fed up with something or another, but once it comes to selling, it's like giving up a kid.
Some people sell their business in order to retire. He said that in some cases people may sell their business because they no longer have the energy to run it.
It's been an interesting experience. Our experience has shown that sellers tend to stay longer than originally expected before the sale. They tell us they'll give us a full year and then stay. Hudson explained that now they only work with clients and are enjoying their jobs again.
Inszone is a company that brings together small and medium independent insurance agencies. This allows the owners of these agencies to access technology, compliance, and back-office assistance, allowing them to either become more efficient, or retire.
Since it began its acquisitions in 2017, the retirement advisory firm Allworth grew from 60 to 375 employees. Allworth sold its majority stake to a private equity company to raise money for growth. McClain understands what sellers go through when they give up control.
McClain stated that if you want more control in your life, then you must give up some of the control you have over your business. "As you grow, you will have more specialists who can manage the business better than you. I'll have more control over my life."
It can be difficult to sell a family business, especially when it is intergenerational. Sometimes, one child expects to be in charge of the business. This may not be the best option for those who have more than one child or are planning their estate.
McClain noted that people who are trying to sell often look for a 100 percent perfect fit. However, he added, a perfect match is rare. "If you get 80% or higher, then that's good."