Small Business Values Creep Back But Buyer Scarcity Keeps Sales Slim

By Zachary S. Fagenson
While Miami-Dade relies on small and mid-size businesses to drive its economy, it’s hard to know how many of those businesses are changing hands, and with lingering economic troubles it’s unlikely that many are.

"The recession basically took a toll on the value of most business, even a company with strong fundamentals in the right market, like IT services, healthcare or specialized retail," said Manuel Lasaga, president of Miami-based economics and finance consulting firm StratInfo. "At this moment, given the weakness of economy, I think there’s going to be a gap between what sellers hope to get and what buyers are willing to pay."

Only 1,117 small businesses were sold nationwide in the third quarter, according to a Wall Street Journal report on figures from BizBuySell.com, an online marketplace for small businesses.

In comparison, 1,462 small businesses sold in the same quarter in 2008, according to the report.

Such information for Miami-Dade wasn’t available.

"In terms of data it’s a little outdated, and that would be the census data and what it will tell you is the number of establishments by industry and average number of employees," Mr. Lasaga said. "But any additional data I think beyond that you may have to go to private vendors of information."

There were 174,036 businesses in the Miami-Fort Lauderdale metropolitan area, according to the US Census Bureau. That figure doesn’t include 2009 or 2010 numbers, when numbers could have changed markedly.

In 2003 only 164,142 businesses were in the area. In 2004 the number moved to 169,824 and had shot up an addition 5.5% to 179,156 by 2007.

Along with hard times for business owners looking to sell their companies, Mr. Lasaga said companies looking to buy may be rare.

It’s "not an easy environment except in those areas of the economy that are really showing progress," he said. "Maybe companies are in the acquiring mode because they’re trying to grow.

"I think that’s not going to be a broad-based trend," he added.

And how companies are valued continues to present challenges.

"A lot depends on the motivation for the sale," he continued. "If someone’s been successful and looking to retiring, they may see the value in their customer base, value in the service or product, but because the economy is fairly weak the buyers going to apply a different set of parameters as to what the growth potential is."

Along with that mentality, a shifting tax code has also introduced an element of uncertainty in the market that could devalue some businesses and give investors a reason to hold off.

"From what I’ve heard, in the private equity world there’s a lot of cash out there," said Morrison, Brown, Argiz & Farra LLP CEO and Managing Partner Tony Argiz. "I thought you might see a big boom in deals in the last two months of the year, but now primarily that we don’t know if capital gains rates are going up from 15% that could take a little bit of the chunk off the sale of your business."

Despite the tax concerns and uncertainties, the future values of companies that might be put on the market may be headed up.

"I do think that prices are up and they’ve seen their bottom last year, probably in March through August or September," Mr. Argiz added. "I think that values started moving up after that."

And as has often been the case in so many of the industries in Miami-Dade, financing remains one of the highest hurdles to clear.

"Banks are still being cautious and still trying to get a better sense as to what are the risks out there," Mr. Lasaga of StratInfo said. "The financing is more difficult to obtain at this point, so investors are going to be short in terms of the package of resources they have to buy the companies."

Eager buyers will have to get some of that liquidity that’s been on the sidelines into play if they hope to have a better chance of getting any financing.

"I think in order to do the deal, private equity and other investors are probably going to have to come in with more cash," Mr. Argiz said. "The banks don’t want to take large exposed risks on any of these deals, and the more money they see on the table the better they’re going to be feeling."

In addition to small businesses, marketplace activity is bustling despite a slower economy. Read the entire issue of this week’s Miami Today online by susbcribing to e-Miami Today Click here.