Buyer’s market for businesses, but beware of emotions

BY WILLIAM HAMILTON
Providence Business News STAFF WRITER

Robert Flynn has been appointed to the board of directors of the Business Brokers Association of New England, which offers the only multiple-listing service for businesses in the region.

Flynn, managing partner of East Greenwich-based United Brokers Group LLC, recently spoke with Providence Business News about his experiences in the business of playing matchmaker for those looking to buy and sell companies.

PBN: Has the economic downturn been good or bad for your brokerage?

FLYNN: The last three years were probably the worst three years in a long time in the Rhode Island and U.S. economy, but we did well because of two groups of people. There are the people who were leaving corporate America and couldn’t find a job. We were working seven days a week to match them up with their first business acquisition. The second group: large companies out there who put cash to work during times like this. Right now, long-term debt is cheap; we’re able to do one to three major deals a year outside of Rhode Island that carried us.

PBN: Those people from corporate America, are they sophisticated buyers or do you have to educate them on the challenges of owning a business?

FLYNN: I would say 60 percent to 70 percent of the calls we get are very emotional. They’ve lost their job, or there’s been some life-cycle issue – death, a divorce, a family issue – and they’re buying their first business. Those people … we take them through an interview to profile what works for them.

PBN: What types of businesses are available right now? Are we talking about pizza joints and hair salons or bigger companies?

FLYNN: Both. We’ve divided our company into two divisions. United Brokers Group handles the first group, Main Street America. Those are predominantly hospitality, gas stations, things built around the life cycle.

The second part of my business is the [mergers and acquisitions]. I focus on manufacturing and staffing businesses, and logistics. We have high demand for manufacturing because, frankly, the ones that are left have done a number of things right, and they tend to have real balance sheets that the banks like.

PBN: What about sellers? Are there more business owners looking to cash out right now?

FLYNN: Yes. The reasons range from “I’m too tired” to partner breakups to the reason I hate the most, “It’s hard to do business in Rhode Island. I want to go elsewhere.”

PBN: How often do you hear that? And why do you hate hearing someone say it’s hard to operate a business in Rhode Island? Do you disagree?

FLYNN: Three to four times a week. I hate hearing that because I’m a Rhode Island businessperson. I think in many cases it’s an excuse for something they’ve done wrong in managing the business. But I do believe it is tougher up here.

I routinely go from Maine to New Jersey, and in my meetings with lenders and business owners, there’s just a confidence outside of Rhode Island that I sadly find lacking when I get back. In New York, they seem to be more confident in lending money; that drives investment and that, in turn, drives employment. I think Rhode Island for people in New York, New Jersey, Philadelphia is a very interesting investment climate, particularly for a small-businessperson who might have a half million or a million dollars of equity in their home on Long Island. They don’t have to travel into the city. We’ve sold them businesses and homes in Rhode Island.

PBN: Is it a buyer’s or seller’s market?

FLYNN: Oh, it’s buyers. There is so much inventory out there. There are almost 200 companies for sale in Rhode Island, small businesses. That’s what is listed. And things that use to sell at three times earnings are at two times earnings. Plus, I’m seeing the first signs of an upturn, so it’s a good time to buy and ride up what we hope is the end of this downturn.

PBN: Then why wouldn’t more buyers be out there?

FLYNN: There are a lot of buyers. The biggest thing is getting through to the real ones who are unemotional and getting the deals financed. We’ve been getting them financed increasingly with some component of a seller note.

PBN: What do you mean by an emotional or unemotional buyer?

FLYNN: An emotional buyer wants to buy a business. They have no idea how they’re going to finance it. They’re being pushed by their wives, or their girlfriends or their husbands to get out and get the income because they’re running up debt. They’re highly emotional. … You know, the world wasn’t supposed to be like this for these people. They went to college; they were going to get a job, but now they’re in their 50s or 60s and equity in their home has been eaten up, they’ve lost their job. They’re frightened.

PBN: What are some of the surprises that await buyers and sellers when they approach a broker?

FLYNN: On the sell side, the first shock is when I provide a valuation opinion and tell them what I think their business is worth. Second, when I take them through the demands of a savvy buyer who wants to see real financial statements and details on expenses – all the things they’ve thrown away for years.

On the buy side, it’s shocking how many people think they can put 10 to 20 percent down and a bank is going to gladly step up and lend them the rest. These are people who have experience, but it hasn’t been small-business experience. All the meetings they went to in corporate America don’t translate well in this environment where the financial statements are quite different from what they’re use to seeing.