Now may be the time to cash in your chips

Jeff Marble sold his business last year when it was doing well and he was at his happiest in his job.

That’s the way to get the best value for your company, said the former owner of Frabill Inc. in Jackson. Put the gears into motion while things are still on the upswing.

“We had experienced some very good growth years, our brand was extremely strong, and that’s really the best time to sell,” Marble said. “It’s definitely something that I think business owners should pay more attention to, and we tend to ignore it when things are good.”

Marble and his wife, Patti, had owned the business since 1983 and are in their early 60s. In the 30 years they owned the fishing gear manufacturer, revenue increased about tenfold.

The Marbles could be poster children for the front end of the baby boom generation, which is facing a crossroads.
About 10,000 members of the baby boom generation turn 65 each day, a trend that will continue for the next 16 years, according to the Pew Research Center.

Many of them had to postpone their retirement when their savings were depleted by the Great Recession and stock market crash in 2008. But the U.S. stock market has roared back to record levels this year, opening a new window for retirement.

Similarly, the multiples of sales for companies also have recovered, prompting boomers who own companies to once again consider passing on their firms to the next generation of their family or selling them outright.

Selling the business became part of the Marbles’ retirement plan, and Jeff focused on targeting the right time to generate the most value.

In June 2012, Plano Molding Company of Plano, Ill. acquired Frabill. Jeff has stayed on as a consultant for the past year to assist with the transition and will phase into retirement over the next couple of months.

“It’s a very emotional decision for many owners,” he said. “We’re hard chargers and many of us think we’re never going to get old.”

Now is the time
Business owners who waited through the Great Recession to sell their businesses should follow Marble’s lead and take this opportunity to cash in their chips, several area experts say.

Banks want to lend money, private equity firms are pursuing deals, corporations have excess cash on their balance sheets, the booming stock market has increased confidence and business valuations are up. Conditions are ripe to sell a company.

“We are actually experiencing a lot more buyers ready to jump into the mix and be able to acquire a company,” said Joe Braier, mergers and acquisitions shareholder at VR Lakes Business Group Inc. in Waukesha. “We’re seeing an influx of buyers. Without a doubt, it is a seller’s market right now.”

In addition, a rush of tax-beating deals at the end of 2012 led to a quiet start of the year. Not many businesses are on the market right now, so buyers are hungry for quality businesses as soon as they become available.

“For individuals thinking about selling their business, now is not only the time because it’s a seller’s market, but also because there’s less inventory,” Braier said.

Some business owners who delayed selling during the recession did so because most of their net worth was tied up in the business. As the economy went into a tailspin, business values went down, said Joe Sweeney, managing director at Corporate Financial Advisors in Milwaukee.

Now, most values are up again.

“There were a lot of people who were thinking about it three, four, five years ago (who) are now back contemplating and thinking about it,” Sweeney said. “If it’s the right time in your life that you feel that it’s time to cash in, you should do it, because the markets are really ripe.”

Owners have adjusted their expectations about selling price and are ready to sell again, said Ron Miller, managing director at Cleary Gull in Milwaukee.

“There were many business owners that hit the recession and then were unable to access the M&A market and have waited for the more recent recovery,” he said.

The window is open
Business owners planning to sell in the next five years should certainly consider the current window of opportunity, Sweeney said. There’s no predicting the future, and taxes may go up in 2014 as a result of federal deficit concerns.
“With not as many transactions and tons of demand, if an owner is thinking of gaining liquidity in the next few years, it’s a good time,” Miller said. “When that window closes, it shuts rapidly.”

While they waited out the storm, many business owners worked on improving their company’s value drivers, Sweeney said. That’s helped boost valuations coming out of the downturn.

Only businesses that have prepared for a sale should jump into the market, experts say. If a company has maximized its value, prepared its management team, cleaned up any unresolved issues and sales are trending in a positive direction, it is more attractive to a buyer and can command a higher value, Braier said.

“Now is the time to sell because you will be able to get top dollar for your business if your business is performing well,” he said.

“It is a great time to sell your company, but your company also has to be ready,” Miller said. “I think what’s held back many sellers is their underlying operating performance.”

Banks, private equity firms and businesses are eager to make deals happen, he said.

“Right now, there’s a supply-demand imbalance in the market,” Miller said. “There are many more buyers than sellers in the market.”

‘Eager to lend’
Banks are aggressively pursuing lending opportunities in what is one of the best banking markets since the mid-2000s, making it easier to complete deals, Miller said.

“It’s hard for banks to get assets to grow their loan portfolios…so when there’s a new transaction, they’re very eager to lend,” he said.

Private equity firms pulled back during the recession, but are now reaching investment horizons on their funds and are looking to buy. There is more than $400 billion in uninvested private equity nationwide, Sweeney said.

“There’s so much money out there in private equity that sat on the sidelines for four or five years,” he said. “Private equity firms have been extremely aggressive the last few years trying to put their money to work.”

Corporations also are putting money to work. Those that plan to grow are avoiding the uncertainty of hiring during the current macroeconomic environment, and are instead growing through strategic acquisitions.

“The downturn has taught a lot of companies how to get leaner and how to get smarter,” Sweeney said. “As a result, a lot of them did start building up cash on their balance sheet. If organic growth is really tough and if industries aren’t growing, the one way to grow your business is through mergers and acquisitions.”

According to a whitepaper by Deloitte, an accumulation of cash and uninvested capital could lead to a significant uptick in M&A activity.

“Over the past few years, many companies have focused on deleveraging their balance sheets and enhancing their liquidity positions given the volatility in operations and uncertainty in the capital markets,” the Deloitte report said. “This concerted effort to shore up corporate balance sheets during the recession has positioned companies with reduced debt levels and strong cash balances, which could be used to pursue M&A activity as a vehicle for growth.”
There is currently about $1.7 trillion in cash on corporate balance sheets nationwide, Miller said.

“As the economy continues to recover and companies perform, the trends for mergers and acquisitions or quantity of transactions should improve over the next several quarters,” he said.

That’s why business owners should get in before the rush.

“Proceed as fast as you can,” Miller said. “If the business is ready and performing at a strong level, I wouldn’t wait.”

Consider the options
Business owners who are planning to retire should carefully evaluate the offers and valuations on the table and determine whether the sale price and other savings will be enough for retirement.

Some investors have delayed retirement following the economic downturn, to build up more savings that will last through their later years.

“Probably 20 percent of people who were going to take retirement at the traditional full retirement age have put it back at this point,” said Andrew Richman, registered investment advisor at Richman Financial Services in Wauwatosa. “I have people who are 73 and are working at this point.”

Those who were turning 60 or older in 2009 may have had to wait a few years longer, and almost no one is retiring early anymore, he said.

The options were to retire on less and change lifestyles or continue to work and take advantage of Social Security benefits later, earning a bonus.

“Americans have definitely had to sit back and restructure and formulate new plans,” Richman said. “I would say that income planning has definitely become more important than accumulation.”

Karen Ellenbecker, president of Ellenbecker Investment Group Inc. in Pewaukee, said she talks to clients about lifestyle changes that will help them manage expenses in retirement.

“I think that people have really struggled with whether or not they want to retire,” Ellenbecker said. “People are living longer, so a lot of people at what we thought about as retirement age…they’re really working longer because they want to and in a lot of cases because they have to.”

For a 401(k) investor with a few years left, the market crash was only a blip on the radar screen because the markets came back, according to Timothy Stasinoulias, founder and managing partner of Aegis Wealth Advisers LLC in Wales, Wis.

“I think those people are very happy that they stayed committed to their investment plan and continued to invest according to where they were on their risk level,” he said.

Stasinoulias is advising clients near retirement to take on more risk in their portfolios to generate greater returns in the current environment.

“A proper mix of stocks and bonds is very important and then adjusting that as you reach retirement,” he said. “There’s ways to build a risk-based investment plan and still achieve whatever your income needs are.”

An all-weather approach will help manage risk, said Pam Evason, managing director at Windermere Wealth Advisors LLC in Milwaukee. She advises investors to spread their portfolios among a variety of asset classes

Managing expectations
“I think with a lot of people, if they were close to retiring back in ’08, ’09 and depending on how they invested, I think it affected how they viewed risk and it changed people’s feelings about risk,” Stasinoulias said.
However, investors’ risk tolerance is lower because of the pains of the Great Recession, said Jeffrey Geygan, president and CEO of Milwaukee Private Wealth Management Inc. in Mequon.

Business owners who want to retire can do so by adjusting their plans and considering options like going part-time and partially retiring, said Martha Kendler, director of business market at Milwaukee-based Northwestern Mutual Life Insurance Co.

They should focus on continuity planning, succession planning and exit planning well ahead of retirement, she said.
“You do have a changing environment, but the business owner has a number of levers they can pull to make sure they can still complete their plan,” Kendler said.

M&A brokers have been developing unique deals during the economic downturn, which sellers can still take advantage of in the current environment, Braier said.

Now, deals include more seller financing, transition agreements and training and consulting roles that allow a retiring owner to have a continuous source of income after the deal.

For those retiring soon, Stasinoulias tries to manage expectations to bring retirement dreams back to reality.
“I think what the Great Recession taught us was that probably everybody was a little overextended,” he said. “It’s gotten people to think more in realistic terms. They reduced their debt, they’ve also reduced their income expectations, their lifestyle possibly has come down a couple notches.”

“I’m a business owner, and making a decision to pull the plug or retire is really hard because your business is your baby,” Ellenbecker said. “A lot of business owners don’t think about selling their business and retiring because they’re so happy doing it.”

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