The Private Business Boom

Imagine for a moment that the largest segment of the population were reaching the age of retirement and looking to transition out of their small – mid sized businesses. Let’s also assume that the proprietors’ successors have very little, if any, interest in the family business.  Now for fun, let’s toss in very low interest rates, a recent recession that is motivating most proprietors to consider an exit, and a rebounding economy.  Finally, let’s also hypothesize that the majority of the private equity sector entirely ignores this segment of the market. As an investor, does this sound too good to be true? 

Of course it does, but it is present day reality. With the resurgence of the economy and relatively low interest rates, a new opportunity is growing within the business community. An increasing number of baby boomer entrepreneurs are ready to slow down, retire and spend more time outside of their businesses. In some cases, they are realizing they are holding the business back and the business could grow even more, if someone wanted to take the risk or invest. They are ready to transition ownership of their company.

As they reach this transition, these baby boomer business owners they have few options. They can turn the business over to one of their children or even grandchildren. But in most cases, the next generation has no interest in the “family business”.

Others are realizing the business may be best in the hands of someone completely new, a competitor or another entrepreneur.  It is time to cash in on their years of hard work, long days and challenging risks.  The down turn of 2008 and 2009 caused many of these entrepreneurs to recognize how fragile the security of owning their own business might really be.  Acknowledging this is the basis of their retirement and most of their liquid wealth, they are looking to realize the fruit of their labor.

We are seeing a significant uptick in merger and acquisition activity in the lower market. Reports indicate a 68% increase in transaction volume in 2013. Without question, there is pent up volume of businesses that survived the recession that have been waiting to stabilize their business and benefit from the uptick in the market.  In the run up to the recession, many had considered the possibility and were waiting for just one more year, or that next contract or machine. That window closed abruptly and these owners were stuck until the past couple of years.

This trend is not expected to end any time soon.  


By Raj Kothari