Banking & Finance, Manufacturing, and Retail

Numerous factors combine to boost M&A activity

Small business sales increased by 27 percent nationwide in 2017 compared to 2016.

April 6, 2018
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You may have noticed a lot of “Everything must go!” sale banners stretched across storefronts.

More than 3,200 retail stores have closed in the United States so far in 2018, according to Fung Global Retail Tech. Toys R Us is leading the nation in store closures this year, with all 740 locations, including three in Grand Rapids, Kalamazoo and Wyoming, closing their doors.

“Many of the problems in the retail environment can be attributed to the ‘Amazon effect,’” said Michael Greengard, president of Praxis Business Brokers, 529 32nd St. SE, Grand Rapids. “As the buying public embraces the ease of buying anything and everything with a click of a button and seeing products arrive at one’s doorstep two days later, the luster of the ‘old’ shopping approach of driving, parking, walking and hoping to find what you want continues to wane.”

However, there is one business transaction that is surging: mergers and acquisitions. Last year, Amazon acquired Whole Foods, a grocery chain; CVS acquired Aetna, a health insurer; and Yahoo and AOL merged to become Oath.

Greengard said mergers and acquisitions in manufacturing, distribution and service continue to have a multiyear record of very strong business activity.

“With the Great Recession a fading memory, (the) industry has enjoyed uninterrupted growth; consumer confidence is high; banking, while still somewhat painful, is available for most transactions; taxes have decreased; and the political environment is business friendly,” Greengard said.

“Put it all together, and the confidence of most business owners remains strong. A strong bottom line for business coupled with confidence in the economy breeds good M&A activity.”

Max Friar, a managing partner at Calder Capital LLC, a Grand Rapids-based mergers and acquisitions firm, also agreed. His firm recently completed an acquisition deal that saw Aquest Machining, a company specializing in cutting and machining metal and plastic parts, acquired by FabX Industries, a company formed by Gopi Ganta, owner and operator, specifically to acquire Aquest. 

Although every corporate acquirer or individual buyer’s situation is different, Friar said there are some positive reasons to buy a company.

“Along those lines, SBA lenders continue to have a strong appetite for financing business deals,” Friar said. “SBA financing broadens the buyer pool because buyers do not have to have a lot of money to buy a company. For example — depending on the cash flow of the company and the creditworthiness of the buyer — a buyer with $200,000 can easily buy a $2-million company.”

According to BizBuySell, a business-for-sale marketplace, small business sales increased in 2017 by 27 percent compared to 2016. In last year’s third quarter, closed small business transactions peaked at its highest amount over the past few years, hitting 2,534 completed business sales.

Greengard said there are multitudes of reasons why owners are selling their businesses, including age, health, the “worn-out” factor and/or the lack of a transition plan.

The retirement of owners is influencing the new class of business owners, according to Friar.

“There seems to be an increasing trend of the children of owners not wanting to take over the family business,” Friar said. “This leaves a third-party buyer as often the only potential successor. So, there should be more and more business opportunities coming to the market.”

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