Small Manufacturing Still OK, Brokers Say
GRAND RAPIDS — As baby-boomer business owners near retirement, broker Allan Reider is predicting a busy year.
Last year "was a down year — it was just sporadic," reported Reider, president and manager of Altus Group, a commercial real estate and business brokerage in Grand Rapids.
"2008 is going to be terrific. We had a really good start to the year. We're having lots of activity now from buyers and sellers," he added.
Reider heads the local chapter of the Michigan Business Brokers Association.
"There's a lot of restaurants on the market now. They seem to be more active now in terms of sales," Reider said. "Small manufacturing has been very active. We put one on the market and we get multiple offers on it.
"(Manufacturing) is not dead. It's a shame that people think so. There's a lot of niche manufacturing or assembly that there are buyers looking for those."
John Meyering, managing director at Vercor's four-person Grand Rapids office, agreed with that assessment. A board member for the Michigan Business Brokers Association, Meyering suggested that business owners do their homework in finding someone to handle their business sale.
Business brokers, who handle "Main Street" businesses of up to $5 million, don't need a Securities and Exchange Commission license to sell business assets, he explained. In Michigan, if the sale involves real estate, the broker must have a real estate license.
"Even though the (Michigan) Supreme Court ruled on it, it's still a gray area," Meyering said. "Anytime it does involve real estate, the license is applicable. Half of transactions sell real estate with the business, and the other half is a lease assignment, and still may constitute real estate."
Meyering said the SEC has been talking for years about creating a business brokers licensing category that would fall between the status quo — which is nothing — and the same level as stockbrokers. He said he expects the discussion to continue for several more years.
"It has been a topic of concern for many, many years in the mergers and acquisitions industry, for those doing business brokering. There's also some real problems with the limited licenses that are being discussed," he said. For example, a host of U.S. Small Business Administration guidelines means "there's a great chance that what you are doing is not going to fit the SEC's no-action requirements," Meyering said. And it's not unusual for what starts out as a sale of assets to turn into a stock sale, particularly with C corporations, which can face a tax whammy.
"Things can often change when accountants and attorneys get involved," he said. "The majority of M&A advisors don't' have the required SEC license. Several groups are now in discussion with the SEC to solve this issue.
The International Business Brokers Association — which backs the idea of an SEC-issued business broker's license — provides a code of ethics for brokers. It also issues a Certified Business Intermediary designation, which is obtained after attending a long menu of IBBA classes, seminars and continuing education. A CBI designation is something to ask about, but Meyering noted that many excellent brokers don't have one.
Meyering said his company, Vercor, which has 15 offices in the U.S. and one in The Netherlands, has decided to no longer wait for SEC action and instead is asking employees to obtain Series 7 and Series 66 licenses to give clients maximum flexibility in the structure of a sale. Vercor also does investment banking.
"There are a lot of costs and fees, and a big commitment of time — weeks and weeks of studying to get through the manual," said Meyering, who completed the six-hour, 260-question Series 7 license in 2007 and expects to take the Series 66 exam soon. "It's quite a commitment. It's not just something you decide to do one day."
In fact, some who support a limited SEC license for business brokers contend the process is too expensive and cumbersome, and results in a license that provides for more activities than business brokers need to use, Meyering said. But until the licensing issue is resolved in Washington, he said he believes it's the best route to allow him to serve mid-market clients, whose businesses may be worth up to $100 million.
He said the Michigan Business Brokers Association has about 35 members locally and 60 statewide.
Reider said the housing crisis has made money tighter. "The banking situation has caused some pressure in the marketplace," Reider said.
Business owners of the baby-boomer era are among Altus customers, as well, Reider reported.
"We are dealing with people who don't have a succession plan within their family. We're helping them with exit strategies," he said, adding that it's important for owners to keep nurturing the business to retain its value. Buyers and their lenders want to make sure the enterprise is solid enough to keep generating revenue, he added.
An interest rate cut or other economic stimulus may put some spring back in the market, he added.
"It will give people more confidence," he said. "What we're dealing with here in Michigan is confidence. I've been through several cycles, and we always bounce back strong. We're seeing all this bad news on TV. It's not as bad as they are saying. It is challenging, but there still is a lot of activity."