Buyout pros pride themselves on their ability not only to do deals and build companies but also to exit their investments in an efficient, profitable manner. Jerry L. Mills suggests they might find it beneficial to offer some of that expertise to small businesses that could become deals for them in years to come.
Mills, the founder of B2B CFO, the nation’s largest CFO services firm, argues that the baby-boom generation will create a tidal wave of company sales over the next 15 years or so, as members of the post World War II generation enter retirement. Mills describes this phenomenon as “the boomer tsunami” in a new book, his third, entitled “The Exit Strategy Handbook.”
“It’s going to turn into a buyer’s market because of the volume of businesses that baby boomers are going to put on the market,” Mills said.
The United States is home to 78 million baby boomers, and Mills estimates that 43 percent of the nation’s 28 million small businesses are in boomer hands. Mills projects 378,000 boomer-owned businesses will hit the market annually through 2029. These companies, he argues, are not going to go to the entrepreneurs’ children, and thus will swamp the market for private transactions.
“The process of selling a business is something of an undocumented process,” Mills said, and it is the kind of experience that these boomer entrepreneurs are ill-prepared to undertake. Because they are focused on the day-to-day details of operating their companies, they often become sidetracked by the very different needs of preparing the businesses for sale, he said. “The seller gets distracted. There are about 200 things that have to be done.”
Those distractions can cost business owners money, Mills said. “Sales and EBITDA are going to be lower when they get to the end of the process than when they started.” As a result, their sales price, and consequently their retirement outlook, may be lower than it otherwise would be and should be.
In that context, Mills proposes that buyout professionals themselves could help prospective targets to prepare to sell their companies. “If you want to bring in a PE group, you’ve got to get your house in order. Otherwise, they’re not going to come through the door.”
The payoff would come in the form of a healthier business for the dealmaker to acquire, and potentially a workforce that could be invigorated by new ownership following a successful process, rather than being discouraged by falling sales and profits, he argued. “It could be a $20 million business. It could be a $250 million business. The process is the same.”