The case for staying put
Two years into the Great Recession, companies looking to acquire financially distressed outfits at a bargain price may be disappointed.
“Are they selling for less? Yes, but most of the businesses that we see are not going to sell at a deep, deep discount,” said Mark Fagan, a partner at White Plains-based accounting firm Citrin Cooperman. “Unless a company is in dire, dire straights and can”™t make their rent payments, sellers can”™t afford to sell for that low unless they are in a situation where they”™re on the verge of bankruptcy.”
Fagan said that while most of his clients”™ business is down anywhere from 10 percent to 20 percent, many businesses have made adjustments to survive until the economy improves, including layoffs and operating at a lower gross margin.
In addition, business owners may be wary of giving up a steady stream of income for a one-time payout.
“Most of our businesses are privately held family businesses,” Fagan said. “The business is the goose, and the goose lays the golden eggs, so if you sell that business at a discount the goose is gone. Oftentimes, a private business is going to have multiple families in the ownership of it that take the profits out, so if the business is sold, it”™s got to be a high enough price for all the owners to live off the proceeds for the rest of their lives. Owners realize that a business is more valuable than just selling it and taking the proceeds.”
Howard Klein, a managing partner at EZKR, an accounting and consulting firm in White Plains, agreed with Fagan.
“Making a short-sighted decision is generally not the best decision,” Klein said. “In this type of economy, companies merge to consolidate operations and save costs. In some cases it works and in many cases it doesn”™t, and you don”™t want to be on the wrong side of that decision.”
In addition, “it”™s hard to merge small businesses because the owners are used to making their own decisions.”
“They”™re going to continue,” Klein said of privately owned family businesses, “and should continue to make those prudent business decisions that facilitate the long-term health of the company.”