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Business broker market heats up with higher priced deals

Companies such as Sunbelt Business Advisors help match buyers and sellers through offices in Bethesda, Baltimore

Wednesday, Sept. 13, 2006

Click here to enlarge this photo Brian Lewis⁄The Gazette Jerry Stepanik and his wife, Diana, bought Alpenglow Art in Frederick last year, through a deal brokered by Sunbelt Business Advisors LLC of Ohio, which has offices in Bethesda and Baltimore.

Always thought Laundromats would boom?

Ready to take advantage of the surge in demand for translation services?

If so, business brokers want to talk to you.

Buying and selling businesses — always a ‘‘sexy” industry to some — has been very hot lately, with brokers linking up more buyers and sellers in higher-priced deals these days, experts say.

While the industry has remained at roughly the same number of brokers in the past two decades with some 3,400 brokers nationwide this year, acquisitions have multiplied in number and grown in size. From 2002 to 2005, the value of acquisitions and mergers involving companies headquartered in Maryland tripled to $26.8 billion, according to FactSet Mergerstat LLC, a merger data company in Santa Monica, Calif.

A large percentage of the acquisitions — more than 50 percent in major urban areas — involve brokers, said Thomas West, founder of Business Brokerage Press, a Westford, Mass., publishing company that tracks the industry.

‘‘It’s always been a sexy business that has attracted its share of players,” said West, a founder and former president of the International Business Brokers Association, a Chicago trade organization.

Found in translation:A big profit

After building their home-based translation business into a 40-employee company over almost three decades, Michael and Mercedes Pellet were ready to retire.

They had some inquiries in previous years for M2 Enterprises, a multimedia and publishing translation services business in Montgomery Village, when they weren’t prepared to sell. But now they were, and they wanted to do it in a way in which they would get a good price without dealing with too many headaches.

A friend who sold a translation business told the Pellets about a company out of Reston, Va., The CO Group, a brokerage firm that coordinated the buying and selling of companies like theirs. They signed up and in June — about a year later — sold their family business to Welocalize, a Frederick company that translates software and Internet sites into other languages for clients, for about 25 percent more than their minimum. The combined company had revenues of more than $25 million at the time.

‘‘I don’t think we could have gotten the kind of deal we did without a broker,” Michael Pellet said. ‘‘They had the contacts, the network, and could get us prospective buyers quickly. They were able to objectively tell us what our business was worth, and then they were able to work with both parties to negotiate the deal.”

With $200,000, ready to go

Most of the companies bought and sold through brokers are small, with revenues under $1 million.

Beltway Business Brokerage of Beltsville has a few businesses listed on its main Internet site with asking prices of $10 million or more, including two Maryland construction companies. But the average Beltway-brokered business, which sells in four months, fetches $200,000, said Dennis Riley, founder and president of Beltway.

While most brokers primarily represent the seller, it’s important to give attention to buyers, Riley said. Beltway, which has some 140 brokers in 10 offices, grossed $3.5 million in sales commissions and other revenue in 2005, about the same as in 2004.

Many buyers have never owned a business and need a confidence boost to invest their savings in a company, Riley said.

‘‘A lot of people have the money. They just don’t want to take the risk,” Riley said. ‘‘A business broker will usually show that buyer the value of these businesses so they know they’re getting good value from their broker.”

Sunbelt Business Advisors LLC, an Ohio business brokerage that has offices in Bethesda and Baltimore, did a good job helping both the seller and buyer in a deal involving Jerry Stepanik, he said.

Last year, Stepanik and his wife, Diana, bought Alpenglow Art, a 10-employee wholesale framing art shop in Frederick started by Fred and Madeline Shapiro in 1989. After retiring as Army officers, the Stepaniks were looking for a new career in the form of a business they could operate themselves.

‘‘I wanted to stay out of trouble,” Stepanik joked.

While searching on the Internet, he came upon a Web site operated by Sunbelt, where he saw the framing business for sale. In March 2005, the Stepaniks bought Alpenglow and today are glad they did.

‘‘We’ve added a few services to the business,” Stepanik said. With rising utility and gas prices and other pressures causing customers to cut back on buying art, it’s a challenging business, he said. ‘‘But we’re holding our own.”

Finding buyers for more specialized businesses such as Alpenglow is tougher than for restaurants and self-service laundries, said Majid ‘‘Mike” Zarinbaksh, president of Sunbelt’s region in Montgomery and Frederick counties. The company has more than 300 offices, including in other nations, and has seen the local operation grow to 11 brokers. He works out of the Bethesda office.

‘‘The general businesses, the Laudromats and restaurants tend to get more inquiries,” Zarinbaksh said. ‘‘The unique ones can take more time because there aren’t as many people interested in buying those types of businesses.”

General companies can be advertised on most Internet sites. For many medical practices, Zarinbaksh buys ads in medical association newsletters to reach a more targeted audience.

While he has sold a business in as little as two months, the Alpenglow deal took about seven months, Zarinbaksh said. Most businesses taken three months to a year to sell, he said.

Appraising a business

Getting an accurate appraisal of what a business is worth is a key part of what brokers do — and the appraisal can mean the difference between a company sitting on the market for two months and two years, Zarinbaksh said.

‘‘We get a third-party appraiser who looks at everything, including supporting documents such as tax returns,” he said.

Often, business owners themselves overvalue or undervalue their companies, Pellet said.

‘‘You’re so wrapped up in your business, you can think it is worth a lot more than it is,” he said. ‘‘You need an objective party to come in and make an accurate appraisal of what it will sell for.”

Some compare business brokers to Realtors who broker individual homes. But Zarinbaksh said the business brokerage industry is tougher due to several factors, including that many sellers want brokers to sell their companies in secret.

‘‘A Realtor can put a sign up in front of a house, and everyone knows it’s for sale,” Zarinbaksh said. ‘‘We have confidentiality agreements. We have to use our networks to find buyers and advertise on Internet sites without using the names.”

In the mid-Atlantic region, business brokers don’t need a specific license, said Jerry Cohen, president of the Mid-Atlantic Business Brokers Association and principal broker with Capital Business Brokerage of Rockville. Some, such as Cohen, are certified with industry groups and hold real estate licenses.

‘‘This makes the profession of business brokerage locally a relatively fragmented industry as anyone can declare himself or herself a business broker,” Cohen said. ‘‘Most fail in short order and rarely realize there is a learned skill set required to be successful.”

About 20 states require business brokers to hold real estate licenses. ‘‘This is a better way in my opinion of assuring greater professionalism within the industry,” Cohen said.

Some Realtors, in turn, sell businesses as part of the property sale, said Maurice Desmarais, president of the International Business Brokers Association, which formed in 1983 and has added about 200 members in the past two years.

‘‘The industry is growing,” Desmarais said. ‘‘We have launched a major marketing initiative to make business owners aware of the expertise and value of using an intermediary.”

A ‘multitude’ of issues

Brokers pre-screen prospective buyers to make sure they are serious.

‘‘We spend at least an hour with a prospective buyer to learn about his or her background, finances and other things,” Zarinbaksh said.

There can be a multitude of issues to deal with, including taxes, legal cases and whether a business is a franchise.

Most brokers operate on a 10 percent commission. That prompts some buyers to test the market and see if they can avoid paying a commission by posting on Internet sites such as BizBuySell.com, a site operated by LoopNet of San Francisco that lists more than 40,000 companies for sale. The ad costs $55 a month, and the site gets more than 20,000 hits a day, according to information on the site.

Welocalize has gone both with and without brokers in its acquisitions this year. The company was linked to M2 through the Reston broker, while it used international law firms for deals involving businesses in Ireland and China. ‘‘A broker can provide deals to look at that may not be on a company’s radar,” said E. Smith Yewell, president and CEO of Welocalize.

Most buyers still need a lawyer to prepare the contracts, especially in the eastern United States, West said. ‘‘On the West Coast, escrow companies can do the legal work.”

Intern Dan Oshinsky contributed to this report.