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Casey Hall: GAMMA Event Highlights Wave of Business Transfers as Boomers Retire

John Romero and I attended the February 8th Greater Austin Mid-Market Alliance (GAMMA) event which Aventine Hill sponsors. John Dini was the speaker and the topic was "Beating the Boomer Bust". He presented demographic and economic data that showed how the baby boom generation drove and continues to drive economic trends as they age.

  • The number of new businesses started grew significantly as boomers entered their thirties, forties, and fifties, but eventually leveled off.
  • We are entering a phase where boomers who own businesses are ready to retire and will be seeking to exit.

The Problem for Business Owners

Because of declining birth rates after the Baby Boom, the number of potential buyers is materially less than the number of businesses to be put on the market. It will be classic economics 101 over-supply.

For owners who intend to sell their business (especially if the proceeds are core to their retirement plan), they will generally need to start taking actions years in advance of their planned exit to maximize value. Businesses need to be made as attractive as possible to buyers.

  • The traditional and obvious way to make a business more attractive is to optimize its profitability and cash flow.
  • John Dini highlighted an aspect that is less obvious: the day-to-day experience of being the owner can be made more attractive. If a potential individual buyer sees the current owner as working extreme hours with lots of stress, then they may not be willing to jump into those shoes. However, if a seller can show that they have implemented processes and a team of employees and service providers who efficiently support the owner in running the business, then a buyer may be more emotionally attracted to business.

The Buyers' Market

What was not included in the scope of this topic, but I think is related, is there is a huge opportunity for buyers here. If a buyer assumes that most sellers are not well-positioned to optimize their business, then there will be a glut of under-valued businesses.

  • For someone who knows how to quickly optimize a business, they can have a repeatable model for creating value by remediating businesses. Essentially, a "flip this house" strategy could be pursued.
  • On the other hand, in my own interactions with some private equity individuals, I am seeing more desire to buy smaller businesses and pursue a buy and hold strategy. This is still a small minority but where there is opportunity, someone will seek to fill the niche.

The Train Has Not Left the Station Yet

For business owners, you can easily get out front of this because the next phase has only just begun. Just like you compete by providing better products and services to your customers, you can view this as another form of business competition. Potential buyers will be your strategic customers and you will want to make your business more attractive to them than the alternatives.

For my colleagues and me at Aventine Hill, these will be exciting times. Whether a business is being prepared for sale or has just been acquired and needs to be remediated, we enjoy the process of making things better and helping others succeed. Our CFO Advisors can drive profitability and cash improvement; our CIO Advisors can drive process and technology improvement; and our consulting and executive search teams can deliver the right solutions and people. 

Posted by Casey Hall, CIO and Partner.
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