Pittsburgh Business Times - by Patty Tascarella
Sales of small Pittsburgh-area businesses during the first quarter of 2008 spiked dramatically compared with the same three months in 2007, as 15 transactions closed, almost quadrupling the four-deal volume of a year earlier.
In January, Julian Neiser quit law firm McGuireWoods LLP to buy Signs by Tomorrow, a Robinson Township-based firm that designs, manufactures and installs signs.
BizBuySell.com, which chiefly handles very small business transactions, based its data on the 124 Pittsburgh-area companies listed for sale on its Web site.
The companies that were on the block in early 2008 were larger than a year ago with median revenue of $468,766, compared with $331,500 during the first quarter of 2007.
But while the median asking price has soared from $175,000 to $283,034, buyers didn't necessarily rise to the occasion.
Businesses sold for a median sales price of $160,000, compared with $158,875 in the first quarter of 2007.
The local first quarter asking price was above the national median of $250,000, BizBuySell said. Some 1,796 BizBuySell-listed transactions across the United States were completed in the three-month period ended March 31.
BizBuySell General Manager Mike Handelsman said the bulk of the Pittsburgh deals were in the retail and service sectors. Among the active listings, there are 53 retail listings, including restaurants, and 47 service businesses.
"The biggest thing I noted with the Pittsburgh data is there was a larger set of larger deals," Handelsman said. "There were five times as many listings over $1 million as a year ago, and asking prices have gone up dramatically. Sellers, at least in the first quarter, seem to have more confidence in the strength of their businesses; I'm interested in seeing if that continues."
The troubled economy may play a role.
"One theory could be that as the economy softens, people with bigger businesses may be trying to get out quickly and make their exit," Handelsman said. "They may be rushing their businesses to market."
Though it did not hurt first quarter activity, Handelsman said buyers and sellers across the country are telling him that access to credit markets is becoming more of a challenge.
"That's something we're watching closely," Handelsman said.
Kathy Hanula, president of Downtown business brokerage Grant Street Business Advisors, said money's tighter, but deals are still getting done.
Scott Mashuda, managing director of business broker River's Edge Alliance Group LLC, said the Pittsburgh region doesn't lack for buyers.
"Activity is very strong," Mashuda said. "Buyers are mostly looking for manufacturing and distribution companies."
Hanula said she's seeing more people leave the corporate sector to turn entrepreneur. But instead of building a company from scratch, they're buying businesses.
"I've seen that pick up quite a bit," Hanula said. "It's a matter of people looking for a lifestyle change, wanting to do something different. It's not necessarily to strike it rich but to be their own boss and take on a challenge."
Lawyer Julian Neiser quit large firm McGuireWoods LLP to buy Signs by Tomorrow, a Robinson Township business that designs, manufactures and installs signs, in January 2008. Neiser said his legal career was part of a long-term strategy to build his skills and apply them to his own company.
The type of industry was "insignificant," he said.
"I was looking for a business that could run itself, required minimal investment and that I wouldn't actually have to operate," said Neiser, who worked with a broker but did not shop for companies online.
He also looked at laundromats and tanning salons in his up to $250,000 price range before settling on the sign company that's sort of a retail/service/manufacturing hybrid. It employs two, and Neiser expects to double that by mid-year.
He also plans to buy at least two more unrelated small companies over the next five years "just to diversify" while using the same criteria.
Neiser didn't divulge the sales price but said it was six figures.
"The business models used for valuing larger companies don't translate to small businesses," he said. "Weighted average cost of capital or six times cash flow don't consider repeat business or customer loyalty."
John O'Connor, owner of The O'Connor Group, a Gibsonia-based business broker that handles sales up to $100 million, believes more small local companies may find would-be buyers among recent college graduates.
"I'm seeing some younger groups at Carnegie Mellon University banning together, two or three people, trying to buy companies," said O'Connor, who teaches through CMU's Donald H. Jones Center for Entrepreneurship.
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