Business values find firm footing

Revenue for Fort Collins-based Citadel Advisory Group, a consultant for buyers and sellers of existing companies, tripled in 2003. Based on deals in the works, Citadel Advisory expects its sales to increase sevenfold this year.
Citadel?s growth reflects more than good luck. The company is reaping the fruits of increasing activity in the mergers-and-acquisitions marketplace for small- and mid-sized businesses.
And for a variety of reasons, the M&A market could be even stronger in Colorado in the near future than for the rest of the country.
A recent slump for business buying and selling dates back to the dot-com bust of 1999 and 2000. The technology downturn, followed by the post-9/11 recession, sent revenues and profits spiraling downward.
In turn, values for businesses were depressed. When would-be sellers realized they could not set the asking price at levels they believed their companies to be worth, they stayed off the market.
New evidence shows that values of existing firms are picking up across the country. As a result, some business owners who were reticent to sell during the past four years are deciding to put their companies in play.
?Now we?re seeing revenues come back and profits come back,? said John Smith, co-owner of Citadel Advisory.
One sign of strength is found in new figures released last month by the International Network of Merger & Acquisition Partners, a trade association of brokerage consultants,
In 2003, IMAP reported that sellers of mid-sized manufacturing companies in the United States were able to charge an average of six times earnings ? before interest and taxes ? at the closing table. That compared with an average selling multiple of 4.9 in 2002 for similar companies.
In other words, sellers in 2003 ? all clients of IMAP?s member firms ? received 22 percent more for their companies than sellers in 2002.
Increased business at firms such as Citadel Advisory also provides anecdotal evidence of the M&A revival.
Likewise, Ned Minor, a Denver attorney considered one of the deans of M&A deal making in Colorado, declares that the market is back.
?I can tell you my day-to-day activity is up,? Minor said. ?We?re meeting with buyers and sellers on a daily basis.?
Further signs of the upturn include:
? The investment banking firm Green Manning & Bunch reported mergers and acquisitions in February totaling $143.3 billion nationwide, seven times more than February 2003.
? In Colorado, reported M&A deals in the first quarter totaled 75, according to the Denver Business Journal, up 8.7 percent over last year. Average dollar amounts were up 17.7 percent.
? In a recent industry survey quoted by Minor, 62 percent of business owners polled said they expect their firms to be sold or merged within three years.
Minor agrees that business values are a key factor in the upturn. Underlying the value proposition is a demographic phenomenon that?s about to manifest itself on the supply side of the market nationwide.
Out of 9.6 million established middle-market companies in the United States, nearly half have at least one owner 50 years old or older, Minor said. As owners near retirement age, or the wish to try a second career, they?ll seize upon increasing values as a reason to sell.
Colorado?s record as an entrepreneurial nest could also come to bear. Minor noted that 97 percent of businesses in the Denver area are privately owned and have fewer than 100 employees ? both characteristics of businesses that could be targets for acquisitions.
On the demand side of the equation, there?s ample money to spend.
Private equity groups have been amassing ?billions of dollars? since the late 1990s with the goal of investing in established businesses, said Bill Eastwood, president of Greeley-based Doering and Eastwood Ltd., an M&A consulting firm and a member of IMAP.
Without willing sellers, however, investment money has remained on the sidelines. If more business owners do take the step to sell, it could unleash a pent-up demand for investment, Eastwood said.
Another factor that could push the M&A trend in Colorado is the state?s reputation for quality-of-life amenities. Out-of-state investors are ready to move to Colorado if they can buy a business.
According to Citadel?s Smith, 60 percent of inquiries on his firm?s Web site are from out-of-state residents.
Said Eastwood, ?I would say (Colorado) has a very attractive appeal and perceived business environment ? as opposed to buying a business in Detroit.?

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