The Silver Tsunami Doesn’t Guarantee a Buyer’s Market
Don’t build your acquisition search around someone else’s retirement.
You’ve heard the pitch: baby boomers are getting older, their businesses need new owners, and buyers are standing at the edge of a generational opportunity.
But a seller who is ready to leave may own a business that isn’t ready to lose them.
That distinction can change your price, your financing and whether you should pursue the deal at all.
Before spending weeks chasing an opportunity, answer three questions: What leaves with the owner? What will it cost to replace them? And can you finance the business that remains?
The demographic premise is real. By 2030, all baby boomers will be at least 65. But age does not tell you which businesses will come to market, what their owners will accept or whether the operation can support an acquisition loan. Census Bureau
The retirement wave is a reason to look. It is not a reason to skip the work.
First, find out what leaves with the seller
Imagine an industrial-services business with steady customers, equipment and an experienced crew. This is an illustration, not a client story.
The owner wants out. Yet the largest customers call the owner personally. Unusual quotes wait for their approval. When a job goes wrong, everyone asks them what to do.
You can buy the company. Have you bought an operation that can run without that person?
In your next seller conversation, ask them to walk through a typical working week. Not their title. Their actual work.
Who sells? Who schedules? Who approves prices? Who handles the customer that threatens to leave?
For each essential responsibility, identify who will perform it after closing: you, an existing employee, a new hire or the seller during a defined handover. An answer of “we’ll figure it out” is a gap in the acquisition plan.
Then examine what must transfer on paper. Have counsel review customer contracts, the lease and licensing arrangements for transaction-specific consent or continuity issues.
If the seller’s help is essential, negotiate what that help means: responsibilities, availability, duration and compensation. “Help with the transition” is not an operating plan.
The decision is practical. Can you absorb the work? Can you afford a replacement? Or does this business require a transition you cannot realistically execute?
Next, price the business you will actually operate
The seller’s earnings tell you how the business performed under the seller. You need to understand what remains under you.
Perhaps the owner does the work of both a salesperson and a general manager. Perhaps a trusted employee plans to leave with them. Perhaps equipment replacement has been postponed.
Those are not details to resolve after agreeing on price.
Ask your financial adviser to reconcile the claimed earnings with the operation you will inherit. Identify replacement compensation, recurring expenses and necessary investment. Separate documented savings from improvements you merely hope to make.
If you intend to do the seller’s work yourself, account for the income you need to live on. Your labor is not an unlimited free resource.
Then test whether the remaining cash flow can support debt payments and ongoing operations.
You may find a good business at the wrong price. You may find a workable price with the wrong assumptions. Either discovery should change your offer, your proposed terms or your decision to continue.
The seller’s retirement deadline does not make the numbers work.
Finally, test your ability to close
Before committing substantial diligence spend, give your acquisition lender a concise picture of the deal: available financials, the proposed price and structure, your relevant experience and how you plan to replace the seller.
Ask what remains unresolved. Which earnings adjustments need support? What contribution and cash reserves does the lender expect? What transaction terms need review?
An encouraging conversation is useful. It is not a guarantee of funding.
Also establish why you fit this particular business. Industry experience, an operating partner or a credible continuity plan may give the seller a reason to choose you. A retirement-wave headline will not.
Nor should you assume every attractive business faces a private-equity bidding war. Ask about the actual sale process and competing interest. Build your strategy around the deal in front of you, not an imagined crowd.
For your next seller call
Start with their working week.
Put a name beside each essential job that will need doing after closing. Put a realistic cost beside the work you cannot take on yourself. Have your financial adviser test the earnings that remain and your lender assess the proposed financing.
You may still find an excellent business. You may find one that needs a different price or a more deliberate handover. Or you may discover that the opportunity only works while the seller stays.
That is useful information before an LOI. It is expensive information after closing.
The Silver Tsunami can give you a reason to look.
It cannot give you a reason to buy.
Tolbert Legal advises business buyers on the legal decisions from LOI through closing. Discuss an acquisition.
Join me at SCORE on October 22
Buying a business? Join Langston Tolbert for SCORE’s free online webinar, Buying a Business: A Practical Legal Roadmap from LOI to Closing, on October 22 at noon Pacific. The one-hour session covers decisions from LOI through closing. Details and registration.
General information only. Not legal advice.
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