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When Gennaro Mungaro put his North Lauderdale farmer's market up for sale, he figured selling would take six months.
It took a year.
A weak economy and credit crunch are making selling companies harder. Florida is on pace to experience a double-digit drop in business sales over last year, figures from Business Brokers of Florida show. The dollar volume of deals is on pace to be off by a third.
Fort Lauderdale's Transworld Business Brokers, one of the state's largest business brokers with 10 offices, says the number of deals it has brokered this year has held fairly steady compared with last year. But the dollar volume tumbled nearly 31 percent through the first eight months of the year.
A slumping economy means fewer healthy prospects. "A lot of the businesses that we're selling, we're selling at lower prices because they have marginal profits or they are distressed," says Transworld's chief executive Andrew Cagnetta. Examples include pizza parlors and hair salons that make $50,000 or less, he says.
Transworld's commission typically ranges from 2 percent to 12 percent, depending on the size of the deal, with a minimum $15,000. "We have collected a lot of minimum commissions these days, which means the businesses weren't worth more than $100,000," Cagnetta says.
John Preston, managing partner of Wellstone Group in Miami, says he routinely sees businesses with revenues that have dropped 30 percent to 60 percent because of the downturn. For instance, a furniture and decorations distributor's sales have fallen from $1.7 million to $800,000. A shoe importer's sales have been cut in half to $1.5 million.
Such drops mean sellers can't command as much for their businesses as they could a few years ago. South Florida firms sold for an average of 1.9 times their profit in the first eight months of the year, Business Brokers of Florida figures show.
"One of the things that has changed is that 2006 and 2007 numbers have very little to do with what a business is valued at today," Cagnetta says. "It used to be that people used a three-year average of income. That means nothing today. It's all about what they are doing in 2008 and what they are doing for the rest of 2008."
As a result of businesses' weaker performance, Preston says prospective buyers are being "super cautious."
"They don't want to overpay for a business," he says. "They want to offer as little as possible because they don't know if we have hit bottom."
It's not that buyers are hard to find. Often, interested buyers lost their jobs and want a career outside the corporate world, Preston says. Others simply want a career change.
One of those is Palmetto Bay's Gregg Fuerst, 48, who spent 20 years buying and remodeling houses for resale. With the housing market sliding, Fuerst wants something to replace his lost income. He's looking at a service business priced from $2.5 million to $5 million.
Fuerst already has visited a construction-supply company and a waste-management business, but neither appealed. He says the slow economy doesn't give him any pause about buying now.
"I think it's a good time to buy because people want to make changes," he says. "A lot of people are hitting retirement age and they want to sell."
Cristian Fernandez wasn't worried about the economy either when he and his wife Lucy decided to buy the Peter of London hair salons in Kendall and the Falls this year. The salons together employ 94 workers.
"The economy is bad, but Peter of London is an institution," Fernandez says. "We have a real loyal clientele." Business is only off 2 percent from last year, he adds. The salons were listed with Wellstone Group for a combined price of $1.7 million. Fernandez, who moved from New York where he operated a salon, didn't want to disclose what he paid.
Armando Romero made a career in commercial real estate, as a broker, mortgage broker and investor. But with no signs of recovery in the property market, Romero began looking for a business that wasn't as susceptible to market swings. "I cannot wait for the real-estate industry to come back," he says.
Over a year, Romero looked at 10 businesses -- including a fish distributorship.
"I walked in and walked out," Romero, 44, recalls. "I couldn't stand the smell."
Eventually, Romero walked into Gennaro's Farmer's Market and knew that was the business for him.
"People have to eat," he says, making the 65-employee Gennaro's more stable than a business with real estate's peaks and valleys. Plus, he likes that Gennaro's caters to both retail shoppers and the local restaurants it delivers produce to daily.
He wasn't deterred by Mungaro's 100-hour work weeks.
"I wanted something that I can build for years to come," Romero says. He plans to upgrade the store and add more specialty items.
Financing the deal wasn't easy. When real estate sizzled, Romero says, he could get a multimillion loan from a bank within a day. No more.
"I went to seven different banks" before one agreed to make a loan to buy Gennaro's, Romero says. Some banks wanted him to put down 40 percent to 50 percent of the $8.5 million purchase price, rather than 20 percent.
John N. Dunn Jr., the Small Business Administration's assistant district director for lender relations in Miami, said business-acquisition financing accounted for nearly a quarter of the larger SBA guaranteed loans prior to the "subprime meltdown."
Though Dunn doesn't have updated figures, he knows anecdotally that's down because lenders aren't making as many business-acquisition loans these days.
"Many of the banks are currently not profitable and that restricts their ability to expand their lending activity without borrowing money, and banks don't want to borrow money right now," Dunn says.
Still, he adds, "There's no credit crunch or lessened desire to make loans at the SBA." The SBA guarantees a portion of loans to buyers.
The SBA, though, this year began requiring lenders to obtain an independent business valuation for loans of more than $350,000.
Lenders, too, have become more stringent. Community Bank of Broward in Weston, for instance, now will only consider business-acquisition loans on companies that have been operating for at least five years. That's up from two years just a year ago, says Jay Jacob, a bank vice president.
"Lenders are taking a hard look at anything they put money out on," Jacob says. "Business-acquisition financing has always been a little more risky than real-estate financing or equipment financing." That's because a buyer may not have the skills as the owner who built up the business, he explains.
Another factor impacting sales: falling property values have made it harder for wannabe business owners to tap equity in their homes for a down payment on a purchase, Transworld's Cagnetta notes.
Tighter lending has business brokers paying more attention to the "good buyers," which used to be easier to find than sellers, he adds. "Once we found the good business for sale, we were pretty assured that we'd be able to find a buyer for it," Cagnetta says. "It's more even now."
Selling generally doesn't lead to a big windfall for an owner given the average price of less than two times earnings, Cagnetta says.
"We're not seeing a big rush to sell," says Ken Stebbins, who owns Stebbins Brokers in Deerfield Beach. "I think some [owners] are hanging on waiting for things to turn around before they sell."
Cagnetta says a couple of owners have approached him about wanting to sell now out of fear that the capital-gains tax rate will go up if Barack Obama is elected president.
More common, though, are owners who want to sell because of illness, retirement or relocation.
Jay Alvarez, 55, put The Vacuum Cleaner Mart in Fort Lauderdale up for sale in January. The store, which he has owned for 19 years, sells and services vacuums.
Alvarez wants to move to Georgia to be with his family. He will remain in South Florida for as long as it takes to sell the business, which has an asking price of $550,000.
"If it's a month from now or a year from now, I'm still going to be here," Alvarez says. "The business has been around too long to shut it down."
Copyright 2008 Miami Herald Media Company
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