Sell, Close, Merge: Colorado Springs businesses look for a way out in tough times | Subscriber Content

Kenny Skinner worked overtime at the crane business he shared with his brother Mike because they couldn’t find workers, prompting Skinner to sell the business and a concrete pump company he owned.

“I was old and couldn’t find help. Nobody wants to work. The new owner has the same problems,” Skinner said. “When we sold in May, we only had ourselves and two other employees. I’ve worked double duty for the past three months. We would have liked to hire one or two more people.”

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Skinner is among a growing number of Colorado Springs business owners who have closed, sold or merged their businesses since the pandemic hit in early 2020, according to figures from a database of local businesses maintained by the Better Business Bureau of Southern Colorado becomes. The number of companies closing, selling or merging in 2020 has more than tripled to 556 from 146 in 2019; it climbed to 571 last year and 290 this year through September.

The final number for this year is likely to be around 400, still well above pre-pandemic levels, the bureau’s CEO Jonathan Liebert said.

“This year we are seeing more people selling or merging their business with another (company). They have a good deal, but they’re done after two tough years. They either join forces with a stronger competitor or take the opportunity to sell the business when sales are good and they’re still making a profit.”

Many baby boomer owners are retiring or selling their businesses to their children or a longtime employee, especially given the threat of a recession fueled by aggressive interest rate hikes to curb rising inflation, Liebert said.

“Labour issues are a major concern along with inflation, recession and the ongoing threat of COVID. They have all of this at once to meet their company, so they will either decide to do something else, sell, or merge. You can’t do this alone anymore,” Liebert said.

While most of the companies that have been closed, sold or merged are small, Liebert noted that several large local companies have been acquired over the past year as owners received extremely attractive offers.

Information technology provider Navakai, for example, was sold last year to a Virginia-based competitor that could provide resources for the company to expand. Berwick Electric merged last year with a larger St. Louis-based competitor, allowing Berwick to operate under its current name with the same management and employees. Boecore, a defense information technology contractor, was acquired by a Washington, DC-based investment firm.

Liebert doesn’t expect the rate of closures, sales, and mergers to slow anytime soon. He believes that since the pandemic began 2½ years ago, small business owners have held on in hopes of a big recovery, but have instead found that sales have not rebounded as much as they had hoped. He said business owners are now “laying down” as they prepare for the possibility of a recession in the next six months or so.

“You see, people don’t have that kind of money to spend,” Liebert said. “There’s still money to help small businesses, but not as much as there was in 2020 and 2021. Now they’re worried aid is running out and a recession is coming.”

Rob Amerine, president and managing broker of FBB Group, which helps buyers and sellers sell privately held small and mid-sized front-range businesses, said he’s noting a growing number of businesses aren’t for sale, especially those that are focus on consumers.

Buyers aren’t interested in these companies, he said, because sales are falling or the company isn’t profitable, or both, leaving the only options to close or sell the company’s assets.

“We had a hot tub business that was generating $1 million a year in cash flow in the market place, but buyers weren’t interested because they saw hot tubs as a luxury item, so we had to take it off the market,” Amerine said.

“We’ve seen transactions pick up over the past two years, but that has slowed in the second half of the year as both inflation and interest rates (interest rates) have risen. We had at least a dozen buyers who backed out when prices started to rise.”

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Amerine said retailers are most vulnerable to sales declines when interest rates rise, particularly items like hot tubs, furniture and other homebuilding-related purchases where financing plays a key role in the transaction.

Manufacturers, sign companies and other companies in the business-to-business market are thriving and still selling when they enter the market, and FBB continues to win new customers in those markets, he said.

Larry Blevins, owner of American Business Brokers, which handles sales of small businesses in the Colorado Springs area, including Skinner’s businesses, said the number of businesses he has for sale has doubled to 18 in recent months.

He attributes the rise to baby boomers who have decided to sell their businesses, particularly in the restaurant industry, as they see the country’s economy slowing and the window for an attractive sale is starting to close.

“[Owners of]mom and pop businesses that were struggling before the pandemic are now looking to back out. A little bit of that (the sales motivation) is the difficulty of hiring people,” Blevins said. “Restaurants are hard to sell right now, but those that have been around a long time or that are unique can still be sold.”

Data from the Colorado State Department shows that the number of corporate exits rose 27% year over year in the second quarter. However, the number of new companies registering with the Office is still growing (albeit by less than 1%) and the number of companies renewing their corporate status has increased by 11% compared to last year.

Tony Gagliardi, Colorado state director of the National Federation of Independent Business, said the increase in company exits and start-ups may be partly due to entrepreneurs closing businesses that aren’t thriving and starting a new firm to replace them.

The outlook for small business owners is not rosy — the federation reported on Tuesday that its index of small business optimism fell to 91.3 in October, the 10th straight month the indicator has fallen below its 49-year average of 98.

The nonprofit’s survey found that most small business owners expect sales and profits to fall over the next three months, and nearly half say they are still struggling to fill jobs.

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