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<b>First Posted:</b> 7/4/2010<br><br>CAROL LAWRENCE The Record


The best strategy for selling a small business appears to be not planning to sell it.
Especially in today&amp;rsquo;s market, as lower cash-flow levels, tougher access to credit and stagnant sales are tempting many small-company owners to sell, creating a buyer&amp;rsquo;s market.
&amp;ldquo;My personal philosophy is, you can&amp;rsquo;t build a company properly if you&amp;rsquo;re planning to sell it in three to five years,&amp;rdquo; said Frank Newman, chairman and chief executive officer of Medical Nutrition USA Inc. in Englewood, N.J. The maker of nutrition medicines for the elderly recently agreed to sell to Danone North America Inc. for $62.3 million at a time when Medical Nutrition was looking to buy a business, not sell to one.
Instead of focusing on selling, said Newman, entrepreneurs should create value in their company by building it up, forming a long-term strategy that will increase revenue and profits, and hiring the right people. Then, he says, &amp;ldquo;good things will happen.&amp;rdquo;
But Newman acknowledged those goals are difficult to achieve for small companies in this economy, as banks continue tightening both the access to credit that owners need to buy inventory and the criteria potential buyers require to finance acquisitions.
As a result, more small entrepreneurs are looking to sell as a way to get out of a business that seems to have stagnated.
&amp;ldquo;I get more calls for companies that are struggling than I do for those that are not struggling,&amp;rdquo; said Howard Greenberg, owner of the business brokerage AJR Business Advisors in Rochelle Park, N.J., which negotiates deals between buyers and sellers. &amp;ldquo;And it&amp;rsquo;s very difficult to sell businesses that are struggling, in as far as small businesses go.&amp;rdquo;
A recent survey by Roseland, N.J.-based accounting firm Rothstein Kass of 382 leaders of family businesses across the country planning to sell in the next two years found 69 percent said lack of credit was a concern.
&amp;ldquo;We were seeing a lot of clients having financial difficulty with the economy and looking to sell,&amp;rdquo; said Thomas Angell, a certified public accountant and principal with the firm, which has a large family-run business group.
The survey, Angell said, paints a picture of how business owners were feeling in early 2010.
&amp;ldquo;What people were looking at in that period of time, was that they don&amp;rsquo;t see in the foreseeable future that continued growth,&amp;rdquo; said Angell. &amp;ldquo;Instead of floundering around, (they say) maybe it&amp;rsquo;s a good time to sell now.&amp;rdquo;
Declining sales prices for businesses show that it continues to be a buyer&amp;rsquo;s market, reported BizBuySell.com, a website for those wishing to buy or sell small businesses and which tracks closed deals in its 2010 first-quarter report.
Closed transactions fell to $150,000 from $165,500 a year ago, the report said, although closed deals rose 0.3 percent in the quarter.
However, the good news is that interest has risen sharply in small businesses among private-equity investors, Greenberg said. Businesses unable to attract private equity firms previously because of their lower revenue are now on their radar, he said. Financing is slowly loosening and shareholders are pressuring them to invest, he said.
Greenberg said a client looking to sell a flexible-packaging company in Bergen County, N.J., for $12 million has had 60 companies over two months express interest enough to seek the financial documents on the business, a number which is &amp;ldquo;very unusual,&amp;rdquo; he said, and shows resurgent interest among buyers.
Angell predicted the same situation and wrote in the Rothstein Kass survey report that &amp;ldquo;family businesses will more frequently become the acquisition targets of private equity firms,&amp;rdquo; due to the restrictions to capital.
Newman&amp;rsquo;s long-term plan for Medical Nutrition enabled the company to sell to a complementary business.
Newman took over the public company in 2002 when revenue was $1 million and it had lost money for 10 years after going public. He initiated a reverse stock split that raised enough capital to rebuild the business.
Rather than planning to sell, Newman said he was looking to buy a business. Meanwhile, Danone, the French makers of Dannon yogurt and Evian water, had asked Medical Nutrition to sell their pediatric nutrition medicine products to break into the American market. In exchange, Danone would sell Medical Nutrition products abroad, he said.
&amp;ldquo;As we went through those discussions, Danone realized the best way to realize those complementary strengths was to acquire Medical Nutrition,&amp;rdquo; Newman said.
The $62.3 million deal is expected to close this summer, he said.
Mark Jordan, who ran the $11 million Butler, N.J.-based bus company Jordan Transportation Inc. before selling it in September 2009 to Student Transportation of America of Wall, N.J., said you can&amp;rsquo;t build and then sell a company if you&amp;rsquo;re planning to sell it all along.
That mindset was crucial for Jordan, he said, during the yearlong negotiations to sell the business. Because he was going to continue running the company after it was sold, he had to make sure the sale didn&amp;rsquo;t change his outlook.
&amp;ldquo;You can&amp;rsquo;t get involved in the emotion of possibly selling it,&amp;rdquo; he said.
&amp;ldquo;For family operations it&amp;rsquo;s more than just the bottom line, it&amp;rsquo;s your heart and soul.&amp;rdquo;

Keeping small business key to selling it