Why 2011 might be the time to sell your service business
Aging oilfield service owners should find more eager buyers as economy improves
Source: FPinfomart.ca, Probity Capital Advisors
On January 1, 2011, Kathleen Casey-Kirschling turned 65. That name likely won’t be familiar to many in the oil industry, but it probably should be. You see, Casey-Kirschling is considered the very first baby boomer – the term used to describe the generation born in the middle part of the 20th century. It’s an influential demographic. It’s also a large one that includes nine million Canadians and almost 80 million Americans, most of whom will be retiring over the next two decades.
Baby boomers also happen to own a fair number of businesses in the oilfield services sector. And as these owners retire, they will be looking to sell their businesses and get the best price for them. Doing so will require careful planning. But according to Trevor Conway with Calgary-based investment bank Probity Capital Advisors Inc., that planning doesn’t always occur – to the detriment of the sellers. “Generally what happens is an owner decides to sell, takes the equipment to an auction and puts all the equipment up for sale,” Conway says. “That’s one way to do it, but it probably won’t get you the biggest return.”
Probity Capital focuses on mergers, acquisitions and divestitures of mid-market companies, including ones in the energy industry. Conway’s firm provides advice to clients about this market. Two factors weigh heavily in favor of getting the best price for your business, he says: receiving multiple offers and selling at the right time.
The past three years have not been the right time. Merger and acquisition activity dropped from over 70 announcements in 2006 to under 30 in 2010 as the credit crisis and recession ground the market to a halt.
However, Conway says as the economy improves there are large pools of capital across Canada looking for good mid-market companies in which to invest. Another important trend is that there are lots of large corporate buyers looking to enter a new market or grow through acquisitions. Meanwhile, Conway says a lot of owners looking to sell their companies are holding off until they see the economy has fully recovered, business is booming and they can – in theory – get the best price for their business.
But Conway advises owners of oilfield services companies not to hold off too long on their retirement plans. And he thinks 2011 is a good time to get serious about selling. There are enough eager buyers and not enough eager sellers right now. However, as more Kathleen Casey-Kirschlings turn 65, that is going to change.
“Buyers are getting increasingly anxious to get some acquisitions. The credit markets have come back and there is credit to do deals,” Conway says. “Competition is going to drive up the price of a business and the owner-operator might make an extra $2 or $3 million.”