Finding Gold in Dirt

Finding Gold in Dirt

companies by Janet Leiser | Senior Editor

By providing commercial real estate services, Murphy Business & Financial Services

fills a niche and grows its own business.

Sometimes the dirt and rock under a business is worth far more than the company, especially on Florida's Gulf Coast, where property values increased dramatically over the past several years.

That's one of the reasons why business brokerage Murphy Business & Financial Services is bolstering its in-house commercial real estate division. Founder Roger Murphy, 54, recently brought on a new partner, Tampa Bay commercial real estate veteran Cary McCord, to expand Murphy Commercial Real Estate.

"Most firms can't offer both services," Murphy says. "They do one or the other."

While Murphy's firm isn't the first to add commercial real estate, the move was made in part, he says, because of requests from customers, who'd rather deal with one company, not two, when they're selling.

McCord, 64, former president of the Building Owners and Managers Association of Florida, as well as the group's Tampa Chapter, will ensure commercial real estate services are part of new Murphy franchises as they open. He has sold and leased as much as $6 million annually. In addition, he also plans to add a few more commercial real estate brokers at the Clearwater-based company.

Last year, Murphy Business & Financial Services had revenue of $10 million on about 300 company sales, mostly in Florida, Murphy says. With a total of 42 locations, the firm opened franchises in San Diego and Puerto Rico near year's end.

The firm, founded about 14 years ago in Murphy's Palm Harbor home, has about 90 professionals associated with it. Murphy claims it's the largest brokerage as far as number of offices, deals and locations in the nation.

Murphy clients also need help with commercial real estate services when they buy a new franchise, Murphy says. The firm sells everything from dry cleaning firms to transmission repair franchises and restaurants.

Statistics show that one in every five small businesses are for sale, but only about 18% of those are ever sold, Murphy says, adding: "There's a lot of not so good ones, and there's a lot that don't have good records or the ability to be financed."

Those packaged properly and priced right do sell, he says. It's difficult, if not impossible, to sell firms that don't properly document or report income.

He also recommends any owner planning to sell to seek professional advice a couple years beforehand.

Business at brokerage firms is picking up as more Baby Boomers hit retirement age and leave corporate America, many choosing to become an entrepreneur, Murphy says, adding, "That's the American Dream, to own your own business and be your own boss."

"The industry and the market have gotten more sophisticated, the transactions have gotten larger, the buyers have gotten much more sophisticated and educated," Murphy says. "I think the Internet has something to do with that. Buyers know what's on the market and what things are worth."

When Murphy started out, he'd place an ad in the newspaper classifieds on Sunday and wait for the telephone to ring, he says. These days, he places ads only to pacify sellers or to drive traffic to the company's Web site.

He's a member of Business Brokers of Florida, a service that lists about 4,000 companies for sale in Florida. About 1,200 brokers belong to the group.

The identities and addresses of companies for sale aren't divulged until after a would-be buyer has been qualified, he says. Most business owners don't want the public to know their business is for sale.

'Bursting Point'

When it comes to commercial real estate, McCord says Tampa Bay landlords have enjoyed the profit-taking mode for three to four years. But he expects that to change as more owners are squeezed by rising property insurance rates.

As rates go up and commercial properties are sold, landlords will continue to pass on most of the costs to tenants, McCord says, adding, "It's eventually going to run the cost of gross rent to commercial tenants close to the bursting point of what the market can handle."

In turn, vacancy rates will rise and more business people will try to sublease office space over the next 24 to 36 months, he says.

Triple-net commercial leases, where the cost of insurance, taxes, the operating costs of property and external maintenance are passed through to tenants, used to have a base rate of $4 to $5 per square foot, McCord says. That rate is now about $8.

"The long-term forecast in my mind, the commercial market is going to taper off or see a slight downturn," he says. "Profit taking is going to start slowing down."

Review summary

Company: Murphy Commercial Real Estate, a division of Murphy Business & Financial Services, Clearwater.

Industries: Commercial real estate/business services

Key: Company founder Roger Murphy expects Cary McCord, a new partner, to grow the commercial real estate division.

Value of a company

Stephen Goldberg, of New Jersey's Sun Mergers & Acquisitions, lists seven factors that influence the value of a company being sold, according to the International Business Brokers Association.

Recast Earnings: No surprise here. It's one of the most important factors in a company's valuation. Buyers want a stream of income to justify the purchase price.

Hard Assets: Tangible assets influence value. Generally, the greater the asset value, the greater the overall company value. But Goldberg writes that earnings usually have a greater impact on valuation than assets. And a large amount of capital assets can also be viewed as a liability to buyers who expect to make investments to replace or maintain those assets, affecting future cash flow.

Risk Factors: "The better a business can control, offset or present potential risks, the more positive the impact on valuation," Goldberg writes. Risk factors include industry life cycle, industry stability, customer base concentrations, supplier dependencies, product or service differentiation, strength and size of market, management quality and depth, impending regulation and new technology.

Acquirer Identity: A company can be of more value if it's part of a strategic acquisition. Strategic value can be achieved through cost synergies, such as the elimination of duplicate expenses. Identify potential acquirers that have the most to gain from a business combination.

Terms: An all-cash transaction generally yields a lower price when compared to an owner-financing sale. The better the terms offered a buyer, the higher the price paid to the seller. "This primarily relates to cash flow, the cost and availability of outside debt capital and the risk associated with completely 'cashing out' the business owner at closing."

Transaction Structure: The type of transaction and structure impact tax implications and total yield to seller. For instance, will it be an asset sale or a stock sale? Will the seller retain assets such as receivables, cash, deposits, rather than include them as part of the transaction?

Presentation: A professionally packaged business increases a buyer's confidence. Most buyers enlist their CPA, lawyer or business partners to provide feedback.

Source: International Business Brokers Association Inc.