Striking a Match

Finding the right new owner to take over a business built over several decades is a daunting task, even more so in a tough economy. But when that business has involved five generations of the same family, it can seem almost impossible.

Such was the dilemma faced by Paul Castellano, proprietor of Castellano & Pizzo, a popular Italian gourmet market in south Tampa. Approaching 70 and after running the place for 33 years of its 118-year history, he wanted to turn it over to someone who could still keep it going, regardless of relations. His son, whose background is in electrical engineering, was no longer interested in taking over.

Rather than risk closing the place and disappointing countless food and wine customers generated over many years, Castellano turned to a business brokerage to find a suitable buyer.

At the same time, a couple from Pennsylvania sought an entrepreneurial opportunity to return to Tampa.

Such is the matchmaking power of companies like Sunbelt Business Brokers.

The intermediary firm with 300 franchise offices worldwide, including 15 in Florida and three on the Gulf Coast, seeks buyers and sellers of small to mid-size businesses with annual sales on either side of $1 million.

Lack of good businesses

With merger and acquisition activity expected to make a resurgence in 2011, and experts predicting deals totaling $3 trillion worldwide, business brokers can expect to be busy. But like any other sales profession, the problem is having enough quality product, and the recession cut deeply into that product.

“A lot of people want to sell their businesses. There just aren't a lot of good businesses to sell right now,” says Joe Varner, owner of Sunbelt's Tampa franchise, which covers Hillsborough, Sarasota, Manatee and Polk counties. (A separate franchise in Clearwater covers Pinellas County.)

Currently, Varner's office has seven agents and 65 listings, ranging from restaurants and hair salons to small gyms and auto repair shops. Roughly a third of those are expected to sell coming out of the recession, though there are exceptions such as Castellano & Pizzo.

“It's a good business with a solid reputation and a good business model,” he says. Robert and Mandy Pallone became the new owners last fall and have made no visible changes to its operations, maintaining contact with Castellano and his wife, Jackie.

The Pallones, who are originally from the Tampa Bay area, previously owned a beer distribution company in Butler, Pa., that they sold through Sunbelt. They wanted to reinvest in a local business, broker Bill Smalley introduced them to the Castellanos and the deal was done.

Castellano & Pizzo originated in 1892 in Ybor City, at the corner of Eighth Avenue and 18th Street. In 1981 it opened its current location at Henderson Boulevard and Lois Avenue in Tampa's Palma Ceia neighborhood, closing the original site a few years later.

As one of the city's oldest continuous businesses, it has long been a favorite place to pick up imported wine and pasta, fresh meat and produce, and take-out specialties. It still draws lunch crowds for its buffet and salad bar, called Cafe Mezzo Giorno, and its wine tastings are considered must-attend events.

“It's a beautiful business. Why change it?” Mandy Pallone says.

Pent-up demand

More such opportunities are expected to come along in the next few years as available capital seeks successful enterprises, according to Varner.

At the same time, baby boomers who launched successful shops and services over the years are getting ready to retire and want the best price possible, hoping they didn't miss out too much before the recession.

“We're getting to the point where there is going to be an intersection of the two, and we're at the beginning stages,” Varner says. “There's pent-up demand on both sides.”

However, prospective buyers will perform much more research and due diligence before committing, after watching their profit-and-loss statements get beat up in recent years.

“People's P&Ls have taken such a hit that their appetite for risk is just not as great anymore,” Varner says. “They aren't interested in buying the dream. They want to see the numbers.”

Varner has a good perspective on independent business, having worked for his family's John Deere tractor dealership in Ocala since 1995 after graduating from Florida State University. He worked his way up to vice president and COO as the business grew from two locations to nine throughout central Florida.

His experience with acquisitions of other dealerships drove his interest in Sunbelt and led him to buy the Tampa franchise last spring. He advises his agents to “look under rocks” for the best buy or sell opportunities and not become bogged down in the volume of listings.

While Sunbelt has a standing policy of brokering cash-only deals, Varner says a majority of business owners are willing to offer their own financing to potential buyers. That is quickly becoming the biggest influencer in whether deals get done, he says.

He adds that there is no bad time to take a business to market: “Good businesses will sell, especially now,” he says. “There's a lot of capital chasing too few quality deals.”

Besides connecting buyers and sellers, Varner says counseling is another important aspect of what business brokers do. That naturally entails confidentiality, he says, but more importantly it involves walking an owner through the entire process of turning the keys over to someone else.

“Small business owners are good at starting,” he points out. “Few of them have an exit strategy.”