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Bankers step in to assist small businesses mulling sale

Rochester Business Journal
March 8, 2013

As baby boomers who own businesses near retirement, they face the question of succession. Many are turning to their financial institutions for help.
"I could never give up my baby, but sooner or later I would die there opening up my mail," says Joseph Lobozzo, founder and former president of JML Optical Industries LLC. "When it came down to how to sell, we turned to M&T and their investment group. The help with the buyer's due diligence they gave us was incredible."
Lobozzo is like many small-business owners in that he found the process of selling his longtime business too difficult to navigate on his own.
"I talked to competitors in the industry, but no one was interested. I knew I would be looking at an outside private equity firm," Lobozzo says. "I know how to make lenses, how to travel to Asia to make deals to buy and sell them, but not how to sell a business, so I turned to M&T for help."
Daniel Burns, regional president of M&T Bank Corp. in Rochester, says Lobozzo is like many other business owners.
"It's becoming a big deal. There is a lot of demand for strategic buyers in the middle market," Burns explains. "Bankers are one of those advisers that have close relationships with clients and can advise them in business on mergers and acquisitions."
One of the most important considerations is to maximize the number of offers a buyer can get.
"Any business owner could get an unsolicited offer, but whenever there is a sole suitor, that buyer will try to bring the offer down to a low number by the time all due diligence is done," Burns says.
M&T's team of advisers helps with the capital structure, debt financing and family estate and trust plans, he says. Many aging baby boomers may not be ready to sell right away, Burns says, but they still should have plans.
"There are many options for business owners, but we say if you can't tell us in 10 seconds what would happen if you die, you're in trouble," he says.

Making a plan
For Lobozzo, passing the business to his children was not an option, since they have followed other career paths. So he brokered a deal with a private equity firm in which he retains approximately 10 percent ownership of JML Optical while no longer carrying the burden of responsibility for managing it. Lobozzo also retained ownership of the JML Optical building on Linden Avenue in Pittsford and continues to receive an income from rent paid by the company's new owners.
"The employees, about 80 of them, remained with the company for the most part, which gives me a warm feeling," Lobozzo says. "With the 10 percent of shares I retained and the monthly rent I receive, the deal has a great growth component."
Lobozzo says roughly a year elapsed between his decision to sell and closing on the deal.
The process is typically longer than that for many business owners who decide to sell, says Robert Lowenthal, senior vice president of the commercial services group at Canandaigua National Bank and Trust Co.
"Generally we tell transitioning clients it's a three-to-five-year process because you're dealing with personalities," Lowenthal says. "As they get closer to the date, they aren't sure they want to leave.
"Their business has been their baby. It's a difficult decision."

Growing need
Lowenthal sees a tremendous opportunity for banks to work with family-owned businesses and other middle-market companies, especially community banks like his and regional banks such as M&T.
"We see a lot of transition and succession business," he says. "The big buzz is that baby boomers heading to retirement over the next 15 years will need to transition their business to the next generation or someone else.
"We estimate the numbers are 20 percent to as high as 30 percent of all small business entities are facing this."
At CNB, loan officers use their merger and acquisition expertise to assist commercial clients with annual revenue up to $50 million.
"We would be on the smaller end as a community bank but that's what differentiates us," Lowenthal says. "We serve as one member of the advisory team. We don't bring in the legal and accounting side, but we can make those referrals if needed."
There is no specific M&A team at CNB. Every loan officer has the knowledge to manage customers' growth and transition needs, Lowenthal says.
"We do have certain bank professionals involved with different industries, though," he says. "For example, some of our loan experts are more familiar with manufacturing and others focus on retail or the medical field."

Helping hand
At RBS Citizens Bank, the types of deals small-business owners want to make are not always tied to succession plans. Loan officers there find that middle-market business owners value their relationship with their bankers and seek advice on expanding their businesses.
"Our role has accelerated since 2008. The traditional commercial bank has built its whole business around long-term relationships and the business growth," says Bob Rubino, Boston-based executive vice president and head of corporate finance and capital markets at Citizens Bank.
"We're the friend in the equation. We get to know them. We finance them. We're interested in their success."
Rubino says Citizens Bank has been studying the impact of life events on business and has developed advisory capabilities in its business model to help clients. A recent Citizens Bank survey of middle-market companies shows mergers and acquisitions are top of mind. According to the survey, 38 percent of businesses are interested in being acquired or merging with another entity. Rubino says the survey found that 79 percent of respondents were either currently pursuing acquisitions or were interested in making them in 2013.
"There's a tremendous market out there. Many companies are looking at acquisitions as a way to grow," Rubino explains. "We want to be there to help them through it."
For companies looking to sell, he says, the big priority is valuation.
"Sellers need to ask, 'How do I value my business?' We also help them think about if they have a certain need. Maybe only a partial sale is necessary. It could be a way to bring liquidity into the business and self-fund growth," Rubino explains.
Walking clients through different options underscores the knowledge his bank's staffers have through long-term relationships with commercial customers. To expand on the benefits Citizens Bank can offer middle-market clients, it signed an alliance with Oppenheimer & Co. Inc. to leverage its skills in executing a sales-side mandate, Rubino says.
"Many small businesses don't have endless people on staff, on their corporate development staff, to help them manage these complex financial decisions," he observes. "When they can trust their banker to help them, it makes it easier."
For Lobozzo, deciding to sell his company was not easy. His regrets now are not that he decided to sell his business but that he did not take more time in earlier years to spend with his family, take vacations and enjoy hobbies. But Lobozzo says his banking team is helping him in a way with that.
"M&T bought Wilmington Trust in Delaware, and I used them to start a trust for my three grown children. I wanted to gift them," Lobozzo says. "So now they will be able to enjoy some nice things and take some great vacations. That makes me incredibly happy."

Lori Gable is a Rochester-area freelance writer.3/8/13 (c) 2013 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email

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