05 Apr Existing Oklahoma Businesses Need Nurturing
By DAVID L. PERKINS JR.
Published in the Tulsa World 4/5/2007
Want to buy a business? Sell a business? If so, where do you go? Who do you call? How will it be handled? What will it cost?
Unfortunately for all of us, the answers are not apparent.
Why is this unfortunate? Because it causes a substantial drag on our economy.
How so? Stick with me and I’ll explain.
We all want economic growth. To be sure, great effort is made to grow our economy. But to elevate economic vibrancy we have just two levers:
- Grow the productive asset base (i.e. attract more money, labor, intellectual capital or productive capacity).
- Increase utilization of the existing asset base.
Most of the economic development efforts focus on lever No. 1. Lever No. 2 is largely left in the hands of our free market system, where productive assets naturally migrate to persons or organizations that are able to maximize their yield. And so, vital to lever No. 2 and each of us is that this movement occurs efficiently.
For each asset class, the mechanism through which this occurs is a market. An efficient market has four vital characteristics:
- A place where buyers and sellers can meet and transact.
- Standardization of process, packaging and timing.
- Skilled intermediaries who can facilitate the exchange and contribute special knowledge.
- Integrity and trust . . .without which buyers and sellers will not participate.
During the past 200 years, many markets have become more efficient, and standards of living have increased.
Take any commodity such as cotton, corn, oil or public securities. If you want to buy or sell you know where to go, how much it will cost, the time it will take and the prevailing price.
Or, if you’re an employer and you want to purchase more labor, you know where to look. Ditto if you are selling your labor.
The real estate market also is standardized and efficient.
In all of these cases, assets are sold to persons or organizations that can put them to their highest productive use; wealth is created and it trickles through the economy.
Unfortunately and amazingly, the market for the exchange of private companies valued under $50 million is incredibly undeveloped.
Why? The list of reasons would include the complexity of buying and selling businesses, related federal securities laws and the fact that industry pioneers failed to develop goodwill and trust.
Now consider for a minute the value and productive capacity of all of the assets held in private business ownership in Oklahoma. I estimate it to be $75 billion.
Lacking an efficient market for ownership exchange, these assets are not swiftly migrating to the best owners.
Industry veteran Tom West estimates that, at any point in time, 20 percent of business owners wish to sell. Why is this number so high? Because owners lack an efficient, low-risk marketplace through which they more easily can find buyers who will pay a fair price.
The economic damage occurs because the owner who wants to sell is not as productive — and not investing as heavily in the long-term growth of the business — as the committed owner. The result is billions of dollars in productive assets underutilized in Oklahoma.
So I ask, why all the attention on attracting venture capital and labor (lever No. 1)? Shouldn’t we also be looking at lever No. 2 and asking, “Are we doing all that we can to maximize the wealth generated from our existing base of productive assets?”
Darn right we should. I am convinced that an efficient and robust market for buying and selling private companies eventually will develop. When it does, the economic benefits will pour out.
The only question is: Will Oklahoma be a leader or a follower?
Tulsan David L. Perkins Jr. consults on the purchase and sale of private companies valued between $2 million and $100 million. His firm, Acquisition Advisors, has offices throughout the United States and Europe.