Smallbiz: Forecast from the trenches—slight uptick in 2010

Terry Drahota saw revenues at his Fort Collins general contracting firm drop 50 percent in 2009, but he hasn’t lasted 37 years in commercial development without a sense of optimism – or at least an ability to project it.

“The good news for us is we’re a little versatile, in that we have a mountain office and then we have a Front Range office,” said the 62-year-old founder of Drahota Commercial LLC, a firm with annual revenues of $70 million at its height. “Usually one or the other is happening. We’re looking for 2010 to be a better year than 2009, which is kind of unusual because I’m questioning the commercial construction market. I don’t think it’s going to be very good. But the jobs we’re forecasting and actually working on are pre-construction and are all publicly funded jobs.”

Privately funded projects seem to be another matter. “I’m not being negative; it’s just a lot of problematic things,” he said. “Mostly it’s private financing. We’ve got jobs we could start … we’re working on an auto dealership up in Wyoming that can’t get a loan. Private financing is difficult right now.”

We had started off talking about family-owned businesses and succession planning – the pros and cons of selling a company vs. handing it off to younger relatives – but invariably my discussions with M&A attorneys, an investment banker and business owners like Drahota turned to the economic outlook for 2010.

This roughly coincided with President Barack Obama’s approval rating falling below 50 percent in early January, a drop attributed to persistently high unemployment and a still-sputtering economy.

Longtime transaction attorney Ned Minor of Minor & Brown P.C. says M&A activity tends to track the economy, and he cites his own firm’s transaction totals in recent years as evidence: 53 deals in 2007; 43 deals in 2008; 34 deals in 2009.

“That’s as good a barometer as you’d ever want to see,” he says. “When the economy is going and blowing there are lots of transactions. When the economy is down, there are fewer transactions. But I’m already starting to see an uptick in activity as the economy shows ever so slight improvement.”

Minor, author of the book “Deciding to Sell Your Business: The Key to Wealth and Freedom,” says most of the businesses that have contacted him with an eye on selling are holding off for now because their revenues and valuations are dramatically down, but it’s evident that the last year and a half has beaten them up.

“Business owners are saying to me, ‘Ned, I don’t want to go through this again. We’ve been through three really horrific downturns since the bubble burst in 2000 and 2001, and as soon as I can see a positive trend in my company, I’m going to sell it.'”

Kevin Lombardo of General Capital Partners, a Denver-based investment bank and turnaround management firm, says business owners whose debt he is helping to restructure naturally want to know whether a bank is likely to lend them money.

“It’s hard to answer them because all the rules have changed,” Lombardo says. “When are they going to lend more money? I think they’re going to be forced to at some point, through the political pressures that are out there to get more stimulus going in the economy. But you’re not going to see job creation probably until the second half of 2010, possibly not until 2011.”

Minor, the transaction attorney, points out as many have that while Colorado’s economy may be in the tank, it’s faring better than most.

“I think it’s pretty well documented that Colorado sort of went into the recession a little bit later and is coming out of it a little bit sooner,” he says.

That doesn’t mean a return to 2007 any time soon. “Nobody can predict the economy,” says Tony King, a partner at Minor & Brown, “but we’ve collected a lot of information, and what we see is 2010 being a lot of what we’ve seen in 2009, maybe a little bit of improvement toward the end of the year, and then in 2011 more but gradual improvement.

“It’s not going to be a vigorous rebound.”

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