Florida Business Valuations Expected to Rise in 2013, Reflecting Better Florida and National Economic Trends
By Chris Curtin & Lew Koflowitz
Business valuations in Florida are expected to rise this year compared with 2012, as a result of positive forces at work in the state’s economy.
Economists who carefully study the Florida economy as a whole, as well as the regional economies within the state, say that the evidence is clear that Florida’s economy has turned the corner in the past year, in terms of employment, residential real estate sales, increased permitting of new housing, and improved business in tourism, hospitality, wholesale and retail activity, international trade and even manufacturing.
According to these economists, the positive economic trends mean that demand for goods and services across the state will be better in 2013 than in 2012, This should translate into higher valuations for businesses changing hands over the next 12 months.
Mark Vitner, a senior economist for Wells Fargo, is a careful student of the Florida economy, often speaks to business groups in the state, and also has close ties with the Florida Group of 100, a high-level group of CEOs representing a cross-section a group key business leaders in the state. He is thus in a good position to evaluate business trends in the state.
Based on trends he follows, Vitner believes that the Florida economy has strengthened in the past twelve months even more than had been thought. He notes that while official statistics showed that Florida’s employment rose by 85,000 in 2012, he believes that revised numbers, to be issued in March, will show that the employment increase will be closer to 170,000, or double the preliminary figure.
He notes that economic activity has strengthened in tourism, hospitality, manufacturing, and international trade, among other industry sectors. Indeed, he says that for 2012, Florida is near the top of the list of states with the most rapid job growth across the entire country.
Housing is Turning Around, with Implications for the Florida Economy and Business Valuations
Sean Snainth, director of the Institute for Economic Competitiveness at the University of Central Florida, and a highly respected observer of the Florida economy, noted that the recession that coincided with the financial crisis was long and deep in Florida, where the state’s economy declined ahead of the country as a whole and is coming out of recession later than most other areas of the country.
In large part, he notes, that’s because of the much greater impact of the housing collapse here than in most other parts of the country. On the bright side, Snaith says that because of the improving housing environment, he believes that by yearend 2013, Florida will be growing more rapidly than the US economy as a whole. Of course, he notes that the state’s economic growth, like that of the national economy, will still not be growing fast enough to reduce unemployment to acceptable levels. But he says that the modestly improving growth this year will be a “springboard” for more rapid growth in Florida in 2014 and 2015.
Population Growth on the Rise
What accounts for the improving growth this year? Snaith says that the state’s population growth, which practically ground to a halt during the recession (some say it even declined), has resumed. Because of this, and because of improving personal finances, the excess housing inventory is coming down, and new housing construction has begun to pick up.
Snaith says that the recovery in population growth is happening more rapidly in the more affluent areas of the state, like Naples and Sarasota. Affluent individuals are more able to take advantage of asset value growth, including the sharp gains in the stock market we’ve been experiencing. Further growth will come as housing recovery in other parts of the country enable individuals, especially Baby Boomers, to sell their homes at a profit and move to Florida in increasing numbers in the coming years.
Another driver of growth for Florida, says Snaith, is “international linkages” – particularly with Central and South America, and most especially Brazil, where there is a large and growing middle class with large disposable incomes. Those “linkages – including cultural and similar climates – plus the disposable income have generated substantial increases in tourism and purchase of some of the excess inventory of Florida’s housing.
Drivers for Increased Valuations are in Place
Population growth, increased tourism, and a turnaround in housing sales and construction are beginning to create increasing demand for a wide variety of goods and services, important drivers of business growth, and ultimately, valuations of businesses, Snaith said.
In addition to overall business demand, Snaith noted, business valuations are built on fundamentals of the specific business organization being valued, including the management of the company and the industry sector involved – i.e., the organizational and economic underpinnings of the business. Indeed, in business valuations and buy-and-sell transactions, management of the firm is critically important in valuing the business. In that regard, each situation will differ, since the valuation placed on business will depend on. For example, what current management has been able to accomplish.
Thus, given the economic outlook for Florida and for the overall national economy, the experts are projecting gains in valuations in 2013 over 2012, taking into account, of course, the many uncertainties. For example, about the outcome of the debt and deficit debates and other issues at the national level.
However, given that most economists are anticipating growth at the national level this year, and that analysts of the Florida economy are anticipating better-than-national growth in the state, economist we spoke with are now expecting Florida business valuations to climb moderately, especially during the second half of the year.