(Note: This story appears in the September 2021 issue of ED Magazine)
*Story by Winston Hines
Business Broker Winston Hines explains why now — yes now! — might be the perfect time to sell your club.
I get asked this question an awful lot of the time, and the short answer is “Oh, hell yes!” But first you and I need to unpack that question and my answer.
COVID crashed us medically, politically, and economically. People were dying right and left, states turned “bars” into the newest four-letter word (and we were just the tail-end recipients of that mindset). And even if we were open in some manner, state governments imposed draconian control over operating hours. But weirdly, last year, there were just about the same number of clubs put up for sale as there were in 2019. (And that’s not just my numbers but across other brokers, and across the gamut of marketing platforms!)
Anxious owners were waiting for the ‘other club’ to go belly up as they waited for the inevitable ‘for sale’ sign to go up. But instead, everyone hung in there, buckled down, some even got PPP money. — Hines
Yet, my phone continues to ring with this basic call:
“Hey, Hines, when you start getting clubs for sale due to COVID, you just let me know first. I gotta bag o’ bucks and I’m looking for some clubs to buy, yada, yada … I’m just remodeling, waiting to reopen.”
Big chains, medium chains, smaller chains, they all contacted yours truly and other brokers looking for these expected steals, not just so-so deals. The only problem was, just about everyone was holding their breath waiting for the other shoe to drop. Anxious owners were waiting for the “other club” to go belly up as they waited for the inevitable “for sale” sign to go up. But instead, everyone hung in there, buckled down, some even got PPP money (thanks in no small part to some talented industry attorneys).
The vast, vast majority of clubs and owners survived 2020. Chalk it up to the microeconomics of your typical club. There are almost as many explanations for how owners held on as there are clubs. An adult club is just a lot more resilient than some disco, country-western bar, hookah, or other entertainment venue to the vagaries of the economy.
Now onto 2021: As I write this update on August 1, clubs are opening up, or have already resumed their previous operation hours. Whatever happens with the Delta variant in the near term, we know that there is a hard line that we will not back over. That being said, across the country — and I spent a good deal of time at Expo asking owners of all sizes — owners have told me they opened up with a bang, hitting 85 to even 100% on their pre-Covid numbers like a rocket. More owners reported they were and are scrambling to fill staff positions than they are for entertainers.
There is so much agitation to raise income tax rates this year or next, that for you sellers contemplating some time on a beach somewhere with a little umbrella propped in your drink, now is the time to pull that trigger if you want to keep a few more of your sale proceeds dollars than giving more to Uncle Sam. — Hines
Starting in the second quarter of the year, though, a number of owners have decided to go ahead and leave the scene or retire. A number are waiting to get their monthly reports up to full tilt before selling. More are looking to acquire: So, in short, again: Hell yes this is a great time to sell a club or buy one!
No one ever got surprised underestimating the intelligence of Congress to fuck up actually good laws. I know, somewhere there’s an oxymoron perking. I’m seriously concerned Congress may try to “tweak” two absolutely legitimate and legal tax shelters that have proven themselves as really good for business, really good for taxpayers, and ultimately the economy. I’m referring to the entire mechanism and system of 1031 Tax-Deferred Exchanges on Real Estate and, more recently, the tax deferrals for personal property rolled into Opportunity Zones.
For your information, tax deferred 1031 Exchange laws have been in existence for a hundred years! The initial legislation was introduced in 1921, and ultimately has proven itself over and over again throughout the Great Depression, WWII, and both booms and busts in the economy for over a century. Hard to argue with success. Likewise, my South Carolina US Senator, Tim Scott, slipped into the 2017 Tax Reform Act a few pages that designed the tax shelter for personal property tax liability that goes into the mechanism of Opportunity Zones and Funds. If you’re not familiar with both of these as an owner, get your accountant to walk you through the basics of each. Both are critical considerations for buyers and especially sellers to be aware of.
Yet, the hits just keep on coming. There is so much agitation to raise income tax rates this year or next, that for you sellers contemplating some time on a beach somewhere with a little umbrella propped in your drink, now is the time to pull that trigger if you want to keep a few more of your sale proceeds dollars than giving more to Uncle Sam.
It still is a seller’s market — don’t ever forget that! Sellers: You always have the option to just keep making money, and tell the bottom feeders to keep looking. Get your books right, your ownership structure optimized by your lawyer and your accountant, put some lipstick on that pig, and call a specialist in the sale of adult clubs. — Hines
In short, sooner better than later.
Bottom line: It still is a seller’s market — don’t ever forget that! Sellers: You always have the option to just keep making money, and tell the bottom feeders to keep looking. Get your books right, your ownership structure optimized by your lawyer and your accountant, put some lipstick on that pig, and call a specialist in the sale of adult clubs.
For you buyers, buying into a recovering economy with a lot of “up” in it is the way to go, it’s what the merger & acquisition profession likes to do. Of course, if you have questions on what I’ve written, contact me.
Winston Hines, Business Broker in Charge of HWH Properties, is a licensed commercial Real Estate and Business Broker, specializing in the purchase and sale of adult nightclubs throughout the U.S. for almost 20 years. He is a member of the International Business Brokers Association (IBBA) and American Business Brokers Association (ABBA). He holds a Certified Business Intermediary (CBI) designation, as well as an (ABI). He can be contacted at either (864) 580-3826 or updaze@aol.com.
