PITTSBURGH – Investors are launching a new program that will incentivize more companies to leave California – and other states with punishing taxes and regulations, such as New York, New Jersey and Illinois — in favor of friendlier business climates found elsewhere.
As of today, a private equity firm will pay relocation costs, making it easier than ever for entrepreneurs to exit troublesome states.
Business owners know they can improve profitability through an out-of-state relocation, but many are reluctant to undertake the costs of moving and finding a suitable building or land.
“Investors are seeking to provide capital to companies with revenues ranging from $5 million to $200 million that are likely to enjoy greater profitability in a business-friendly location,” said Joseph Vranich, president of Spectrum Location Solutions.
“In certain circumstances, investors will purchase a company outright and move it to a more appealing state,” said Vranich.
Investors will provide financing tailored to meet individual circumstances, such as:
- Purchasing property and building a building, or buying and improving one for the company with lease and lease-to-purchase options. Lower capital expenditures can be found in other states where land and buildings are less expensive and where streamlined permitting approvals allows faster construction.
- Enhancing the probability of selling or re-capitalizing a businesses, which is particularly helpful to owners concerned about generational transitions (i.e. family-owned businesses or founders that are seeking a liquidity event).
- Providing capital in the form of equity, debt, preferred equity and also the outright acquisition of a business.
“A primary objective is to invest in companies in a way that enables them to thrive in a more attractive location,” said Vranich.
In scenarios where investors acquire a significant or controlling interest in a company, the preference is to retain senior management and identify an optimal location for that business. The result will be greater profits for business owners and a higher quality of life for employees and shareholders.
For example, a California firm moving to Texas could save about 35 percent in operating costs thanks to lower taxes, a more reasonable regulatory environment, lower workers’ compensation costs, and much lower energy costs. Some other states offer similar benefits.
“Companies are finding that a high number of employees are willing to move to out-of-state locations which offer a better quality of life, including tax savings, superior school systems, affordable housing and less traffic congestion,” said Vranich.
“The coronavirus has introduced a new factor as real estate experts report a surge in people looking to relocate to suburban communities from our biggest cities,” he added. “The American Enterprise Institute reports that the pandemic’s infection rate has been quite low in small cities and towns, so it’s no surprise that people are willing to move to places that reduce “exposure density” and where infection appears less likely.”
Over a recent eight-year period, it’s estimated that about 13,000 companies left California in full or in part and nearly $77 billion in capital was diverted to out-of-state locations, according to research by Spectrum Location Solutions, a site selection consulting firm. The study relied in part on data from economic development agencies, the SEC and the U.S. Department of Labor. A new study – still in preparation – will show an acceleration of companies fleeing California.
“No one needs to take my word for why company leaders are unhappy in California,” said Vranich. “Now, for the 20th consecutive year, CEOs nationwide surveyed by Chief Executive Magazine have declared California the worst state in which to do business.”
Joe Vranich can be reached confidentially at 800-508-5138 to explore whether the program makes sense for your company regardless of what state you are located in. It is a no-fee, no-obligation consultation.
Joe of Spectrum Location Solutions understands California’s perennially difficult business environment and his writings about the topic have been recognized by The Economist, Wall Street Journal, Investor’s Business Daily, Forbes and countless other media outlets.