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There were a lot of gas stations and liquor stores and coin-operated laundromats, but few had everything the couple wanted: a loyal customer base, a knowledgeable staff, well-kept financial records and a product or service that they thought could weather a recession.

Then they found Down to Earth Nutrition, a health and wellness store started in 1979 that sells a range of products from vitamins and herbs to natural shampoos and sunscreens.

"You're not going to sacrifice your health in a recession," Edmond Yee says.

The Yees used business broker Mel Weisblatt to help them with due diligence, but they had to sift through a ton of "dogs," as both Edmond Yee and Weisblatt put it, before making the decision. Weisblatt says a higher number of lower-quality businesses tend to hit the market when the economy struggles.

"Unfortunately, we're seeing a number of small businesses that aren't cutting it and they're for sale because the owner says 'I'm not making any money,'" says Weisblatt, whose business brokerage is Probus Business Sales in Campbell. "Of course, if they're not making any money, they're not going to sell either."

In Silicon Valley, people are paying a higher multiple for businesses with less cash flow this year than they did last year, according to data from the BizBuySell Local Quarterly Insight report.

"People are asking, from a cash flow perspective, for more money per dollar of cash flow for their business than they were last year which, given the state of the economy, may be aggressive," says Mike Handelsman, general manager of BizBuySell.com, a division of Loopnet Inc. "It's tougher to make a buck this year than last year. So people are showing overconfidence in the market."

The average median price of listed Silicon Valley businesses for sale jumped to $249,000 in the first quarter of 2008 from $189,500 in 2007.

That's in line with what business broker Kevin Dempsey is seeing in the market.

"What I find is there are 10 buyers for every seller and a real shortage of sellers," Dempsey says.

Dempsey mainly handles mergers and acquisitions for companies that make at least $1 million in profit.

"I would say the buyers are more cautious but ... if it's the right situation, they pay more in cash for the company," he says.

Biotech and solar companies are particularly popular right now, he says, while construction and financial companies are particularly weak.

"Construction (companies), they're really looking bleak right now if it's residential construction. Those have lost value," Dempsey says. "Financial companies, those have fallen out of favor because of the mortgage crisis. A few years ago, you could really sell a mortgage company for a good price but now nobody wants them."

Both Edmond and Blythe Yee are technology professionals. Blythe works for Intuit Inc. while Edmond worked at Sun Microsystems Inc. in the company's corporate mergers and acquisitions group. That experience gave him a major advantage when it came to looking for a business to buy.

He was drawn to retail because his father owned a grocery store in Canada.

The Yees have two young boys and they wanted to put their two incomes to the best possible use. So they looked at investing in real estate, paying down their mortgage or moving out of state but ultimately decided to buy a business.

"We're control freaks," Edmond Yee says. "We noodled around and looked at stock market, bonds, mutual funds. We just didn't feel we had any control over that and were at the whims of the market. We thought the best place to put our cash was something we could control and that we believed in."

Still, growing revenue at the business is hard. And no investment is without risk.

The loan the Yees got required a lien against their home. And they've put a lot of money into the business to update technology and to pay for accountants and attorneys and other support services.

But the business has met all of Edmond's expectations and the Yees are excited about how they might grow it in the future.

"Hopefully this is going to pay for my kids' college," Edmond Yee says.

Copyright © 2008. Silicon Valley / San Jose Business Journal.