From Private Equity Digest, June 10, 2013 By Andy Greenberg, CEO, GF Data®

This article was originally published by Private Equity Professional Digest.  This article is being republished with permission form GF Data and may not be used or reproduced by anyone without permission from GF Data.

One of my favorite explanatory images is “the dog that didn’t bark” – Sherlock Holmes’s key to solving a mystery by paying attention to what didn’t happen as well as what did. As readers of GF Data’s most recent report may appreciate, the dog that didn’t bark is an apt metaphor for middle-market deal activity in the year to date.

For the fourth quarter of 2012, the 183 private equity firms that are active contributors to GF Data reported 92 completed transactions in the $10 million to $250 million Total Enterprise value (TEV) range. This groundswell of activity – clearly driven by individual business owners anticipating increases in federal tax rates – did not carry over into the early months of 2013. For the first quarter of 2013, the same universe reported 14 deals.

Financial buyers and other deal professionals seem to agree that M&A activity is picking up, but that the traditional markers – economic growth, key sector strength, corporate performance, public stock prices, capital available to buyers – still suggest a market more vigorous than the one we are actually experiencing. Read more »

Our nation will soon observe Memorial Day – a day of remembrance for those who have died in our nation’s service. First observed on 30 May 1868, when flowers were placed on the graves of Union and Confederate soldiers at Arlington National Cemetery, Memorial Day is now celebrated on the last Monday in May (passed by Congress with the National Holiday Act of 1971). As we commemorate those who have given their “last full measure of devotion and duty”, let’s also recognize and express our appreciation to all who have served and are serving to protect our country and our way of life.

As a business owner, one of the most difficult and emotional decisions you’ll make is the decision to sell all or part of your business. The process is complex, can be messy, and is certain to include some unexpected challenges.  More likely than not, buyers will be better equipped and will be veterans of this process. You’ve got some catching up to do in preparing to win. Read more »

Corporate Finance Associates (CFA) finished 2012 ranked in the top ten on the Thomson Reuters U.S. Small Cap League Tables for transactions up to $50 million.

CFA also left their mark on several other Thomson Reuters league tables including the Small Cap Worldwide chart for transactions up to $50 million (#41), the U.S. Mid-Market chart for transactions up to $500 million (#25), and India involved transactions for both Small Cap (#24) and Mid-Market (#31).

“This has been a fruitful year for Corporate Finance Associates.  During a time when some M&A firms experienced a lackluster business environment, we added new offices and additional investment bankers, made an impact on the M&A charts and celebrated a win at the M&A Atlas Awards,” said Peter Heydenrych, Chairman and CEO of CFA.  Peter adds, “We are looking forward to the coming years as the baby boom generation looks toward retirement and business exit planning shifts into high gear.”

Trying to read the markets to determine when is the best time to sell your company, or buy one for that matter, can be confusing.  Q4 of 2012 showed the strongest M&A activity in 4 years. Q1 of 2013 was much weaker than anticipated.  Low interest rates should make it attractive for Buyers to finance their acquisitions, but it may also be interpreted as an economy not quite out of the IC unit yet. The historically high levels of cash in the balance sheets of corporate America and at Private Equity’s disposal suggest that sellers should be having a field day sorting potential buyers for their companies; however, the same data could be seen as unequivocal sign of inflation in the horizon.  The stock market appears to be back on record-breaking mode… not unlike what happened in 2000 and 2008.

I am not a pessimist, quite the contrary! I do believe we are past the bump and well into a period of responsible expansion. My point here is that data can be read and interpreted in different ways and that many variables, often subjective, will affect how one views his/her options.

Selling your company is a business decision surrounded by emotions. If, over the past year or two you have taken the steps to prepare yourself and your company for that moment, and now you feel that your time is right, then embrace your decision and go to market with confidence. You will be successful. Read more »

Whether you are looking to sell a business, acquire a business, or recapitalize or refinance your business, it is imperative you build a first-class team of advisors to assist you in the process. A critical player on your deal team is your attorney. Hiring the proper attorney for your transaction, and utilizing his/her services and advice properly, can be the difference between a successful and unsuccessful transaction.

Based on CFA’s 57+ years of transaction history, we have extensive experience working with all types of attorneys. Furthermore, through my own participation as the only non-lawyer in the International Business Law Consortium (www.iblc.com), I have been afforded a unique perspective into how attorneys and their firms are best selected and utilized in a variety of transaction types. In today’s article, we examine the Five Biggest Mistakes Clients Make When Hiring An Attorney; in my next article, we will examine the biggest mistakes clients make when utilizing their attorney for their transactions. Read more »

I recently read Nassim Taleb’s new book Anti-Fragile. Taleb is the brilliant thinker and writer who also wrote the best-selling book The Black Swan a few years ago. Taleb’s books have stimulated my thinking about our business and the company owners we talk with.

Taleb is a former successful hedge fund analyst and trader. While on Wall Street he developed innovative models around risk management. His models demonstrate that down side risk cannot be predicted by normal bell curve distribution but rather have more of a “long tail” distribution. In colloquial terms he popularized the term “Black Swan” events to illustrate his ideas about risk and risk management.

Much like in nature, when due to a freakish genetic mutation, a rare black swan is born; in Talab’s world Black Swans are hugely disruptive events that seem to come out of nowhere. They are not predicable, and while they are rare, they WILL occur. Read more »

Through my work I have dealt with thousands of Excel, and for those that remember Lotus, financial models and I have to say that most of them are bad. I would like to summarize five of my least favorite things about the “bad” models I have had the unfortunate experience to deal with during my career. All of these issues, except the last one, are sufficient enough for me to walk away from the work or opportunity as they indicate that I am likely to find more problems in the finance area or business. Read more »

Someone wants to buy your company – they even made an offer.  That’s great news!  Time to celebrate, right?  The answer is “maybe.”  Maybe that’s great.  But maybe not.

The fact is that entertaining an offer from just one buyer is probably one of the worst things that could happen.  Especially an offer that is unsolicited.  It’s true that sometimes you can improve the offer  just by bringing in a professional on your side, because the buyer often takes it more seriously.  However, with just one offer you have zero leverage, no other options, you don’t control the timing, you don’t have a team ready, and you aren’t prepared for a transaction. 

How did this happen?  In most cases it is because the business owner wasn’t looking to sell, didn’t have a reason to sell, or the business wasn’t “on the market.”  Then, why take the buyer’s call in the first place?  Could be curiosity, or the idea that “if the right offer comes along, then I’d sell.”  Really? Read more »

Whenever a business owner is considering a sale, the first question to an M&A advisor is usually “What is my business worth?”  Doug Nix, Managing Director and Principal at CFA Toronto West, wrote an in-depth article explaining why the EBITDA multiple, one of the most common methods of valuing a business, may also be one of the most misunderstood.  The article is a must read for anyone considering a sale or recapitalization.

Citing a real world example, Doug compares two EBITDA calculations and how each impacts the business valuation.  Doug notes, “There is a striking and vast gap between the actual market value ($14,000,000) and the owner’s Expected Market Value ($20,950,000).  One can easily see why many business owners have experienced great disappointment and have rejected a purchase offer at market value because of the distortion caused by using the Reported EBITDA multiples.”

I recommend reading the entire article.

“This year will be my best ever. I want to wait until that’s done, then I’ll sell my company.” (a former client, spoken in early 2008).

As you can imagine, the “Great Recession” overran all of his hopes and financial plans several months after my client spoke these words. By January of 2009, when he expected to report his “best year ever”, GDP had dropped 5% and Standard & Poor’s index dropped 46%, his” best year ever” didn’t happen and his outlook for the next five years was down substantially.

I had lunch with that former client in 2011, and he was still waiting for his company to be worth what it was when he said those words.  He was 64 when he decided to wait just 12 months.  Five years later, he’s now 69 and still has most of his net worth in one, smaller, basket.  Things are finally looking up now, and I hope that he’ll be able to sell his company sometime soon. Read more »