Every good investment banker knows the value of having a client represented by an experienced transaction attorney. The absence of one can cost your client a deal or worse yet, cement a bad one. What about an investment banker though? First time sellers will often ask what value a good investment banker adds to a transaction. “Why can’t I go it alone”, they may ask.

I have a long list of answers, but I thought I would reach out to several respected transaction attorneys for their comments. In their practices they work for clients who are represented by investment bankers and clients who are not. From their third party perspective they are well positioned to offer valuable insight.

Cliff Pearl, a transaction attorney with the Denver firm of Hensley Kim & Holzer, LLC, believes that, “The biggest value a good investment bank adds is properly orchestrating the process…. Many sellers believe that the only thing they need is someone to find the buyer willing to pay the highest price, and if they find that buyer themselves they think they don’t need the help of an investment banker. They are wrong. Transactions fail in many instances because there is nobody properly orchestrating the transaction process and acting as the shepherd of the transaction…something the participants and lawyers typically can’t do….” Read the rest of this entry »

Case Study

Situation: In 1991 Carol and Jim Townsend acquired a small employment agency and entered the world of entrepreneurs. Quickly, they moved into providing temporary employees and eventually built their business into a regional powerhouse. Their company, Sunrise Enterprises, based in Dubuque, Iowa had 13 offices in a three-state area and billed over 2 million hours of work per year.

Solution: Based on a referral from their CPA, Carol and Jim retained CFA to sell their business to a buyer who would continue to develop Sunrise. Ultimately, CFA found a complementary, strategic buyer who would not only acquire the business, but would, in turn, sell part of the company to Sunrise’s key executive. The sellers got the value they wanted for the business and achieved their retirement goal.

Or Is It A “Real” Business?

Many self-employed people consider themselves “business owners”, but are they really? There is an important distinction between owning a business and owning a job. Does it really matter which category your enterprise falls into? Yes, it matters a lot if the owner plans to exit the business at some point in the future by selling it.

Every closely-held business owner grossly underestimates the significance of his or her own, personal value to their business. This includes the value their contacts, their relationships, their reputation, their experience, and their personal efforts. They talk about how “great” their employees are, and say things like, “this business could run on its own without me”. Ninety-nine times out of a hundred, they are wrong! In fact, most of these businesses would be severely impaired, if not destroyed, upon the unplanned exit of the owner. Read the rest of this entry »

Business owners considering a sale of their business often ask us, “When is the best time to sell my company?” It is a fundamental and age-old question.

Sellers always want to “time” the sale of their businesses to maximize their return, either through a higher price, lower taxes, or, hopefully as we have seen in the last eight years, a combination of both.

Since President Bush lowered the Federal tax on long-term capital gains to 15%, there has never been a better time to sell a business, at least in terms of tax implications. Combine low tax rates with a very strong economy, and you know why M&A deals were so predominant from 2004 through the first part of 2007.

Will taxes go up in 2009? Mr. Obama and Mrs. Clinton have both promised, if elected, to raise taxes on long-term capital gains to 28% or 25%, respectively. However, this is a promise, not a guarantee. Read the rest of this entry »

Many entrepreneurs start businesses because they either:

1. Tired of working for the corporate world
2. Were outsourced, out placed or downsized from the corporate world
3. Learned a skill and knew that they could do it better.
4. Got angry at their boss and left their employer
5. Made the decision to work for themselves.
6. etc., etc. , etc.

Entrepreneurs were successful sellers, manufacturers, or creative/design/engineers who loved the enjoyment of doing it better than everyone else. Most started on a shoestring. They “bootstrapped the business” by borrowing from family, friends, credits cards, etc. They rapidly learned that building a business is a “stair step process”… i.e. at $1mm revenue, hire an office clerk/receptionist/order processor… at $2mm, hire a controller, move to a new location… at $5mm, hire a general manager and a salesman… and on and on. The more successful the business is… the more the founder will drift away from his first love… that which motivated him first to start the business. Instead of being able to spend his time calling on customers, now he’s reviewing insurance plans, studying risk management, trying to understand new OSHA regulations. As he realizes that it is time to begin building an exit strategy, not only does he want to “take some chips off the table”, he really doesn’t want to retire, he wants to do what he enjoys and move into the next stage of his life. Read the rest of this entry »