A former partner (and highly successful serial entrepreneur) taught me that the two best ways to prosper in a slack period is to feed your winners and cut your losers. Year-to-date 2008 trends in global mergers and acquisitions (‘M&A’) reflect this; corporate ‘pruning’ is very much in evidence today.

How can this benefit you? Several ways, if you act aggressively:

1. Divestiture of ‘Non-Core’ Assets:
   This is a particularly good time to escape the accumulated time-wasters, by selling them at reasonable prices and terms, either in the US or abroad. This will allow your management team to focus. Cut your losses—stop wasting precious manpower and money.
2. Sale to International Acquirers:
   The weak US dollar means offshore buyers now recognize American M&A is a bargain. You can achieve a full and fair value at favorable terms if your advisor knows how to (i) access strategic buyers, (ii) capture their attention and (iii) hold it long enough to properly showcase your business.
3. Strategic Acquisitions:
   This is a great time to acquire technology, product lines, extend geographic reach, customer lists, etc., on favorable terms if you can fund the deal largely from generally available corporate funds.
4. Create Your Exit Strategy:
   With day-to-day activity softening, this is a perfect time to craft, adopt and begin to implement a carefully coordinated, value maximizing exit plan. A professional M&A advisor would be pleased to discuss this with you, begin to identify an action plan, do a preliminary valuation as your benchmark, and provide additional consultative input, all at no cost to you. The actual exit process could take several years, so it is never too early to start.

Case Study

Situation: John Rockey started his company in 1983 with a single truck. Twenty-four years later, he had grown it into a highly successful transcontinental provider of logistics services to the United States military. Rockey realized however, that he was on the verge of losing control as the company continued to grow. Believing that he had advanced the company as far as he could, he decided he would have to sell. A financial services provider saw that he needed experienced guidance and introduced him to CFA.

Solution: Upon understanding Rockey’s true desires, CFA outlined a recapitalization process which allowed him to extract wealth from his company, while still retaining an attractive ownership position and active involvement in his company. CFA identified a strong investment group willing to invest and commit to active management in the company. With the needed expertise to institute sophisticated systems and controls while bringing new resources and strategic insight, Rockey’s new partners form the foundation for future growth of even greater opportunities.

“I’d be interested in selling for the right price” seems like a very reasonable position for a business owner to take. How can we reconcile that need with a buyer who says: “I am willing to pay a price which will yield a return on my investment, commensurate with the risk I am taking.”

As a general rule, a buyer of a privately-held middle market company will look for a return of around 30% before tax. It follows, therefore, that privately-owned businesses are returning 30% IRR to the owners who “hold” those investments. At the “market” price, therefore, the seller must liquidate a 30% investment (in his business), pay taxes on any gain, and re-invest the net proceeds at a lower rate of return commensurate with the lessened risk and aggravation.

Let’s look at an example. My company is growing at 10% and currently generates (adjusted) cash flow of $5 million after paying me a market salary as President. Buyers in the market will pay $25 million for my Read more »