Part 1 of 7: The Challenge

In advising business owners during this past year, I have seen, firsthand, how unforgiving the market has become. In one case, rather than wait to sign an LOI, a seller invested in audited financial statements simply to increase the odds of being shortlisted. In another, a business owner accepted the buyer’s premise that a full-price deal required that he stand behind his projections in the form of a significant contingent payment.

Is the “unforgiving market” just the recession, or a reflection of a long term reality?

Boom-er Bust

I read daily about the challenges facing boomer business owners expecting to sell in the coming years. Frankly, it’s not just boomer business owners, it’s ALL business owners who are affected by this extraordinary situation. My clients are finding that it takes perfect planning and execution to reach the finals of the beauty contest. Good enough just doesn’t cut it any more … and won’t, for the foreseeable future!

According to an article published by Robert Avery of Cornell University in February 2006, “the majority of boomer wealth is held in 12 million privately owned businesses, of which more than 70% are expected to change hands in the next 10 to 15 years.” Read the rest of this entry »

Mezzanine Debt

Today’s economy has put many private companies in a tight spot.  Companies end up with too much bank debt as business volume and profits contract.  But lower earnings mean that company owners who would have been ready to sell their companies now can’t do it because they end up with too little after paying off their banks.

So, how can you reduce your bank debt, improve your cash flow, and stay tough while you wait for the outside economy and your earnings to recover?  One answer is mezzanine debt.

Mezza-what?  Mezzanine debt gets the name because it’s half way between senior bank debt and equity.  Because it’s kind of both, it serves really well in the right situation.  Mezzanine is semi-permanent capital, like equity, so the company does not have to make monthly or quarterly payments of principal.  It usually has a 5 to 7 year term. Read the rest of this entry »