Exit and Growth Strategies for Middle Market Businesses

Archive for 2013

Is an Acquisition Strategy Viable For a Small Company?

By Terry Fick | Aug 06, 2013

gearsMost small companies never think about acquisition as a viable strategy and many that do dismiss it as unfeasible. However, in some instances, a lower middle market privately held firm can reap huge benefits from acquiring one or more smaller companies or a company of equal size. That strategy is easier today than ever due to the availability, flexibility and cost of debt. Let’s take a look at one such success story implemented by a CFA client.

A B-to-B service company earning $5 Million of EBITDA on $20 Million of revenue saw acquisition as a strategy to address three issues that raised their risk profile and lowered their market value.

  1. They had a significant customer concentration issue.
  2. Their fortunes were tied to a less than stable industry.
  3. The company had likely reached capacity within their geographic market.

On paper, the solution was simple.  Find a company or two in their industry that (a) sold nothing to the currently large customer, (b) that sold its services into a different industry, and (c) was in a different geographic  market.  Assuming that it may well take more than one acquisition to solve all of these issues, only two small hurdles remained.  First, was such a company (or companies) available for sale? Next was how to finance the acquisition(s). Let’s take a generic look at the process that was applied and can be applied to any such company. Read more »

Corporate Finance Associates Highly Ranked in 2012 on Thomson Reuters League Tables

By Kim Levin | Jul 26, 2013

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.”

Thomson Reuters League Table

Succession Planning – What is on the Mind of Today’s Small Business Owner?

By Patrick Powell | Jul 25, 2013

Money GraphIn the wake of the last recession, for most business owners the question is:  How many more recessions do I have left in me?  (i.e. How many more recessions can I personally stand?).  After all there is a toll beyond the financial challenges for most business owners.  It would be nice to know when the next recession is coming.  Naturally, we do not know.  So the next best questions is…”Where do I want to be when the next recession comes along?”

As most business owners know, a recession is no time to sell a business.  Especially when, like the last recession, the recession is accompanied by a banking liquidity crisis.

But what about now?  Has there been sufficient passage of time to return to normality?  In fact, all businesses respond to their own industrial cycles.  Some industries remain under significant strain from the past recession.  Others have already seen their businesses grow past pre-recession levels.  For example, if you are in commercial real estate or coal mining, your business may still be at historically low levels.  However, if you are in manufacturing related to the automotive industry, aerospace, or food products, you have likely experienced strength and growth in your business. Read more »

Transaction Advantage Curve

By Kim Levin | Jul 18, 2013

Financial Chart ColorIf you own a good company it is likely that you have been, at some point, contacted by someone expressing interest in acquiring your business. While it is flattering to receive these phone calls and even tempting to pursue discussions, we would urge you to take a step back. Look at the graph and consider that you might be playing directly into the strategy of the buyer. They know by contacting you directly they can avoid the “drive-up” in value associated with a competitive marketing process for your business.

You may think the buyer that has called you is the best buyer for your business, but we can assure you that if there is one buyer, then there are others as well. You may even end up selling to the initial buyer; however, he will certainly be paying more if he has been put through the competitive bidding process.

Each step in the marketing process is designed to build more interest with potential buyers. Properly managed, this process has proven to yield better results than dealing with just one buyer. Read more »

Seller Notes: Magical Capital

By John Hammett | Jul 03, 2013

Why do we call Seller Notes “Magical Capital”? Because Seller Notes have different properties depending on who is looking. Buyers treat them as debt; banks think that they are equity.

The Seller Note

A seller note is a debt security that is issued by the buyer of a company to the seller as partial payment for the company. As a debt security, a seller note has a claim on the company’s assets before the equity owned by the shareholders, but the seller note is “subordinated” to the bank loans (“Senior Debt”).

To the buyer, a Seller Note is debt because they are borrowed funds, not equity. The buyer pays interest on the notes at a lower rate (10%) than the return the buyer will earn on his equity (25%).

To the buyer’s bank, a Seller Note looks like equity because in the bank’s eyes the Seller Note is lower in priority than the Senior Debt. Yet company Seller Notes that are part of a 50/50 debt to equity ratio can look to the bank like it is only 30% debt to 70% equity.

The balance sheet of the fictional Waterman Company below shows how each element of the capital structure is perceived by the buyer and the banker.

Read more »

PEGs and Company Management

By David Sinyard | Jun 24, 2013

Business Meeting with PaperHow do Private Equity Groups (PEGs) view the role of management as they consider investing? Many view the quality of the management team as a fundamental issue in a proposed transaction. In reality, PEGs show flexibility regarding the quality of the management team. There is a continuum from those who see the existing management team as being very important to others who are far less concerned. Some indicate that the businesses must have good management in place. Other PEGs express less concern with the existing management: they just want a competent management team. What appeared to matter more was that someone be identified who would remain with the firm post transaction. The relationship between the management team and the PEG is also important as they are very much focused on the chemistry between their group and the management team. The issue is whether the ownership culture is willing to embrace change. Management generally will be supplemented and upgraded. The PEGS expect it. The usual function that is most focused on is finance as the incumbent typically will not have the qualifications and skills to handle the role. The PEGs will put in new CFOs to upgrade the position, in particular, in terms of reporting. Additionally, the PEGs anticipate the need to invest in information systems and putting professional processes in place.

Posted by David Sinyard.

Capital Ideas Newsletter

The Dog that Didn’t Bark

By Kim Levin | Jun 12, 2013


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.


GF DataOne 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 »

Preparing to Win

By Jim Gerberman | May 20, 2013

USA FlagOur 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.

Consider the circumstances faced by General George Washington – Commander of the Continental Army, during the winter of 1777-1778. Having had limited success over the previous two years against the much larger and better equipped British forces, his army was poorly equipped, faced shortages in food and other critical supplies, and was being depleted through desertion and disease. A victorious conclusion to this quest for independence was far from certain.

Representing American interests while living in Europe, Benjamin Franklin understood that Washington’s army could benefit from having access to “hands-on” military experience and expertise. Amongst those that Franklin dispatched to America was Baron von Steuben – a Prussian officer with general staff experience, who joined Washington’s army during this winter at Valley Forge. Chartered by Washington to improve the army’s readiness and ability to fight and win, von Steuben developed and implemented a regimen that emphasized the “basics” of military drill and discipline. Under his watchful eye, he provided guidance and enabled the unit leaders to develop the key fundamental skills of marching in formation, maneuver in battle, rapid fire, and bayonet use. The “seeds” planted during the winter of 1777-1778 reaped a bountiful harvest during the battlefield engagements that were soon to follow.

Back to the question: “How do I best prepare in order to win?” In a fashion similar to the actions taken at Valley Forge, the business leader asking such a question should consider the benefit of involving those who have been in a similar situation and have successfully traversed the path that led to eventual success. You’ll want a team of advisors with relevant “hands-on” experience.

Most of our professionals at Corporate Finance Associates have had dozens of years of experience and multiple successes in operating and running businesses. Not only are we qualified deal-makers in facilitating transactions, but we’ve also been through the transaction process from the perspective of a business owner. We understand the challenges. We appreciate the value of teamwork and will help in building your team of trusted advisors that will prepare you to win.

Posted by Jim Gerberman.

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The Right Time to Sell Your Business is Always NOW

By Eduardo Berdegué | May 15, 2013

Money GraphTrying 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 »

Choosing Your Deal Team: The Five Biggest Mistakes Clients Make When Hiring An Attorney

By Jim Zipursky | May 06, 2013

deal-teamWhether 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 (, 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 »