In the last four blog posts I have discussed the different types of middle market business buyers in the market today, how they differ and what they look for when they invest.  Now that we know about the buyers…is there anything the seller can do to make sure the transaction runs smoothly?     

If all the prerequisites have been properly put in place, the seller has at least one more tool to extract the highest price and best terms from the PEG marketplace. That is a well constructed, competitive sale process consistent with the protocols and expectations of the PEGs. As with selling to any third party, competition among potential buyers can help maximize the outcome for the seller. Read more »

This series of posts has examined the different types of buyers of middle market companies, focusing on selling to a third party.  Learning more about how the financial buyer makes investment decisions is important to anyone considering a business sale.

Although, as previously discussed, each Private Equity Group (PEG) has its own specific investment criteria, most of them are attracted to acquisition targets with certain general characteristics that independently and, in aggregate, help reduce the risk of their investment. Therefore, sellers interested in exploring recap opportunities should be aware of these and put as many as possible into place before marketing themselves to the PEG community. Read more »

This series of blog posts examines the exit options of middle market business owners as they contemplate the sale or recapitalization of their companies.  My first two posts in the series described the seven primary ways owners leave their businesses – sales of assets, sale to partners, sale to children, management, employees, to the public and a third party… and the ramifications when the third party is a strategic buyer.  The third party financial buyer is another option that may be worth consideration.

A financial buyer, for this discussion, is a private equity group (PEG). This is a type of investment manager that raises funds specifically to be invested in the private equity of operating companies in accordance with a limited partnership agreement between it and its sources of those funds (e.g. pension plans, universities, insurance companies, foundations, endowments, and high net worth individuals). The funds typically have a ten year life, during the first half of which, capital is invested into companies and, during the second half of which, that capital and any appreciation thereon is harvested back out through the resale or IPO of those companies. Read more »

This series of blog posts examines the exit options of middle market business owners as they contemplate the sale or recapitalization of their companies.  In my first post we looked at the seven primary ways owners leave their businesses – sales of assets, sale to partners, sale to children, management, employees, to the public and finally to a third party.  We now focus in on the sale to a third party.

If the seller’s primary objective is to maximize price while giving up all ownership (i.e. a complete sale) and continued employment, then “strategic” buyers should be the focus. Read more »

There are essentially seven ways to leave your love (i.e. sell your business!). They include sale of assets, sale to partner(s), sale to children, sale to management, sale to employees, sale to the public, and, finally, sale to a third party. Each sale type has its advantages and disadvantages, which I will explore in the following series of blog posts.  We begin by listing the selling options here in order of typically least to most financially rewarding to the business seller.

Sale of assets (i.e. liquidation) will typically yield only pennies on the dollar because the assets are not being sold as part of an ongoing, cash generating business. Sale to partner(s) will likely be guided by a buy-sell agreement which, by design, will be very conservative in its valuation and payout algorithms to preserve cash for the remaining business owner(s). Read more »

Doug Nix’s recent article “Pointers on Successful Acquisitions” hits the right chords on the whens and whys of buying a business.  He’s right on target when mentioning that just because something looks like a bargain doesn’t mean it’s a smart acquisition.

If all the prognosticators are correct, 2011 should be a boom year for the M&A markets and many companies will appear on the selling blocks for the first time.  From a buyer’s standpoint, it will be critical to make sure that what you see is really what you get.  Doug’s article is a good read and you can find it in its entirety here.

Posted by Robert St. Germain

You worked long and hard to grow your company and now it is time to exit and reap the rewards. In your case, you decided to sell to a third party because you learned that is typically how business owners maximize their selling price. To that end, you elected to engage the services of a business broker/intermediary/M&A advisor. You heard that they can help you to more effectively recast your financials, create a descriptive memorandum, market your company, screen inquirers, facilitate due diligence, negotiate deal terms, and otherwise professionally manage the detailed, comprehensive, and confidential process of selling a company. All those are burdens you would prefer to leave to someone who specializes in such a process so you can focus on your specialty of operating and growing your business to increase its value.

You found such an advisor and, with everything seemingly in order, you next signed her standard engagement agreement. Included therein, as is typical in such agreements, was the requirement to pay a fee to the advisor contingent upon the successful sale of your company. Now you are looking forward to accepting a great offer that will allow you to move to sunnier climes and pursue full-time all your other life’s passions. What is not to like about that scenario? Read more »