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Exit and Growth Strategies for Middle Market Businesses

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4 Reasons the Timing is Right to Sell Your Business Now

By Brian Ballo | Jun 30, 2017

Time to sell your businessBusiness owners inquiring whether the timing is right to sell their business, often start by asking: “What are business valuations in the market today?” EBITDA multiples can provide a quick thumbnail answer to this question. However, just focusing on today’s industry numbers, does not wisely evaluate the risk of whether the business will be worth more or less in the future, as compared to selling the business now.

 

Savvy business owners, who are attuned to macro factors impacting business valuations, such as the aging population, financing terms and tax reasons, understand that several conditions exist today, that point to selling your business in 2017. In addition to these macro factors, the question of when to sell your business also depends on the life-stage of the company, as well as compelling personal reasons and family situations.

1. Due to Aging Boomers, the Supply of Businesses for Sale will be Increasing

In 2017, the massive generational shift in wealth is underway, as hordes of boomer business owners are motivated to retire. In the next 5 years, 40% of family-owned businesses in the United States will be sold, due to baby boomer retirements. By 2019, the boomer’s sale of their closely held businesses will create nearly $6 trillion in liquidity.
Most M&A professions view the tidal wave of baby boomer retirements as resulting in a potential glut of businesses coming on the market. This mounting supply of businesses for sale, means downward pressure on valuations for years to come. When that tipping point may occur is not known. What is known, is that every day for the next 12 years, another 10,000 baby boomers will turn 65.

2. Slowly Rising Debt Costs Would Decrease Purchase Prices

How fast interest rates rise will affect the M&A sector. Typically, the London Interbank Offered Rate (LIBOR), which is connected to the Federal Reserve’s short-term rate, determines the debt financing rate. Although the Federal Reserve did not raise rates recently, the consensus is that the Federal Reserve will increase rates sometime in 2017.

A rise in LIBOR would make using debt more expensive when funding an acquisition, resulting in buyers offering to paying less for companies. If rates rise too quickly, business owners may have trouble getting the prices they want.

3. Your Company’s Life-Cycle Timing indicates a Strategic Reason to Sell

Each company has life-cycles, and the challenges of passing to the next developmental stage, can often be strategically improved through a sale or merger. Companies in the initial development and emerging growth stages, require debt and minority equity capital, but, generally, are not good acquisition candidates. On the other hand, companies in later stage growth, that have reach a stable, mature level, or that are declining, are attractive to both strategic corporate acquirers and Private Equity Groups (PEG).

Companies that are earning profits, and that have promising projections for increasing revenues, need financial resources to sustain growth. The right Buyer can provide needed working capital, management expertise, competitive strength, and expansion into new markets. For mature companies, the right Buyer can provide more effective distribution channels, improved operating margins, as well as fresh management, to return the company to growth.

Companies in the declining stage of their life-cycle, typically resulting from owner burn-out, can also be attractive acquisition targets. Corporate and PEG Buyers have the money and other resources needed in order to achieve a turnaround. In addition, the right Buyer provides a renewed sense of direction, while working to solve the reasons for decline, defend the company’s market share, and improve competitive performance.

Unlike the macro factors discussed above, where your company is in its’ life-cycle is specific to your company. Usually the best time to obtain the highest price occurs when sales and earnings are good and trending upward, with a history of good performance. This gives buyer’s confidence in projected future earnings.

4. As an Owner, You have Compelling Personal Reasons to Sell

The emotional bonds of an owner to his business can be strong. In American culture, being an owner is an important part of how we define ourselves, part of our self-image. Ownership provides a general sense of self-esteem, pride, and a feeling of control. As result, for many owners, their business and social lives are interwoven, making letting go of the business, all the more difficult.

However, smart business owners appreciate that businesses are in business to make money, and they view at their companies primarily as assets. With the right investment and tax planning, the proceeds from the sale of the business, can be utilized to achieve retirement goals, and be distributed to heirs pursuant to properly structured trusts. Talk about these issues with your investment banker, wealth manager, attorney, and accountant.

Yet, selling impacts the owner’s lifestyle, as well as the lifestyles of other family members. With work-outs common, the owner will often have to adjust to the more restrictive responsibilities of being an employee of the new owner.
With certain macro conditions pointing towards selling now, do compelling personal reasons also exist for a transition to “life after sale”? Talk about these issues with your spouse, and your family, and then you will be better prepared to decide if the timing is now right to sell your business.


4 Ways to Maximize the Proceeds from the Sale of Your Business

By Brian Ballo | Jun 27, 2017

Naturally, business owners believe that their business can be sold at the higher end of the pricing range. However, an attractive Letter of Intent to purchase a business typically does not come unsolicited. Therefore, to increase the odds of maximizing the price and proceeds from the sale of your business, the following tactical steps can be taken:

1. Focus on Increasing EBITDA

If corporate and private equity group buyers are focused on EBITDA, then you should be also. Cash flow is king. That means, improving your income statement is the best way of maximizing the price at which the business sells.

Owners who have structured business operations to benefit themselves and their families, through above-market salaries or tax treatments, should prepare recasted financial statements to exclude certain perks in order to present the company as a profit-generating engine to potential new owners. Items such as personal expenses, charitable contributions, and significant non-recurring expenses can also be added-back to earnings.

Real EBITDA can be bolstered by focusing on the business’ core competency, or the most profitable income streams, which is also more appealing to a buyer than a company going in many different directions at once. Obtain profit and loss statements by division, or by customer-type, then address weaknesses, before such risks are identified by potential buyers.

Buyers seek a return on investment, and pay a premium for a company with a healthy growth trend. A strong brand, loyal customers, and competitive market positioning, are all attractive. Mitigating risks such as customer concentration and product diversity will also enhance value.

2. Assemble Accurate Financial and Operational information

Buyers pay more when they are comfortable that historical and pro-forma financial statements are accurate. Three years audited financial statements is a best practice, although some buyers may accept reviewed financials instead.
Having updated and accurate financial and operational information will also enable you, as a business owner, to understand and make pre-sale improvements. In addition, good documentation will also permit your advisory team to identify relationships or transactions which could have purchase price implications, such as assets on the balance sheet that have been valued on a historical basis that need to be adjusted to reflect market prices.
The buyer’s due diligence requests are coming. To give the buyer confidence, and to assist your advisors in responding to the buyer’s requests, having accurate financial data assembled, will make the buyer feel he knows what he is getting, and likely result in an increased purchase price. Your investment banker will summarize the company’s numbers and story in an initial Confidential Descriptive Memorandum, then, organize the data in a Virtual Deal Room password protected access.

3. Strengthen the Management Team and Operational Systems

Buyers pay more when they are comfortable that the company’s earnings trend will continue post-transaction. The challenge is that if the seller CEO – who has been making all the key decisions, and has the primary relationships with key customers – will be transitioning out of the business, with part of the purchase price paid an earn-out.

The CEO owner can mitigate the risks to the company, and himself, by strengthening the management team, including, identifying a replacement CEO, who will remain with the company post sale. This way, the existing CEO can move to a less demanding new position, while the probability remains good that projected earnings estimates will be to hit.

Part of improving housekeeping should also focus on systems and procedures, particularly, the information technology network. Outdated technology and processes, will negatively impact value. A good IT system will create the favorable impression that the company is poised to move into the future. The procedures manuals should also be updated, so the buyer is able to operate the business without you.

4. Achieve Teamwork Throughout the Sale Process

Corporate Finance Associates, a major investment banking services firm, works to implement NextStep, a systematic, team-driven, sale of business program, which guides business owners through the process of extracting both themselves and their wealth from the business. CFA approaches exit planning in a systematic way, working as part of a team of advisors to ensure that the process addresses all options, and is focused on pursuing the goals and objectives established by the business owner.

As the investment banker, CFA focuses on creating a competitive bidding environment amongst multiple buyer candidates. The other team member, including a Wealth Advisor, Tax Attorney, and an Accountant, provide expert counsel in their respective disciplines to help ensure the business owner is fully informed as to the merits and demerits of proposed strategies.

An effective team will support the ongoing performance of your company during the sales process. If the owner selects a capable team of advisors, then he can focus on maintaining the financial performance of the company, while the advisory team handles all the details of closing the sale transaction.


5 Reasons the Timing is Right to Sell Your Business Now | Part 5

By Brian Ballo | Apr 16, 2014

Time to sell your businessThis blog post is the last in a series of 5.

Business owners inquiring whether the timing is optimal for obtaining the highest price for their business, often start by inquiring: “What are business valuations in the market today?” EBITDA multiples provide a quick thumbnail answer to this question.

However, just focusing on today’s industry numbers, does not enable a business owner to evaluate the risk of whether the business will be worth more or less in the future, as compared to selling the business now.

Savvy business owners, who are attuned  to macro factors impacting business valuations, such as the aging population, financing terms and tax reasons, understand  that several conditions  exist today, which support selling your business in 2014.   In addition to  these  macro factors, the  question  of timing comes down to whether selling the business is strategically beneficial for the business, given its life-stage, as well as compelling personal reasons why it makes good sense for the business owner to sell.

5.  As an Owner, You Have Compelling Personal Reasons to Sell

Despite macro trends that support the case for selling the business, the emotional bonds of an owner to his business can be strong. In American culture, being an owner is an important part of how we define ourselves, part of our self-image. Ownership provides a general sense of self-esteem, pride, and a feeling of control. As a result, for many owners, their business and social lives are interwoven, making letting go of the business, all the more difficult. Read more »


5 Reasons the Timing is Right to Sell Your Business Now | Part 4

By Brian Ballo | Apr 14, 2014

This blog post is the fourth in a series of 5.

Business owners inquiring whether the timing is optimal for obtaining the highest price for their business, often start by inquiring: “What are business valuations in the market today?” EBITDA multiples provide a quick thumbnail answer to this question.

However, just focusing on today’s industry numbers, does not enable a business owner to evaluate the risk of whether the business will be worth more or less in the future, as compared to selling the business now.

Savvy business owners, who are attuned  to macro factors impacting business valuations, such as the aging population, financing terms and tax reasons, understand  that several conditions  exist today, which support selling your business in 2014.   In addition to  these  macro factors, the  question  of timing comes down to whether selling the business is strategically beneficial for the business, given its life-stage, as well as compelling personal reasons why it makes good sense for the business owner to sell.

4.  Your Company’s Life-Cycle Timing Indicates a Strategic Reason to Sell

Each company has life-cycles, and the challenges of passing to the next developmental stage can often be strategically improved through a sale or merger. Companies in the initial development and emerging growth stages, require debt and minority equity capital, but, generally, are not good acquisition candidates.  On the other hand, companies in later stage growth, that have reached a stable, mature level, or that are declining, are attractive to both strategic corporate acquirers and Private Equity Groups (PEG). Read more »


5 Reasons the Timing is Right to Sell Your Business Now | Part 3

By Brian Ballo | Apr 09, 2014

Time to sell your businessThis blog post is the third in a series of 5.

Business owners inquiring whether the timing is optimal for obtaining the highest price for their business, often start by inquiring: “What are business valuations in the market today?” EBITDA multiples provide a quick thumbnail answer to this question.

However, just focusing on today’s industry numbers, does not enable a business owner to evaluate the risk of whether the business will be worth more or less in the future, as compared to selling the business now.

Savvy business owners, who are attuned  to macro factors impacting business valuations, such as the aging population, financing terms and tax reasons, understand  that several conditions  exist today, which support selling your business in 2014.   In addition to  these  macro factors, the  question  of timing comes down to whether selling the business is strategically beneficial for the business, given its life-stage, as well as compelling personal reasons why it makes good sense for the business owner to sell.

3.  Further Potential Capital Gains Tax Increases

In 2013, Congress passed the American Taxpayer Relief Act (ATRA), raising the capital gains tax from 15% to 20% for taxpayers in the 39.6% marginal income tax bracket, (individuals earning more than $400K, and married couples earning more than S450K, annually). Above and beyond that capital gains tax rate, high-income earners are subject to a net  investment income tax of 3.8%, as well as applicable state income taxes. Read more »


5 Reasons the Timing is Right to Sell Your Business Now | Part 2

By Brian Ballo | Apr 07, 2014

Time to sell your businessThis blog post is the second in a series of 5.

Business owners inquiring whether the timing is optimal for obtaining the highest price for their business, often start by inquiring: “What are business valuations in the market today?” EBITDA multiples provide a quick thumbnail answer to this question.

However, just focusing on today’s industry numbers, does not enable a business owner to evaluate the risk of whether the business will be worth more or less in the future, as compared to selling the business now.

Savvy business owners, who are attuned  to macro factors impacting business valuations, such as the aging population, financing terms and tax reasons, understand  that several conditions  exist today, which support selling your business in 2014.   In addition to  these  macro factors, the  question  of timing comes down to whether selling the business is strategically beneficial for the business, given its life-stage, as well as compelling personal reasons why it makes good sense for the business owner to sell.

2.  Pressure to Invest Available Capital Before Interest Rates Rise

After years of inaction, optimism in the U.S. M&A market is beginning to grow. One of the key drivers for this optimism is the  sheer amount of money sitting  on  corporate  balance sheets, and an increasing desire to put that money to work. Read more »


5 Reasons the Timing is Right to Sell Your Business Now | Part 1

By Brian Ballo | Mar 26, 2014

watch on armThis blog post is the first in a series of 5.

Business owners inquiring whether the timing is optimal for obtaining the highest price for their business, often start by inquiring: “What are business valuations in the market today?” EBITDA multiples provide a quick thumbnail answer to this question.

However, just focusing on today’s industry numbers, does not enable a business owner to evaluate the risk of whether the business will be worth more or less in the future, as compared to selling the business now.

Savvy business owners, who are attuned  to macro factors impacting  business valuations, such as the aging population, financing terms and tax reasons, understand  that several conditions  exist today which support  selling your business in 2014.   In addition to  these  macro factors, the  question  of timing comes down to whether selling the business is strategically beneficial for the business, given its life-stage, as well as compelling personal reasons why it makes good sense for the business owner to sell.

1.  Due to Aging Boomers, the Supply of Businesses for Sale Will be Increasing

In 2014, as the nation completes its climb out of the Great Recession, more businesses are being sold, mainly because the valuation gap has narrowed between more realistic Sellers and the number of competing Buyers. The larger trend, however, is the massive generational shift in wealth that  is underway, as hordes of boomer business owners are motivated to retire. Read more »


5 Ways to Maximize the Proceeds From the Sale of Your Business | Part 5

By Brian Ballo | Mar 24, 2014

money treeThis blog post is the last in a series of 5.

Naturally, business owners believe that their business can be sold at the higher end of the pricing range. However, an attractive Letter of Intent to Acquire typically does not come unsolicited. Therefore, to increase the odds of maximizing the proceeds from the methodical sale of your business, the following tactical steps can be taken:

5. Achieve Teamwork Throughout  the Sale Process

Corporate Finance Associates, a major investment banking services firm, works to implement NextStep, a systematic, team-driven, sale of business program, which guides business owners through the process of extracting both themselves and their wealth from the business. Read more »


5 Ways to Maximize the Proceeds From the Sale of Your Business | Part 4

By Brian Ballo | Mar 20, 2014

Nest EggThis Blog Post is the fourth in a series of 5.

Naturally, business owners believe that their business can be sold at the higher end of the pricing range. However, an attractive Letter of Intent to Acquire typically does not come unsolicited. Therefore, to increase the odds of maximizing the proceeds from the methodical sale of your business, the following tactical steps can be taken:

4.  Strengthen the Management Team and Operational Systems

Financial buyers look to “partner” with a strong and experienced executive management team. With a part of the purchase price typically structured as an earn-out, key owners are expected to transition to key employees, and continue to hit projected earnings estimates. Read more »


5 Ways to Maximize the Proceeds From the Sale of Your Business | Part 3

By Brian Ballo | Mar 18, 2014

MoneyThis Blog Post is the third in a series of 5.

Naturally, business owners believe that their business can be sold at the higher end of the pricing range. However, an attractive Letter of Intent to Acquire typically does not come unsolicited. Therefore, to increase the odds of maximizing the proceeds from the methodical sale of your business, the following tactical steps can be taken:

3.  Assemble Accurate Financial and Operational Information

Buyers pay more when they are comfortable that historical and pro-forma financial statements are accurate. Three years audited financial statements is a best practice, although some buyers may accept reviewed financials instead. Read more »