Exit and Growth Strategies for Middle Market Businesses

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Buying and Selling – Beating The Odds

By Craig Allsopp | Apr 24, 2017

I was reading a study about private business sales the other day and came across a very startling statistic – only 20% of the companies put up for sale ever change hands.

This is a sobering thought – particularly if you are a business owner contemplating retirement and counting on the sales proceeds to fund it.

For some businesses it’s a matter of performance that makes a sale difficult, if not impossible. These companies may be losing money, or facing lawsuits or might be overly dependent on one or two customers.

For others, it’s a lack of preparation that creates the roadblock that prevents a transaction. Businesses with sloppy records, aging equipment and poorly maintained facilities fall into this category. Most investors aren’t looking for a fixer-upper and will quickly pass when they see one.

Still other companies never trade because their owners have unrealistic expectations when it comes to the notion of “transferable value.” They fixate on a number – without considering how their companies rank against their peers’ or the operational challenges and investment new owners will face.

So what is the solution to beating the odds in an environment where it is so hard to sell a company?

We believe it starts with preparation and a commitment to making fact-based decisions throughout the process.

Here are three basic concepts to get the sale process off and running toward a positive result.

  • Invest in a bench marking study. This will provide you with an objective look at your company’s position versus its peer group and provide you with a realistic expectation of its transferable market value.
  • Commit to spending time and effort to spruce up your business. Your company will stand out if you have a good management team, orderly books and records and well-documented customer relationships.
  • Hire a licensed investment banking firm to handle your transaction. Dealmakers at these firms are subject to FINRA testing and SEC regulation. You can see their dealmakers qualifications online and easily find out if they have been subject to any disciplinary action.

To sum up, there are no guarantees when it comes to selling a business. But proper preparation and committing to a professional process are more likely to beat the odds then leaving the details to chance.

Letter of Intent – The Start of a Beautiful Relationship?

By Craig Allsopp | Jun 22, 2016

Letter of IntentOne of the major milestones in the purchase or sale of a business is securing a Letter of Intent. Though not as sparkly as an engagement ring, a signed LOI represents the intentions of a buyer and a seller to march down the aisle together.

At the same time, the LOI serves as something like a pre-nuptial agreement – spelling out the general terms and conditions that govern the relationship necessary for a buyer to consummate a transaction.

Like most things marital, things can get a little sticky when discussing the particulars. Some deal principals and their advisors leave no stone unturned in crafting an LOI, while others prefer a simpler approach – a basic letter that covers important terms such as the purchase price and closing conditions while leaving most of the other details for the final sales agreement. Read more »

Buying and Selling Businesses Strategies

By Craig Allsopp | Feb 05, 2015

Business MeetingThe great blizzard of 2015 left us snowbound in New England last week. So time for a little reflection.

I was talking the other day with a business owner I know. His company is successful and he makes about $1 million a year. Personal issues have him thinking about retirement. But he isn’t quite ready to put the company up for sale.

This scenario is pretty common in the dealmaking business. Owners think about selling all the time. But when it comes time to act, they often have a hard time pulling the trigger.

Why is that? For one thing, I think business owners are like athletes. They don’t want to leave the game early. They are natural born competitors. And deep down they worry about missing the action. After all what beats running a successful company? Read more »

Three Ways to Sell a Company

By Craig Allsopp | Jun 12, 2014

For SaleWith the economy gaining steam and valuations rising, the market is turning more favorable every day for business owners who want to sell their companies.

This is especially true in the middle market – companies with sales of $10 million to $100 million – where deal values tracked by GF Data averaged more than six times earnings in its most recent report.

Statistics also show that 51% of private business owners prefer to sell to third parties, while 16% favor a management buyout and 15% opt to sell to family members or employees.

Those who choose to exit have three basic options:

The Auction Process: This is the conventional way to sell 100% of a company and works well for retiring owners who decide to hire an investment banker to run a competitive auction to get the highest price. The banker will spent several weeks gathering business and financial information about the company and developing options for the business owner to consider. If the decision is made to go to market the banker will use company information to create an offering document, or Confidential Information Memorandum. At the same time, he or she will begin surveying the market to create a list of roughly 100 (or more) prospective buyers, both financial and strategic. With the CIM complete and list in hand, the banker will begin talking with likely buyers and responding to their information requests. He will keep the owner informed about indications of interest as the first step in a buyer selection process that will later include management meetings, site visits, negotiations, requests for more information and – after a term sheet is agreed – due diligence. The banker will spend upwards of 300 hours from start to finish in a typical engagement. He or she will be paid a retainer and/or a monthly fee to cover their time and costs with the bulk of their compensation coming from a “success fee” when the deal closes. The owner will spend a significant amount of time working with the banker on this once in a lifetime transaction. Read more »

What Sellers Need to Know

By Craig Allsopp | Oct 08, 2013

MoneyBaby boomer business owners may be overwhelmed with information covering the dos and don’ts of prepping a company for sale. So to ease into the process, consider these 10 key value drivers before putting your business on the market.

  1. Audit your financials. Sloppy numbers sap value like a poorly tuned engine saps horsepower. You may find a buyer who will overlook holes in your financial reporting, but you won’t get top dollar.
  2. Fill gaps in your team. No one can do everything well – including you. If you can’t be away for a week without checking in on routine problems you need a stronger team. Read more »