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Exit and Growth Strategies for Middle Market Businesses

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“In Selling Your Business, It’s Not What You Get, It’s What You Keep”

By Jim Gerberman | Nov 29, 2017

After defeating the Romans in southern Italy at the Battle of Asculum in 279 BC, King Pyrrhus of Epirus, whose invading army had suffered irreplaceable casualties, responded to congratulations by saying: “If we are victorious in one more battle with the Romans, we shall be utterly ruined.” To this day, the phrase “Pyrrhic victory” has been used in business, sports, politics, warfare and other settings as an analogy for victories that come at a great cost. Winning the battle- but, losing the war.

Like many business owners, you’ve built a very nice business that has provided a great lifestyle. You’ve set the direction, funded the growth, shouldered the risk. However, in order to pursue further growth, you’ll need to spend more and assume additional risk. Through the value that you’ve built, your net worth is considerable but your assets are not very liquid. Whether you’re contemplating taking a few chips off the table by selling a piece of the business, transferring ownership to employees, your children or your partner, or selling outright to a third party, the associated transaction may likely result in your future livelihood being supported by the proceeds (what you keep) from the transaction.

Starting with the end in mind, it’s important for you and your trusted advisor team to understand what a successful outcome looks like.

  • What proceeds do you need in order to have the lifestyle you desire?
  • What role in the business do you prefer going forward?
  • What kind of acquirer(s) will need or want what you have?

An earlier article about Business Readiness® describes how to prepare both you and your business to optimize that outcome. By starting early in putting together your team of trusted advisors and by addressing and mitigating those areas of risk that will devalue your business in the eyes of a potential buyer, you set the stage for achieving a successful outcome. More importantly, you set the stage for dealing with the vicissitudes and uncertainties that occur along the path. Inevitably, things happen that can potentially derail the best of plans. As the boxer Mike Tyson has been known to say “Everyone has a plan until they get punched in the mouth”. It’s important for you and your team to know what battles are worth winning- more so than attempting to win every battle (especially those that come at a great cost).

Back to “what you keep”. Too many business owners define their desired outcome in terms of the “selling price”. Even worse, their idea of the right selling price may be influenced by something they’ve heard from a colleague who sold their business, the sentimental value that naturally derives from years of sweat equity, or based upon some other form of intrinsic value that they’ve developed…is it realistic? Will this provide what I need? If not, we have work to do. We need to begin with realistic expectations about the value that the market will place on the business. We also need to understand that there are many aspects (not related to the selling price) that can add to or erode your proceeds from a transaction. Some examples:

  • Deal structure, timing and basis of payments
  • Structure and basis of contingent payouts
  • Holdbacks, escrows, assumed liabilities
  • Working capital adjustments
  • Key people retention
  • Where applicable, taking advantage of gifting or other tax benefits…well ahead of initiating any process leading to a transaction

Which battles are worth fighting? To be clear, you do not need to win every battle to come out well ahead- particularly if the transaction is one where you as the selling business owner will now have a new financial and operational partner while remaining in a leadership role with the business going forward- either in a short, defined transition period or as a co-investing minority shareholder as described in a 2-step or “second-bite of the apple” process. As advocates for your cause, your trusted advisor team can help you make informed decisions about what to fight for…and how- achieving the results you desire while preserving important relationships. In the spirit of the early 20th century Italian diplomat and author- Daniele Varè, “Diplomacy is letting others have your way.”


Will You, and Your Business, Be Ready to Sell?

By Jim Gerberman | Jul 08, 2015

Question marksIn a song dedicated to his son, John Lennon once wrote “Life is what happens to you while you’re busy making other plans.” Though his “message” can be (and has been) interpreted in many ways, he seems to be saying “Don’t let distractions keep you from what’s important.” Every business owner has, at some point, looked into the mirror and asked some version of the question: “What’s next?” It’s a daunting question- particularly in the context of exit or succession planning. “Exit” implies an end to what has been known and familiar. “Succession” also implies some paths that rely on things not within your control. Fundamentally, the “next steps” come down to readiness-for you, your lifestyle, and your business. What can and should you do NOW to prepare for the inevitable separation of you and your business? How to get started? I submit that a good place to begin is by adopting a “READINESS” mindset…

The difference in value from being ready and not being ready can be substantial. Our firm has had the opportunity to work with and represent two manufacturing businesses that were similar in their offerings, their served market and their geographic location…and their willingness to sell. Their transactions closed within 30 days of each other. What differed was their “readiness to sell”. Business 1 had actually approached us several years earlier and our “brutal honesty” suggested that they had some work to do-which they did, addressing issues related to customer concentration, management team depth, systems that captured their processes and leveraged their intellectual capital. Business 2 was dealt a different hand. The owner had unexpectedly developed a serious health issue and was forced to sell…without being ready to do so. Fortunately, we were able to find buyers for both businesses. But the valuation that buyers placed on these businesses were markedly different-the EBITDA multiple of business 2 was 60% of business 1…mainly because prospective buyers saw a different risk profile. Read more »


It’s Always Something in Exit Planning

By Jim Gerberman | Feb 23, 2015

Exit PlanningThe recent production of “Saturday Night Live 40th Anniversary Special” brings back some great memories of the original “Not Ready for Prime Time Players” and the creativity that they and the SNL writers brought into our homes in those early years of the show. And, the stories that we would later share about “Killer Bees”, “Coneheads”, “Samurai” and the like became a routine part of our culture. I have a particular favorite character – introduced by Gilda Radner (rest in peace) in the form of Roseanne Roseannadanna…and her catch-phrase “It’s Always Something”.

Many of us can relate to the challenge of overcoming inertia…of going against the grain. This is particularly true when dealing with a subject that is rather easy to put off or that is rather difficult to address. The subject of “exit planning” is one such subject for many business owners. Accordingly, some questions.

Firstly: Why is exit planning hard to do? For the most part, the daily life of a business owner is dealing with things that are urgent and demand our immediate attention. It’s natural for these to get precedence. The discipline required to effectively address exit planning (or any planning, for that matter) necessitates putting a number of these “urgent items” into proper perspective and giving priority to those that are truly important. In his classic book The 7 Habits of Highly Effective People, Steven Covey called this “Putting First Things First”. Otherwise, as Roseanne Roseannadanna would say: “It’s Always Something”. Read more »


Stay Hungry, Stay Foolish

By Jim Gerberman | Jun 02, 2014

Diploma handsIt’s that time of year for commencement speeches as new graduates across the country face “the next step”. Advice is given freely. I’m reminded of the old adage: “You get what you pay for.” For that matter, the following words are surely no exception.

I’m reminded of a certain commencement ceremony that my wife and I attended along with family members for our son, Steven. On that day, little did we know that the 2005 class of Stanford University would be addressed by none other than Steve Jobs. His speech that day has been heralded as one of the best ever…no argument from me. In fact, the speech was published in its entirety a few months later in Fortune magazine. I have shamelessly used (and respectfully acknowledge Mr. Jobs) the title of that speech for the title of this article. For a complete text of the speech, click here.
Read more »


The Perfect Gift

By Jim Gerberman | Dec 09, 2013

Gift BoxesAs we approach this season of giving, each of us can relate to the challenge and occasional angst that we may feel in searching for “the perfect gift” for our loved ones. Although we’ll “know it when we see it”, the process of searching for “it” is seldom clear or obvious.

Many of you are familiar with O. Henry’s classic story, “The Gift of the Magi”, first published in December 1905. For those unfamiliar with the story, I apologize in advance for spoiling the surprise ending. The story involves a young couple – Jim and Della, struggling to find Christmas gifts that would adequately express their love for each other. Due to their modest means, any gift would seem to require money that they don’t have. Each has one possession that they highly treasure – Della’s long flowing hair and Jim’s shiny gold watch. Della decides to sell her beautiful hair so that she can buy a platinum fob chain for Jim’s watch. When she excitedly presents her “perfect gift” to him she’s aghast to find that he has sold his watch in order to buy his “perfect gift” – a set of brushes and combs for her hair. Though they are left with gifts that neither can use and they no longer have the one possession that they had treasured, the moral of the story demonstrates their willingness to sacrifice in showing their love for each other. 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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