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Exit and Growth Strategies for Middle Market Businesses

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Key Business Value Triggers | #1: Management Quality

By JP Balestrieri | Sep 30, 2015

qualityIn the current middle market M&A space, most businesses are valued based on their top line revenues and the cash flows they generate over time. However, a company’s ability to sustainably maintain and grow revenues and generate normalized cash flows over a period of time is constantly subject to outside systematic risks beyond the control of the business owner.  Owners who are interested in selling their business need to thoughtfully consider key risks that are company specific and, in the ordinary course of business, within the realm of their control to be successfully mitigated or minimized. Business owners and their advisors need to focus on their key company specific value triggers that can generate the most value for the business owner when planning an exit or a transition strategy.

Value Trigger #1: Management Quality

The management team can be a company’s greatest asset and can also be a company’s greatest liability.  Buyers, both private equity (PEGs) and strategic companies always place an emphasis on existing management as a basis for determining and/or increasing a target seller’s investment value and return over time.  Even though strategic buyers might place less importance on the management quality, since they are in a position to eliminate redundant positions, they still might require key managers to successfully integrate operations post-acquisition.  PEGs are financial buyers and thus, aren’t usually ready to deploy key management people at the acquired company.  PEGs will need to critically assess the current management’s abilities to determine the risks associated with keeping the current management as well as the risks related to the significant time and expense taken to find, hire and train new qualified management.  Selling owners of companies should not take management transition planning lightly.  Employing or maintaining a qualified management team ahead of a major ownership transition is of paramount importance to a buyer’s perception of risk and value, and ultimately, the price and structure received by the Seller. Read more »


Is a Management Buyout the Right Exit Strategy For You?

By JP Balestrieri | Aug 04, 2011

How a management buyout works: in today’s market where there is a lack of credit,  which drives valuation multiples,  whereby there is a lack of cash available, a lack of liquidity for a greater  breadth of potential buyers for one’s company,  you need to focus on the needs of the principals of a company in terms of exiting.  What meets the needs of an owner of a company that wants to leave his or her company, or sell it, might not match the issues we have in today’s economy.  An People Planning Retirementexit strategy really starts with the owner.  The owner has to be ready to sell.   Sometimes when the owner is ready to sell it might not be the best time to sell in the market.    That doesn’t mean that the owner’s not going to get a very good deal.  Remember, it’s not all about price, it’s also about structure.  You might get less of a price, but you might get much more cash up front.   Versus a much bigger price, but much less cash up front,  then you are, as an owner, tied to all these different conditions precedent to obtaining the rest of your value down the road, which might not be sensitive to your needs today.  So, the MBO (Management Buyout), is a very firm and robust way to exit today, for any owner, especially if he or she has a capable management team that is entrusted with taking a company forward, which is a natural risk mitigant to any prospective buyer.

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Management Buyouts: An Optimal Investment and Exit Alternative

By JP Balestrieri | Sep 21, 2009

Middle Market investment banking activities felt the effects of the financial crisis.  M&A deal volume for the middle market fell 39 percent in 2008 compared to 2007 and has fallen even further into 2009.  The harsh credit markets have left their mark on the middle market.  The average deal value in Q1 2009 was $64.1 million, down from $93.4 million in the fourth quarter of 2007.  The decrease in average deal size can be accredited to conservative valuations due to the added risk and limited debt funds available.  The incentive for an owner or principals to sell their business has sharply decreased and left many waiting for a more optimal, but indefinite exit timeline.

Traditional business models and financial investments have lost effectiveness, allowing a higher demand for alternative strategies and investments.  Private Equity groups are tentative to invest because of the risk coupled with difficultly accessing debt to leverage the scale of their investments.  An alternative investment like a Management Buyout (MBO) presents an appealing opportunity to private equity. Why? Read more »


Project Finance: The Impetus to Expansion and Acquisition Funds in Capital Intensive Industries

By JP Balestrieri | May 19, 2009

In the current market, we are faced with companies and governments requiring the expansion or renovation of their capital intensive assets in various related infrastructure market segments.  Whether expanding manufacturing facilities, implementing new infrastructure capacity or leveraging existing assets for expansion into different regions or market niches, innovative financing is often at the core of long-term projects to transform a company’s strategy.  The ability to transform and execute upon one’s corporate strategy in capital intensive industries (like energy, oil & gas, transportation, government concessions and/or heavy equipment and manufacturing) is dependent upon the access to capital required to deploy existing and new capital assets that are critical to the long term recurring cash flows of a company’s or project sponsor’s(s) operations.

Akin to the underlying transformation in corporate objectives, the challenge with the project finance strategy is that the investment is made upfront while the anticipated benefits of the initiative are realized in the much longer term.  It is imperative to identify and prequalify sources of funds that can thoroughly understand the underlying changes being implemented by the prospective borrower(s) and project sponsor(s), and to achieve a comfort with the future cash flows arising from the collateral package of project investment or captive acquisition. Read more »