With the high price of gasoline at the pumps the headline story on every nightly news broadcast, CFA’s current quarterly energy newsletter is relevant reading.  Bud Boles, a prominent member of our Energy Industry Practice Group and oil industry veteran, writes a compelling newsletter every quarter analyzing the industry trends and provides insight into what’s in store on the energy front.

The current issue discusses global energy supply and demand, pricing, exploration and recent M&A deals in equipment and services.   I suggest you read the newsletter in its entirety for an in depth summary of the energy sector.   You can download the Q4 2011 Energy Industry Newsletter by clicking here. 

Posted by Lee Crawley.

Another look at “Valuation: Getting the Right Price When Selling Your Business”, an article by Gary Parker.

I think Gary has done an excellent job of summarizing the valuation process. However, I feel that he and many others that have written about “valuing” your company have made the explanation too complicated or mysterious.

This writing is an attempt to simplify the explanation of this process and to provide a conclusion that hopefully gives potential clients more comfort that professional “intermediaries” like CFA can provide very reasonable estimates of what their company will be worth.

I am “certified” by NACVA (National Association of Certified Valuation Analysts), which required a great deal of study, testing and experience and as such, I feel I have learned to navigate the valuation “maze” more effectively.

The first and in many respects the most important question of a valuation is “what is its ‘purpose?’” While there can be many reasons for a valuation, the purpose for our clients is the sale of their company (all or part) and as such we will be using the Fair Market Value Approach. This is defined to mean “willing buyer, willing seller both acting with the same information and no compulsion to act”. While academic it is very practical when combined with the market experience of professionals like CFA that have seen hundreds of transactions during their careers. I will only say that other “purposes” such as estate planning will use different approaches, which lead to different methods mentioned in Gary’s article.

The second important point is Read more »

When selling all or part of a business, identifying qualified buyers is very important to an effective sales process.  Before I go into my process I would like to share a story that involves my joining CFA in 2004 and being interviewed by a senior investment banker from our Dallas office.

When I was explaining to him my “deal experience” from the four prior years he responded, “Oh, you have been working as a business broker”  I then asked him to explain to me how he distinguished between a business broker and an M&A advisor. He stated that if the “buy-side” was an individual as opposed to a professional buyer (i.e. a Private Equity Group or Corporate Acquisition Group) he would describe the transaction as business brokerage rather than M&A.

His point was that professional buyers are in the market everyday and need very little assistance in evaluating opportunities.  The individual buyer, no matter how sophisticated they think they are, is not in the market on an ongoing basis and therefore, will be less proficient and therefore a more risky prospect.

With that introduction, since joining CFA I no longer deal with individual buyers.  My concentration tends to focus on Read more »

Case Study

Situation: In 2001 CFA was engaged by Bronco Manufacturing, an oil rigs parts specialist, to prepare a business valuation and assist in evaluating unsolicited offers over the next couple of years. Bruce and Max, the firms partners, asked CFA to take Bronco to market.  in 2004. Bruce was 60 and ready to retire while Max was 50 and wanted to grow the company more aggressively.

Solution: We considered a leverage buyout for Max, but determined a re-cap with a private equity group was a better strategy for both owners. This journey took three years and we kissed a lot of frogs along the way. We contacted over 100 potential acquirers. Ninety percent were Private Equity firms. From start to finish, Bronco received 11 letters of intent and ultimately found the right partner. The long time line may lead one to think something was wrong with Bronco, but that is not the case. The client was very selective. The good news was that the value of the company quadrupled during that period. This transaction illustrates the importance of patience, persistence and tenacity, as well as a belief that there was a “right” buyer for Bronco.