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Exit and Growth Strategies for Middle Market Businesses

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The Death Discount

By Patrick Powell | Jul 25, 2019

I recently had a conversation with a middle-market business owner who asked me about the value of an enterprise when the generation 1 owner (founder) passes away.  I walked him through a buyer’s perspective of how the business typically suffers a loss of value due to the loss of intellectual capital.  According to Wikipedia, “Intellectual capital is the intangible value of a business, covering its people (human capital), the value relating to its relationships (relational capital), and everything that is left when the employees go home (structural capital), of which intellectual property (IP) is but one component.”

I told him that I call it the “Death Discount”.  My apologies for the lack of tact, but this is a business blog.  How is it valued?  That depends on the buyer’s analysis, but don’t be shocked if it is up to 30 percent.

So, how does a business owner convey his or her intellectual capital to the business in way not to suffer loss at the end of the owner’s life?  Depending on the type of business, this can be exceedingly difficult.  The answer begins with a developing a thoughtful intellectual capital transfer plan.  Working with a business consultant can be helpful, because you want an outside view and analysis of the very important things that are not obvious, i.e. not on your balance sheet.

These things include the answers to questions which begin with “Who do I call when ________ happens?”.  In many businesses there are simply formulas which may be unrecorded to trigger a business founders’ decision to buy or sell property or other assets such as inventory.  Making these decisions timely may have contributed to the business’s profitability and in turn value.

The list of these intellectual capital items should be identified in your plan and documented to the best of the owner’s ability in order to transfer the value to the next generation of owners.


Succession Planning – What is on the Mind of Today’s Small Business Owner?

By Patrick Powell | Jul 25, 2013

Money GraphIn the wake of the last recession, for most business owners the question is:  How many more recessions do I have left in me?  (i.e. How many more recessions can I personally stand?).  After all there is a toll beyond the financial challenges for most business owners.  It would be nice to know when the next recession is coming.  Naturally, we do not know.  So the next best questions is…”Where do I want to be when the next recession comes along?”

As most business owners know, a recession is no time to sell a business.  Especially when, like the last recession, the recession is accompanied by a banking liquidity crisis.

But what about now?  Has there been sufficient passage of time to return to normality?  In fact, all businesses respond to their own industrial cycles.  Some industries remain under significant strain from the past recession.  Others have already seen their businesses grow past pre-recession levels.  For example, if you are in commercial real estate or coal mining, your business may still be at historically low levels.  However, if you are in manufacturing related to the automotive industry, aerospace, or food products, you have likely experienced strength and growth in your business. Read more »


7 M&A Don’ts for Business Sellers

By Patrick Powell | Aug 15, 2012

If you’re a business owner, in all likelihood at some point you’ll become a business seller. When that time comes, as you ready your business for sale, keep in mind these key “DON’TS.”

DON’T think that selling a company is easy, because it’s not! Plan to devote a considerable amount of time to the selling process. A transaction may take six to twelve months or longer from start to finish. It may be in your best interests to hire a professional M&A advisor to guide you through the process. A seasoned intermediary knows alternative ways of structuring a deal, how to bridge gaps between buyers and sellers and will identify the qualified prospective buyers pool.

DON’T assume that a buyer who approaches you is the best candidate. A discreet and careful screening and canvassing of the market is the only sure way to ferret out the right purchaser – the buyer who needs your business and will pay a fair price for it.

DON’T take for granted a prospective buyer’s claims that financing isn’t an issue. Instead, be certain that you are talking to a firm that can demonstrate its financial capabilities.

DON’T expose yourself and your company directly to the marketplace. Confidentiality is a key concern with employees, customers and competitors.

DON’T negotiate directly, but through an intermediary who can mediate, act as a buffer, and carry on “sidebar” conversations. This will allow you to continue the day to day operations of your business.

DON’T let too much time elapse between meetings with an interested buyer. Once the process starts, keep it moving, or you may lose momentum and affect your business and the morale of your employees.

DON’T delegate important aspects of the deal to subordinates – and don’t let the buyer do so either. It is important for key players to stay in touch and to develop confidence in each other, and work directly with the investment banker who will keep the deal on track.

How to Sell Your Business at Full Value

Posted by Patrick Powell.


Things to Know When You Sell Your Business to a Private Equity Firm

By Patrick Powell | Jul 01, 2011

Private Equity tips for business sellersAt our recent Winter Conference in Scottsdale, a select group of private equity firms participated in a discussion on the state of the M&A Industry, both from a current prospective and looking forward to 2011 and beyond.  Although each participant had a slightly different point of reference, there were definite commonalities that bode well for middle market companies.  The discussion included how private equity selects their portfolio companies, multiples, financing, due diligence and “deal killers”.  I wrote a summary of our discussion and it appears in the most recent edition of our Client Newsletter Capital Ideas.  Use this link to read the article in its entirety.

Subscribe to the Capital Ideas Newsletter.

Posted by Patrick Powell.