Business Selling Myths – Part 1

Would you feel comfortable going into open heart surgery with a doctor who had never performed the procedure before?  So, why would you try to sell your business alone, or let your CPA try?  Your business is your precious child.  Hire someone who is seasoned and understands the nuances involved in successfully marketing and selling businesses.  Hire an Investment Banker!  You’re more likely to get fair value for your business, in a reasonable time frame with fewer complications IF a good Agent represents you.

An Investment Banker will:

•    Set Pricing Expectations:  We will work with you so you have a reasonable expectation for the price your company will bring in the market.  We will not set an asking price, as we let the market bring their best offer and create a competitive process.

•    Market the Business:  Marketing your business successfully is a time consuming and expensive process.  We have a team of professionals that work for you to prepare, and keep current, a Confidential Descriptive Report and Blind Profile.  We will handle all of the time consuming details while you keep an eye on the performance of your company.

•    Find and Screen Prospective Buyers:  We have a vast network of Private Equity Groups (PEGs) and Strategic Buyers that we work with on a regular basis.  Additionally, we will form a customized communication plan, based on your needs, to reach out to new prospects.  After prospects are found we quickly determine their financial and competitive qualifications as it relates to the potential transition.  An attractive offer is worth very little if the odds of a successful closing are low.  A good Investment Banker will not waste time or money with “tire kickers” or unqualified prospects.

•     Negotiate the sale:  There are so many other important factors to consider beyond price.  Of course, pricing is important and we will work so that no money is left on the table.  But, we have structured many sales and know how to ask for those “extras” that make the
deal really special.

•    Work through Due Diligence and Reach Closing:  This process can get rather involved.  We will help keep the deal on track and focused on reaching a successful closing.  We have experience that is much needed during this often frustrating phase.

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Posted by Gerald Lindsay.

CFA Advises Saturday Capital, LLC in its Acquisition of first aid training company Code Red LLC.

July 6, 2011 – Chicago, IL – Corporate Finance Associates  is pleased to announce that Saturday Capital, LLC has acquired Code Red LLC. Code Red’s founder, Brian Leonard invested alongside Saturday Capital and will remain CEO of the company.

Code Red, a leader in CPR, provides first aid and automated external defibrillator (AED) training to companies nationwide. Code Red was founded in 2005 by Brian Leonard with the mission of protecting the workplace from sudden cardiac arrest and workplace related injuries.  As a national training center for the American Heart Association, Code Red is able to provide clients with CPR, First Aid and AED training classes anywhere in the United States. Code Red also distributes AEDs for some of the largest AED manufacturers – serving clients nationwide.

“Rob Umlauf, Vice President in our Chicago office, had a long relationship with Code Red… almost since the company’s inception.  When Mr. Leonard was ready to take the company to the next level, we immediately knew that this was a perfect fit for our client, Saturday Capital,” stated Joe Contaldo, Managing Director of Corporate Finance Associates.

“Corporate Finance Associates introduced us to the ideal situation for Saturday Capital – a great company with management excited for growth,” Patrick Doherty, Managing Member of Saturday Capital stated.

Saturday Capital is a St. Louis-based lower middle market private equity fund organized to acquire manufacturers, value-added distributors, and service companies headquartered in the greater Midwestern regions of the United States with $1 million to $3 million in EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization). Saturday Capital also invests in early stage and growth investments. For more information: www.saturdaycapital.com

Transaction Information:

On June 13, 2011, Saturday Capital, LLC acquired Code Red, LLC in a private transaction.  The details were not disclosed.  Joe Contaldo, Managing Director and Rob Umlauf, Vice President of Corporate Finance Associates  advised Saturday Capital in the transaction.

About Corporate Finance Associates:

Corporate Finance Associates is an investment banking firm, providing lower middle-market companies with a wide range of financial advisory services in support of mergers, acquisitions, divestitures, capital sourcing, and corporate restructuring.  From project inception to completion a senior principal guides clients through every challenge, advocates on their behalf, and leverages CFA’s experience and extensive resources.  Corporate Finance Associates has  20 offices in United States, three in Canada, three in India and 14 partner offices throughout Europe and Latin America.  More information about buying or selling a business is available via the Internet at www.corporatefinanceassociates.com.

For more information contact:

Joe Contaldo, Managing Director
Corporate Finance Associates
+1 (847) 836-7035
jac@cfachicago.com

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Posted by Joe Contaldo.

Although it may sound contradictory, expanding through acquisitions may prove a sound phased exit strategy for some.

There are companies whose size makes them too large for individual, life-style investors and too small for financial or strategic investors. In those cases, growing through acquisition as a means to achieve critical mass may be a good first step toward positioning the company for a future sale. Read more »

Above average financial performers are still accounting for the bulk of completed business sales during the first quarter of 2011.  Valuations and multiples have held steady for three consecutive quarters and the market seems poised to continue its slow yet steady improvement. 

For an explanation about the historic trends in middle-market business activity, read this month’s Middle Market Pulse.

Posted by John Hammett. 

You may be asking yourself  “Is this the right time to sell my business?”  Well, the answer just may lie in the condition of the capital markets. When the capital markets dried up during 2008 and 2009, the percentage of equity in completed transactions hit levels not seen in years.

In order to purchase good, quality companies, buyers were contributing more and more of their own cash to the deal.  In the second quarter of 2009 we saw average equity contributions reach near 60%.  The balance of the deal structure was usually a combination of senior and mezzanine debt.  These high levels of equity contributions were a direct result of the limited capital available in the market.  As lending has slowly improved, we are now seeing the blend of debt to equity more equally balanced.
.

The April Middle Market Pulse provides a great snapshot about how lending levels effect M&A deal flow, so read the entire article now.

Posted by Peter Heydenrych.

The investment banking business is very competitive.  I’m guessing that may be true in your industry as well!  Moreover, merger and acquisition dealmakers run the gamut in terms of skills and abilities.  So, how do you go about selecting the right investment banker to sell your business?    

Let’s start with the notion that a dealmaker must be able to deeply understand your business, exceptionally market and represent your business, and advocate on your behalf in the relentless pursuit of their fiduciary responsibility to you!  Of course, a seller or buyer of a company should look for certain key skills before they hire an investment banking representative who has (or doesn’t have) some ability to alter the course of their future!  Skills come in two varieties… hard skills and soft skills.  Some of these skills are easily identified through simple questions and some may only be apparent after you get to know your prospective representative.

So, let’s address the definitions of hard and soft skills. Read more »

Doug Nix’s recent article “Pointers on Successful Acquisitions” hits the right chords on the whens and whys of buying a business.  He’s right on target when mentioning that just because something looks like a bargain doesn’t mean it’s a smart acquisition.

If all the prognosticators are correct, 2011 should be a boom year for the M&A markets and many companies will appear on the selling blocks for the first time.  From a buyer’s standpoint, it will be critical to make sure that what you see is really what you get.  Doug’s article is a good read and you can find it in its entirety here.

Posted by Robert St. Germain

 As M&A activity continues to pick up in 2011, and as you enter the final push to get deals to the finish line, deal killers like “time” and “surprises” need to be avoided at all costs.  Jim Zipursky, of the CFA Omaha Office, does a great job in summarizing what can go wrong and how to avoid it.  The article is a must read and you can find it in its entirety here.

Posted by Peter Heydenrych.

Above average performers (defined as greater than 10% revenue growth and greater than 10% EBITDA margin) accounted for over half of all M&A transactions in 2010.  In addition, these above-average companies were awarded healthy valuation premiums.  This is a clear “flight to quality” that is driving up valuation multiples on the best companies available in a market with limited sellers.  We have seen an improving trend in market M&A activity during the past 4 quarters and see that trend continuing well into 2011.  You can read about what defines an “above average performer” and which industries have experienced an uptick in activity in the March issue of CFA’s Middle Market Pulse.

Posted by John Hammett.

On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (“Tax Relief Act”).  Pursuant to the Tax Relief Act, certain tax cuts that were enacted during the Bush Administration have been extended until December 31, 2012.

The Tax Relief Act extended through 2012 the individual income tax rate schedule, which provides for a maximum tax rate on ordinary income of 35%.  Without passage of the Tax Relief Act, the individual income tax rate schedule that was introduced during the Clinton Administration, with a maximum tax rate of 39.6%, would have taken effect in 2011.  The income tax rate schedule for estates and nongrantor trusts, with a maximum tax rate of 35% on ordinary income, was also extended through 2012 by the Tax Relief Act.

Under the Tax Relief Act, the lower tax rate on long-term capital gains and qualifying dividends has been extended until December 31, 2012.  Except for certain items such as unrecaptured Section 1250 gain on real property (25%) and collectibles (28%), the maximum tax rate on long-term capital gains and qualifying dividends is 15%.  Without the Tax Relief Act, for 2011, the maximum tax rate on long-term capital gains would have increased to 20% and dividends would be taxed as ordinary income. Read more »