Exit and Growth Strategies for Middle Market Businesses

Archive for the ‘Corporate Finance’ Category

Banking Relationships Do Matter

By David Sinyard | Sep 16, 2014

BankI have recently been elected to the board of directors of a community bank in Atlanta.  My prior experiences with banks have been obtaining loans and having business and personal accounts to pay bills and cash checks.  I sit on a number of committees, including a loan committee.  Over the past few months my experience has confirmed that the relationship that a business owner has with his/her banker is critical.

I had a client several years ago whose business was very negatively affected by the downturn.  His bank, a national bank, took the opportunity to force him to pay penalty interest for what they viewed were covenant breaches.  We obtained an SBA loan, refinanced the bank’s loans, and negotiated to get much of the penalty interest refunded to the client. Another client was recently informed by representatives of his national bank that his banking relationship was not big enough for them, so he needed to find another bank!  Apparently $10 million in loans and active bank balances was not enough for them.

Last night I was talking with the president of my bank and an owner of a local $60 million business.    This owner had no relationship with anyone from his national bank except that he had played golf once with someone senior.  He was very interested in talking to us as he was looking for a real banking relationship and some true service.

As a business owner, how good is your relationship with your bank?  While the big banks do all the advertising and seem to want your business, the community and regional banks may be a better choice.  When we review a loan application, much of the conversation is about the longer term client relationship.  Do you feel that your banker feels that way?

Posted by David Sinyard.

Subscribe to the Middle Market Pulse


Q3 Energy Industry Newsletter

By Catherine Patience | Sep 12, 2014

ENIPG-Deep Sea Oil RigM&A activity in the Energy sector for North American based target companies in Q2 2014 included 143 closed deals according to data provided by S&P Capital IQ.  According to a report from Mergermarket, an industry research group, the average deal value was up more than 60% compared to Q1 driven primarily by energy producing targets. Other strong sectors for energy M&A included oil and gas field services companies and exploration companies. Strategic buyers were particularly active in the space looking to gain market share and new technology by purchasing high growth companies.

Read the Entire Energy M&A 3rd Quarter Newsletter Here

What is the Value of Good Advice?

By George Walden | Sep 11, 2014

AdviceI recently had a potential client (the owner of a commercial contracting company) email me and say he wanted to meet to discuss selling his business, but only if I did not charge upfront fees. I responded that I wasn’t interested in being hired without an engagement fee. I thought it funny that a contracting firm would ask for a freebie when every time I have asked for a service from one of them there has been a request for some or all of the money upfront before they would start the work. Below I would like to articulate my thoughts on the subject:

My first thought was professionals deserve to get paid. All lawyers, accountants and other professionals require retainers. I have thirty years of experience doing deals and that expertise has value. Read more »

Q3 Food & Beverage Mergers & Acquisitions Update

By Kim Levin | Sep 05, 2014

Grains and BreadM&A activity in the Food and Beverage sector for United States based target companies in Q2 2014 included 68 closed deals according to data provided by S&P Capital IQ.  According to a report from PricewaterhouseCoopers, activity during the second quarter of 2014 was anchored by a few large value deals. The U.S. retail and consumer industry exceeded year-over-year deal value by 104 percent and volume by 52 percent.


Read the Entire Food & Beverage 3rd Quarter Newsletter Here

Q3 Healthcare Mergers & Acquisitions Update

By Catherine Patience | Aug 29, 2014

HEIPG-Heart RateM&A activity in the Healthcare sector for North American based target companies in Q2 2014 included 288 closed deals according to data provided by S&P Capital IQ.  According to a report from, Health Care M&A News, an industry news group, healthcare M&A activity in the second quarter was up 171% compared with the first quarter and was up 152% versus the same period in 2013.  Deal volume surged on the healthcare technology side to 143 deals, an increase of 31% compared with the previous quarter. The US healthcare sector, a sector that includes physicians, dentists, hospitals, home healthcare, nursing homes, and daycare services, is forecast to grow at an annual compounded rate of 5% between 2014 and 2018.

Read the Entire Healthcare 3rd Quarter Newsletter Here

Avoid Deal Killers When Selling Your Company – Part 4

By Kim Levin | Aug 21, 2014

Over the life of the blog, much has been posted about Deal Killers, those pesky things to avoid when you’re selling your company.  John Hammett wrote a great series of blog posts several years ago that still stands the test of time.  I thought it was a good idea to revisit this series of posts.  The first two blog posts in this series discussed Deal Killer #1  No Management Depth, Deal Killer #2 Customer Concentration, and Deal Killer #3 Financial Inconsitency.  This post will focus on a current issue…the environment. This is the 4th in a series of 5.

pollutionDeal Killer #4 – The Environmental Factor

by John Hammett

ENVIRONMENTAL ISSUES.  Any environmental issue can be a Deal Killer.  Environmental issues involve government, uncertainty, and legal costs. Environmental laws often put the cost of clean-up to the current owners and operators, even if the pollution was caused by a predecessor company at that location.

If the company uses hazardous chemicals, buyers will be extremely cautious about proceeding with a deal.  Real estate will always be subject to due diligence by buyers and a problem found late in the process will very likely kill a deal.

Buyers are very reluctant to buy real estate as part of a deal, nor do they want to acquire a company that has a “tail” of exposure from previous operations.  Even if the company is only a lessor of the real estate, environmental liability goes back to the company that operated on the site and buyers will want to ensure that they don’t buy that historical exposure when they buy the company

ANTIDOTES.    The key antidotes are knowledge and disclosure.  Sellers should understand the use and management of hazardous materials in their operations so that these can be documented and explained to buyers.

It is best to know of environmental issues ahead of the deal negotiation.   Sellers should do their own research in advance to find out if there is any pollution on their site, whether caused by them or a predecessor.  If any issues are found, these should be described and documented up front.  Some buyers will be willing to work through some of these issues if they are known in the beginning.  Late discovery of environmental issues is nearly always a deal killer.

7 Step Guide to Business Exit Planning

Avoid Deal Killers When Selling Your Company – Part 3

By Kim Levin | Aug 13, 2014

glasses and financialsOver the life of the blog, much has been posted about Deal Killers, those pesky things to avoid when you’re selling your company.  John Hammett wrote a great series of blog posts several years ago that still stands the test of time.  I thought it was a good idea to revisit this series of posts.  The first two blog posts in this series discussed Deal Killer #1  No Management Depth and Deal Killer #2 Customer Concentration.  This post will focus on a current problem for many companies…financial inconsistency. This is the 3rd in a series of 5.

Deal Killer #3 – Financial Inconsistency

by John Hammett

Inconsistent Financial History.  Buyers look back at four or five years of historical financial performance when they evaluate a company.  If that history shows big swings up or down in sales and earnings (and losses), it makes them uncomfortable that they can predict and control the future sales and earnings.  Historical volatility and inconsistent financial history are a Deal Killer for many buyers.

Antidotes.  There a number of ways to mitigate this issue.

The time frame of the history can be adjusted to show today’s results in the best context.  If the last three years are nicely consistent, show only those and ignore earlier years that may be volatile.  Or, if the volatility is in the last two or three years, including a five or six year history may give a more stable picture. Read more »

How Does FINRA Relate to Selling or Buying a Business?

By Roy Graham | Aug 11, 2014

finraMany business owners are not familiar with FINRA or how it relates to buying or selling a business.  FINRA (Financial Industry Regulatory Authority, Inc.) is an independent, not-for-profit organization authorized by Congress to protect America’s investors by making sure the securities industry operates fairly and honestly.

FINRA’s oversight of interstate securities activities includes not only publicly traded securities but also private securities of any size company including the one you may be buying or selling.  If you are buying or selling a business, FINRA is providing oversight of those FINRA licensed broker-dealers and representatives who may be working on your deal.

FINRA oversight begins with the licensing process.  Every applicant must be sponsored by a FINRA licensed broker-dealer and complete a detailed application.  This application is submitted to FINRA along with the applicant’s finger prints which are sent to the FBI as part of a criminal background check.  After an application is approved there is an examination to establish core level of expertise.  M&A activities require passing the Series 79 examination to secure an “Investment Banking Representative” license.  Certain types of private placements and other types of securities require the Series 7 “General Securities Representative” examination.  Representatives will also take a Series 63 “Uniform Securities Agent State Law” examination.

Once an individual is licensed his or her activities are monitored both by the sponsoring broker-dealer and by FINRA.  FINRA regularly examines broker-dealers and their representatives for compliance with FINRA rules and may bring disciplinary actions and fines against registered brokers and firms for violations.  It may refer particularly egregious cases to the SEC or other agencies for litigation and/or prosecution.

You may wish to check a firm and or broker you are considering.  FINRA provides convenient public access to their “BrokerCheck” feature via their website  BrokerCheck includes current licensing status and history, employment history and, if any, reported regulatory, customer dispute, criminal and other matters. FINRA recommends that it be the first resource investors turn to when choosing whether to do business or continue to do business with a particular firm or individual.

Posted by Roy Graham.

Avoid Deal Killers When Selling Your Company – Part 2

By Kim Levin | Aug 06, 2014

Calculator with PenOver the life of the blog, much has been posted about Deal Killers, those pesky things to avoid when you’re selling your company.  John Hammett wrote a great series of blog posts several years ago that still stands the test of time.  I thought it was a good idea to revisit this series of posts.  The first blog post in this series discussed Deal Killer #1, No Management Depth.  The second deal killer focuses on the lifeline of a business…its customers. This is the 2nd in a series of 5.


by John Hammett

A company with more than 20% of its business with any one customer has a major potential Deal Killer.  Customer concentrations of 30%, 40%, 50% make it increasingly harder for owners to sell a company.  Even if big customer is a well-regarded company, buyers do not want the risks associated with a sudden loss of such a large portion of business.

Many companies grow with the growth of a few key customers because it is often easier to cultivate one or two strong relationships.  Keeping up with the demands of a large or a fast-growing customer can take attention away from the task of broadening the company’s customer base.  Sometimes buyers have the perception that customer concentration is an indication that the management team is lazy. Read more »

Robust Activity in Healthcare M&A

By Catherine Patience | Jul 24, 2014

Middle Market PulseThe US health care sector includes more than 830,000 hospitals, doctors’ offices, emergency care units, nursing homes, and social services providers with combined annual revenue of about $2.2 trillion.  M&A activity in the sector has been robust over the past several years as the nation grapples with healthcare reform.  One segment of the sector seems to be of particular interest at present…Healthcare IT.

The Patient Protection and Affordable Care Act, better known as “Obamacare” continues to have far reaching implications across all healthcare subsectors.  Demands for quality healthcare data continue to increase and private equity funds and strategic buyers alike are investing in new segments that improve provider workflows and patient outcomes. Investments span a variety of provider and services assets, including healthcare-related information technology (HCIT) solutions.

The recent passage of the Protecting Access to Medicare Act of 2014, also known as the “doc fix” bill, spared the US health care sector the effects of physician rate cuts and comprehensive medical coding changes for another year. The bill delayed a Medicare physician rate cut based on the sustainable growth rating (SGR) formula and physicians have avoided an approximate 25 percent SGR rate cut for several years by winning reprieves from lawmakers. Another major change for the health care sector, implementation of the ICD-10 medical coding system, was also delayed until October 2015. Adopting the new diagnostic codes, which the AMA opposes, will require significant IT investment.

Some medical entities have already invested in preparing for the ICD-10 change, but Healthcare IT activity should be robust as providers implement these costly programs.  Investors will look to capitalize on this coding change.

Subscribe to the Middle Market Pulse