Exit and Growth Strategies for Middle Market Businesses

Archive for the ‘Entrepreneurship’ Category

Tax Changes for M&A

By George Walden | May 30, 2018

It is that time of year, tax season is upon us and certainly on our minds. So how will the new 2017 Tax Reform Act affect M and A transactions?

I realize that taxes are not a subject that stimulates most people, but I’m certainly excited about what these changes mean for mergers and acquisitions. As you might guess, the most important change was the permanent reduction of the corporate tax rate from a graduated top rate of 35% to a flat, fixed rate of 21%. Additionally, the Alternative Minimum Tax was repealed.

These changes let companies control more of their earnings allowing them to potentially provide higher dividends to their shareholders, reinvest in capital assets and, of course, have available more money to purchase other companies.

Another important feature of the 27 Tax Reform Act is in many instances it diminishes the impact of double taxation on earnings and gains to shareholders. The act also extends the bonus depreciation rule to allow tax payers to deduct as much as 100% of the cost of most tangible assets such as machinery and equipment. This would allow the company to purchase new or used assets and fast track the write off. This does not apply to real estate and a couple of other asset categories.

For purchasers of companies, this means increased accelerated deductions. For sellers, exposure to increased depreciation recapture. The thought process is this type of deduction should cause an increase of asset transactions versus stock transaction for the buying market.

Why do potential acquisitions fail to close?

By David Sinyard | Aug 14, 2017

The termination of a purchase agreement entails significant costs for both the buyer and the seller. Research suggests that relational aspects are as vital as financial considerations.  The role of personal rapport between executives, as well as the importance of the bidder’s reputation, have major impact. First, private equity groups appear to consider the relational aspects of buying entrepreneurial and/or private businesses.  The importance of their reputation and of building rapport illustrate that non-financial aspects are important. Second, sellers should.. Read more »

2009 Ripe for Corporate Buyers

By Brian Ballo | Nov 24, 2008

For Corporate Buyers that Pursue a Disciplined Approach: 2009 is the Time to Buy a Company

Corporate executives at middle market companies understand that meeting investor demands for growth is difficult to achieve organically. Therefore, making strategic acquisitions are critical to building scale and growing revenues.

The impetus for pursing an acquisition have become even more compelling in light of the current challenging economic times, which has put downward pressure on valuation multiples. Indeed, a recent Boston Consulting Group report entitled “The Return of the Strategist: Creating Value with M&A in Downturns” underscores why a weak economy is often an ideal time to acquire a company.  Key findings of this report include:

  • Corporate buyers are uniquely positioned to take advantage of the tough economic times, since they possess the cash to complete transactions, whereas the financial private equity buyers have been restrained from borrowing in the wake of the credit crisis.
  • Acquisitions completed during recessions are twice as likely as upturn deals to produce long-term returns in excess of 50%, and, on average, create 14.5% more value for acquirer shareholders.
  • The best type of company to buy during a recession is one with strong finances and relatively weak profitability.
  • Corporate buyers can also increase their returns and likelihood for success by acquiring relatively small targets.
  • Surprisingly, acquirers can also create value by paying above-average premiums, provided the underlying rationale for the deal makes sense.
  • Acquirers in difficult economic conditions are better at identifying targets with unrealized potential, probably because of the disciplining power of downturns, when every dollar counts.

Yet, despite the promise of adding value from a discounted acquisition, the reality is still that the majority of acquisitions will fail to result in any cost savings or merger synergies. So, how do the top value creators in downturns pick the best targets? Read more »

The Evolution of the Entrepreneur

By Kim Levin | May 01, 2008

Many entrepreneurs start businesses because they either:

  1. Tired of working for the corporate world
  2. Were outsourced, out placed or downsized from the corporate world
  3. Learned a skill and knew that they could do it better.
  4. Got angry at their boss and left their employer
  5. Made the decision to work for themselves.
  6. etc., etc. , etc.

Entrepreneurs were successful sellers, manufacturers, or creative/design/engineers who loved the enjoyment of doing it better than everyone else. Most started on a shoestring. They “bootstrapped the business” by borrowing from family, friends, credits cards, etc. They rapidly learned that building a business is a “stair step process”… i.e. at $1mm revenue, hire an office clerk/receptionist/order processor… at $2mm, hire a controller, move to a new location… at $5mm, hire a general manager and a salesman… and on and on. The more successful the business is… the more the founder will drift away from his first love… that which motivated him first to start the business. Instead of being able to spend his time calling on customers, now he’s reviewing insurance plans, studying risk management, trying to understand new OSHA regulations. As he realizes that it is time to begin building an exit strategy, not only does he want to “take some chips off the table”, he really doesn’t want to retire, he wants to do what he enjoys and move into the next stage of his life. Read more »

Why Hire An Intermediary To Sell Your Business

By Jim Zipursky | Mar 20, 2008

Most owners of privately-held businesses are the epitome of entrepreneurship. Most entrepreneurs are successful because of their “can-do” attitudes as well as their willingness to do whatever is necessary to make their businesses successful.

When it comes time to sell their businesses, their “hands-on” attitude leads many business owners to the belief they are the best salesman for their companies. “Who knows my company better than I,” many business owners say to us, “How can you do a better job describing my company than I,” they ask.

We, as M&A professionals, never purport to know more about our clients’ businesses than our clients. Neither would anyone at CFA espouse to know each and every buyer who could ever be interested in our clients’ businesses. Read more »