Exit and Growth Strategies for Middle Market Businesses

Archive for the ‘Exit Strategies’ Category

Will You, and Your Business, Be Ready to Sell?

By Jim Gerberman | Jul 08, 2015

Question marksIn a song dedicated to his son, John Lennon once wrote “Life is what happens to you while you’re busy making other plans.” Though his “message” can be (and has been) interpreted in many ways, he seems to be saying “Don’t let distractions keep you from what’s important.” Every business owner has, at some point, looked into the mirror and asked some version of the question: “What’s next?” It’s a daunting question- particularly in the context of exit or succession planning. “Exit” implies an end to what has been known and familiar. “Succession” also implies some paths that rely on things not within your control. Fundamentally, the “next steps” come down to readiness-for you, your lifestyle, and your business. What can and should you do NOW to prepare for the inevitable separation of you and your business? How to get started? I submit that a good place to begin is by adopting a “READINESS” mindset…

The difference in value from being ready and not being ready can be substantial. Our firm has had the opportunity to work with and represent two manufacturing businesses that were similar in their offerings, their served market and their geographic location…and their willingness to sell. Their transactions closed within 30 days of each other. What differed was their “readiness to sell”. Business 1 had actually approached us several years earlier and our “brutal honesty” suggested that they had some work to do-which they did, addressing issues related to customer concentration, management team depth, systems that captured their processes and leveraged their intellectual capital. Business 2 was dealt a different hand. The owner had unexpectedly developed a serious health issue and was forced to sell…without being ready to do so. Fortunately, we were able to find buyers for both businesses. But the valuation that buyers placed on these businesses were markedly different-the EBITDA multiple of business 2 was 60% of business 1…mainly because prospective buyers saw a different risk profile. Read more »

Due Diligence – Who is in Control?

By Terry Fick | Jun 29, 2015

ControlThe answer to that is actually in the hands of the business seller. How can that be?  Well, the seller that looks through the eyes of the buyer early in the sale process and does something with that perspective will control the process. Those that don’t let the buyer control the process.  So who cares?  The seller should care the most because elongated due diligence always costs the seller money and far too often, the entire deal.

If due diligence starts with the LOI, the buyer is in charge.  If the seller has prepared in advance, and the buyer knows this, the seller is in charge.  By having already pointed out the warts, or perceived warts, you steal the buyer’s thunder.  By presenting an indexed data room with all of the information you believe the buyer will ask, the seller takes control.  Sure, the buyer will always have more questions, but they will be minor. Read more »

When Selling Your Business, Planning is Critical

By Marc Borrelli | Jun 22, 2015

Business PlanWe have all heard Alan Lakein’s quote “Failing to plan is planning to fail.”  However, the problem today is that many middle market entrepreneurs selling their businesses without proper planning for the sale event and thus leave millions on the table.

I am sure that many of these entrepreneurs would say that they did plan to sell, hired an investment banker, and went through a process. However, this is the end part of the process and planning needs to start 3+ years in advance to be truly effective. In the sub $100MM market, to maximize the value of a business is not hoping some banker knows a buyer that will pay substantially more, but rather properly preparing the company for sale.

The lack of planning I believe is due to two issues: (i) entrepreneurs don’t fully realize the benefits of planning, and (ii) they don’t look at their business with external objectivity. Read more »

Still a Sellers’ Market, But Not Forever

By Eduardo Berdegué | Jun 09, 2015

watch on armOn June 1st, Ferrellgas Partners (NYSE:FGP) announced the acquisition of Bridger Logistics LLC for $837 million, a valuation representing 8.3 times future EBITDA of the Dallas-based crude oil hauler. The transaction is further evidence that activity in the energy sector is healthy despite the dramatic reduction, and subsequent less dramatic though reassuring re-bouncing in the price of oil that has impacted the sector over the past several months.

The transaction also illustrates that, despite a moderate decrease in middle-market M&A activity in 1Q2015 compared with the record-breaking trends of 2014, we are still in a sellers’ market…for now.

Yes, Ferrellgas is a NYSE traded company implementing an aggressive diversification strategy; yes, the transaction was structured to include a mix of cash and stock; and yes, Bridger Logistic has experienced extraordinary growth (the company was named Inc. Magazine’s fastest growing energy company in 2013), but with only 5 years in existence, Bridger has yet to prove its model in a non-boom environment.

Valuations are high because cash is plenty available in the coffers of strategic acquirers and of Private Equity groups which held close to a record $1 trillion in dry powder in 2014 fully cognizant that, if not deployed dry power gets wet. Cost of borrowing is at record lows, and many lenders are increasingly willing to tolerate higher leveraged deals. Quality targets are aggressively pursued by competing investors, especially in the middle and upper middle-markets, but with 800-900 quarterly PE-backed transactions between 3Q2013 and 4Q2014, quality is becoming increasingly scarce.

This situation clearly represents a window of opportunity for sellers getting ready to go to market, and for would-be sellers to join them. However, the rate at which Private Equity is raising new funds is slowing down, which could be read as either a saturated, or a fatigued environment, both of which may translate into an end of the current cycle and its fat valuations.

Posted by Eduardo Berdegué.

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Private Equity Seeking Smaller Deals

By Kim Levin | May 05, 2015

Money GraphRecent articles in both the Wall Street Journal and Reuters shine the spotlight on the conundrum facing Private Equity firms working under stricter regulatory guidelines designed to curb dangerous lending practices.  On one hand, it is understandable and prudent to expect policies to be in place to prevent the kind of financial melt-down we experienced during the recent sub-prime mortgage fiasco.  On the other hand, Private Equity firms have traditionally used substantial leverage to their advantage, boosting returns on investments for their portfolios and their investors.  Current regulatory guidelines urge banks to avoid putting debt of more than six times earnings before interest, taxes, depreciation and amortization, or EBITDA, on companies in most industries.

As major buyers of businesses, both public and private, private equity firms use a combination of cash and debt to finance their purchases.  The higher the level of debt, the greater the potential return when things go as planned.  However, when expectations fall short…use of leverage compounds the shortcomings.  We have begun to see both buyouts and loan levels dropping.  According to the Wall Street Journal article “Buyout Firms Feel Pinch From Lending Crackdown”, bankers and private-equity executives indicate the lending pullback is creating pressure on buyout firms to do smaller deals funded with less debt and more cash.  Less debt can mean less risk if the deal goes south, but also lower returns if it proves a success.

The fact that private equity will be seeking out smaller size deals plays into the hand of  middle-market business owners considering a sale.  Average debt levels on middle market deals have stayed within the regulatory guidelines since they went into effect in 2013, according to GF Data.  It is likely this trend will continue for middle-market transactions.

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Business For Sale by Mobile App or Web Portal?

By Peter Heydenrych | Apr 20, 2015

Phone with appsFor business owners looking to execute an M&A transaction to buy, sell or merge, or to raise capital for a privately owned company, the world has changed quite dramatically in the last 20 years. It wasn’t that long ago that Investment Bankers hand-searched the printed Thomas Register of Manufacturing Companies to find prospective buyers for their clients. The Thomas Register, of course, has gone online, along with numerous other searchable “databases” such as Hoovers, OneSource, Capital IQ, and so on. Online databases, however, is not where the story ends. Through Google, Bing and other search engines, the internet has opened up a vast world of access and connectivity.

In an Inc. Magazine article “Merger and Acquisition Deals Moving Online” Erik Sherman points to the growth of online venues as a key deal sourcing element increasingly used by M&A Professionals. The article suggests to an exiting business owner that ” …  according to an online global survey … you’d better get yourself online in the right places .. [along with any other search avenues you may explore]”. In a Bloomberg News article “An App for Finding the Perfect M&A Match” Manuel Baigorri writes, “There are apps for dating, shopping, and hailing cabs. Now there are apps for matching companies for takeovers.”

A 2012 Lead Generation Benchmark Report noted: “Over the past decade, the way people buy products and services has completely transformed.” The report characterized as a “Monumental Shift”, the change in buying behavior amongst small business purchasing decision makers, from the traditional reliance on vendors’ salespeople, to the self-empowerment derived from the ability to become educated and informed through research and social media access. Read more »

Business Exit Planning – It Helps to Know What You Want

By Peter Ventre | Mar 10, 2015

Business Exit PlanningI am reminded that it helps to know what you want from life. Here in the Northeast last week was winter school vacation week. We took the opportunity to tour a handful of states looking at prospective colleges with my son, who like many 16 year olds has little notion of what he may want in a college or what lies ahead for him. We toured urban and rural schools, large universities and small quaint colleges, academically rigorous schools and school that were not so competitive, as everyone needs a back-up plan. Surprisingly by the end of a rather demanding travel week, even my son began to formulate opinions about what he liked and didn’t like. The trip will pay dividends next fall when he ultimately decides where to apply to college.

Many business owners seeking to exit their business remind me of my son. They are not sure what they want. Each owner has read or heard of industry friends who may have sold their business to an unrelated third party at high multiples, or transferred the business to their children, or sold the company to their employees through an ESOP structure or to members of their management team, or perhaps they sold a portion of the company to a private equity group and decided to stay on building the company further with an additional capital infusion. The right path forward to exiting a business is unique to each owner, their company and circumstances. What options best fit the company’s circumstances and also matches the desires of the owner, considering his personal situation. Are there options for the company at a price that would work for the owner to move on? Does the owner wish to retire immediately or do they wish to continue to work in some capacity for years to come? Are there other family considerations?

Business exit planning demands thought, planning, and knowing what you want as the owner.  Like many things in life, it helps to know what is important to you. If you are contemplating a business exit contact a Corporate Finance Associates representative, who would be happy to discuss the various options with you.

Posted by Pete Ventre.

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If You Are Going to Sell Your Business, Sell Now

By Marc Borrelli | Mar 02, 2015

Sell Your BusinessIf you are going to sell your business, sell now.  At the ACG Capital Connection in Atlanta two weeks ago the common theme from the Private Equity Groups I spoke to was that multiples are back at 2007 levels. They were lamenting the fact that they didn’t have more portfolio companies ready to sell.

Jeff Mortimer, Director of Investment Strategy at BNY Mellon, further reinforced this notion during a presentation I attended today. Jeff said that any private company owner who is looking to exit should sell now. In Jeff’s opinion, the bull market has maybe up to 24 months to run; however, multiples will fall before the end of the market as buyers see the impending downturn and won’t pay for the growth that has passed. Thus in his view the selling usiness window could close anytime in the next 6 – 18 months and if an owner were to miss it, it would be another 8 to 10 years before multiples were to return to this level.

To paraphrase Oscar Wilde, “To ignore one sign, Mr Worthing, may be regarded as a misfortune; to ignore both looks like carelessness.”

Posted by Marc Borrelli.

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It’s Always Something in Exit Planning

By Jim Gerberman | Feb 23, 2015

Exit PlanningThe recent production of “Saturday Night Live 40th Anniversary Special” brings back some great memories of the original “Not Ready for Prime Time Players” and the creativity that they and the SNL writers brought into our homes in those early years of the show. And, the stories that we would later share about “Killer Bees”, “Coneheads”, “Samurai” and the like became a routine part of our culture. I have a particular favorite character – introduced by Gilda Radner (rest in peace) in the form of Roseanne Roseannadanna…and her catch-phrase “It’s Always Something”.

Many of us can relate to the challenge of overcoming inertia…of going against the grain. This is particularly true when dealing with a subject that is rather easy to put off or that is rather difficult to address. The subject of “exit planning” is one such subject for many business owners. Accordingly, some questions.

Firstly: Why is exit planning hard to do? For the most part, the daily life of a business owner is dealing with things that are urgent and demand our immediate attention. It’s natural for these to get precedence. The discipline required to effectively address exit planning (or any planning, for that matter) necessitates putting a number of these “urgent items” into proper perspective and giving priority to those that are truly important. In his classic book The 7 Habits of Highly Effective People, Steven Covey called this “Putting First Things First”. Otherwise, as Roseanne Roseannadanna would say: “It’s Always Something”. Read more »

Buying and Selling Businesses Strategies

By Craig Allsopp | Feb 05, 2015

Business MeetingThe great blizzard of 2015 left us snowbound in New England last week. So time for a little reflection.

I was talking the other day with a business owner I know. His company is successful and he makes about $1 million a year. Personal issues have him thinking about retirement. But he isn’t quite ready to put the company up for sale.

This scenario is pretty common in the dealmaking business. Owners think about selling all the time. But when it comes time to act, they often have a hard time pulling the trigger.

Why is that? For one thing, I think business owners are like athletes. They don’t want to leave the game early. They are natural born competitors. And deep down they worry about missing the action. After all what beats running a successful company? Read more »