Exit and Growth Strategies for Middle Market Businesses

Archive for the ‘Investment Banking’ Category

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 »

Avoid Deal Killers When Selling Your Company – Part 1

By Kim Levin | Aug 01, 2014

Deal SigningOver 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…

5 Deal Killers to Avoid When Selling Your Company

By John Hammett

Company value is a function of the buyer’s expectation of future cash flow, factored for the buyer’s perceived risk of not achieving that cash flow.  There are many factors that will affect the buyers’ perceived risk.  These include things like whether the company’s industry has good growth prospects, whether the company’s products are proprietary or commodity, and how capital intensive the business is.  The buyer’s understanding of the effects of these factors is typically negotiated as a higher or lower valuation.

However, there are five factors that are so significant that they don’t affect price: they affect the fundamental ability to sell your company and complete a deal.  For this reason, these are considered Deal Killers.   If a company has one or more of these attributes, it will be difficult to find any buyer.  Any buyer will very likely discount the value to accommodate the risk that these Deal Killers bring. Read more »

Manufacturing M&A on a Roll

By Kim Levin | Jul 15, 2014

Middle Market PulseRecent data suggests that mergers and acquisitions in the middle-market manufacturing sector are on a roll in 2014 and not seemingly slowing down any time soon. Deloitte’s recently published annual Corporate Development Survey found that 62 per cent of executives from the manufacturing industry intend to increase mergers and acquisitions activity between now and 2014. This is much higher than the overall average of 46 percent across all industry categories who are thinking of increasing M&A. What is the cause of this uptick in activity in manufacturing?

Manufacturing as a sector was hard hit during the recession and many business owners worked tirelessly to keep their businesses afloat. For those manufacturing businesses that came through healthy, now is a great time to plan for growth. However, many business owners weren’t quite as fortunate. Even though the crisis is over, they’re just plain tired.   They see this as a window within which to sell the business and get out. With both ample buyers and a supply of ready sellers, activity should continue to rise.

Manufacturing M&A can achieve many different goals, from expanded capabilities and capacities, expanded and complementary product lines, access to new or improved technologies to new or improved territory or distribution channels. Regardless of the objective, once a business owner has decided to grow by acquisition, the first step in the process is a carefully constructed plan. For most middle market business owners this may be the first experience they will have exploring, identifying and negotiating a purchase or sale. Is this something they can take on themselves? Maybe…but, in all likelihood they may be better served continuing to concentrate on the day to day operation of their business and passing on the M&A duties to an experienced professional who can advocate on their behalf.

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The Importance of Customer Appreciation

By Kim Levin | Jul 08, 2014

Thank youAnalysis shows the cost of acquiring new customers is 5-7 times higher than the cost of retaining established ones. Yet, often times, a customer appreciation expense is one of the smallest line items in the company budget.   If used effectively, however, this investment can have a dramatic impact on a company’s bottom line. Customer appreciation is one of the major factors customers consider when returning to a business. Showing customers how much you appreciate their business can turn them into regular clients. The most obvious way to show this is by verbally telling them, “Thank you for your business, we hope to see you again.” And, remembering names, as well as preferences with your products and services can go a long way toward showing your customers that you appreciate them. Read more »

Q2 Transport, Logistics & Supply Chain M&A Update

By Kim Levin | Jul 03, 2014

TLIPG-Warehouse of ProductsM&A activity in the Supply Chain and Logistics sector for North American based target companies in Q1 2014 included 72 closed deals according to data provided by S&P Capital IQ. The average deal value was $64 million with an average enterprise value to revenue multiple of .67. The deal activity has primarily been driven by large acquirers gobbling up smaller local outfits with the hopes of enhancing market share at relatively modest multiples. According to a report from global consulting firm PriceWaterhouseCoopers, this sentiment has set up smaller trucking and logistics companies for a lively M&A market over the next 12 months.

Read the Entire Transport, Logistics & Supply Chain 2nd Quarter Newsletter Here

Q2 Technology, Media, Telecom M&A Update

By Kim Levin | Jun 27, 2014

Circuit Board and FilamentsM&A activity in the Technology, Media & Telecom sector for North American based target companies in Q1 2014 included 675 closed deals according to data provided by S&P Capital IQ. The average deal value was $119 million with strong average revenue multiples at 2.92. According to MergerMarket, an industry data source, Q1 2014 was the third quarter during the last twelve months to see TMT M&A exceed the value of the Energy, Mining & Utilities sector. Telecom has been the best-performing industry among the S&P 500 over the past year and the Media & Technology industries performed above average during the global downturn in 2008. As the economy improves, M&A activity in the space has continued to heat up.

Read the Entire Technology, Media and Telecom 2nd Quarter Newsletter Here

Middle Market M&A Sweet Spot

By Kim Levin | Jun 25, 2014

Middle Market PulseFour major industry categories accounted for over 80% of the middle-market M&A transactions recorded by GF Data in 2013.   Manufacturing, business services, health care services and distribution lead all sectors in total deal volume last year. Of those, business services showed the greatest improvement year to year. This trend may be indicative of a general improvement in the economy and if 2014 lives up to expectations, the business services sector may continue to represent one of the “hottest” middle-market M&A sectors.

Companies in the business services sector provide support services to businesses, such as office administration, hiring and placement of personnel, security services, cleaning, and waste disposal.   According to First Research, the US business services sector consists of about 340,000 companies with combined annual sales of about $720 billion. As long as businesses continue to use temporary workers or outsource either landscaping, janitorial or security monitoring services, the sector will be ripe for growth.

The US business services sector is highly fragmented with the 50 largest companies accounting for less than 25 percent of sector revenue. Large companies often enjoy economies of scale and can compete for large, national accounts while small companies compete by offering highly specialized services, or through superior customer service. These smaller size companies often sit right in the sweet spot of the middle market.

Since the year 2000, business services has consistently represented between 15 -20% of Corporate Finance Associates‘ completed transactions.   Demand for business services ultimately depends on the level of business spending, which is determined by the health of the overall economy and so far all signs point to a health 2014.

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Q2 Plastics & Rubber Mergers & Acquisitions Update

By Kim Levin | Jun 20, 2014

Green TubingM&A activity in the Plastics and Rubber sector for North American companies in Q1 2014 included 25 closed deals according to data provided by S&P Capital IQ. The average deal value was $56 million led by a number of strategic acquirers looking to expand market share and capabilities. PE buyers were also active in the space looking to deploy capital.

Read the Entire Plastics & Rubber 2nd Quarter Newsletter Here