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Capital Ideas for Middle Market Businesses

Welcome to this issue of Capital Ideas, our newsletter dedicated to business selling, business buying and financial resources for mid-market companies.


Look Beyond Cash Flow to Build Value

Five Value Drivers

By Jay Carter, Principal
Charlotte Office, Corporate Finance Associates

coverIn a strong economy, a company’s cash flow is generally the most important component of the valuation equation for a Buyer. Buyers look at historical cash flow first – and then consider other valuation factors. Business owners understand this and strive to realize steady cash flow growth year after year. Unfortunately, most owners have recently discovered how difficult it is to continue building value by increasing cash flow in a global economic recession. In this environment, both sellers and buyers must look beyond cash flow when assessing a company’s true valuation.

The current economic environment provides business owners a unique opportunity to identify and work on new valuation metrics that will enhance business value. These Value Drivers are characteristics of a company that buyers look for when deciding what company to buy and how much to pay for it. Value Drivers differ from one industry to another, but here are five that are universal and can enhance value in any business... Read more »

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"Tough" is the New "Growth" for Middle-Market M&A Deals

Holding On

By John Hammett, Principal
Minneapolis Office, Corporate Finance Associates

coverThis lamentation is being sounded now more than ever. If you listen carefully, you can hear its plaintive wail in the machine shops of Chicago's West side to the boardrooms of America's multinational iconic companies.

The five years leading into 2008 were great for sellers of middle market companies. A strong economy, high public company valuations, and huge new pools of private equity capital drove both strategic and financial buyers on a buyout binge.

Deals made in those days were driven by the growth mantra. Strategic acquirers did deals to continue to fuel their own company’s reported growth. Financial buyers bought into the growth vision not once, but sequentially. They often bought a strong platform company, then fed their own growth scenario by making multiple add-on acquisitions in the belief that growth for its own sake would eventually drive up their aggregate valuations.

The bad news for owners who didn’t sell their companies before now is that all the growth assumptions are gone from the buyers’ minds. The good news for those who want to sell their companies now is that "toughness" in a difficult economy is the new "growth" for buyers... Read more »

 

Feature Acquisition

tombstone

Situation: It was time to retire. In their late 50s, Chris and Dennis Levering decided to sell the tourism and transit business that they had spent over three decades building. The business had doubled in size during the last five years and it was blessed with a strong management team. They achieved market dominance in the region, which is unusual for a city the size of Nashville.

Solution: Charged with a task made extra difficult by the turmoil in the capital markets, the team at the Memphis office of CFA secured offers from strategic and financial buyers. This provided a pool from which the best buyer was selected to carry on the business founded by Levering brothers in 1974.

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