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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.

Sell Your Company as an Add-On in this Uncertain Market

Getting the Deal Done

By John Hammett, Managing Director
Minneapolis Office, Corporate Finance Associates

selling businessThis may not seem like the right time for most owners of $5 to $50 million companies to be selling. But…if the selling company is positioned as an Add-On to a bigger company, owners will be surprised by the interest in the deal, the valuation, and the terms of the deals that can get done. Add-Ons or Bolt-Ons or Tuck-Ins are deals where a large company buys one or more smaller companies in the same, or similar, businesses to accelerate their own growth. This strategy drives a lot of buyers to make acquisitions. Being an Add-On acquisition can be a real plus for the private company owner being acquired. Many of the stumbling blocks that interfere with other kinds of merger and acquisition activities are not a problem for these kinds of deals. Here are a couple of advantages for sellers:

Less Industry Due Diligence

Add-Ons are done in the same or similar industries. The buyer doesn’t need to go through a long learning curve to understand the seller’s industry and markets. The owner doesn’t need to spend time convincing the buyer it’s a good industry; the buyer already knows that... Read more »

Management Buyouts: An Optimal Investment and Exit Alternative in the Current Economy

An Appealing Opportunity

By Gianpiero (JP) Balestrieri, Managing Partner
Washington DC Office, Corporate Finance Associates

Middle market investment banking activities felt the effects of the financial crisis. M & A deal volume for the middle market fell 39 percent in 2008 compared to 2007 and has fallen even further into 2009. The harsh credit markets have left their mark on the middle market. The average deal value in Q1 2009 was $64.1 million, down from $93.4 million in the fourth quarter of 2007. The decrease in average deal size can be accredited to conservative valuations due to the added risk and limited debt funds available. The incentive for an owner or principals to sell their business has sharply decreased and left many waiting for a more optimal, but indefinite exit timeline.

Traditional business models and financial investments have lost effectiveness, allowing a higher demand for alternative strategies and investments. Private equity groups are tentative to invest because of the risk coupled with difficultly accessing debt to leverage the scale of their investments. An alternative investment like a Management Buyout (MBO) presents an appealing opportunity to private equity. Why? First, the baby boomer generation is reaching their retirement age and ripe for an exit strategy with a structure that creates choices for owners. Second, investing in the current management team to take ownership allows for a familiar and friendly transition, and in turn a more reliable and sustainable future for the company. Lastly, the trends in buyout valuation, debt capital, and equity capital are all enablers of MBOs for owners who want to control their destiny at the times they wish to exit, as well as the values at which they prefer to monetize their business’ value.

Baby boomers make up 28 percent of the US population and 77 percent of the financial assets in the US are controlled by the baby boomers. Baby boomers in ownership do not... Read more »

Feature Acquisition


Situation: Chris P. Lewis watched his company steadily grow from its founding in 1987 to eventually take a place in the top 100 contract manufacturers in the world. It was now time to sell his 67% ESOP owned electronic manufacturing services (EMS) company. The state of the economy and the level of buyer sophistication required to purchase an ESOP added to the challenge. Mr. Lewis contacted the Atlanta Office of CFA for assistance in finding the right buyer.

Solution: CFA received strong interest in Spectral Response, Inc. by advocating on behalf of the firm with a select group of high quality buyers who were interested in ESOPs as accretive acquisitions. On August 12, 2009, Alliance Holdings, LLC acquired Spectral Response Inc. in a private transaction.


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