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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.

Successfully Executing the Optimal Business Exit Strategy In the Coming “Boom-er Bust” Era

Extracting Business Wealth

By Peter Heydenrych, Managing Director
Los Angeles Office, Corporate Finance Associates

selling businessAccording to an article published by Robert Avery of Cornell University in February 2006, the majority of boomer wealth is held in 12 million privately owned businesses, of which more than 70% are expected to change hands in the next 10 to 15 years. Only a portion of these businesses will successfully cash out, because of a fundamental oversupply of sellers.

Defining the Exit

Exit Planning is a process involving the development and execution of a series of systematic steps taken to allow both the owner and the accumulated wealth to be extracted from the business, via one or more of the numerous available strategies, including:

  • Selling the business to Partners, Strategic Buyers, Investors, Competitors, International Buyers or the Public

  • Recapitalizing the business for Partial Liquidity

  • Merging the business to achieve enhanced valuation and/or marketability

  • Transferring the business to Family, Management or Employees

  • Gifting the business to meet personal and/or tax-planning goals

  • Liquidating or Partially Liquidating the business

Setting Goals

For the majority of business owners, the newly liquidated business wealth will constitute a meaningful portion of the total wealth driving the financial, tax and estate plans. The key to beginning the exit planning process is to clarify the endgame, taking into account the likely value of extracted business wealth. Read more »

Handle with Care: Working Capital and Equity Targets in Business Sales

Managing Risk

By John Klearman, Managing Partner
San Diego Office, Corporate Finance Associates

Many business owners don’t give much thought to the fluctuations in their equity and working capital, but as they relate to selling a business, they should. Either item can have a material impact on a seller’s ultimate wind fall at closing.

An Equity Target is an amount of equity (assets less liabilities) delivered to a buyer when a business is sold. In Mergers and Acquisitions (M&A) buyers typically argue that the equity target is the amount of equity required to operate a business under normal conditions and it may include any asset or liability category. A Working Capital Target is more narrowly defined as the amount of excess current assets over current liabilities, established as a target that buyers may require at the time of sale. Once again, the buyer’s argument is that the level of working capital proposed is necessary to run the business under normal conditions... Read more »

Feature Acquisition


Situation: A long term CFA buy side client had recently completed the buyout of his partners and was interested in divesting his interest in the business as part of an estate planning exercise. The seller was not interested in retiring, he only wanted to reduce his debt load and protect his financial position. His company, Exocor, Inc., was Canada’s leading value added distributor of high performance welding alloys with a footprint across both Canada and the United States..

Solution: CFA’s Oakville, Ontario, Canada office began marketing the company to a select list of industry and financial buyers during the first week TARP bailout funds were approved by Congress in 2008. Over the ensuing 3 months CFA received 10 offers for the business. The business owner ultimately decided on a buyer that combined price with the ability to accelerate US growth.


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