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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.


When Private Equity Talks, Investment Bankers Listen

Attracting Investment

By Patrick Powell , Managing Director
Lexington Office, Corporate Finance Associates

listeningOver the past 3 years we have seen a marked change in the level of mid-market acquisition activity in North America. Looking backwards, the reasons are fairly obvious.

One of the largest pools of potential buyers for middle market companies are private equity groups (PEGs). Their job is to purchase good, solid companies with potential for growth and ultimately make money for their investors. If you own a business and are considering selling, a private equity buyer is one important option for you to consider. It is, therefore, helpful to know how private equity thinks. What are they buying? How much are they willing to pay and is there really a “formula” for pricing a business? How does a private equity firm discover businesses for sale? How long does it take to sell a business to a private equity firm? What are typical stumbling blocks? What is the process? What should you expect? Recently we listened to private equity professionals answer these questions and we are sharing the answers with you.

At our recent Winter Conference in Scottsdale, Arizona, a select group of private equity firms participated in a discussion on the state of the middle market M&A industry, both from a current prospective and looking forward to 2011 and beyond. Although each participant had a slightly different point of reference, there were definite commonalities that bode well for middle market companies.

What are private equity companies investing in today? By and large, participants found this question easier to answer based on what they avoid…Read more »


Ten Steps to Improve Business Value

Getting Ready

By Marc Borrelli, Managing Director
Atlanta Office, Corporate Finance Associates

leadership

We recently asked over 300 private equity investors “What do you look for when buying a business?” As a general rule, private equity groups (PEGs) buy market leaders, companies who rank one or two in their respective sectors. Interestingly, these “best in class” companies have much in common not the least of which are the quality of their management teams and a sustainable competitive advantage. Even if you are not planning a business sale today, addressing these top two concerns of business investors can help improve your bottom line and improve your prospects for any future sale.

Here are steps you can take today to both strengthen your management team and improve your competitive advantage.

BUILDING A QUALITY MANAGEMENT TEAM

Most investors want to partner with talented managers and skilled employees. Many will even require management to remain with the company as a condition of the deal. Some will offer them the option to participate in the equity of the new company or an incentive program in return for their loyalty. The bottom line is this: the quality of a company's leadership is critical. And that doesn't just mean the company's owner/president: it includes the executive team, directors, managers and supervisors. Consider management's job description: make a profit, create valued products or services at a reasonable cost and provide rewarding employment opportunities. That's a big job—how does your management team measure up?... Read more »



Feature Acquisition

tombstone

Situation: When Poly-Nova Technologies retained Doug Nix to assist with their shareholder transition, the economy was at the start of the downturn and their industry sector (auto parts manufacturing) was sliding into a deep trough. To complicate matters, Poly-Nova’s corporate structure included three shareholders, one active and two passive, with three independent holding companies, two of which were registered in the USA and one in Canada. It would take the perfect scenario to effect a successful close… a perfect strategic buyer coupled with an experienced legal, tax and M&A team to navigate this challenging cross-border deal.

Solution: CFA Ontario Canada was highly focused on finding the ideal strategic buyer. In late 2010, Starlim Sterner of Austria made an acceptable offer for the company. When the final documents were signed, the goal of each of the participants in the transaction was met. The buyer found a perfect strategic fit. The two passive shareholders were happily divested of their interest in the business. And, the single active shareholder found a new business partner focused on growth.

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