Capital Ideas | Corporate Finance Associates | Newsletter Q3 2013


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.

So You Want to Successfully Sell Your Business? | Don’t Forget the Missing Link

By Jim Eaton, Managing Director
Los Angeles Office
Corporate Finance Associates


Statistics show that many companies, particularly of the privately held small to middle market variety, simply are not ready to be sold once ownership decides to pull the trigger and enter into a potential transaction process. The investment banking community is full of examples of clients desiring to sell and/or with deals on the table only to see them collapse during due diligence, if not before, because of false value expectations or simply a lack of strategic organizational structure and execution capability.

Clearly, such sell side companies arrive on the radar screen of strategic or financial buyers alike for one reason or another…(1) market position, (2) proprietary product(s), (3) financial strength, (4) roll-up strategy, (5) backlog buy, (6) talented personnel, etc., etc. These attributes are typically quite visible in the marketplace and are pivotal to any potential transaction. But it is what can’t be seen at the expression of interest, management presentation, plant tour, or letter of intent stages, that can and typically will sour the deal to some degree or perhaps even in total.

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Establishing Unique and Proprietary Products and Services


By Michael Weiss, Managing Director
Seattle Office
Corporate Finance Associates

When you finally decide to sell the business you’ve dedicated your life’s work to create, one critical component will be sought after by every potential buyer… your differentiation. If you are that company in your industry that has a product or service so proprietary and so unique that it cannot be replicated, you move miles ahead of your peers when investors are considering a purchase. But, that differentiation doesn’t just happen over-night. It takes vision, strategic planning and time to create a proprietary base that is highly sought after by others.

A proprietary product is any idea or object that is owned entirely by the owner. These products or services cannot be recreated without the consent of the owner. The advantage to a business owner is that these products open up an unrestricted revenue base which has the potential to change the financial fortunes of the company. Although proprietary products can require a large amount of up-front cash because of packaging and initial production runs, the distributor, with its own unique brands, will have a stronger cash flow cycle over time due to better gross margins on their proprietary products. The best way to look at it is to equate the start-up costs with the cash requirements for a distributor when they start carrying a new manufacturer’s product line. Initial stocking purchases can sometimes take up as much of the company’s cash resources as starting your own product lines. The bottom line is, if managed properly, proprietary product lines and unique brands have a positive impact on cash, accounts receivable, inventory, and debt on a company’s balance sheet. The company, in turn, has a better liquidity, and combined with the aforementioned benefits, a greater overall value. Clearly there are many advantages to owning your own product lines, but it is also essential to know about how to manage unique product lines and ways to avoid the stigma of proprietary products and the wrong shadow they sometimes cast on sellers.

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Feature Acquisition


Situation: Avogadro Group located in the San Francisco Bay Area is recognized as a leader in the regulatory compliance testing and monitoring of stack gasses in the power generation, petroleum refining & exploration, and other industries that release gasses and smoke into the atmosphere. Their outstanding reputation is based on the consistent high quality and reliability of their testing and reporting standards as well as their industry accreditation. The owner spent over 15 years building the company to its current size, with offices in Arizona and the Pacific Northwest. The growth of the company had reached a plateau where outside capital was required to take the business to a higher level.

Solution: CFA San Francisco was initially hired by Avogadro to assist them in responding to an unsolicited offer from East-Coast based $300 million firm interested in expanding to the West-Coast. Discussions were unsuccessful; however the owner’s motivation was undeterred and CFA continued to provide critical advisory services. Subsequently, Montrose Environmental Corporation contacted Avogadro on an unsolicited basis. Montrose was formed by Yukon Capital, a family office, to build a leading, diversified environmental service enterprise. They had previously acquired SCEC, a Southern California company providing services similar to Avogadro, and Associated Laboratories in Los Angeles which provides environmental analytical laboratory services. A letter of intent was signed on March 21, 2013 for Montrose to acquire 100% interest in Avogadro, and the transaction closed on July 5, 2013.


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