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.


10 Tips For Sellers to Add Value

By Craig Allsopp, Director
Portland Office
Corporate Finance Associates

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Baby boomer business owners may be overwhelmed with information covering the dos and don’ts of preparing a company for sale. So to help start the process, here are 10 actions for you to add value today so that you can impress potential buyers when you are ready to go to market.

  • Audit your financials. Sloppy numbers sap value like a poorly tuned engine saps horsepower. You may find a buyer who will overlook holes in your financial reporting, but you won’t get top dollar. An audit shows a prospective buyer that you are serious about doing the little things right – which can be a powerful signal to send when you are in a negotiating process.
  • Fill gaps in your team. No one can do everything well – including you. If you can’t be away for a week without checking in on routine problems you need a stronger team. This is especially true if the buyers for your business include Private Equity Groups who almost always are looking for a deep bench when they are recapitalizing a company.

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How do Private Equity Groups Assess Potential Investments?

The Role of Management and a Focus on Family Owned Businesses

 

By David Sinyard, D.B.A., Managing Director
Atlanta Office
Corporate Finance Associates

Before Private Equity Groups (PEGs) invest, they review a significant number of proposals hoping to find that diamond in the rough, that perfect addition to their investment portfolio. Three a day is not unheard of, so the annual volume can easily be 700-1000 proposals. Of these, the majority of PEGs typically close on 2-4 deals per year. There is a great deal of time and work involved in reviewing and ultimately deciding which deals to pursue. How do PEGs decide which deals to pursue? Their due diligence costs often exceed $100,000 per transaction. Before they commit the time and money, they have to be convinced that this is a company that they want to own.

The review procedures utilized by PEGs differ significantly and range on a continuum from a very formal process to an informal review practice. When PEGs follow a formal process they may have evaluation criteria and will use a checklist for each submission they review. It is scored and in order to move to the next step in the process, a company would need a minimum score to advance. The majority of PEGs use an informal review process and based on time and experience, the business development officers will “know” whether it’s something of interest. Evaluations of specific criteria appear to exist for every deal and most PEGs tend to look for strong, stable cash-flow, low debt levels, leading market positions, and niche products or services. But one variable stands out to separate the proposals into “yes” and “no” piles – the management team.

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Feature Acquisition

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Situation: Saker Aviation, Inc., an aviation services company specializing in Fixed Base Operations (FBO), including operating the Downtown Manhattan Heliport (JRB), was interested in growing and diversifying their business through a strategic acquisition. Corporate Finance Associates was engaged to help identify candidates that would offer synergistic partnerships, expand their geographic reach and/or add additional services or capabilities. The CFA team, led by Joe Contaldo, Managing Director of CFA Chicago and Chairman of the Aerospace, Aviation and Defense Industry Practice Group, worked with Saker to define an acquisition strategy and identified a number of potential suitors.


Solution: After careful consideration, Saker determined that Phoenix Rising, with their centralized geographic location and ability to provide specialized maintenance services, was a perfect fit. The two companies’ cultures and core values were similar, which helped streamline the transition process. Phoenix Rising, known for its outstanding customer service and quality mechanical craftsmanship, filled a need in the highly competitive MRO segment of the industry and will allow Saker to provide new services across their organization and sets a solid foundation for future growth.

 

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