Advisor M&A Tip: How do you know when it is time to sell?
When you no longer have the fight, get out of the ring.
Burnout is the second leading reason business owners sell, after retirement. Many business owners hold on too long, long after their drive has gone. When that happens, the business stops growing or even starts going backward – and the value of the business declines.
The best time to sell is when you’re energized and motivated by your work. If you see burnout on the horizon, find ways to reduce your burden or start preparing to sell your business.
Selling Your Business to a Family Office
Business owners looking to sell their business, or attract an investment partner, may want to add family offices to their outreach strategy. These private family firms, established by high net worth families to manage their wealth, can offer unique advantages.
While family offices aren’t new, they have become more active in M&A in the last decade. In the past, family offices may have looked to private equity firms as a resource to grow their wealth, but new trends have many family offices investing directly in private businesses.
For a family office, direct investment can offer several benefits such as higher returns, greater control, and the ability to invest in industries that best fit their family expertise. By the same token, family offices can prove attractive to certain business owners and sellers. Here’s why:
Market Pulse Survey – 4th Quarter 2019
Presented by IBBA, M&A Source and in Partnership with Pepperdine University
Final Sale Price Vs. Asking Price / Internal Benchmark
Advisor M&A Tip: Drive Cash to the Bottom Line
We all like to save money on our taxes. But hiding personal expenses in your tax return can do more harm than good. Most businesses are purchased as a multiple of cash flow (EBITDA). If buyers and lenders can’t find your personal expenses in the financials, they’ll be suspicious of our add-backs. It’s in your best interest to drive cash to the bottom line in the last 2-3 years before a sale. Take a hit on your taxes and get a much larger return when you sell your business.
The “Four P’s” of Selling a Business
Marketers will sometimes talk about the four p’s (product, placement, price, promotion) of selling. Known as the “marketing mix,” the emphasis a company puts in each area can have a direct impact on sales and profits.
And while selling a business is not like selling a product, we can use this idea to think about how certain factors impact a company’s value and salability. The right mix will make your company more desirable to buyers and more likely to attract multiple competitive offers.
People: Human resources plays a critical role in your business’s salability. As an owner, you need to be replaceable. Ideally, your business should continue to operate and grow even if you aren’t a part of day-to-day operations.
Market Pulse Survey – 4th Quarter 2019
Presented by IBBA, M&A Source and in Partnership with Pepperdine University
55% of advisors predict the volume of deals (under $50 million) will increase in the next 12 months, but only 7% expect an increase in multiples.
Three Questions to Ask for Growth
This is the time of year when business leaders make resolutions, update strategic plans, and generally take stock of their organization. I’m planning to do a similar assessment, but this year I’m going to look in the mirror.
I’m going to reach out to 15 to 20 people and ask these three questions: What two things should I continue to do? What two things should I start? What two things should I stop?
I’ll put these questions to several of my team members, some close personal friends, and a few referral sources in my professional circle. And I expect I won’t like all the answers. But I’m going to trust that I will get fair and honest feedback.
Blind spotters
One of the tenets I’ve always adhered to in business is that ‘you don’t know what you don’t know.’ My goal with this exercise is to help uncover some of those blind spots. What can’t I see?
Most days it feels like I’m driving down the (proverbial) highway at 90 miles an hour. I know I need a better view of what’s around me, so these three questions are going to be my blind spot detectors. The answers just might help me avoid a few scary near-misses and perhaps, even, a company-killing accident.
Market Pulse Survey – 3rd Quarter 2019
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Advisor M&A Tip: When the Kids Don’t Want the Business
Many business owners are surprised to find out their kids don’t want to take over. Maybe the kids never wanted it. Or maybe they changed their mind after working in the business for a while. Either way, some business owners get caught having to make quick decisions about how to transition their company.
Our advice: Talk to an M&A advisor, EVEN IF you plan to sell to your kids. It can take years of planning to position a business for a profitable sale. Working with an advisor gives you options and a backup plan. We can help you create a transition plan that fits your goals…and your kids.
‘No Shop’ Protects Buyer Investment in M&A
A no shop provision is an important part of M&A transactions. Also known as an exclusivity clause, a no shop clause prohibits the seller from sharing information or negotiating with other would-be buyers for a specified timeframe.
Prior to this, the seller is negotiating with several buyers. The goal is to entertain multiple offers and figure out which buyer will ultimately provide the deal that best fits the seller’s wishes.
Once the seller has identified their preferred buyer, both parties sign a letter of intent (LOI). At this point the buyer will begin more comprehensive due diligence to validate their assumptions and make sure the business is everything they believed it to be.
Due diligence is an intense process that could include FBI background checks, equipment appraisals, environmental studies, and more. Some buyer groups conduct industry studies or hire a consultant to call the business’s customers under the guise of a confidential customer satisfaction survey.
Market Pulse Survey – 3rd Quarter 2019
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Unrealistic Expectations Remains Leading Reason Businesses Don’t Sell
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What’s the biggest stumbling block to getting deals done? Advisors say that it’s business owners who think their business is worth more than its realistic market value. Advisors cited “unrealistic value expectations” as the number one reason businesses don’t sell on both Main Street and Lower M&A market. Other key hurdles include downward trends, funding issues, and disagreements over legal terms.
Advisor M&A Tip: Earnouts – Breaking the M&A Deadlock
Earnouts are used to bridge a valuation gap between a buyer and a seller. It’s a compromise, of sorts, to break a purchase-price deadlock when the seller wants more than the buyer is willing (or able) to pay.
In an earnout, a portion of the purchase price is paid out later, based on the company’s financial performance over time. Earnouts typically last from 1 to 3 years, subject to negotiation.
Some earnouts include acceleration provisions, stipulating that payments are due immediately if certain events occur e.g.,:
- Buyer breach of post-closing covenants
- Termination of key employees
- Sale of the company or a substantial reduction in assets
These provisions are designed to protect the seller from changes that would hurt the company/buyer’s ability to meet their earnout targets.
Contact us to learn more about deal structures and how we protect your interests in a sale.
Market Pulse Survey – 2nd Quarter 2019
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Baby Boomers Are Ready To Transition
 “The Baby Boomers are aging out of their businesses. The Exit Planning Institute estimates there’s more than 4.5 million businesses expected to transition in the next 10 years in the U.S.,” said David Ryan, advisor with Upton Financial Group. “But business owners who don’t plan ahead may not exit on their own terms. They may have to accept a lower price or take on a lot of seller financing or earnouts, if they sell at all.
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Advisor M&A Tip: What ‘Buy-and-build’ Means For You
Private equity firms have increased their investment in buy-and-build strategies. This involves bolting together several smaller companies into a larger business empire that generally sells at higher multiples. The trend is affecting all sorts of industries, from healthcare clinics to niche business services.
Contact us to learn more about consolidation trends in your market. The uptick in buy-and-build acquisitions could mean more buyers and more competition for your business than you expect.
9 Warning Signs Your Buyer Can’t Close The Deal
The proof is in the pudding. It’s not over ’til it’s over. Don’t count your chickens before they’ve hatched. Pick your cliché. Just because someone makes an offer to buy your business doesn’t mean they have the resources to get it done.
As a seller, you need to look at more than dollar signs on an offer to purchase. Make sure your advisors are researching and asking questions to figure out which buyers are for real, and which ones are just talking a big game.
Sometimes buyers want to rope you in to exclusive negotiations. They throw out a high price, fully intending to negotiate down as they do due diligence and “discover” weaknesses or areas where your businesses aren’t a good fit.
Still other buyer reps make what they believe to be a legitimate offer with all good ethic and intent. But if they’re not the final decision maker-the person controlling the checkbook-their efforts might be scuttled by a higher up, or a lender, who simply doesn’t see the same advantages in the deal.
9 warning signs your buyer can’t follow through:
- Too good to be true.They offer a super high price and a 45-day closing “guarantee no risk” if you’ll sign their exclusivity agreement. Your buyer may have ulterior motives. They’ll get access to your sensitive information and get you off the market (putting you in a weaker position). Later, they’ll try to renegotiate the deal at a sizeable haircut or just walk away when you don’t accept their lowball offer. Either way, they gained meaningful competitive intelligence which could significantly hurt your business or its value going forward.
