tag:blogger.com,1999:blog-32708578067690646182024-03-12T18:55:55.807-07:00Corporate Investment BlogCorporate Investment advises business owners on achieving maximum value for their businesses when its time to sell.Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-3270857806769064618.post-66192130969426239942017-10-04T09:56:00.000-07:002017-11-13T10:09:44.784-08:00Q3 2017 M&A Update: Who Will Buy Your Business?<div class="p1">
<span class="s1">Businesses with enterprise values above $10 million are primarily sold to institutional investors. Those acquirers fall into two broad categories: financial and strategic. This article discusses the four most common types of financial buyers, sources of funding, and investment horizons. <span class="Apple-converted-space"> </span></span></div>
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<span class="s1"><b>Private Equity Group</b>, or <b>PEG</b>. A private equity group, or firm, is an investment management company that provides financial backing and makes investments in operating companies through a variety of investment strategies including leveraged buyout, venture capital, and growth capital. The PEG is responsible for finding suitable business opportunities, screening those opportunities, and selecting ones to pursue. A Committed Fund is the most common of the following three PEGs.</span></div>
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<span class="s1"><b>PEG Committed Fund </b>or a fund with committed capital has set up a “Fund” which receives money from institutional investors, such as pension funds, college endowment funds, and high net worth individuals. Corporate Investment recently worked with a private equity fund that invested money from a high profile college’s endowment fund. The private equity group reviews the acquisition candidates, selects the desirable ones, manages the acquisition, and monitors the investment in the business. Each “Fund” typically has a defined investment horizon, which is typically 5 - 7 years, meaning the investors anticipate receiving their capital back and related returns in that time frame. The managers of the “Fund” are typically paid a management fee and participate in the gains realized on the investments made by the “Fund.”</span></div>
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<span class="s1"><b>A Fundless Sponsor</b> or independent sponsor is a type of capital group or individual seeking acquisition candidates without having the equity financing required to complete the transaction up front (hence, they are “fundless”). Fundless sponsors raise the equity required to fund an acquisition after they have executed a letter of intent (“LOI”). Fundless sponsors may consist of a single individual or group of individuals with years of experience in investment banking and traditional private equity, who accumulated a significant amount of capital. They will then split off and operate a small office, and with their track record, there are other investors that will invest alongside them in business acquisitions. The typical investment horizon for fundless sponsors is also 5 - 7 years, but may be longer.</span></div>
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<span class="s1"><b>Search Funds</b> are vehicles for entrepreneurs to raise funds from investors interested in making private equity investments. In the first two examples shown here, the PEG wants to rely on existing<span class="Apple-converted-space"> </span>management to continue to run the business day-to-day. In the search fund model, a small group of investors back an operating manager(s) to search for a target company to acquire. The manager typically has an established track record in a specific industry, and wishes to take over day-to-day management. Search funds may have a longer investment horizon, and be more flexible.</span></div>
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<span class="s2" style="color: #073763;"><b>Now – the new kids on the block:</b></span></div>
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<span class="s1"><b>Family Offices </b>are a relatively new entrant into the financial acquirer mix. These are private wealth management advisory firms that serve ultra-high-net-worth investors. They are different from traditional wealth management shops in that they offer a total outsourced solution to managing the financial and investment side of an affluent individual or family. Family offices serve multi-role functionality as well as wealth management, including, accounting, security, and property management. Family Offices can be Single Family or more recently, Multi Family offices. More recently, many family offices have hired an experienced professional from a traditional private equity firm to search for companies to acquire. Corporate Investment recently dealt with two large family offices who have hired individuals from private equity firms to help them source, acquire, and manage their acquisitions of entire companies. They typically have a longer investment hold period than traditional funded private equity firms.</span></div>
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<span class="s2" style="color: #073763;"><b>Conclusions</b></span></div>
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<span class="s1">Our client, the seller, must align their objectives in the transaction with the right type of purchaser.<span class="Apple-converted-space"> </span>Knowledge of the type of funding, risk of being able to close, and investment time horizon of purchasers must be taken into account for us to successfully achieve our client’s goals.</span></div>
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<span class="s1">An understanding of the types of institutional buyers is very important, as private equity buyers are now actively investing in lower middle market companies. Over the past 8 years, significant institutional funds have been committed to private equity firms, and the competition for middle market companies (revenue above $100 million) has increased dramatically, leading many firms to lower their sights and seek investments in lower middle market companies.<span class="Apple-converted-space"> </span></span></div>
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<span class="s1">There are about 350,000 companies with annual revenues between $5 million and $100 million, compared with less than 30,000 companies with revenues above $100 million, according to Forbes magazine. “Interest in the lower middle market has grown substantially,” according to Probitas Partners Private Equity Institutional Investors Trends for 2017 Survey. “In 2017, 63 percent of institutional investors said they are focusing on the U.S. small market buyout sector.” (Mergers & Acquisitions magazine, October 2017).<span class="Apple-converted-space"> </span></span></div>
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<span class="s1">This development is extremely positive for Central Texas business owners, as the competition for a well managed, profitable business to acquire leads to attractive transactions.</span></div>
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<span class="s1"><a href="https://www.blogger.com/goog_1133678477"><br /></a></span></div>
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<span class="s1"><b><a href="http://www.corpinvest.com/">http://www.corpinvest.com</a></b></span></div>
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Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0Austin, TX, USA30.267153 -97.74306079999996729.828484 -98.388507799999971 30.705822 -97.097613799999962tag:blogger.com,1999:blog-3270857806769064618.post-7775249868931724282017-07-19T10:47:00.000-07:002017-07-19T10:47:47.460-07:00Experienced Austin Financial Executives Robert (Bob) Kay and Laine Holman Affiliate with Corporate Investment <div class="MsoNormal">
Robert (Bob) Kay, an experienced executive in finance, investments,
private equity intermediary, banking, and private business management, and his
long-time business associate, Laine Holman, a seasoned CFO, have <span style="mso-bidi-font-size: 12.0pt;">joined Corporate Investment, an Austin-based
financial advisory firm specializing in mergers and acquisitions and business
sales.<o:p></o:p></span></div>
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<span style="mso-bidi-font-size: 12.0pt;">“We are excited to
join Corporate Investment and use our years of experience in business
operations, <span style="color: black;">deal making, capital raising and private
equity investing to help our clients</span>,” said Kay. “Corporate Investment
has a well earned reputation in the region as business intermediary and merger
and acquisition experts. With mergers and acquisitions picking up steam in
Central Texas, we are in the right place to help owners get the most value from
their transactions,” Kay added. <o:p></o:p></span></div>
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<span style="color: black; mso-bidi-font-size: 12.0pt;">Most
recently, Mr. Kay has led Excelleration Partners, an early stage growth company
consultancy and capital raising advisor, after having served for six years as
EVP/COO/CFO at Drilling Info, Inc., an online oil and gas data provider. While
at Drilling Info, Bob partnered with CEO Allen Gilmer in leading the company
through an explosive growth phase and eventual control sale to a NYC-based
private equity fund. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
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<span style="color: black; mso-bidi-font-size: 12.0pt;">Prior to
his most recent career stop as Consulting CFO to Durbin and Bennett Tax
Advisors, Mr. Holman served as CFO to The Kucera Companies, a full-service
commercial real estate company from 2003-2011. Kay and Holman partnered during
the 1980s and 1990s within several business entities controlled by Robert W.
Hughes and the Prime Cable family of companies.<o:p></o:p></span></div>
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<span style="mso-bidi-font-size: 12.0pt;">Serving as a M&A
team at Corporate Investment, Kay and Holman will lead clients through the sale
preparation and sale of their businesses. Their diverse and combined business
experiences have provided them deep experience and insight into the business
sales process.<o:p></o:p></span></div>
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<span style="mso-bidi-font-size: 12.0pt;">A native of Austin,
Mr. Kay earned a BBA in General Business with an accounting concentration from
The University of Texas in 1974. Mr. Holman is a native of Taylor, Texas, and
is an Honors graduate in Accounting from UT Austin in 1981.</span><o:p></o:p></div>
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<b>About Corporate Investment</b><o:p></o:p></div>
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Corporate Investment, founded in 1984, is a leading merger
& acquisition firm based in Austin, Texas, representing companies
throughout Texas. Corporate Investment works primarily with the owners of private
companies in a variety of industries, and their potential acquisition or merger
partners.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><a href="http://www.corpinvest.com%20%20/">http://www.corpinvest.com</a></b><br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHYZKsrAx6PgJbzPdTOmH4TQwXoNqyNMKLvzXZ_tc0VO5d-WqU-xrxqvqQUgW2A4QWstVYlBbXHO8u6DzbICxNiXd4ffP8mX3hOfwMkUtPtSA0xv1AvnKC4TClEGyDkILfZK9XRc4E7F0/s1600/Robert_Kay_200.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="250" data-original-width="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHYZKsrAx6PgJbzPdTOmH4TQwXoNqyNMKLvzXZ_tc0VO5d-WqU-xrxqvqQUgW2A4QWstVYlBbXHO8u6DzbICxNiXd4ffP8mX3hOfwMkUtPtSA0xv1AvnKC4TClEGyDkILfZK9XRc4E7F0/s1600/Robert_Kay_200.jpg" /></a></div>
<div style="text-align: center;">
Robert (Bob) Kay</div>
<div style="text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFiULUlI7LiLH2YRnaZ1DcsIPg9U8gxbf7rzQA21vlvfiB7o_LA19uoN3wzJyJQOSuDoiSRjjSXNvcgicbnKBEd8DNtQlDJnxtRVUglulOcX4cLfaYryHf1rVPo1ifZ25yvcn2J0jdJTE/s1600/Laine_Holman_200.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="250" data-original-width="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFiULUlI7LiLH2YRnaZ1DcsIPg9U8gxbf7rzQA21vlvfiB7o_LA19uoN3wzJyJQOSuDoiSRjjSXNvcgicbnKBEd8DNtQlDJnxtRVUglulOcX4cLfaYryHf1rVPo1ifZ25yvcn2J0jdJTE/s1600/Laine_Holman_200.jpg" /></a></div>
<div style="text-align: center;">
Laine Holman</div>
</div>
Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0Austin, TX, USA30.267153 -97.74306079999996729.828484 -98.388507799999971 30.705822 -97.097613799999962tag:blogger.com,1999:blog-3270857806769064618.post-68413763526371128342017-02-20T11:17:00.000-08:002017-11-13T10:12:28.349-08:00Q4 2016 M&A Update: When a Business Owner Receives “The Call”<style type="text/css">
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<h3>
<b>When a Business Owner Receives “The Call”</b></h3>
As a business owner, perhaps the most flattering event that may occur is an unsolicited call from a “buyer” who asks, “Would you like to sell your business?” Do you turn down that call? Certainly not! Someone is calling to pay you lots of money, perhaps top dollar, for your business that you have worked so hard to build. So you take the call, and the buyer asks to set up an introductory meeting. The buyer could be a strategic or financial buyer that believes, “Your business is a great fit for our acquisition strategy.” That statement translates in the business owner’s mind to, “This buyer will pay top dollar for my business.” However, the business owner is about to begin an extremely complex and emotionally taxing process that will engage him/her in many, many hours of data gathering, meetings, information exchange, financial questions, legal questions, intense negotiation, and hopefully, a positive outcome. Although that outcome will more likely occur 6-9 months down the road, if at all.<br />
<br />
So the real question the business owner needs to think about is, “Am I really ready to sell my business?”<br />
<br />
Most of the time, the seller will not have really thought about the answer to that question, which is much more complex. Do you have the answers to each of the following questions?<br />
<br />
<br />
<ul>
<li>What is my business really worth?</li>
<li>What will the net proceeds of a transaction total, after paying off the business debt and income taxes?</li>
<li>What amount will I need to net from the transaction to maintain my current lifestyle, and achieve my financial goals? </li>
<li>What will I really do after the sale (extremely important)?</li>
<li>Are there issues in my business that may cause problems during due diligence (management team, customers, suppliers, legal, etc.)? </li>
</ul>
<br />
<h3>
The problem with negotiating with only one buyer</h3>
However, the question that most sellers have not considered is this, “If I only negotiate with one buyer, will I ever know if I received the best price?” There is a very old saying in the M&A world, “If you only have one buyer, you don’t have a buyer, they have you!” The buyer controls the timeline, controls the information flow, and controls the process – they have all of the leverage. At a minimum, the business owner should engage an M&A professional to level the playing field. The best case would be for the seller to engage an M&A professional to run a “limited process” in parallel with the unsolicited offer. The investment banker prepares a brief outline of the business, and contacts 6-10 of the best possible buyers, and will usually find other interested parties. This strategy shifts the leverage back to the seller, and allows the business owner to “keep the buyer honest.”<br />
<br />
<br />
One of the strategies of a buyer who is in an exclusive process with a seller is to stretch out the process, which is emotionally taxing to the business owner, emotionally draining over time, and results in “deal fatigue.” The buyer may keep asking for pieces of information, delay in actually putting a written offer together, or ask for concessions after the offer is made. Without any leverage, the seller’s only option is to walk away from the table and terminate the process, which is very difficult after significant time, energy, and emotions have been invested over 6-9 months. Most of the time the seller has invested so much time, energy, and resources in the transaction that they agree to concessions just to get to closing. <br />
<br />
<br />
The worst result can be a transaction that does not meet the seller’s financial needs, falls apart at the eleventh hour after the buyer has obtained sensitive information, or the seller does not have any real plans for life after closing.<br />
<br />
<h3>
Case study</h3>
We met with the owners of an excellent business about 15 months ago, who had been approached by a strategic buyer. The owners are at retirement age, and very open to a transaction. Almost 50% of the consideration for the business in the buyer’s current offer was in the form of an “earnout”, however, and that was a real concern. We suggested engaging our firm to work with that buyer to improve the terms of that offer, while also contacting 6-8 other possible buyers to solicit additional offers, for two important reasons. First, to gain leverage with the one buyer, and keep that process moving, and second, to let the seller know what other buyers might offer for the business. The seller chose to “go it alone” with the one buyer. Their CPA called us 10 months later and said that the deal never closed, and the seller is back to square one, weighing their options. The seller has now invested significant time, energy, and emotions into a process that did not produce a result, and will probably be starting all over again. <br />
<br />
<h3>
Conclusion</h3>
Selling a business is a significant event in the life of a business owner, and must be planned well in advance to achieve the best result. While it’s very flattering to receive “the call” from a buyer wanting to discuss buying your business, the reality is that a business owner should not begin the exit process without:<br />
<br />
<ul>
<li>Clearly establishing their exit goals (including timeline) and financial needs</li>
<li>Knowing what their business is really worth</li>
<li>Knowing what they will net from a transaction</li>
<li>Having a team of top-flight advisors</li>
<li>Possessing a clear understanding of what they want to do after closing. </li>
</ul>
<br />
<br />
Our firm is routinely contacted two or three times a year by attorneys and CPA’s introducing us to business owners that received “the call,” and the transaction did not happen. They are now ready to engage in a well-planned, well-executed, competitive process designed to close a transaction at a fair price in the open market. <br />
<br />
<a href="http://www.corpinvest.com%20%20/"><b>http://www.corpinvest.com</b></a><br />
<br />
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Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-89279559534425489942016-12-09T08:58:00.004-08:002017-11-13T10:03:52.490-08:00Q3 2016 M&A Update: Earn-outs: Uses, Pitfalls, and Opportunities<div style="background-color: white; color: #001a81; font-family: "Trebuchet MS", Verdana, Helvetica, sans-serif; font-size: 16pt;">
<div>
Earn-outs: Uses, Pitfalls, and Opportunities</div>
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<div style="background-color: white; color: #616161; font-family: "Trebuchet MS", Verdana, Helvetica, sans-serif;">
<br />
What is an "Earn-out" as it relates to the sale of a business? An earn-out is a contingent payment agreement whereby the buyer agrees to pay additional money for the business upon the attainment of certain post-closing performance targets. An earn-out is a financial tool used to bridge the gap between the seller's price expectations and the buyer's perceived value for the business. The most common reason for a gap between the offer and the seller's price expectations results from the two parties to the transaction having differing views of "business risks." The sale of a business is extremely complex, and involves risk factors related to revenue, customer retention, the management team, and many others, which are viewed through different lenses by the buyer and seller. </div>
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<div style="background-color: white; color: #616161; font-family: "Trebuchet MS", Verdana, Helvetica, sans-serif;">
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Let's remember - in an "all cash" purchase, the buyer has all the risk, therefore the selling price will usually be at the lower end of the spectrum. In a transaction with cash plus a promissory note to seller, there is some level of risk tied to the promissory note - so the seller can justify a price that is a bit higher than "all cash." If an earn-out is included in the transaction structure, the seller expects to receive more for their business, but the last piece of the consideration is tied to future events, so both parties share the risk.</div>
<div>
<br /></div>
<div>
Earn-out structures will be very specific to each transaction. A typical earn-out structure may start with "If revenue in year #1, year #2 and year #3 after closing is equal to or above these targets, "X", "Y", and "Z", then the seller is paid a certain amount each year." As simple as that concept sounds, each earn-out structure will be as unique as the business itself. Many times the seller wants the earn-out tied to gross revenue, while the buyer typically wants the earn-out tied to EBITDA. At that point, the negotiation begins, and the actual measured performance often ends up tied to a metric somewhere in between revenue and EBITDA. In our experience, the least amount of computations that must be made to compute the earn-out will result in the most desirable structure.</div>
<div>
</div>
<div>
Our firm recently represented the seller in a transaction whereby approximately $6,000,000 of the price was fixed, and another $3,000,000 of the consideration was based upon an earn-out tied to gross profit earned each year for the first twenty four months after closing. This company was in a cyclical industry, and the seller believed that the industry would maintain their momentum for several years. The buyer was not willing to pay the full price without some part being tied to future performance. The seller was willing to stay with the business through the term of the earn-out, to insure that it would be met. This client has now collected the targeted payments for year one, and is now completing year two.</div>
<div>
<br /></div>
<div>
One tip to remember is that earn-outs should not be "all or none," but rather based upon incremental levels of the performance metric. They should also be structured whereby meeting the target on a cumulative basis over multiple years will still trigger payments, even if one year was below the target (a "lookback provision").</div>
<div>
<br /></div>
<div>
Our firm does not begin marketing a business with an earn-out in mind, but it may be an appropriate financial tool used to facilitate a transaction in certain situations. Earn-out structures are complex and require the seller to evaluate the risk they are willing to assume in utilizing that structure to achieve the maximum consideration. A seller will need an experienced M&A professional and transactional lawyer to carefully negotiate the earn-out and make sure their agreements are well drafted.<br />
<br />
<b style="color: #336699; font-family: trebuchet, arial, helvetica, sans-serif; font-size: 15px;"><a href="http://www.corpinvest.com/">http://www.corpinvest.com</a></b></div>
</div>
Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-31125007278993192132016-10-27T08:32:00.000-07:002016-10-27T08:32:19.884-07:00Join us on 11/2/16 for an talk and wine and cheese reception with John Brown, Business Owners Taking Ownership of Their FutureJoin Corporate Investment, Statesman Corporate Finance, Plains Capital Bank and RSM to learn more about optimal exit planning strategies.<br />
<br />
Our speaker John H. Brown, is a renowned author and expert on exit planning.<br />
<br />
John Brown is the founder of Business Enterprise Institute, and author of three books, the latest, Exit Planning: The Definitive Guide, published in 2016. John will explain how to sell your business when you want, for the money you need, to the person you choose.<br />
<br />
Free copies of the book for all attendees!<br />
<br />
After the talk, enjoy our wine and cheese reception.<br />
<br />
We hope to see you there!<br />
<br />
November 2, 2016<br />
Talk: 3 pm to 5 pm<br />
Wine and Cheese Reception: 5pm - 7 pm<br />
<br />
Canyon View Event Center<br />
4800 Spicewood Springs Rd<br />
Austin TX 78749<br />
<br />
<a href="http://www.corpinvest.com/Event.htm">Visit our website to find out more.</a><br />
<br />
<br />Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-83839044617984250352016-07-29T09:13:00.001-07:002017-11-13T10:03:08.188-08:00Q2 2016 M&A Update: Favorable Market <div class="MsoNormal">
<span style="font-size: 12.0pt; line-height: 115%;">We are in an extremely favorable market for business sellers. Buyers have
abundant capital to deploy, interest rates are low, and the economy in Texas is
doing well – even with the pull back in oil prices. However, the best advice to
a business owner that is thinking of an exit, is to “take control and start
planning today”. Engaging experienced advisors who understand the business sale
process will prove invaluable to the business owner who wants a successful
outcome. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 12.0pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal">
<span style="font-size: 12.0pt; line-height: 115%;">Two key issues
to consider before beginning the process are outlined below: <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 12.0pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><span style="font-size: 12.0pt; line-height: 115%;">Deal killers<o:p></o:p></span></b></div>
<div class="MsoNormal">
<span style="font-size: 12.0pt; line-height: 115%;">As a
business owner, your opportunity for the greatest influence on maximizing sale
proceeds occurs <span style="background-color: white;"><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial;">before you go to
market</span>. </i></b>Once you start the process of marketing your business to
qualified buyers, the ability to correct the “deal killers”, is extremely
limited due to the time factor. These must be solved before going to market.
The most common “deal killers” are listed here:*<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><o:p></o:p></i></b></span></span></div>
<div class="MsoNormal">
<span style="font-size: 12.0pt; line-height: 115%;"><span style="background-color: white;"><br /></span></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="background-color: white;"><b style="mso-bidi-font-weight: normal;"><span style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1.<span style="font: 7.0pt "Times New Roman";">
</span></span></span></b><!--[endif]--><span style="font-size: 12.0pt; line-height: 115%;">The belief that you can sell your business today for enough money to
satisfy your financial independence needs and wants. ( <span style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial;">without knowing what your business is really worth
and how much income you will need from the sale</span>)<br /><br /><o:p></o:p></span></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="background-color: white;"><b style="mso-bidi-font-weight: normal;"><span style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2.<span style="font: 7.0pt "Times New Roman";">
</span></span></span></b><!--[endif]--><span style="font-size: 12.0pt; line-height: 115%;">The failure to reconcile <u><span style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial;">your need</span></u> for value with the <u><span style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial;">market value</span></u> of your business before
going to market. (see #1)<br /><br /><o:p></o:p></span></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><b style="mso-bidi-font-weight: normal;"><span style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">3.<span style="font: 7.0pt "Times New Roman";">
</span></span></span></b><!--[endif]--><span style="font-size: 12.0pt; line-height: 115%;">An exclusive focus on top line sales price. <span style="mso-spacerun: yes;"> </span>( i.e., have you done any tax planning, and analysis
of net proceeds <span style="mso-spacerun: yes;"> </span>from a transaction,
including retained assets, and net working capital conveyed?)<br /><br /><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><b style="mso-bidi-font-weight: normal;"><span style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">4.<span style="font: 7.0pt "Times New Roman";">
</span></span></span></b><!--[endif]--><span style="font-size: 12.0pt; line-height: 115%;">The failure to preserve a company’s most valuable asset. ( do you have
“stay bonus plans” or other agreements in place for key employees?)<br /><br /><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><b style="mso-bidi-font-weight: normal;"><span style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">5.<span style="font: 7.0pt "Times New Roman";">
</span></span></span></b><!--[endif]--><span style="font-size: 12.0pt; line-height: 115%;">The belief that you can negotiate alone. ( i.e., responding to an inquiry
from an unsolicited buyer, and starting the process on your own. The sale
process is a taxing and emotionally draining process for an owner, many times
resulting in deal fatigue and a realization after closing that significant
dollars were left on the table. A strong deal team and competitive process is
the only method to realize the true market value.) <br /><br /><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><b style="mso-bidi-font-weight: normal;"><span style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">6.<span style="font: 7.0pt "Times New Roman";">
</span></span></span></b><!--[endif]--><span style="font-size: 12.0pt; line-height: 115%;">An unwillingness to recruit the best possible players for your Deal Team.
( buyers will have experienced accounting, legal, deal, and tax advisors on
their team. You need the same on your team.)<br /><br /><o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">7.<span style="font: 7.0pt "Times New Roman";"> </span></span></span></i></b><!--[endif]--><span style="font-size: 12.0pt; line-height: 115%;">The belief that owner-initiated
pre-sale due diligence isn’t worth the time, effort or cost. (Conduct Seller
due-diligence <i style="mso-bidi-font-style: normal;"><u>before</u> </i>going<i style="mso-bidi-font-style: normal;"> to </i>market.<i style="mso-bidi-font-style: normal;"> </i>This gives your deal team time to address and fix the issues that
a buyer may uncover when it conducts its due diligence. Reducing the time
between letter of intent and closing is key to a smooth transaction. )<br /><br /><i style="mso-bidi-font-style: normal;"><o:p></o:p></i></span></div>
<div class="MsoListParagraphCxSpLast" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
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</span></span></span></b><!--[endif]--><span style="font-size: 12.0pt; line-height: 115%;">Seller remorse (The owner needs to be comfortable that they will not feel
empty and insignificant after the sale, and need<span style="background-color: white;"> t</span>o be emotionally ready to turn over the company to
a new owner. A recapitalization transaction may solve this issue. ) <o:p></o:p></span></div>
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*As presented in <i style="mso-bidi-font-style: normal;">Exit
Planning: The Definitive Guide</i>, by<span style="mso-spacerun: yes;">
</span>John H. Brown, CEO of Business Enterprise Institute<o:p></o:p></div>
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<br /></div>
<div class="MsoListParagraph">
<b style="color: #336699; font-family: trebuchet, arial, helvetica, sans-serif; font-size: 15px;"><a href="http://www.corpinvest.com/">http://www.corpinvest.com</a></b></div>
Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-45695928649204907942016-06-29T10:18:00.001-07:002016-06-29T10:46:07.950-07:00Multiples of EBITDA – What Factors Turn a 3x into a 5x?<span style="font-family: inherit;"><span style="font-family: inherit;">We all know that “money doesn’t grow on trees.” And neither does business value. You can’t just wait until you are ready to leave your business to find out how much “value” you need or want and how much “value” exists in your business. By then it will be too late. The tree metaphor is relevant, though. Value is something that you can grow, nourish and ultimately harvest in your business. Let’s look at an example.</span></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWvVB0qwKRHQBMp6-Fj3vvFMOEnYt7_knIUq4yNMWJlZtnjwjcd0knwBu3le7m7A1SjzeeKtOcsdLkol5NipmZ4ydGQ8m8NYHbt4xELKi-qlqK83RL2hZdfCi2pcrVXBWoFtiHXBgcWMI/s1600/tree.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWvVB0qwKRHQBMp6-Fj3vvFMOEnYt7_knIUq4yNMWJlZtnjwjcd0knwBu3le7m7A1SjzeeKtOcsdLkol5NipmZ4ydGQ8m8NYHbt4xELKi-qlqK83RL2hZdfCi2pcrVXBWoFtiHXBgcWMI/s1600/tree.JPG" /></a></div>
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</div>
<i><span style="font-family: inherit;"><br /></span></i>
<i><span style="font-family: inherit;">Picture three identical companies each engaged in moving time-sensitive freight for customers. All have a national presence, $2M in EBITDA (Earnings Before Interest, Tax Depreciation and Amortization) and about $25M in annual sales. It would be logical to assume that they all have about the same value. </span></i><br />
<i><span style="font-family: inherit;"><br /></span><span style="font-family: inherit;">In fact, one had little value, one sold for 3.5 times EBITDA and one sold for 5.5 times EBITDA. The difference in value was $3M to $7M to $11M.</span></i><br />
<i><span style="font-family: inherit;"><br /></span></i>
<span style="font-family: inherit;">Neither gross sales nor EBITDA alone determined the price and terms of these deals. The key to the variation in purchase prices was the presence or absence of value drivers in the companies as well as the ability of these value drivers to survive the owner’s departure.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Value drivers are internal characteristics of a company that buyers look for in acquisitions. You’ll see that it doesn’t matter if you plan to keep your business forever, transition it to family members, sell it to your management team or find an outside buyer - value drivers can give you more options, more flexibility and more money from your ownership interest. Strong value drivers are those that are effective and will continue to operate once the original owner departs. Consequently, those are the value drivers that increase both EBITDA and the multiple of EBITDA buyers may be willing to pay.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">We may measure the effectiveness of value drivers in two ways: 1) their positive contribution to cash flow and 2) their ability to continue to contribute to cash flow under new ownership.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Think of it this way: why would anyone want to buy your business if its continued success is dependent on you-the departing owner? Buyers are more likely to pay top dollar for businesses that will not miss a beat when the original owner is no longer in charge.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Success in business is determined not by how well you run the business, but by how well the business runs without you.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Let’s look at the three freight-moving companies more closely to see what motivated buyers either to open their wallets or walk on by.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><b>Company A:</b> The owner/operator was responsible for management, operations and his personal and industry contacts were the source for new business. All roads ran through the owner so without him, the business had little value.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><b>Company B:</b> This company had a capable management team. Many of its systems and procedures were state-of-the-art. There was, however, one glaring weakness: the major customer, responsible for over 50 percent of the company’s revenue, had a decades’ long relationship with the company’s owner, not with the company.</span><br />
<span style="font-family: inherit;">Buyers are much less likely to pay millions for customer accounts that can, and indeed often do, go elsewhere the day after they find out the owner has sold the business.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><b>Company C:</b> Finding the owner of Company C wasn’t easy. She spent weeks on vacation or visiting grandchildren and when she was in town, was engaged in a variety of civic and charitable activities. She made workplace appearances only sporadically and left operations in the hands of her stable, effective management team.</span><br />
<span style="font-family: inherit;">She had deliberately created plenty of diversification in her company’s customer base knowing that one day she’d sell the business. She had thought about what she would look for in an acquisition so had included customer diversification as one of many attributes or value drivers she wanted in her company. She understood that value drivers were necessary to maximize sale-ability as well as the sale price and amount of cash she could demand from a buyer.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Interested buyers were delighted that she had changed her role in the company over the years so that a new owner could step in, almost unnoticed. </span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">There are a number of value drivers that are critically important to today’s buyers. The value drivers that are most important to your business may or may not be the same as those that were identified for Company C. What we can say with some certainty is that value drivers can help your business value grow to bring you closer to the value that you need. If you are interested in learning more about them, we will be happy to sit down with you and talk about how value drivers might improve your business value.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Corporate Investment is unique in that we take a holistic approach to working with business owners. <a href="http://www.corpinvest.com/exit_planning.htm">Exit planning</a> is a part of our process. We help business owners plan for one of the biggest financial events of their lives - the transition out of their business. </span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">For more information on <a href="http://www.corpinvest.com/exit_planning.htm">exit planning services</a> - please <a href="mailto:info@corpinvest.com">contact</a> one of our professionals at Corporate Investment. 512-346-4444 </span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><b style="color: #336699; font-family: trebuchet, arial, helvetica, sans-serif; font-size: 15px;"><a href="http://www.corpinvest.com/">http://www.corpinvest.com</a></b></span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit; font-size: xx-small;">The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial advisor. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial advisor. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need. Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity. </span>Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-20364604572799521012016-04-11T11:05:00.000-07:002016-04-11T12:17:12.453-07:00Lower Middle Market Provides Bright Spot in Slowing M&A Climate<h4>
Firms that focus on the smaller end of the market, including Audax
Private Equity, boasted success in 2015, says Audax MD Jay Jester.</h4>
<div>
<br /></div>
<div>
Here's an excerpt from a great article on Mergers & Acquisitions:<br />
<br />
Although the big picture for middle-market M&A may be dimming,
there are still lots of bright spots, including the lower middle market
– which we define as deals valued at between $10 million and $250
million.<br />
<br />
Many private equity firms that focus on the lower middle
market say 2015 has been a great year. In a symbol of the sector’s
health, Audax Private Equity celebrated the firm’s 500th closed deal in September, when portfolio company Advanced Dermatology & Cosmetic Surgery added Dermatology of Northern Colorado.<br />
<br />
Read more: <span style="color: #a3aaae; font-family: , "helvetica neue" , "helvetica" , "arial" , sans-serif; font-size: 15.6px; line-height: 24px;"><a href="http://bit.ly/1YpVZ4l">http://bit.ly/1YpVZ4l</a></span><br />
<b style="color: #336699; font-family: trebuchet, arial, helvetica, sans-serif; font-size: 15px;"><br /></b>
<b style="color: #336699; font-family: trebuchet, arial, helvetica, sans-serif; font-size: 15px;">http://www.corpinvest.com</b></div>
Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-87631935781166751522016-03-01T14:49:00.002-08:002016-04-11T11:12:28.910-07:00Corporate Investment adds Exit Planning Services for business owners.<div style="font-size: 12pt; margin-bottom: 0px; margin-top: 0px;">
<div style="color: #001a81; font-family: Arial, Helvetica, sans-serif; font-size: 14pt;">
<br /></div>
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<span style="background-color: white;">S</span><span style="background-color: white; color: #666666; font-family: "trebuchet ms" , "verdana" , "helvetica" , sans-serif; font-size: 12pt;">ince 1984, our firm has worked with business owners in over 250 business sale transactions. These businesses had between 10 and 250 employees. Unfortunately, we found that prior to meeting us, very few of our clients had a well-defined, well-executed strategy for the transition out of their business. They had not taken the time to develop a plan to address issues like:</span></div>
<div style="margin-bottom: 0px; margin-top: 0px;">
<div style="background-color: white; font-size: 12pt;">
<ul>
<li style="color: #666666; font-family: 'Trebuchet MS', Verdana, Helvetica, sans-serif; font-size: 12pt;">How much longer did they want to work in their business?</li>
<li style="color: #666666; font-family: 'Trebuchet MS', Verdana, Helvetica, sans-serif; font-size: 12pt;">How much annual after tax income would need during retirement, and where was it going to come from?</li>
<li style="color: #666666; font-size: 12pt;"><span style="color: #666666; font-family: "trebuchet ms" , "verdana" , "helvetica" , sans-serif; font-size: small;">What would happen to the business, and their family members who relied on it for their livelihood, if an unforeseen event happened and they couldn't work? </span></li>
</ul>
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<div style="background-color: white; color: #666666; font-family: 'trebuchet ms', verdana, helvetica, sans-serif; font-size: 12pt;">
<br /></div>
<div style="background-color: white; color: #666666; font-family: 'trebuchet ms', verdana, helvetica, sans-serif; font-size: 12pt;">
Most business owners have not taken the time to understand that there are ONLY three options for their transition out of their business: </div>
<ul style="background-color: white; color: #666666; font-family: 'trebuchet ms', verdana, helvetica, sans-serif; font-size: 12pt;">
<li>Transition to Insiders ( family or employees )</li>
<li>Sale to Outsiders</li>
<li>Transition after Death of Owner to their estate, leaving it to their heirs to handle</li>
</ul>
<div style="background-color: white; color: #666666; font-family: 'trebuchet ms', verdana, helvetica, sans-serif; font-size: 12pt;">
Each of these paths has its own unique set of issues and tax concerns that must be addressed well in advance of the transition. The process of addressing these concerns is aptly named "Exit Planning." All three options depend upon converting the business value to cash in some manner, over some period of time. The sooner a business owner identifies their objectives, engages advisors, develops a plan and takes action to implement that plan, the more control they will have over the outcome. A universal ownership objective is to generate an income stream that you ( the owner ) and your family will need to support a future lifestyle.</div>
<div style="background-color: white; color: #666666; font-family: 'trebuchet ms', verdana, helvetica, sans-serif; font-size: 12pt;">
<br /></div>
<div style="background-color: white; color: #666666; font-family: 'trebuchet ms', verdana, helvetica, sans-serif; font-size: 12pt;">
We also found that all of our business owners had one thing in common: "I want to receive the highest value for my business!" Value in this context may include not only the actual price, but other objectives such as minimizing risk, minimizing taxes, and insuring a successful transition of the business (whether insiders or outsiders).</div>
<div style="background-color: white; color: #666666; font-family: 'trebuchet ms', verdana, helvetica, sans-serif; font-size: 12pt;">
<br /></div>
<div style="background-color: white; color: #666666; font-family: 'trebuchet ms', verdana, helvetica, sans-serif; font-size: 12pt;">
The business owner's objectives form the basis of the plan, and while each business and owner has a unique set of facts, the defined process means the business owner does not have to reinvent the Exit Planning wheel themselves. The owner's clearly defined objectives will direct the planning and actions, and help optimize the net proceeds. A team of advisors, which includes an attorney, CPA, financial planner, insurance professional and M&A advisor, will support and guide the business owner throughout the process. Our firm will coordinate the team of advisors on behalf of the business owner, to maintain accountability and progress towards the owner's successful outcome.</div>
<div style="background-color: white; color: #666666; font-family: 'trebuchet ms', verdana, helvetica, sans-serif; font-size: 12pt;">
<br /></div>
<div style="background-color: white;">
<span style="color: #666666; font-family: "trebuchet ms" , "verdana" , "helvetica" , sans-serif;">We help our business owner clients plan for the most critically important financial event of their lives – the transition out of their business.</span><br />
<div style="color: #666666; font-family: 'trebuchet ms', verdana, helvetica, sans-serif; font-size: 12pt;">
<br /></div>
<div style="color: #666666; font-family: 'trebuchet ms', verdana, helvetica, sans-serif; font-size: 12pt;">
Find out more about our <a href="http://www.corpinvest.com/exit_planning.htm">exit planning</a> service.</div>
</div>
<div style="background-color: white; color: #666666; font-family: 'trebuchet ms', verdana, helvetica, sans-serif; font-size: 12pt;">
<br /></div>
<blockquote class="tr_bq" style="background-color: white; color: #666666; font-family: 'trebuchet ms', verdana, helvetica, sans-serif; font-size: 12pt;">
<strong> "In any moment of decision, the best thing you can do is the right thing. The worst thing you can do is nothing." </strong></blockquote>
<blockquote class="tr_bq" style="background-color: white; color: #666666; font-family: 'trebuchet ms', verdana, helvetica, sans-serif; font-size: 12pt;">
<strong><em>T</em></strong><strong style="font-size: 12pt;"><em>heodore Roosevelt</em></strong></blockquote>
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<div style="color: #336699; font-family: trebuchet, arial, helvetica, sans-serif; font-size: 15px; font-weight: bolder; margin-left: 20px; margin-right: 20px;">
<br class="Apple-interchange-newline" /></div>
<div style="font-size: medium; margin-left: 20px; margin-right: 20px;">
<span style="color: #336699; font-family: trebuchet, arial, helvetica, sans-serif;"><span style="font-size: 15px;"><b>http://www.corpinvest.com</b></span></span></div>
</div>
</div>
Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-7300895251868945322016-03-01T14:23:00.001-08:002016-04-11T11:12:38.489-07:00Creating value in your business to get top dollar when you leave it<em>Did
you ever wonder why one business has buyers lined up willing to pay top
dollar while another sits on the market for months, or even years? What
do buyers look for in a prospective business acquisition?</em><br />
<em><br /></em>
There
are many opinions about what attributes or characteristics buyers seek,
but here’s what we know: the characteristics buyers seek must exist
before the sale process even begins and it is your job as the owner to
create value within your business prior to the sale. We call
characteristics that impact value “Value Drivers.”<br />
<br />
<h2 style="color: rgb(64, 64, 64) !important; font-family: Helvetica; line-height: 100%; margin: 0px 0px 10px;">
Walk A Mile In A Buyer’s Shoes</h2>
To
get an idea of the importance of Value Drivers when preparing to sell
your business, it is important to put on the buyer’s shoes for a minute.
Let’s look at a hypothetical case study that illustrates how a buyer
might compare two similar companies with a different emphasis on Value
Drivers.<br />
<br />
<em>The
A Factor Company has EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization) of $2 million, an owner who runs the
business and the systems and processes that create growth. The A Factor
Company doesn’t have a real management team in place and the owner
generates a majority of its sales. The owner is the center point of the
company, holding both the CEO and CFO positions. With this level of
responsibility, the owner is burning out quickly.</em><br />
<em><br /></em>
<em>In
comparison, The B Factor Company also has EBITDA of $2 million and a
solid management team that runs the business, systems and processes. The
management team creates efficiencies within the business and the owner
vacations for six weeks a year.</em><br />
<em><br /></em>
If
you were a buyer comparing these two companies, which would provide a
more attractive business opportunity? How much more would you pay for a
business with a strong management team (one of the most important Value
Drivers)? Would you even be interested in buying a business whose
management team (the owner) walks out when you walk in?<br />
<br />
Investment
bankers understand that companies that lack strong Value Drivers also
lack a bevy of buyers. Those buyers that do come to the table do not
arrive with pockets full of cash.<br />
<br />
Let’s look at several of the more important Value Drivers common to all industries:<br />
<ul>
<li><strong>A stable and motivated management team.</strong>
If you can wait a year to sell your business, we suggest that you
consider an incentive compensation system, cash or stock-based, that
rewards key employees as the company performs (usually measured by
increases in pre-tax income). Sophisticated buyers know that with a
solid management team in place, prospects are good for continued
business success. Without a strong management team, it may be very
difficult to sell your business to a third party or transfer it to an
insider.</li>
<li><strong>Operating systems that improve sustainability of cash flows. </strong>Operating
systems include the computerized and manual procedures used in the
business to generate its revenue and control expenses, (i.e. create cash
flow), as well as the methods used to track how customers are
identified and how products or services are delivered. The establishment
and documentation of standard business procedures and systems
demonstrate to a buyer that the business can be maintained profitably
after the sale.</li>
<li><strong>A solid, diversified customer base.</strong>
Buyers typically look for a customer base in which no single client
accounts for more than 10 percent of total sales. A diversified customer
base helps insulate a company from the loss of any single customer. If
the majority of your customer base is made up of only one or two good
customers, consider reinvesting your profits into additional capacity
that will make developing a broader customer base possible.</li>
<li><strong>A realistic growth strategy.</strong>
Buyers tend to pay premium prices for companies with realistic
strategies for growth. Even if you expect to retire tomorrow, it makes
sense to have a written plan describing future growth and how that
growth will be achieved based on industry dynamics, increased demand for
the company’s products, new product lines, market plans, growth through
acquisition, and expansion through augmenting territory, product lines,
manufacturing capacity, etc. It is this detailed growth plan, properly
communicated, that helps to attract buyers.</li>
<li><strong>Effective financial controls.</strong>
Financial controls are not only a critical element of business
management, but they also safeguard a company’s assets. Effective
financial controls support the claim that a company is consistently
profitable. The best way to document that your company has effective
financial controls and that its historical financial statements are
correct is through a certified audit or perhaps a verified financial
statement by an established CPA firm.</li>
<li><strong>Stable and improving cash flow. </strong>Ultimately,
all Value Drivers contribute to stable and predictable cash flow. It is
important, especially in the year or so preceding the sale of the
business, that cash flow be substantial and on an upswing. You can begin
increasing cash flow today by simply focusing on ways to operate your
business more efficiently by increasing productivity and decreasing
costs.</li>
</ul>
<br />
You
can install these Value Drivers and better position your company to
secure a premium price upon your exit with the help of a trained Exit
Planning Advisor. <a href="http://www.corpinvest.comhttp//www.corpinvest.com/exit_planning.htm">Find out more about exit planning today.</a><br />
<br class="Apple-interchange-newline" />
<div style="color: #336699; font-family: trebuchet, arial, helvetica, sans-serif; font-size: 15px; font-weight: bolder; margin-left: 20px; margin-right: 20px;">
<br class="Apple-interchange-newline" /></div>
<div style="margin-left: 20px; margin-right: 20px;">
<span style="color: #336699; font-family: trebuchet, arial, helvetica, sans-serif;"><span style="font-size: 15px;"><b>http://www.corpinvest.com</b></span></span></div>
Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-49966032739317295832016-01-07T11:38:00.000-08:002016-04-11T11:12:47.788-07:00A race against time: Exit PlanningSuccessful,
active business owners seldom slow down. Many business owners are both
great at planning (for their businesses) and terrible at planning (for
themselves). There are so many great business challenges to tackle,
planning for your personal ownership future can get pushed to the back
burner. We all know that the only things likely to reduce your pace are
death or terminal burn-out. This is not to imply that you are not well
intentioned; quite the contrary. You may be so well intentioned that
you’ve taken on more responsibility than you can possibly complete.<br />
<br />
Today,
our goal is not to alter the number of hours in your workday but to
alter your mindset. To do that, let’s look at a fictional business
owner.<br />
<br />
<b>Renaldo
LeMond owned a growing hospitality services business. As business
increased, he hired more employees and learned to delegate. Both these
improvements freed up time to sell more, to manage more, and to grow the
business more.</b><br />
<b><br /></b>
<b>No
matter how much Renaldo delegated, there were always additional tasks
and new priorities. Renaldo’s daily activities left no time to plan.
Even if he had had the time, Renaldo really didn’t know how to create a
plan founded on a clear vision, backed by definite plans that created
definable steps subject to deadlines and accountability.</b><br />
<b><br /></b>
<b>This
was Renaldo’s situation when he was approached by a would-be buyer for
his business. Renaldo hadn’t actively considered selling his business,
but at age 49, he was beginning to think that life after work might have
something to offer. He was open to talking about and exploring the idea
of selling his business because business growth, and more importantly,
profitability, had been slowing for years.</b><br />
<b><br /></b>
<b>Renaldo
found an hour in his schedule to talk to the interested buyer. In only
60 minutes, Renaldo’s blinders were removed and his priorities were
turned upside-down.</b><br />
<b>The
buyer turned out to be a large national company seeking to establish a
presence in Renaldo’s community. It was interested in Renaldo’s business
because of its reputation as well as its broad and diversified customer
base. The buyer was looking to acquire a business that could grow with
little other than financial support.</b><br />
<b><br /></b>
<b>Naturally,
it sought a business with a good management structure because, like
most buyers, it did not have its own management team to place in the
business. Renaldo, however, had not attracted or retained solid
management (nor had he created a plan to do so). His business lacked
this most basic Value Driver.</b><br />
<b><br /></b>
<b>Like
many buyers, this buyer also looked for two additional Value Drivers:
increasing cash flow and sustainable systems throughout the organization
(from Human Resources to marketing and sales to work flow). Renaldo
quickly realized that his business was a hodgepodge of separate systems
each created to patch a particular problem.</b><br />
<b><br /></b>
<b>Finally,
the buyer asked Renaldo to describe his plans for growing the business.
Renaldo had none. What this buyer and Renaldo now understood was that
this business revolved around Renaldo.</b><br />
<b><br /></b>
<b>As
Renaldo left the meeting, he expected that, given his company’s
deficiencies, he would receive a low offer from the buyer. He waited
weeks but no low offer was forthcoming. In fact, the buyer simply
disappeared.</b><br />
<br />
The
message to all of us is clear: Unless a business is ready to be sold,
many buyers, especially financial buyers, are not interested. They have
neither the time nor the in-house talent to correct deficiencies. The
look for (and pay top dollar for) businesses that are poised for
ownership transition.<br />
<br />
It
is a fact of life for owners that unless you work on your business,
rather than in your business, you will never find time to plan for your
future and for the future of the business.<br />
<br />
Is
there a way to change your priorities before your 60 minutes with a
prospective buyer? Of course. You simply acquire new knowledge (about
Exit Planning) and apply it to your life.<br />
<br />
Exit
Planning requires time: time not only to create the plan but also time
to implement it and to achieve measurable results. That timeline may be
considerably longer than you anticipate because, in creating an Exit
Plan, you need to rely on others who are also busy (minimally an
attorney, CPA, and financial planning professional). Additionally, you
can not anticipate all of the issues that might arise, and it is
unlikely that everyone you work with is as motivated or experienced as
you are. Finally, and inevitably, not everything will go as planned.<br />
<br />
Exit
Planning encompasses all sorts of planning: your growth, strategic,
tactical and ownership succession planning for your business, as well as
your personal financial, and estate planning. By wrapping business,
estate, and personal (or family) planning into one process, Exit
Planning is all-encompassing rather than a subset of the planning that
you are sure you will one day undertake. In short, there is much to do.<br />
<br />
It
may be helpful here to recognize that planning, properly undertaken,
can help enrich your business as well as your personal life. According
to Brian Tracy, "A clear vision, backed by definite plans, gives you a
tremendous feeling of confidence and personal power." And, in the case
of Exit Planning, it works, too. Find out more about <a href="http://www.corpinvest.com/exit_planning.htm">exit planning</a>.<br />
<h6>
<em>The example provided is hypothetical and for illustrative
purposes only. It includes fictitious names and does not represent any
particular person or entity. </em><em>Copyright © 2016 Business Enterprise Institute, Inc., All rights reserved.</em></h6>
<h6>
<em><br /></em></h6>
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<span style="color: #336699; font-family: trebuchet, arial, helvetica, sans-serif;"><span style="font-size: 15px;"><b>http://www.corpinvest.com</b></span></span></div>
</h6>
Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-43909790583444622932015-10-08T10:28:00.002-07:002016-04-11T11:12:53.465-07:00Signature Glass, Inc. is acquired by Binswanger Glass Signature Glass, Inc. ("Signature Glass"), a contract glazing business in Houston, TX has been acquired by Binswanger Glass. Signature Glass is a leading commercial glazing contractor in the Houston metropolitan area with focused expertise in curtain wall and window wall systems, storefront and entrance systems, and in-house fabrication of aluminum framing systems. John Fincher with Corporate Investment faciltiated the transaction and advised Mike and Sandy Skobla, the owners of Signature Glass.<br />
<br />
“Signature Glass was an excellent acquisition target for Binswanger Glass," stated John Fincher, Senior Associate of Corporate Investment. "Binswanger Glass can now build on the great reputation Signature Glass has earned in the Houston area. Corporate Investment was pleased to represent Mike and Sandy Skobla in this transaction.”<br />
<br />
Signature Glass has been in operation since 1999, when it was founded by Mike and Sandy Skobla. The Skoblas built the business by consistently exceeding expectations of both general contractors and business owners on construction projects ranging from storefronts to mid-rise commercial and institutional buildings.<br />
<br />
"Being a part of the Binswanger Glass family is the right fit for our company, our customers, and our employees," said Mike Skobla, President of Signature Glass Holdings, LLC, the newly-formed subsidiary of Binswanger. "We have developed great relationships with general contractors and business owners within the Houston area, and now being a part of an organization with a contract glazing presence throughout all of Texas and 14 other states will allow us to continue to grow profitably."<br />
<br />
Signature Glass will continue to operate under the Signature Glass name as a division of Binswanger Glass.<br />
<br />
"We are privileged to partner with Mike and Sandy Skobla and all of Signature Glass's employees to continue providing excellent glazing service to customers throughout the Houston metropolitan area," stated Tim Curran, CEO and President of Memphis, TN-based Binswanger Glass. "This acquisition is representative of the strategic growth plan for Binswanger Glass, which comprises bolstering our presence in growing markets such as Houston, expanding into new geographies outside of our current footprint, and partnering with strong operators that have built a dependable team of glaziers."<br />
<br />
Binswanger Glass is the largest full-service designer, retailer, and installer of architectural glass and aluminum products within the construction, residential, and automotive markets in the United States. Binswanger Glass is an affiliate of Boulder, Colorado-based private equity firm Grey Mountain Partners.<br />
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Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-24265883732499023552015-04-07T09:19:00.000-07:002016-04-11T11:13:05.287-07:00Q1 2015 M&A Market Update<div class="p1">
<b><span style="font-family: "trebuchet ms" , sans-serif;">Predictions for 2015</span></b></div>
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<div class="p1">
<span style="font-family: "trebuchet ms" , sans-serif;">The January issue of <span class="s1">Mergers & Acquisitions</span> magazine reported that <b>2014 was the best year for the middle market since 2007</b>. It went on to say: "Confidence in the economy, cash on corporate balance sheets, dry powder in private equity funds, low interest rates and high stock prices all combined to create a nourishing ecosystem for deals throughout 2014." </span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">Our firm's experience in 2014 was consistent with this thought, and the first 90 days of 2015 have begun with robust buyer activity.</span></div>
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<b><span style="font-family: "trebuchet ms" , sans-serif;">Valuations in Austin</span></b></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">A September 2014 white paper co-authored by Mark Jansen, PhD candidate, and Adam Winegar, at the McCombs Business School, UT Austin, concludes that <b>business valuations in desirable cities such as Austin average 16% more than in other locations</b>. This analysis is based upon a study of over 16,000 transactions. The study states: "The 16% premium is robust to controls for local economic characteristics, industry concentration, and the liquidity and availability of capital in the local transaction market. We introduce a new measure based on how noneconomic characteristics of a city affect its desirability and find that firms located in cities with higher values of our measure sell for a significant price premium."</span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">The paper goes on to explain: "Unlike a public firm, the largest shareholder of a private firm is often the firm's CEO. This makes the location's desirability, even the portion unrelated to the cash flows and risks of the firm, important to at least one of the shareholders of the private firm. In a competitive environment, the entrepreneur pays a premium for a firm in a desirable location and this premium represents the value that the entrepreneur places on desirability."</span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;"><b>Austin is consistently on lists of desirable cities in the U.S.</b> The study says: "Using the inclusion of a city on a 'best places' list as our initial proxy for desirability, we find that entrepreneurs pay an economically meaningful 16% premium for firms located in areas that have desirable features that are distinct from local characteristics that would affect firm cash flows or risks. This indicates that entrepreneurs' valuations of private firms are different from valuations of purely financial assets."</span></div>
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<div class="p1">
<span style="font-family: "trebuchet ms" , sans-serif;">The white paper notes that transactions with enterprise values greater than about $20 million, when acquired by a public company or private equity group, do not have this premium. </span></div>
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<div class="p1">
<b><span style="font-family: "trebuchet ms" , sans-serif;">At Corporate Investment, our conversations with <a href="http://www.corpinvest.com/MAadvisoryaustin.htm">M & A advisors</a> in other parts of the country confirm the results of this study. The velocity of buyers on engagements in Central Texas, versus a transaction in other areas, is also much greater. Buyers from many other areas of the country, specifically California and Illinois, exhibit significant interest in Texas businesses driven by to their desire to relocate to Texas. </span></b></div>
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<span style="color: #336699; font-family: trebuchet, arial, helvetica, sans-serif;"><span style="font-size: 15px;"><b>http://www.corpinvest.com</b></span></span></div>
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Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-33363402334449416602014-12-09T13:07:00.000-08:002016-04-11T11:13:22.496-07:00Q3 2014 M&A Market Update<span style="font-family: "trebuchet ms" , sans-serif;">As we reflect on the third quarter of 2014, we have seen several trends develop that are impacting valuations as well as the number of sale/recapitalization transactions of closely held businesses. Some of this industry data was also developed from the recent M&A Source conference held in Austin November 17- 21. 56 private equity firms were in Austin for the Expo, plus 180 M&A intermediaries from across the U.S.</span><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">Two trends were noted at the conference: </span></b><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><b><br /></b>
<b>First, contract terms that previously were reserved for the upper middle market are now appearing in lower middle market transactions.</b> Items such as representation and warranty insurance policies, previously only used in the upper middle market, were now being employed in lower middle market transactions. We recently were involved in a $15,000,000 EV transaction in which the private equity buyer, based in New York, was purchasing a "representation and warranty insurance" policy from AIG. These policies had normally only been used in larger transactions. Items such as "clawback" provisions may now appear in the purchase agreements of lower middle market transactions. In addition, many acquirers are engaging accounting firms to perform a "quality of earnings" review as part of due diligence.</span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;"><b>Second, minority recapitalization transactions are becoming much more popular in current transactions.</b> Business owners who are not ready to retire or give up control of the business, are able to cash out some of their equity, diversify their net worth, but continue to run the company, as well as maintain control. As the company grows, the eventual sale in 7-10 years may yield a substantial premium over current valuations, due to increase in EBITDA, as well as multiple expansion based upon the increased revenue and earnings. EBITDA multiples for well-run operations, with deep management teams and EBITDA in excess of $3,000,000 are seeing multiples between 5 and 6 times adjusted EBITDA in some cases.</span><br />
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<span style="color: #336699; font-family: trebuchet, arial, helvetica, sans-serif;"><span style="font-size: 15px;"><b>http://www.corpinvest.com</b></span></span></div>
Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-82216018198001433042014-04-09T11:20:00.000-07:002016-04-11T11:13:13.401-07:00Q1 2014 M&A Market Update<div>
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<span style="font-family: "trebuchet ms" , sans-serif;">As we complete the first quarter of 2014, we have seen several trends develop in M&A that are impacting valuations, as well as the number of sale/recapitalization transactions of closely held businesses. In 2013 and Q1 2014, we closed numerous transactions across the state, in varied industry sectors, including an Austin-based client company that was acquired by a public company based in Europe. Our opinion is that the M&A market is extremely favorable to sellers today. This was reinforced by a recent article by Andy Greenberg, CEO of GF Data, who stated:</span></div>
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<b><strong><span style="font-family: "trebuchet ms" , sans-serif;">"The primary drivers of middle-market deal flow - company and industry performance, capital availability, macro-economic conditions, and public equity values - are more favorable to the private business seller than at any time since the mid-2000s, but the volume of change-of-control deal activity is just not on par with these favorable market conditions."</span></strong></b></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">In addition, an article in the <em>New York Times </em>on February 11, 2014, contained the following:</span></div>
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<b><strong><span style="font-family: "trebuchet ms" , sans-serif;">"The market is further constrained by a lack of companies willing to sell, as they wait for the economy to improve further", said Milton J. Marcotte, head of the national transaction advisory services practice at McGladrey, an accounting, tax and consulting firm for private equity. "That intensifies competition among buyers. We've been doing this awhile, and I don't remember a time when it was really quite this competitive," said Mr. Marcotte.</span></strong></b></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">We also know from our industry sources that private equity firms are collectively sitting on about $1 trillion in capital that they must invest. So, with well-capitalized buyers in the market, what is holding back sellers of closely held businesses? We believe that many sellers are skeptical when we discuss what is clearly a "sellers' market". They have heard this before. However, we can verify that multiple offers for good businesses, especially in Central Texas, is the norm rather than the exception.</span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">So, is now the time for business owners to ask themselves if it is a good idea to have a significant amount of their net worth tied up in their privately-held business? We have noticed businesses have recovered from the 2008-2009 recession, and now the business is doing quite well, and thus, the owners ask "why sell now?" Unfortunately, history shows that recessions happen in 7-10 year cycles, and most of us cannot predict the future very well. Selling at the top may have appeal as the smart move. But we know that it is difficult to accurately predict the ideal time. Our message to business owners is don't wait for uncontrollable factors, such as health issues or other personal factors, to force you into an exit strategy. The better course of action is to take control and plan your exit in a way that maximizes value. We believe that the only way to maximize value upon the sale of a privately held business is to run a well-managed process that leads to multiple offers.</span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">So if it's a "sellers' market", what impact is that having on valuations? It varies, of course, by industry and size of company, but some broad parameters do apply. The following appeared in the GF Data article:</span></div>
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<span style="font-family: "trebuchet ms" , sans-serif; font-size: 11pt;"><b><strong>"The non-institutionally-owned businesses offering neither above-average financial characteristics nor a management solution post-close that continued the march towards closing in the first months of 2013 traded at an average of 4.4 TTM Adjusted EBITDA." GF Data, March 2014.</strong></b></span></div>
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</b>Two salient points in that statement: These businesses were neither above average, nor did they have a strong management team after acquisition, yet were still getting a multiple of 4.4 times TTM Adjusted EBITDA. So if a business has better than average financial performance and a solid management team, it should command an even higher multiple. This is supported by a recent <em>New York Times </em>article, in which David Humphrey, a managing director at Bain Capital, noted:</span><br />
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<strong><span style="font-family: "trebuchet ms" , sans-serif;">"Valuations for clean, easily extractable businesses are quite high."</span></strong></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">So going forward in 2014, we expect continued high demand for Central Texas businesses with upward pressure on pricing for well-managed, profitable businesses. There were over 150 Private Equity Groups at the recent ACG conference in Houston, intensely focused on finding solid acquisitions of both platform and add-on businesses.</span></div>
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<span style="font-family: "trebuchet ms" , sans-serif;">Please do not hesitate to <a href="http://www.corpinvest.com/contact-us.asp">contact us</a> for specific information about market trends.</span><br />
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Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-25010674552726224852014-01-24T10:23:00.001-08:002016-04-11T11:11:04.856-07:00Webinar: Business Valuation<div style="color: black; font-family: trebuchet, arial, helvetica, sans-serif; font-size: 14px; font-weight: bolder; margin-left: 20px; margin-right: 20px;">
Webinar time/date:<br />
Wednesday, January 29, 2014<br />
12:00 PM-12:45 PM CST.</div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><img align="right" alt="Webinar" src="http://www.corpinvest.com/art/social/webinar_date_29.png" height="176" width="151" /></span></div>
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Join us to learn about business valuation, a crucial step in selling your business. </div>
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What will we cover in this webinar?</div>
<ul style="color: #333333; font-family: trebuchet, arial, helvetica, sans-serif; font-size: 12px; font-weight: normal; margin-left: 20px; margin-right: 60px;">
<li> Value vs. Price </li>
<li>Acceptable valuation methods</li>
<li>Recasting process</li>
<li>Value drivers</li>
<li>Valuation Example</li>
</ul>
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Why
should you attend this webinar?</div>
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<span class="Apple-style-span" style="font-size: 12px; font-weight: normal;">Even if you aren't ready to sell your business today, finding out more about the sales process is advantageous.</span></div>
<ul style="color: #333333; font-family: trebuchet, arial, helvetica, sans-serif; font-size: 12px; font-weight: normal; margin-left: 20px; margin-right: 20px;">
<li style="color: #333333; font-family: trebuchet, arial, helvetica, sans-serif; font-size: 12px; font-weight: normal; line-height: 16px; margin-right: 20px;">How do you add value to your business?</li>
<li>What are the methods for valuing a privately held company?</li>
<li>What is the difference between value and price?</li>
<li>If you need to recast your finanicals, what is the process?</li>
<li>What drives the value in your business?</li>
</ul>
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Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-27461518202812982122014-01-07T17:38:00.000-08:002016-04-11T11:11:12.016-07:00Webinar: How to Sell a Privately Owned Business (for Maximum Value) <div style="color: black; font-family: "trebuchet" , "arial" , "helvetica" , sans-serif; font-size: 14px; font-weight: bolder; margin-left: 20px; margin-right: 20px;">
Webinar time/date:<br />
Wednesday, January 15, 2014<br />
12:00 PM-12:45 PM CST.</div>
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Join us to learn how and when to sell your business for maximum value. </div>
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<a href="https://corpinvest.webex.com/corpinvest/onstage/g.php?t=a&d=294578102" target="_blank">Register
now.</a></div>
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<em>Webinar participants are completely anonymous.</em> <em>You can call in or listen on headphones for maximum confidentiality.</em></div>
<div style="color: #333333; font-family: "trebuchet" , "arial" , "helvetica" , sans-serif; font-size: 13px; font-weight: bolder; margin-left: 20px; margin-right: 60px;">
What will we cover in this webinar?</div>
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<li style="color: #333333; font-family: "trebuchet" , "arial" , "helvetica" , sans-serif; font-size: 12px; font-weight: normal; line-height: 16px; margin-right: 60px;">Planning for the sale</li>
<li>Marketing the business</li>
<li>Deal making</li>
<li>Closing </li>
</ul>
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Why
should you attend this webinar?</div>
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Even if you aren't ready to sell your business today, finding out more about the sales process is advantageous.</div>
<ul style="color: #333333; font-family: "trebuchet" , "arial" , "helvetica" , sans-serif; font-size: 12px; font-weight: normal; margin-left: 40px; margin-right: 20px;">
<li style="color: #333333; font-family: "trebuchet" , "arial" , "helvetica" , sans-serif; font-size: 12px; font-weight: normal; line-height: 16px; margin-right: 20px;">How do you add value to your business?</li>
<li>Who are the possible buyers for your company?</li>
<li>What increases or decreases value?</li>
<li>How is the deal structured?</li>
<li>How do you deal with employees and customers?<br />
</li>
</ul>
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<b>http://www.corpinvest.com</b> </div>
Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-23398970537988376482013-09-16T13:07:00.000-07:002016-04-11T11:11:24.090-07:00What factors determine the "Multiple" of earnings?<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;">A "multiple" of earnings is a valuation method whereby the value of a company is expressed through the use of a multiple applied to the Company's earnings. For instance, a company that has Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) of $2,000,000, that has a "value" of $10,000,000, was valued at 5 x EBITDA. The appropriate earnings multiple that should be used to value any particular company depends upon a number of factors, or attributes. One way to drive a higher value for your company is for it to possess some of those attributes that warrant a higher earnings multiple. Predictability of revenue, sometimes referred to as "stickiness" of revenue, is one of those attributes that impacts the earnings multiple.</span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">Companies with highly predictable or recurring revenue streams sell for much higher multiples than companies whose revenue is not recurring, or is dependent upon constantly generating transactions with new customers for its revenue stream.</span><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">Some of the factors that demonstrate a higher level of predictability of revenue include:</span></b><br />
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<li><span style="font-family: "trebuchet ms" , sans-serif;">Contractual agreements with customers for repetitive sales of goods or services, such as manufacturing companies with long term purchase orders, or service companies that have annual recurring service contracts.</span></li>
<li><span style="font-family: "trebuchet ms" , sans-serif;">Operating in an industry where the barriers to entry are high. </span></li>
<li><span style="font-family: "trebuchet ms" , sans-serif;">A solid and growing customer base with very little turnover.</span></li>
<li><span style="font-family: "trebuchet ms" , sans-serif;">Serving a market, either industrial or geographic, that is growing. </span></li>
<li><span style="font-family: "trebuchet ms" , sans-serif;">In the case of distribution companies, protected territories or exclusive rights to product lines.</span></li>
<li><span style="font-family: "trebuchet ms" , sans-serif;">A revenue model that resembles a razor/ razor blade concept - where customers are "locked in" to a company's product or services. </span></li>
</ul>
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<b><span style="font-family: "trebuchet ms" , sans-serif;">Factors that indicate revenue is not highly predictable include:</span></b><br />
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<li><span style="font-family: "trebuchet ms" , sans-serif;">The majority of the customer relationships are managed by the owner of the business, or a small group of sales executives (the risk being that if the owner is no longer involved, or if the sales executives leave, the customer base may no longer have loyalty to the company). </span></li>
<li><span style="font-family: "trebuchet ms" , sans-serif;">The barriers to entry are low - new competitors can easily enter the market, thus increasing the competitive landscape. </span></li>
<li><span style="font-family: "trebuchet ms" , sans-serif;">Revenue is project dependent. </span></li>
<li><span style="font-family: "trebuchet ms" , sans-serif;">There are pricing risks, either from changing technology or governmental regulation.</span></li>
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<span style="font-family: "trebuchet ms" , sans-serif;">There are many other factors that come into play, way too many to outline in this article. As a business owner, we recommend that you review the sources of revenue for your company and, if possible, take steps to improve the "stickiness" of your company's revenue stream.</span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">In future articles, we will discuss other factors that impact a company's earnings multiple, such as strength and depth of the management team, the company's operating systems, reliability of the financial reporting system, opportunities for growth, the make-up of the customer base, intangible assets, strength of cash flow, scaleability, the amount of capital investment required to sustain or grow a business and preparedness for the due diligence process.</span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">If you have any questions or would like to discuss your particular company and how you can improve your valuation multiple, <a href="http://www.corpinvest.com/">contact us</a>, we would be happy to share our knowledge with you.</span><br />
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<b style="color: #336699; font-family: trebuchet, arial, helvetica, sans-serif; font-size: 15px;">http://www.corpinvest.com</b>Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.comtag:blogger.com,1999:blog-3270857806769064618.post-17563623762890470982013-08-06T13:00:00.000-07:002016-04-11T11:11:34.716-07:00Five Key Issues to Address in a Business Sale Transaction<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<b><span style="font-family: "trebuchet ms" , sans-serif;">These five issues are key to consider when you are contemplating selling your business.</span></b><br />
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<b>1. Non-Disclosure Agreement</b></span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">This agreement contains a few key elements that may easily be overlooked by an uninformed Seller. The first of these is the “non-solicitation” of employees, which should be coupled with a time frame of a minimum of two years, we suggest three years. A second important provision will state that “all obligations under this agreement shall survive for a period of ___ years (we suggest three), except that sections _ , _, _, and _ shall continue at all times. One of these specifically enumerated provisions states that the entire discussion must remain confidential. When a business owner goes to market, if they do not sell, they surely want that fact to remain confidential, even after two years, so this provision is extremely important. Buyers sometimes strike this provision, and a Seller must understand its importance.</span><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">2. Excluding Certain Types of Buyers from the Marketing Process</span></b><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">The goal of the business owner is to receive maximum value in the sale of their business. Strategic buyers typically pay a premium of 10% – 20% ( or more ) than pure financial buyers. A Seller should let their M&A professional contact the universe of qualified acquirers, including strategics, to insure that they receive the maximum value. If strategics are not included in the marketing effort, the Seller will never know if they received the highest price that was possible.</span><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">3. Letter of Intent – Timeline</span></b><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">One of the pitfalls that a Seller may experience when dealing with only one buyer, is the buyer’s total control of the timeline of the transaction. “Time is the enemy of a transaction.” That is not to say that the parties should rush to closing, but stretching out the timeline of due diligence and closing typically benefits the buyer, not the seller. The letter of intent should include a timeline of critical dates for important milestones, such as confirmation from the bank that a loan is approved, date for buyer to deliver initial contract draft, and closing date. The letter should contain language that the binding provisions of the LOI are contingent upon the buyer’s adherence to the timeline.</span><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">4. Letter of Intent – No Shop Provisions</span></b><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">Most Buyers insist upon a “No-shop” provision in the letter of intent. The Buyer is committing time, energy, paying CPA’s and attorneys, and as a reasonable request, typically asks the Seller for exclusivity (as long as the timeline is met !). However, many Buyers will include an additional sentence in the no-shop provision that the Seller must inform the Buyer if they are contacted by another party during the due diligence period, including the name of the potential buyer. We do not recommend our clients accept this specific provision.</span><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">5. Contacting Employees Early in the Due Diligence Process</span></b><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">Many Buyers will ask to speak to key employees early in the process – this should not happen. Discussions with key employees should only occur after financial due diligence is complete, a draft of the contract is received, evidence that financing is in place is received, and we are at the 11th hour. The Seller should always attend these meetings, which can be an issue for the Buyer. This is an extremely sensitive issue and must be handled carefully.</span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">Considering selling your business? <a href="http://www.corpinvest.com/">Corporate Investment</a> can advise you in how to start the process.</span><br />
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<b style="color: #336699; font-family: trebuchet, arial, helvetica, sans-serif; font-size: 15px;">http://www.corpinvest.com</b>Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com0tag:blogger.com,1999:blog-3270857806769064618.post-36860593008508977752013-06-12T12:56:00.000-07:002016-04-11T11:11:47.706-07:00Ten Ways to Maximize the Value of Your Business<b><span style="font-family: "trebuchet ms" , sans-serif;">Achieving the maximum value for the business when it sells is the goal of every business owner. These ten ideas can help you see if you are on the right track.</span></b><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">1. Develop a strong, stable management team</span></b><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">A business with a strong management team, allowing for key activities to operate independent of the owner, will command a higher price. The depth and stability of the management team are extremely important factors in the valuation analysis by a buyer. In many businesses, sales and marketing may be very dependent upon the owner, and this can be a significant value detractor. If most of the key account relationships reside with the owner, buyers will factor this risk into the valuation or the deal structure. Part of the price may become contingent upon the owner remaining with the business to maintain continuing customer relationships.</span><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">2. Demonstrate sustainability of earnings</span></b><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;">Revenue and earnings that have been steadily growing over several years, versus earnings that fluctuate dramatically, will drive a higher valuation. Year over year growth demonstrates a solid operation that is gaining new customers and/or market share. Dramatic fluctuations in revenue typically indicate that either product demand may be subject to outside factors, or the business has experienced problems, indicating management is not stable. Recession proof businesses have been commanding very strong multiples in the market over the past three years.</span><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">3. Develop systems and procedures</span></b><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;">A business must exist separate and apart from the daily actions of its owner to have a valuation, including goodwill, over and above the asset valuation. An owner who takes a week off at least one or two times per year, is exhibiting confidence in the systems and procedures of the business to function while they are away. If the owner is seldom or never away from the business for any length of time, buyers will question the strength of the operating systems, and the management team. The amount of goodwill that a buyer is willing to include in the purchase price will be dependent upon systems and procedures.</span><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">4. Maintain excellent financial records</span></b><br />
<span style="font-family: "trebuchet ms" , sans-serif;"><br /></span>
<span style="font-family: "trebuchet ms" , sans-serif;">Sloppy financials are a worry for both buyers and lenders. Valuation will be based primarily upon the numbers, and the more reliable the financial statements, the more chance they will hold up in due diligence. If your business has revenue in excess of $10,000,000, audited financials will be worth the investment. In the absence of audited financials, reviewed financials are preferable over internal financials, as the presentation, account classifications, footnotes, and organization of the statements, in general, will be much more professional than internally prepared financials. Most purchase agreements will contain a representation that “Seller’s financials are presented in accordance with GAAP”. We routinely ask for this representation to be reviewed very carefully, as the majority of private company financial statements do not contain all the disclosures required by GAAP.</span><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">5. Minimize personal expenses paid by the business</span></b><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">When the financials are “clean,” with very few “add backs” related to owner’s personal expenses paid through the business, buyers and lenders believe the numbers are more credible. Asking a buyer to believe that various expenses that have been paid by the company are in fact “not necessary” for the business creates uncertainty. Uncertainty is the enemy of a successful sale transaction. When the EBITDA computation is partially based on excessive “add backs” to earnings, the seller will be hard pressed to obtain a favorable valuation.</span><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">6. Transition Planning</span></b><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">When a seller has a definite plan to “phase out” of the operation, whether that is over one year, or three to five years, the buyer recognizes that sound planning has occurred. The process of developing this transition plan will often generate excellent suggestions for improvement in management’s role in the everyday operations of the business. Many sellers begin to outline their “job description” as part of this process, which highlights areas where there is a need to delegate more to the management team. Quite often this activity will result in improvements to the organization structure of the business and produce tangible benefits.</span><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">7. Diversified Customer Base</span></b><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">Customer concentration is a significant value detractor. When the revenue from any one customer accounts for over 20-25% of the total revenue of the business, the business will be valued at a discount. Losing 20-25% of revenue in most businesses will typically wipe out most or all of the profit of the operation, so this risk may not be ignored. When the buyer’s valuation is prepared, and this risk is factored into the valuation analysis, the goodwill included in the valuation of the business will be dramatically altered. Working to diversify the customer base will result in significant increases in the value of the business.</span><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">8. Solid Reputation in the Marketplace</span></b><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">Business acquirers are constantly searching for the leading business in the industry, and many sellers refer to their business as an “industry leader”. Savvy buyers can mine the internet for information about what customers actually think about most businesses. Multiple websites exist that give “feedback” from customers about businesses, and buyers may gather this data easily. Buyers will attend trade shows, industry conferences, and multiple other events, quietly asking competitors and suppliers about a company, using multiple techniques to determine what customers think about a business.</span><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">9. Diversified Base of Suppliers</span></b><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">A very narrow base of suppliers, or extreme dependence upon one supplier, may cause a decrease in valuation. Many business owners routinely buy from multiple sources, just to manage the risk that one supplier may experience shortages or interruptions in supply. This extends to the labor pool as well, if the business needs specialized skills, such as in healthcare. “What happens if…” is a typical question a buyer may ask – and many sellers do not have a ready answer for that question.</span><br />
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<b><span style="font-family: "trebuchet ms" , sans-serif;">10. Stable Facility of Operations</span></b><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">A business may or may not be dependent upon its location, but a buyer will not want to take the risk of moving the business right after the purchase. The business should have the right to remain in their current facility for at least 3 – 5 years through an existing lease, or ownership of the building. The location may be critical to a retail operation or restaurant, but also important to a wholesale or manufacturing operation. Many times key employees live close by, and the buyer having to relocate the business may place loyal employees in peril. If the lease is about to expire, and the buyer will have to renegotiate the lease right after closing, this situation creates uncertainty, which reduces the valuation. Lease options are an excellent method to remove this uncertainty, whereby the business has the right, but not the obligation to extend their lease beyond the current term.</span><br />
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<span style="font-family: "trebuchet ms" , sans-serif;">For more information on maximizing the value of your business, contact <a href="http://www.corpinvest.com/">Corporate Investment</a>.</span><br />
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<b style="color: #336699; font-family: trebuchet, arial, helvetica, sans-serif; font-size: 15px;">http://www.corpinvest.com</b>Corporate Investmenthttp://www.blogger.com/profile/18060996089553812949noreply@blogger.com