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It's Business Planning Time. What's Your End Game?

2011-11-08T15:16:00Z

Baby boomer business owners listen up. If you intend to sell or transition ownership in your business within three years, you should start positioning your business now to be attractive to buyers. Why so soon? Well, it can take two years or more to implement actions to improve your business’ profitability and mitigate its value reducing risks. Don’t forget to add another year to complete the sale process!

This is the time of year business owners review their strategic/business plans. As boomer business owners get older, it is unwise to develop or revise your strategic/business plans without first thoroughly understanding your personal (including retirement), financial, business and legacy goals. These goals will provide guidance as you develop or revise the plans. Consider engaging an experienced business ownership transition planner (i.e., an Exit Planning consultant) or some other person you trust to be brutally honest with you as you develop these goals. The return on investment, including peace of mind associated with Exit Planning can be significant.

As you approach your ownership transition date you need to be aware of how your decisions will impact your company’s valuation and attractiveness to a buyer. A few examples of these decisions are product/service pricing, investment in new product lines, business acquisitions within or outside your core business, strategic relationships, new marketing campaigns, geographic market expansion, making major equipment investments, and taking on business that significantly increases customer concentration, etc. A more specific example might be a franchisor experimenting for the first time with operating corporate stores. The point is, the closer you are to your ownership transition date, the less room you have for taking risks that may impact your company in a negative way. As you develop your plans, consult with an experienced merger & acquisition advisor to obtain his/her expertise on how your decisions will impact valuation and your ultimate ability to attract the best buyers.

In closing, please remember my mantra. That is to plan, optimize, sell, then live your dreams!

Please note you can receive MergerMaven’s blogs by email. To do so, just enter your email address to the left where it says “Subscribe Via Email” and then click the "Subscribe" button. Please also visit MergerMaven’s website.

Using Acquisitions to Eliminate a Business Owner's Value Gap

2011-07-19T15:48:55Z

Some business owners who are starting to think about the sale of their business aren’t aware that they have a “value gap.” A value gap is the difference between a business’ fair market value today and the price a business needs to be sold for in order for a business owner to fund a pre-determined post sale lifestyle. Many business owners underestimate the magnitude of the gap. Yet determining an accurate value gap is an essential part of the exit planning process. Read More

Please note you can receive MergerMaven’s blogs by email. To do so, just enter your email address to the left where it says “Subscribe Via Email” and then click the "Subscribe" button. Please also visit MergerMaven’s website.

Beware Of Unsolicited Buyers for Your Company

2011-03-08T15:35:00Z

It can happen to you. As business owner or CEO, you get a phone call out of the blue from a reputable company that has targeted your organization as a prime acquisition or merger candidate. Intrigued, you contemplate the possibilities. It's flattering to be pursued and before you know it, you've divulged information about your company - maybe too much information. Have you made a huge mistake?... Read Full Article

How Working Capital and Leverage Affect a Merger and Acquisition Deal

2011-02-16T16:13:00Z

One of the most contentious business deal points in the sale of a business is the negotiation of the working capital provision. When selling a business, business owners are often surprised to hear that they have to leave a requisite amount of working capital so that the buyer can run the operations of the former company the very next day, in a seamless manner. The following article provides a good understanding of why this is necessary and how to determine a “requisite” working capital amount. Click here to read the article.

Welcome To MergerMaven's Blog

2011-02-15T18:17:00Z

The MergerMaven blog and website are dedicated to helping over 280,000 middle-market business owners (revenue of $5 million to $200 million) prepare for, and when ready, sell their business for maximum value.

For most business owners, selling their business is a daunting task. If you frequently read MergerMaven’s blog and visit our website, I guarantee you will come to understand how to sell a business. After all, getting your business sale or merger transaction done right is critically important not only to you and your family, but to other valued stakeholders such as your partners, loyal employees and vendors, etc.

So then, what can you expect to get out of reading MergerMaven’s Blog? First, I want to make this an interactive process so please email me (Bill Quish) with questions or topics you would like to see addressed. Second, this blog will bring owners insightful and timely information, tips and advice including articles from and interviews with other experts associated with exit/succession planning, selling a business, mergers and acquisitions, and raising capital. You will benefit from the sage advice of a wide variety of experts.

Remember, it is never too early to start planning for the exit from your business. Involuntary events (e.g., death, disability, divorce, burn-out, partner issues, new stronger competitor, etc.) often force a premature exit! Be prepared so you don’t leave money on the table.

I look forward to our interactive journey together. Please feel free to contact me at bill@mergermaven.com. Talk with you soon!

Bill Quish

Bill Quish is a Mergers & Acquisitions Advisor, a Certified Exit Planning Advisor (CEPA) and a Senior Managing Director at Lyons Solutions, LLC. Bill also tweets about selling a business, mergers, acquisitions and exit planning on Twitter .

Address Material Business Sale Issues In The Letter of Intent

2011-02-15T17:27:00Z

Up until the signing of a Letter of Intent (LOI) in a business sale or merger and acquisition transaction, the seller typically has the upper hand in negotiations. After the signing of the LOI, control switches to the buyer some of whom will later leverage issues surfaced during due diligence to try and change the deal. Hopefully the company will have gone through a pre-sale business and legal due diligence process to identify and mitigate risks. It is incumbent upon the seller to make sure all material issues are communicated to the buyer and addressed in the LOI prior to its signing.

The Best Time To Maximize A Business' Sale Price

2011-02-03T19:31:00Z

A common misconception among business owners is that the sale of a business can be easily timed to “sell at the top.” The reality is doing so can be more difficult than timing the stock market. The best time to maximize a business' sale price depends on a confluence of factors. Among these are: (1) demand for your type of business is strong, (2) the merger and acquisition transaction financing market is functioning normally and (3) revenue growth and profits are strong but have at least a couple of years of remaining growth to support a buyer’s ability to pay you a higher price (business valuation). If the business’ revenue and profits have peaked or are close to peaking, sophisticated buyers will discount this fact by reducing the price they are willing to pay. You can also follow MergerMaven on Twitter .

Copyright 2011 Bill Quish. All Rights Reserved.

Thinking Of Selling Your Business? Eight Critical Mistakes To Avoid.

2011-01-26T01:16:00Z

For every large public company merger & acquisition, there are hundreds of small and middle-market M&A transactions taking place. While some business owners have properly prepared for these potentially life-altering mergers & acquisitions transactions, our experience indicates most have not.

Exit planning experts advise entrepreneurs to start planning for the eventual exit from their business the day they start their company. While such advice may seem premature, proper exit planning and expert transaction execution can have a huge impact on the net proceeds received from the business sale and an owner’s happiness in retirement.

The information that follows will help you avoid the pain of leaving what could be millions of dollars on the table. The eight critical mistakes to avoid are: (click here to continue) ......

Copyright 2011 Bill Quish. All Rights Reserved.

State Budget Deficits Could Impact Your Business' Valuation

2010-11-17T15:03:00Z

Does your company do business with state or municipal governments? If so, ballooning deficits could be harmful to your financial health. With economic growth expected to remain weak, state and local officials will have no choice but to evaluate all their contractual obligations. Their goal will be to save money by renegotiating existing contracts and require re-bidding of contracts on a more frequent basis. What does this mean for business owners who are planning to sell their businesses in the near future? If a material portion of your company’s revenues are related to state or municipal contracts, your gross profit margin probably will decline or even worse, you might lose significant business. Lower profitability will end up reducing your company’s valuation at the worst possible time. Business owners desiring to sell their companies in the near-term, and who have material exposure to the aforementioned contracts, should consider accelerating the timing of the sale of their business. By doing so, the owner might be able to pass-off some of these risks to the buyer and thereby salvage a higher valuation.

Please note you can receive MergerMaven’s blogs by email. To do so, just enter your email address to the left where it says “Subscribe Via Email” and then click the "Subscribe" button. Please also visit MergerMaven’s website.

Copyright 2011 Bill Quish. All Rights Reserved.

Understanding The Impact Of Risk On Business Valuation

2010-10-01T16:23:00Z

What do you think your business is worth? This is the reality check question I ask business owners. When I ask owners how they determined the business valuation amount, the answer usually is "it is a multiple of my business' earnings or revenue." The reality is, two businesses with the same earnings can have widely different valuations. There are many factors responsible for the differences in business valuations. Most notable are a business' revenue size, growth rate, profit margins, and risk profile.

Business owners often fail to factor in how risk impacts valuation. Examples of risks are the strength and defensibility of the business model, customer and vendor concentration, ability to prosper in down times, competition, vulnerability of proprietary products to technological change, depth and strength of management, legal compliance, and other business weaknesses, etc. Because of their subjective nature, each valuation expert and buyer will evaluate these risks differently. The greater the risk in their minds, the higher the rate of return they will require on their investment (i.e., purchase) of a business. Because valuation multiples are the inverse of the required rate of return (often times referred to as the discount rate), businesses with higher risks typically receive lower valuation multiples.

Do you know how a sophisticated buyer would evaluate your business' risks? I maintain that because most business owners are so close to their business, they probably lack the objectivity and expertise to identify and understand which risks will have the greatest impact on their business' valuation. A solution you should consider that would provide a significant return on investment is to have a professional, experienced in mergers, acquisitions and exit planning analyze your business from the perspective of a professional business buyer in order to identify these risks. Ideally this process should take place at least eighteen months before you decide to sell your business. The sooner these risks are identified, the more time you will have to mitigate them.

Copyright 2011 Bill Quish. All Rights Reserved.

Factors Influencing A Business' Valuation

2010-07-29T17:21:00Z

As a mergers and acquisitions intermediary, one of the most contentious discussion topics I encounter when meeting with a prospective business seller relates to business valuation. Most potential sellers have a preconceived notion of what their businesses are worth rather than knowledge based on specific value drivers to support a realistic assessment of value.

The following list represents some of the business and economic factors that influence business valuation.

Copyright 2011 Bill Quish. All Rights Reserved.

Be Wary Of The Working Capital Adjustment In A Business Sale Transaction

2010-07-13T13:02:00Z

Buyers of businesses typically will require the Seller to leave a negotiated amount of working capital in the business at the date of sale to support its current operations. One post-closing contractual mechanism that will ensure the buyer receives adequate working capital is commonly referred to as the "Working Capital Adjustment." Working Capital Adjustments are often subject to post closing disputes. An improperly drafted Working Capital Adjustment may obligate the Seller to pay the buyer a material amount of money after closing.

One of the drivers of Working Capital Adjustment disputes is a lack of attention paid by the Seller's various advisors to the details of drafting or reacting to proposed Working Capital Adjustment contractual language. An article titled The Well-Adjusted Purchase Price Adjustment written by Kirkland and Ellis LLP is an excellent source of information on drafting effective Working Capital Adjustment language in a Purchase and Sale Agreement.

Business owners, make sure you speak at length with your merger and acquisition, accounting and legal advisors about the Working Capital Adjustment the buyer proposes when you sell your business.

Copyright 2011 Bill Quish. All Rights Reserved.

Post Business Sale Goals - Don't Lose Sight Of What's Important

2010-06-23T17:50:00Z

When opportunities present themselves it is helpful to evaluate them to make sure they comply with your goals, values and beliefs.

When I first meet with a business owner who is considering selling his/her business, I want to know what is really driving the decision. This usually leads to a discussion of their post sale plans. As you can imagine, the variety of, and passion levels for these plans run the gamut. That being said, it never ceases to amaze me how quickly some owners will abandon important goals to hold out for a few additional bucks.

The following is a frequent scenario: Older baby boomer business owners will emphatically state that they want to spend more time with their wives, children/grandchildren, travel extensively and get involved in a cause to help others. Therefore, it is important that they are free and clear of their business duties soon.... usually within 18 months. From here the discussion turns to the spirited topic of what is my business worth? Frequently, the owner's business valuation expectations are higher than what the market will pay. However, in many cases what the market will pay combined with the owner's other invested assets is more than sufficient to support the owner's goals and lifestyle moving forward. But that doesn't matter! Because the owner wants an unrealistic 6x valuation multiple for the business but can only really expect to receive a 5-5.5x multiple, he is willing to put his future on hold and keep the business for another three to five years. To what end?

We are living in extremely volatile, risky times. There is no guaranty the business will appreciate in value. And most importantly, the business owner will never get back the three to five years of important experiences and memories he lost out on. If you are a business owner experiencing a similar dilemma, seek the counsel of a neutral party.

Please note you can receive MergerMaven’s blogs by email. To do so, just enter your email address to the left where it says “Subscribe Via Email” and then click the "Subscribe" button. Please also visit MergerMaven’s website.

Copyright 2011 Bill Quish. All Rights Reserved.

Looming Tax Law Changes Driving M&A Activity

2010-06-23T17:31:00Z

With the Bush tax cuts scheduled to expire at the end of 2010, business owners planning the sale of their business will likely have to pay substantially more in transaction taxes if they don't complete the sale of their company in 2010. Owners interested in retiring who aren't confident that there will be strong improvement in their 2011 business are finally coming to the realization that they should sell now. How do I know this is a "sale" motivating factor? Within the past week or so, my partner and I have been approached by four business owners who have cited lower transaction taxes (i.e., keeping more after-tax transaction dollars in their pockets) as the primary reason for selling now. Conversations with attorneys, accountants and private equity firms confirm my experience is not an isolated incident. Completing the sale of a company can take six or more months.

Copyright 2011 Bill Quish. All Rights Reserved.

Welcome To MergerMaven's Blog

2010-05-11T23:14:00Z

I look forward to our interactive journey together. Please feel free to contact me at bill@mergermaven.com. Talk with you soon!

Bill Quish