Posts Categorized: Buyer Articles

Buying a Distressed Business 

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It is safe to state that Howard Brownstein, President of The Brownstein Corporation, is a true expert in providing turnaround management and advisory services to companies, as well as their stakeholders.  Brownstein serves as an independent corporate board member for both publicly held as well as privately-owned companies and nonprofits.  During his career, he has been named a Board Leadership Fellow by the National Association of Corporate Directors (NACD) and served as Board Chair and President of its Philadelphia Chapter.  He also serves as Vice Chair of the ABA Corporate Governance Committee and has been named a Fellow of the American Bar Foundation.  He has been a speaker at many of the world’s top universities including Harvard Business School and Wharton.  Brownstein received his J.D. and M.B.A. degrees from the University of Pennsylvania.

Mr. Brownstein is considered to be one of the world’s top experts in distressed businesses.  He believes it is essential to remember that not all distressed businesses are, in fact, the same.  There is simply no way to know how bad things are for a given distressed business until one begins to “look under the hood,” and get a full view of what problems may lurk underneath. 

Brownstein firmly believes that distressed businesses can represent a real and often overlooked opportunity for buyers.  The recent economic downturn brought about by COVID-19 means that there will likely be a great deal more distressed businesses on the market in the coming months or even in the next couple of years. 

Why is a Given Business Distressed? 

Before you consider purchasing a distressed business, you absolutely must understand the core reasons for the distresses.  Without a proper and detailed understanding of why the business entered a state of distress in the first place, it is impossible to clearly articulate why the business will potentially be valuable in the future.  It is essential to be able to convey “what went wrong” and how the problems can be fixed.

Brownstein points out that while there are many reasons for a business to enter distress, two symptoms top the list.  The first is cash flow issues and the second issue relates to management.  Often it turns out that the management was simply not rigorous enough.  He also notes that companies will tend to gravitate to external issues as a way to explain away their failure.

Of course, no two distressed businesses are failing from 100% identical causes.  Brownstein suggests a series of questions that you need to ask when you begin exploring a distressed business.

  1. What is the business’ potential value?
  2. Is there something of value under the problems?
  3. Under better or different circumstances, could the business be viable?

These are all questions that your business broker or M&A advisor can assist with.  It’s important to gain a clear understanding of the business’ past, present and future. 

Copyright: Business Brokerage Press, Inc.

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Insights from BizBuySell’s 3rd Quarter Insight Report

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Most business buyers and sellers are wondering what 2021 and beyond will bring.  BizBuySell and BizQuest President Bob House provided a range of insights stemming from BizBuySell’s 3rd Quarter Insight Report and a survey of over 2,300 business owners. 

The simple fact is that the pandemic has most definitely had a major impact on the buying and selling of businesses.  This fact is obvious.  But diving deeper, there are a range of insights that can be gleaned. 

First, owners do understand that COVID is a massive force in business right now.  According to the survey, 68% of owners feel that they would have received a better price for their business in 2019 than in 2020.  Only 37% of respondents felt that they would receive a better price this year.  Of owners who felt that they would receive a lower price in 2020 than in 2019, 71% of these owners said that their assessment was directly tied to the pandemic and its accompanying economic impact.

A question on the survey asked owners if the pandemic had impacted their exit plans.  55% responded that the pandemic had not changed their exit plans.  Additionally, 22% said that they now planned on exiting later, and 12% stated that they planned on exiting earlier.  In short, the majority of business owners were not changing their exit plans.

On the other side of the coin, buyers are acknowledging that the present seems to be a very good time to buy.  A staggering 81% of buyers stated that they felt confident that they would be able to find an acceptable price point.  In terms of their purchasing timeline, 72% of respondents stated that they were planning on buying a business soon.  Survey follow-ups indicated that large numbers of buyers were also planning on buying in 2021.

Generational differences are playing a role as well.  Baby Boomers tend to be more optimistic than non-boomers as far as their overall views on the recovery.  43% of Baby Boomers now expect the economy to recover within the next year as compared to just 30% of non-Boomers.  House pointed out, “Baby Boomers are the generation that did not plan, which makes it harder for them to adjust transition plans if they were preparing to retire, as small businesses don’t have the infrastructure and management teams in place to wait out a bad cycle.”

Based on the information collected by BizBuySell’s 3rd Quarter Insight Report and their survey, it is clear that there is a new wave of buyers on the horizon.  The report supports the notion that the pandemic has made small business ownership an attractive option for new entrepreneurs.  Factors driving new entrepreneurs into the marketplace include everything from being unemployed and wanting more control over their own futures to a desire to capitalize on opportunities. 

Finally, House notes that 2021 could be a “perfect storm for business sales,” as 10,000 Americans will turn 65 each and every day.  This means that the supply of excellent businesses entering the marketplace will likely increase dramatically.

Copyright: Business Brokerage Press, Inc.

iqoncept/BigStock.com

The post Insights from BizBuySell’s 3rd Quarter Insight Report appeared first on Deal Studio – Automate, accelerate and elevate your deal making.

What Makes a Deal Close?

Posted by & filed under Buyer Articles, Seller Articles.

For every reason that a pending sale of a business collapses, there is a positive reason why the sale closed successfully.  What does it take for the sale of a business to close successfully?  Certainly there are reasons that a sale might not close that are beyond anyone’s control.  A fire, for example, the death of a principal, or a natural disaster such as a hurricane or tornado.  There might be an environmental problem that the seller was unaware of when he or she decided to sell.  Aside from these unplanned catastrophic events, deals abort because of the people involved.  Here are a few examples of how a sale closes successfully.

The Buyer and Seller Are in Agreement From the Beginning

In too many cases, the buyer and seller really weren’t in agreement, or didn’t understand the terms of the sale.  If an offer to purchase is too vague, or has too many loose ends, the sale can unravel somewhere along the line.  However, if prior to the offer to purchase the loose ends are taken care of and the agreement specifically spells out the details of the sale, it has a much better chance to close.  This means that a lot of answers and information are supplied prior to the offer and that many of the buyer’s questions are answered before the offer is made.  The seller may also have some questions about the buyer’s financial qualifications or his or her ability to operate the business.  Again, these concerns should be addressed prior to the offer or, at least, if they are part of it, both sides should understand exactly what needs to be done and when.  The key ingredient of the offer to purchase is that both sides completely understand the terms and are comfortable with them.  Too many sales fall apart because of a misunderstanding on one side or the other.

The Buyer and Seller Don’t Lose Their Patience

Both sides need to understand that the closing process takes time.  There is a myriad of details that must take place for the sale to close successfully, or to close at all.  If the parties are using outside advisors, they should make sure that they are deal-oriented.  In other words, unless the deal is illegal or unethical, the parties should insist that the deal works.  The buyer and seller should understand that the outside advisors work for them and that most decisions concerning the sale are business related and should be decided by the buyer and seller themselves.  The buyer and seller should also insist that the outside advisors keep to the scheduled closing date, unless they, not the outside advisors, delay the timing.  Prior to engaging the outside advisors, the buyer and seller should make sure that their advisors can work within the schedule.  However, the buyer and seller have to also understand that nothing can be done overnight and the closing process does take some time.

No One Likes Surprises

The seller has to be up front about his or her business.  Nothing is perfect and buyers understand this.  The minuses should be revealed at the outset because sooner or later they will be exposed.  For example, the seller should consult with his or her accountant about any tax implications prior to going to market.  The same is true for the buyer.  If financing is an issue it should be mentioned at the beginning.  If all of the concerns and problems are dealt with initially, the closing will be just a technicality.

The Buyer and Seller Must Both Feel Like They Got a Good Deal

If they do, the closing should be a simple matter.  If the chemistry works, and everyone understands and accepts the terms of the agreement, and feels that the sale is a win-win, the closing is a mere formality.

Copyright: Business Brokerage Press, Inc.

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2nd Quarter Business Transactions Activity Report

Posted by & filed under Buyer Articles, Seller Articles.

The following information has been provided by BizBuySell.com –the largest business for sale marketplace online, receiving over a million visitors a month.  Each quarter, BizBuySell analyzes business transaction data from its website and provides summary information to the business broker community.  The BizBuySell Insight report focuses on the data available for 70 of the major US markets.

Here are a few highlights of the most recent report, pertaining to transaction and business for sale listings in the Dallas/Fort Worth Metro area, which includes a total of twelve counties.

  • 62 Business transactions reported in 2Q 2020 – a 22.5% decline in the number of transactions reported in 1Q 2020, and a 46% decline from 2Q 2019.
  • However, the financial data for the 2Q 2020 transactions showed a marked increase over 1Q 2020 – the median sales price for businesses sold in 2Q 2020 increased by 14% over 1Q, as well as the same 14% increase in price over 2Q 2019
  • Additionally, the average pricing multiple realized in 2Q 2020 was the highest multiple noted in a given quarter since 1Q 2017!
  • The median revenue reported for transactions in Q2 2020 was the highest average number reported in the last 4 years, as was the median cash flow for those same transactions.
  • When comparing this data for the same time period for all VR Business Broker offices across the country, we see a similar trend. Fewer transactions, but statistically stronger businesses being sold during the 2Q 2020.

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How Coronavirus Is Impacting Lower Middle Market M&A Activity

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By Meghan Daniels, Axial

Last week, Axial convened a virtual roundtable of members to review the impact of the coronavirus pandemic on lower middle market business owners, M&A activity, and dealmaking. We assembled specialist and generalist investment bankers, corporate buyers and private equity investors (eight in total) to cut across the LMM and understand reactions to the chaos of the past few weeks. What are PE buyers and sell-side bankers doing when it comes to deals under LOI? Are strategic buyers pausing M&A to handle operations? How is the virus impacting industries from healthcare to manufacturing to restaurants to e-commerce and more?

Here are the Axial member attendees. Thank you to each of them for joining on almost no notice and for sharing freely what they’re seeing and experiencing on the ground.

Start at minute 11 if you want to get into the meat of it (the video starts with a round of introductions by its attendees). Quick disclaimer: This conversation was recorded Wednesday, March 11, and plenty has arguably changed since then already; much of the substance here is still relevant.

If you don’t have time to watch, here are a few quick takeaways from the conversation:

  1. Deals under LOI are proceeding with maximum urgency or they’re on hold. We’re not seeing a lot of in between.
  2. For deals in earlier stages, there’s definitely a lot of anxiety on the part of sellers and a bit more caution on the part of buyers — there are some who are hitting the pause button to wait and see how the situation shakes out in a few months. But at the same time, buyers remain flush with capital, so there will be others who continue to engage actively on opportunities assuming the worst will be over in a few months (we’re seeing China ramp back up now). For sellers, the advice is to “get as far you can as fast as you can” and beyond that just keep doing what you’re doing and try to keep up operations to the extent possible. If this passes, bankers will be able to pro-forma the disruption.
  3. It’s inevitable that there will be supply chain issues for many companies, but these are fluid and highly variable depending on your business. Companies that rely on China may be in a better position at this point than those who rely on other countries in Europe or domestically as infections ramp up here.
  4. Supply chain disruption was less severe than anticipated, with speculation that the Trump tariff activity of 2018/2019 had already precipitated moves toward a more diverse supply chain among both scale and niche manufacturers.
  5. Telehealth, tele-education, e-commerce, and virtualized communication are immediate obvious investment themes, as is distressed special situation investing across energy, leisure, consumer, and other industries.

 

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2019 Was Another Very Good Year for Business Transactions

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The following information has been provided by BizBuySell.com –the largest business for sale marketplace online, receiving over a million visitors a month.

In total, 9,746 closed sales were reported by brokers in 2019, a 5.5 percent decrease from the 10,312 deals reported in 2018, which set the BizBuySell record for most transactions. While full-year activity slowed compared to 2018, 4th quarter transactions bounced back to positive growth and it’s important to remember that levels remain historically high.

Some additional statistical data that you may find of interest.

The median revenue of a sold business in 2019 was up seven percent from 2018, and the median cash flow was up two percent from 2018.

These financials represent the highest annual revenue and cash flow since BizBuySell started measuring this data in 2007. While 2018 set the record for most transactions, 2019 has been characterized as having the most financially strong business transactions.

More than 1,300 transactions had an asking price of over $1 million. Those businesses tend to take longer to sell, averaging 15 more days on the market than others, but the reward is well worth it. Owners who were able to show such strong business performance earned 93 percent of their asking price and received significant value for their high financials. In fact, these businesses earned a .90 revenue multiple and 3.66 cash flow multiple, both significantly higher than the .59 revenue and 2.35 cash flow multiples received by all businesses.  The average time to sell a business was ~6 months from the time of listing to being placed in contract.

The Dallas / Fort Worth Metro area ranked 5th in the total number of transactions during the year, and experienced a 24% increase over 2018!

Market Outlook

2019 marks the third straight year of high transaction activity after a noticeable spike from 2016 to 2017. While 2020 is not without questions, we still expect this level of activity to continue, in part due to the ongoing supply created by retiring Baby Boomers. According to a recent BizBuySell survey of business brokers, 75% expect more Baby Boomers to sell their business in 2020 than did in 2019.

 

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What Buyers Look For In A Business Opportunity

Posted by & filed under Buyer Articles, Buyers, Seller Articles, Sellers.

by Peter C. King, VR Business Brokers/Mergers & Acquisitions, CEO

You have built a great business with love and care. It has grown larger than you’d ever imagined, and generates a nice profit that has allowed you and your family to live comfortably. Now you’re ready to sell. You assume there’s a buyer out there who will pay you a fair price and then nurture the company with the same attention you have. What’s more, selling the business is a major part of your retirement plan.

Needless to say, buyers look at businesses differently than sellers. So to achieve the outcome you want, it’s important to think like buyers and understand how they evaluate a business.

What Buyers Look For?

There are many types of buyers: strategic and financial, individuals, companies, and private equity funds. Despite differences, all buyers consider how much they’ll invest to acquire a business, the amount of risk they’ll bear and the potential return on their investment. To evaluate an opportunity, buyers focus on three major areas:

1. Cost and terms
What will it take to acquire the business? How much cash and how much debt? What are the deal’s terms and conditions?

2. Continuity
Will the business continue to operate similarly after the sale? Much of the risk of buying a company relates to continuity. For example: The current owner has personal relationships with
customers, distributors or vendors that the new owners may have to struggle to maintain, the owner has special expertise that is undocumented and difficult to learn, Key personnel aren’t committed to staying, or outside competition looms. Sellers armed with solid responses to these types of continuity concerns are more likely to get their desired price. Even if you don’t want to sell your business for a few years, take steps now to ensure it can run smoothly without your personal involvement. That independence could be worth millions when you sell.

3. Growth
Are there unexploited opportunities? You may have focused your sales efforts in one geographic region, but there may be many opportunities to take the product national or international. A buyer that believes it can increase revenues substantially will pay more for the business than one that believes the current owners have already maximized opportunities. What sellers should do?

It may seem counter intuitive, but the things you may be most proud of can work against getting the best price for your company. Not many entrepreneurs like to boast that their company could run just fine without them or that there are plenty of opportunities they’ve failed to exploit. Yet these may be the very factors buyers seek, along with lower cash requirements. Please call us for help in understanding how to best present your company for sale.

 

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Middle-Market Dealmaking Continues to Outperform

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Article written by Danielle Fugazy and provided courtesy of Axial.net

Middle market deal activity in the first half of 2019 is on pace with 2018’s record-setting figures in respect to both deal count and value. In Q2 2019, buyout shops closed 866 deals for a total of $124.2 billion, representing a year over year increase of 12.9 percent and 15.8 percent, respectively, according to Pitchbook Data.

The middle market continues to dominate the private equity sector. Middle market private equity deal activity (deal sizes between $25 million and $1 billion) comprised 82.4 percent of all buyouts in the U.S., marking five consecutive years. The middle market also made up 69.2 percent of private equity deal value in the first half, higher than any full year figure since 2014, according to Pitchbook.

Add-on acquisitions remain popular among middle market private equity firms looking to add value. In the first half of 2019, add-ons made up 59.5 percent of deal value as well as 68.8 percent of deals closed in the middle market.

“Private equity in the lower middle market remains vibrant and active. Riverside has seen a record pace of deal flow this year, especially in the lower end of the middle market where we focus our investing,” says Jeremy Holland, a managing partner at The Riverside Company. “Entrepreneurs have a plethora of choices today, whether it be full liquidity or growth capital. We are offering an array of private capital solutions to entrepreneurs, including non-control solutions such as structured equity and non-dilutive growth capital to B2B SaaS companies. It’s what makes sense today.”

Surprisingly, exits showed a decline in the first half of 2019. In the second quarter, middle market exit activity saw GPs exit 176 companies for a combined value of $31 billion—a decline of 19.4 percent. Although exits were down overall, there were five private equity-backed IPOs in the second quarter. The largest middle market exit of the quarter was Change Healthcare’s $557.1 million IPO, which had a valuation of $981.2 million. The company was initially taken private by The Blackstone Group and Crimson Ventures in 2011. In 2016, the company was merged with McKesson’s technology solutions business. What’s more, Pitchbook anticipates an uptick in IPO activity and corresponding IPO value going forward.

“We all know that add-ons can lower blended purchase price multiple and add scale, and they remain one of the most powerful levers into not only building bigger but better companies. Add-ons offer geographic balance as well as supplier and customer diversity. And oftentimes, they add intellectual property such as brands and patents. Perhaps most importantly, add-ons can bring tremendous human capital adding depth to our management teams,” says Holland.

Middle market fundraising figures were down in the second quarter, with $17.2 billion raised across 19 funds. Fundraising value in the first half of 2019 declined by 19.5 percent from the first half of 2018. Nineteen funds raised in Q2 is the lowest quarterly figure since Q3 2012. Some of the more notable funds raised include Silver Lake’s first mezzanine fund, Silver Lake Alpine Funds, which closed with $2.5 billion and is focused on making non-control equity and credit investment in technology and technology-enable companies. One first-time equity fund closed in Q2, Gainline Capital Partners, which held a final close with $155 million in May. Grain Communication’s Opportunity Fund II also closed during the quarter with $900 million. The firm focuses on investments in the global communication sector.

Middle market funds are a declining portion of all U.S. funds in terms of value as mega firms swell in size.

 

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You’ve Received an Unsolicited Offer to Buy Your Business — Now What?

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Article written by Ari Fuchs of The DAK Group and provided courtesy of Axial.net

Nearly 1 in 3 business owners report receiving an unsolicited offer to buy their business in the prior twelve-month period. If someone approached you with an offer to buy your business, would you know what to do? You’ve probably said to someone, or thought, something along the lines of “my business isn’t for sale, but for the right price I’d consider it.”

You may be flattered because the number may be higher than you imagined, and you may respond positively. But how do you know for sure? Even if your first reaction is a resounding “yes,” and you want to start the process, is that the prudent approach? It’s unlikely that you would ever make a decision about your business with information from only one source.

There are a number of questions to consider. What is your business worth? What is the right price for my business? What are similar businesses selling for? Could there be other interested buyers out there? How do you negotiate a better deal? What kind of partner will this company be? What do I want out of my business anyway at this point?

Business owners will be tempted to begin the process on their own for many reasons.. It’s certainly do-able to take the DIY approach. But the primary risk associated with going it alone is that you get in over your head in a short period of time. A sale process is a substantial undertaking which can often be overly distracting to the ongoing growth and success of your business. What is likely the largest financial decision of your life is not a time to learn on the fly. Often the acquirer has gone through the process many times – they are perhaps experts at doing deals and sometimes speak a different language than the business owner. It is for these reasons that a business owner might consider assembling a team of experienced advisors to assist throughout the process and to help evaluate the situation. Usually, this team is composed of an M&A advisor, your lawyer, your accountant, and possibly a wealth manager.

If you decide to assemble a deal team to help you with the process, here are four things your team of advisors will help you with:

1. Figuring out if the offer is fair and reasonable

Your M&A professional should be able to help you understand the value of your business and consequently whether the offer you received is fair and reasonable. The specifics of your business can really impact its value, making it important for you to understand the way an investor is evaluating your company’s worth. If the acquirer is strategic, then you need to understand how your business will impact the value of their business to negotiate the highest possible purchase price and most favorable terms. Even if an initial offer is deemed fair and reasonable, your investment banker should help you maintain the upper hand and push a buyer to give you the best value and terms by threatening or even proceeding to create a competitive bid process. The presence (or even threat) of another buyer may push the acquirer to adjust their offer.

2. Managing the flow of due diligence information

It’s important to employ good judgment about what information you share. How can the information be best positioned to amplify the strengths of my business? At what stage should you be sharing sensitive competitive information about customers and employees? The answers to these questions can have serious implications on how a buyer views and values the business.

3. Negotiation technique and approach

Repeat corporate or private equity buyers are generally experienced negotiators. How can you ensure that you’re not being out-negotiated and leaving money on the table? This is where high quality M&A advisors can earn their fee. The banker can also play the role of bad cop when you need to be insulated from a difficult negotiation point to ensure that you preserve the principal-to-principal relationship with the buyer. This is particularly relevant if you expect to play an ongoing role in the management of your business post-closing.

4. Allow you to focus more time on running the business.

Selling your business is time consuming for a business owner even when they have a good deal team supporting them. Without a deal team, it can become all consuming. Having the capacity to focus your time on running your business during a sale process better ensures the likelihood of a closed transaction. When businesses underperform during a period of scrutiny like this, it can break the deal.

The sale process — from negotiating and accepting an offer, getting through due diligence, and finally closing — has its ups and downs. You can benefit from experienced advisors in the process to act as a sounding board and to provide you with coaching and recommendations throughout the process.

Whether you are considering selling your business now or at some point in the future, you should always be prepared for that phone call and have a plan for how you will respond. Understand the value of your business in today’s market. Be aware of what enhances or detracts from the value of your business. Work with advisors who are knowledgeable and can help you navigate through the process of qualifying and validating a buyer.

You have invested years, possibly decades of your life building a successful business. When the time comes to sell the business, being prepared matters.

 

Is now the time to consider selling your business?

Complete the “Value Builder” questionnaire today in just 13 minutes and we’ll send you a 27-page custom report assessing how well your business is positioned for selling. Take the test now:

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