September 25, 2020 – VR Business Brokers of Dallas TX, a leader in the sale of privately held companies, recently facilitated the sale of Knowles Wholesale Florist, an “institution” in the wholesale floral business in North Texas for over 55 years.

Knowles Wholesale Florist provides the retail floral sector with the highest quality products and the most professional and efficient service in the industry!  Knowles services a large area of North Texas, extending just across the border into Oklahoma.  Tim Knowles, the second-generation owner of Knowles Wholesale Florist, has been associated with Knowles Wholesale for over 45 years, and has decided that is long enough!  He is ready to enjoy retirement after a fantastic and enjoyable career!

The business has been purchased by Lone Star Bloom, a real force in the retail floral industry, encompassing over 30 retail floral locations across several states.  Through leveraged volume, proprietary analysis, and diligent cash flow controls, Lone Star Bloom is the fastest growing florist in the country.

Kyle Brown, a principal in Lone Star Bloom, says “When coupling our attributes with an ability to provide our team with a full range of performance based benefits not usually offered by most privately held florists, we are able to establish the highest quality of service and performance for generations of customers.  Knowles Wholesale has been providing this same level of products and service on the wholesale side for decades, so it fits right in with what we are building!”

Lone Star Bloom is actively seeking acquisitions in the retail floral sector, providing owners with unique and timely exit strategies.  Visit their website at http://www.lsbco.com/

VR Business Brokers of Dallas, TX handled all aspects of the transaction, from initial business valuation to marketing the opportunity and providing support through the closing process.  Terms of the transaction were not disclosed.

About VR Business Brokers, Dallas, TX

VR Business Brokers of Dallas is part of the worldwide franchisor organization that has been servicing small to medium size privately held companies since 1979.  VR Business Brokers of Dallas handles transactions for companies with revenues ranging from $200,000 to $20,000,000, and assists business owners with exit strategy planning, business valuations, packaging and marketing of the opportunity, and full negotiation services through to closing.  For more information about VR Business Brokers, please call 214-733-8282, or visit www.vrdallas.com.

Article written by Meghan Daniels and provided courtesy of Axial.net

CEOs: What would happen if you went on vacation for a month and left your business to run itself?

If your answer is “everything would fall apart,” or “what’s a vacation?” chances are good that your business is highly dependent on you. This may not seem like a problem now, but when it comes time to think about selling your business, it may well be.

“Contrary to popular belief, buyers are highly risk-averse,” says Steve Raymond, Managing Director of New Jersey-based investment bank The DAK Group. Owner dependence (or dependence on any key person) is a major driver of risk, and as such can mean sellers don’t get the price or terms they want during a transaction.

Robert Rough, Managing Director of Dallas-based investment bank Telos Capital Advisors, says that smaller companies tend to be more owner-dependent. There are also certain types of businesses — e.g., dentists’ offices, insurance agencies, or law firms — where “the owner is almost always a major rainmaker. It all comes down to what role the owner plays, for example how involved he or she is in customer relationships and sales,” says Rough.

If you’re thinking about selling your business, here are a few suggestions to help mitigate the risk of owner dependence.

1. Make moves well in advance of a desired sale.  
When Jim O’Keefe, the founder of Wisconsin-based commercial millwork manufacturer O’Keefe, started thinking about planning for an exit, he had a clear life goal of being completely out of the business by the time he was 65 years old. “He’d started the business when he was in his early 20s and built it out of his garage,” says Dan Mulvaney of Sunbelt Midwest Business Advisors, which advised O’Keefe. Five years out from his desired sale timeline, “he brought in professional management and went from running the business to being an absentee owner, which added a lot of value to the business.”

O’Keefe ended up selling to Ninth Street Capital Partners, a middle market private equity fund based in Cleveland. The connection was made on Axial. The process was highly competitive in large part due to Jim O’Keefe’s prudence in stepping back early. “When we bring a business to market that has a management team in place that will stay post-closing for a long time, that broadens the market dramatically amongst buyers. A lot of buyers have the cash, but they don’t have the talent or operator who can jump in full-time and take over for the business owner,” says Mulvaney.

2. Bring in an independent board.
“Generally speaking, if you’re going to be selling a business within a year, you don’t have enough time to bring in a board,” says Raymond. But for those with enough lead time, creating a board is a great way to mitigate risk for a potential buyer by ensuring long-term business continuity. Board members also bring in outside perspectives and experiences that can improve business practices and help owners and existing management identify and address any challenges in the company. While there may be resistance to the idea, independent boards can be particularly helpful for family businesses, where long-established dynamics and a lack of outside experience can sometimes obstruct a business’s full potential.

3. Build out the management team.
“A lot of privately held businesses operate without a true CFO, somebody who understands treasury and sophisticated financial reporting. Bringing in a CFO is an easy step that can be done in a short time frame,” says Raymond. Bringing in a COO is also an option, although sometimes that can be done concurrently with the transaction. “Buyers, particularly PE buyers, will sometimes want to bring in an outside expert as part of the deal to help mitigate the risk, usually referred to as operating partner.”

In some cases, the business may not be large enough to justify bringing in either a CFO or a COO. In these cases, Rough recommends working on addressing areas of the business that will directly impact revenue first. “Customer relationships and sales are probably the most worrisome areas for a potential buyer,” says Rough. “Most buyers will be able to find someone to manage the books and keep the trains running on time. But they want to make sure that they won’t lose revenue. You want to make sure that there’s someone in the company who will be staying and can ensure continuity for key relationships.”

In general, think about delegating and distributing responsibilities. “If the owner just decides to replace themselves with a younger version of themselves, that doesn’t necessarily solve the problem,” says Rough.

4. Document key information.
Business processes shouldn’t just live in your head. If you go to Tahiti for two weeks, your team should know how to keep things running and have all the information they need to make informed decisions. Prospective buyers will want to see that these processes are well-documented to make knowledge easier to transfer post-close.

Owner dependence is just one issue in a business, but it’s often tied up with other risks that buyers discover in due diligence — lack of a true management team, a shaky handle on financials, intellectual property concerns, problematic legal agreements with customers or vendors, etc. As a seller, the more you think through these problems and take steps to address them in advance of a sale, the more likely you are to achieve the valuation and terms you’re looking for. Consulting with an investment banker or advisor before you want to bring your market is the first step and can help you evaluate where you are and what areas you should address first. “The more a company professionalizes their business and looks internally before a sale, the more interest they’ll get from buyers and the more likely they are ultimately to close a deal,” says Raymond.

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:

Written by Danielle Fugazy and provided courtesy of Axial.net

The M&A environment continues to be as competitive as ever. Looking for relief from high valuations and hotly contested auction processes, many private equity firms and strategic acquirers are moving down market.

It’s no secret that companies purchased at lower entry valuation generally achieve better returns because of their potential for multiple expansion. This is not lost on many of the largest players in the private equity industry. The venerable KKR has taken an interest in smaller technology, healthcare, and industrial businesses — some generating as little as $25 million — and is currently raising a middle market fund. Two years ago, another giant private equity firm, The Carlyle Group, raised $2.4 billion to pursue middle market buyouts in North America. The fund targets control investments requiring equity capital of as little as $20 million to $200 million per transaction.

As the larger private equity firms move down market, so do the lenders. “The larger lenders compete for smaller deals when their sponsor relationships come down. They follow their clients, but it’s not necessarily where they focus,” says Joseph Burkhart, a managing director with Saratoga Partners.

Impact on Traditional Lower Middle Market PE Firms

The impact of larger players moving down is twofold: first, traditional lower middle market private equity firms are pursuing additional strategies so they can continue to compete as the larger players come in to the space while others are working harder than ever to win deals today. For example, earlier this year Sentinel Capital Partners, which was already investing in the lower middle market, closed on Sentinel Capital Partners VI at $2.15 billion, and Sentinel Junior Capital, a $460 million fund that gave the firm a presence in the mezzanine financing market. Also early this year, Huron Capital closed on its inaugural non-control fund The Huron Flex Equity Fund with $142 million, which gives the firm flexibility to make non-control investments that are  smaller than their typical deals.

Watervale Partners, a private equity firm that spun out of Linsalata Capital Partners last year, is looking for deals pretty far down market in hopes of escaping some of the competition in the larger markets. Unlike Linsalata—a private equity firm focused squarely on the middle market—the Cleveland, Ohio-based Watervale is looking to make control investments in companies with less than $6 million of EBITDA. The typical transaction value for Watervale will likely be less than $50 million.

“There’s no question that firms are moving down market in general, but at some point—we think around $6 million in EBITDA—the economics call for a different model and all of your support systems change,” says Bacon. “One of the advantages of larger firms is their ability to absorb dead deal costs or spend more money before exclusivity; that isn’t as prevalent to these smaller deals where the company really can’t handle multiple bidders simultaneously.”

In today’s frothy market one of the biggest impact of larger firms coming down market is the lack of exclusivity on potential deals. With bankers asking multiple parties to do the proper due diligence on a company, many lower middle market firms are at a disadvantage. While the larger firms can afford to spend with no exclusivity it’s not easy for smaller firms to that.

Dan Ryan, a partner at lower middle market private equity firm Milestone Partners, says his firm recently submitted a letter of interest to acquire for a tech-enabled solutions platform. When the process started the company’s valuation was a little higher than $100 million. A firm with a $2 billion fund wound up as the winner and by the time the deal was closed the valuation has risen by 33 percent. When the deal was closed there were seven parties that had undergone  extensive due diligence without exclusivity. “A larger firm can more easily afford to spend significant dollars with attorneys, accountants and other vendors to conduct preliminary due diligence without exclusivity. It’s over $100,000 spend all-in. For a lower middle market firm, $100,000 is meaningful. We can’t expose ourselves and our LPs to that risk without real confidence in our ability to close the deal and add value,” says Ryan. “We really need to pick our spots.”

Additionally, buyers are competing on speed to close and larger firms typically don’t have a financing contingency, which gives the larger firms an advantage.

While these dynamics have made it tough for lower middle market buyers, conversely, it’s a great time to be a seller in the lower middle market. Case in point: Inverness Graham is squarely a lower middle market firm investing out of its $283 million third fund. When the firm recently sold a business with $23 million in revenues, they got 74 letters of interest on the business. Fifty percent of them were from firm with funds north of $750 million; some of those firms had funds of more than $1 billion.

However, Matt Moran, a principal with Inverness, notes that sector focus does make a difference when it comes to the larger players’ appetite. Moran says you can expect to see more firms pushing into the lower middle market around sectors like healthcare services, vertical software, and industrial technology that have large consolidation play opportunities.

Saratoga Partners’ Burkhart agrees. “I have a relationship with an owner of a nurse staffing business with less than $2 million in EBITDA and people are clamoring to look at the business — but nursing is one of those hot sectors right now.”

In hopes of looking more unique sellers many lower middle market firms have turned to specialization. “There’s a huge trend toward specialization. Firms are changing their entire hiring, fundraising, and sourcing strategies. It’s staggering,” says Moran.

““Being a generalist fund isn’t viewed as favorably as it once was. Sector specialization in the lower middle market has become a differentiator,” says Burkhart. It’s important to note, that although more firms are heading toward specialization the returns aren’t proving out to be exponentially larger. According to research done by RCP Advisors, a limited partner that invests in lower middle market private equity firms, the likelihood of earning an outsized return on a transaction executed by a manager whose strategy is characterized by sector specialization is only about 100 basis points higher than a deal that is executed by a generalist fund.

How to Win

The increased competition has made it hard but not impossible for traditional lower middle market firms to win. The market dynamics has forced these firms to stay true to their strategies. “You can’t let what others are doing change your process. Our best deals are when we stick close to our knitting. There is more noise out there and that probably won’t change, but you still have to go after what you want with certainty and conviction,” says Moran.

Milestone’s Ryan says his firm has lost more deals than it’s won. Many of the deals they have won have come down to operating expertise and/or relationships. In one case the firm’s operating partner had specific operating experience in a company’s niche and was able to make a strong connection with the company’s CEO as a result. In another case, as a result of a longstanding relationship with Capstone Headwaters, the investment banker on the deal, Milestone got to meet the team ahead of the process, which was extremely helpful. “This doesn’t happen all the time. But Capstone Headwaters understands our approach and our industry focus and what we get excited about, and they called us early. It was really helpful,” says Ryan. “It’s these kinds of things that allow the smaller firm to win deals in today’s market.”

 Is your business creating maximum value?

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:

JoAnn Lombardi, VR Business Brokers/Mergers & Acquisitions, President

How to Develop a Successful Exit Strategy

Recently, many entrepreneurs fulfilled their life-long dreams of buying a business. Others have seen their businesses grow gradually over the years. They are pursuits these business owners have enjoyed and cherished. However as a business owner, you have to remember there will be a time you will have to pass your dream along to somebody else – owning the business you have started.

Whether you’re selling the business because of burnout, retirement or the desire to move on, when the time arrives to do so, do it right and receive the optimal sales price.

Often when you contemplate, plan or pursue the opportunity to sell your business, you discover the selling process doesn’t give you the flexibility needed to make the best deal. But you don’t need to fear, feel manipulated by or go through the resale process alone.

You will be at an advantage as an owner if you start thinking about selling the business before you actually proceed. You will easily be able to identify the important elements of the resale process, and have some control over them in the future. Preparing to sell before you move forward will help you better understand the business transaction, your needs as an owner and be in a better position to develop a strategy to make it through the resale efficiently and profitably.

There are five obstacles in the resale process you will have to examine as you proceed. With each one, there are some helpful tips every VR business intermediary will recommend to you. This will assist you in understanding the process better and successfully sell your business.

1. Position Your Business for Sale.
2. Determine a Fair Listing Price.
3. Running Your Business during the Marketing Period.
4. Finding the Qualified Buyer.
5. When to Consider Selling Your Business.

Position Your Business for Sale

The day you purchase the business is the day you start positioning your business for resale. You might not think so, but thinking about building long-term value for your business is just as important as making money in the short term.

You want to maintain detailed records of finances, permits, licenses, equipment and inventory through your ownership. This will be critical when you are trying to sell your business, so don’t neglect this part!

Determine a Fair Listing Price

There are many methods you can use to price your business. The most common method includes a multiple of cash flow – normally, 1 to 3 times annual cash flow, depending on the type and size of the business. Also included in this method are value of equipment and inventory plus one year’s cash flow, 3 to 12 monthly gross sales and book value of assets.

There are many factors contributing to pricing your business:

• Financial terms.
• An earnout.
• Non-compete clause.
• General attractiveness of the business.
• Future potential.
• How the business fits with the buyer’s strategic plan.
• Size of the business – larger businesses bring a higher multiple.
• Rarity of the business.
• Whether the business is a service business tied to the seller’s relationship with customers, retail or other type of a business with a skilled staff in place.

Any VR business intermediary will help you determine the right method to use, given our 40-plus years standing as a contributing innovator of business sales, understanding the marketplace, taking into account the various ways a business can be sold and a comprehensive database of comparable sales.

Running Your Business during the Marketing Period

Just because you are planning to sell your business doesn’t mean you neglect it during the process. You have to continue to personally attend to the business and not place too much time and effort in the selling process. If you do, a deterioration of revenue and ultimate the resale value will happen.

This is where your VR business intermediary will be beneficial in assisting you in finding qualified buyers, while you concentrate on managing your business to ensure you maintain the maximum resale value possible.

Finding the Qualified Buyer

Not every potential buyer is qualified to take ownership of your business. Your VR business intermediary will attempt to find a qualified buyer through examining their capital and source of that capital, motivation to buy, needs and expectations, background and skills. Your VR business intermediary will sit down with the buyer, asking all the pertinent questions to determine if the business will transition successfully to them.

When to Consider Selling Your Business

The right time to sell a business will vary from one owner to another. You may have a complete realization it’s time to move on. Thinking and planning the sale of your business before you decide will be much more satisfying and profitable; whether it’s when the business is doing well, in a non-seasonal downward trend, hitting its peak of growth, deciding it’s time for retirement, family issues, health issues or simply tired of being the owner. This question can only be answered by you.

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:

Follow the Necessary Steps to a Successful Business Sale

Most business owners, who are looking to sell, make the mistake of not preparing early enough. This can result in not receiving the maximum dollar amount for your business.

The selling process should start when you buy your business. You should know the return that you are receiving on your investment so when the time comes to sell you will not leave any money on the table. In order to consummate a successful sale with a qualified buyer, each VR business intermediary has been trained to help you take the necessary steps. Most business owners should be preparing to sell long before they make the decision to move forward. The following are some helpful ways that will keep your business in good shape, and prepare you for when the time’s right to have your VR business intermediary search for a qualified buyer.

Evaluate Your Business Before the Buyer Does

If you want the buyer to avoid finding anything that could jeopardize your chances of successfully selling your business, you should perform due diligence before they do. A qualified buyer will perform a comprehensive evaluation that goes beyond financial records; therefore, it’s a smart decision to make sure everything is accounted for before presenting the business to them. Make sure that the due diligence covers a variety of different areas such as:

• Operations
• Marketing
• Personnel
• Technology
• Legal
• Regulatory
• Environmental
• Insurance
• Contractual, credit and accounting issues

Every buyer has specific criteria that they are not going to compromise on such as their return on investment. Depending upon the industry, current economic climate and the type of buyer that walks through the door, it’s important to understand what their needs are before negotiations take place. As the seller, you will be able to maximize the likelihood of completing a successful transaction.

Cleaning Up the Balance Sheet

Buyers will always examine balance sheets first after they sign a confidentiality agreement so they can start reviewing the business. You want to avoid revising a balance sheet after this point. By doing so, you will raise concerns from the buyer about the legitimacy of the business’ financial documents, and increase the chance of the deal falling apart. If there is real estate, equipment, copyrights or patents or excess cash that you do not want included in the balance sheet, remove them before a qualified buyer reviews.

Have Your Financials Audited

As a seller, you will put your business in a better position for sale if you have financials audited. This will help add both legitimacy and value in the business to a qualified buyer. They will want to make sure everything financially is accurate and correct through their due diligence, and this will help move the process along. At the very least, a seller should have a credible CPA observe the year-end inventory and file it away if you can’t afford an established auditor. The cost will be minimal, and this often makes a retroactive audit possible if all other financials are in order.

Stable Management in Place

Many businesses have managers assist the owner in its operation. Unless your business is a oneperson show, you must make sure that you have no loose ends when it comes to management. Businesses that appear to operate “fly by night” will not look appealing to prospective buyers. Stable management that has been in place for more than 90 days is important. Many buyers in the market for a business consider management to be one of their top priorities.

Using Comparisons to Better Position Your Company

If you’re shopping in a grocery store, it’s natural to compare different brands of foods to decide which one you’re going to purchase. The same analogy can be used for buyers when it comes to businesses for sale. They will compare similar businesses with yours, so you should maintain a comparison of your financial and operating statistics against those of your competition.

Review sources such as trade associations and bankers’ industry profile books. If you own a business in the middle-market, seek out annual reports. A VR business intermediary will assist you in documenting the facts on your competition and doing an objective comparison of what are the similarities, differences, strengths and vulnerabilities. It should be both understandable by someone not familiar with the industry and believable to one that’s well versed in it.

Publicity Generates Value

Having good and credible publicity clippings will not only help visibility for your business but create value for qualified buyers. In addition to using local and regional press, you can also put yourself in national publications such as Business Week. Many businesses will employ a PR firm or consultant that knows how to generate publicity.

Through VR Business Sales, you will be able to work with advisors who have decades of experience in working with both buyers and sellers in all industries worldwide. We will be able to facilitate the selling process from start to finish, providing you with counsel you can trust.

 Is your business creating maximum value?

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: