Use this checklist to ensure your company is ready to go to market and positioned to realize maximum value
While you may be confident in the unique advantages and future prospects of your company, most potential buyers will need to be convinced beyond a doubt. Strength testing your business before approaching buyers is critical. When your company’s information and outlook are transparent, buyers will compete to buy it, driving price and favorable deal terms for owners.
Today’s market for healthy, privately held companies still favors sellers. There is a record amount of buyer cash looking for a home and a limited supply of quality companies. If you’re considering a sale this year or in 2023, now is the time to get prepared. Start by checking these critical deal success factors:
- Obtain a realistic value range. You should have an understanding of the value range for your business and ways you can increase such value. In addition, you should confirm that such value will meet your financial objectives.
- Accurate historical financial statements. Income statements and supporting detail need to be accurate and readily available. In addition, your company’s balance sheet should be checked to ensure all assets and liabilities are captured and fairly stated. Accrual basis financial statements will be required.
- Projections for 1-2 years out should be bold but achievable. Work with your M&A advisor to develop financial projections that will be foremost in buyers’ minds when making offers. Plan to surprise only on the upside!
- Build an experienced M&A deal team. An M&A advisor with broad knowledge of the transaction process and a strong track record of selling companies to a range of buyers is key. You’ll also need a tax advisor and an attorney with a solid background in M&A.
- Select managers for an internal deal team. All operating shareholders should be involved in the sale process and it’s also advisable to enlist the support of one or two senior financial or key employees. With guidance from your M&A advisor, this can be done skillfully at the right time in the process.
- Clarify and implement your growth story. Realistic, well-formulated growth opportunities increase the likelihood of attracting premium value offers. Are you ready to present buyers with concrete expansion opportunities that could be achieved with additional growth capital?
- Identify and address potential risks. Objectively review any present or future risks associated with your business and devise strategies for mitigating them. These could include customer or vendor concentration, nexus issues, regulatory changes, employee retention, supply chain challenges, technology disruption and many others. Buyers will challenge everything; be prepared so your deal does not get delayed or lose value.
- Know your Key Performance Indicators (KPIs). Demonstrate how efficiently you run your company by setting up and monitoring a dashboard of metrics appropriate to your industry that buyers will expect to be available.
- Double down on documents. Every contract, registration, benefit and insurance plans, tax filings (last 3-5 years are typical) and other documents related to your company will need to be gathered into a virtual data room before a deal can close. Early in the process, your M&A advisor will supply you with a list of required documents.
- Fire on all cylinders as you run the business. You and your management team must stay focused on the business, driving growth and profitability throughout the sale process. The importance of meeting or, if possible, exceeding projections while your company is in market cannot be overstated.
If you’re thinking of selling your business in the near future, contact us for a preliminary conversation as to your company’s readiness for market or for a Complimentary Value Assessment.Read More
The 2022 outlook for deal activity is robust and sellers are expected to hold the advantage − as long as they have a skilled M&A team leading the way.
By Robert Murphy, Senior Managing Director
Engaging an effective Mergers & Acquisition (M&A) advisor to sell your company is critical to a successful outcome. Even the fastest-growing companies in high-demand industries require an adept deal team to ensure shareholders receive the value and terms they deserve. The right M&A advisor can also generate fresh ideas and identify unique opportunities, as well as navigate to a timely close, while the wrong advisor could lead you astray − or merely let your deal languish when larger deals draw away their attention.
What should a business owner consider in selecting an M&A advisor? Here are five key criteria to use
when evaluating potential advisors:
1. Overall Comfort Level. First and foremost, choose a firm that conveys professionalism, trustworthiness and communicates straightforwardly. From the outset, you should feel a sense of confidence that the M&A team will always put your best interest first and give you honest advice.
2. Vast Deal Experience. Since every merger and acquisition transaction is different, there’s no substitute for experience in this industry. Choose a team that has closed many transactions (in excess of 100) to ensure they possess deep knowledge of all the intricacies involved in closing successful deals.
3. Without Thorough Preparation, There Is Only Hope. Surprises and deal delays hurt values and kill deals. The right firm will have a clearly defined process and expertise to fully prepare you and your company before going to market. Diligent preparation is essential for increasing certainty to close and for maximizing value.
4. Robust, Global Marketing. Is the M&A firm willing to, and capable of, contacting all qualified buyers and not just a small group? Also, your business could be attractive to overseas buyers. That’s why engaging an M&A firm with international reach and cross-border transaction experience is a key advantage. In almost all cases, contacting more buyers results in more offers and opportunities, which increases certainty to close and maximizes value.
5. Passion for Working with Companies of Your Size. Be sure the M&A team you select is committed to closing deals in your size range. Some firms will take on smaller deals but shift their energies to larger deals as they come in. Your deal should be meaningful to the firm, and you should be sure the team will be “all-in” for getting it done. You may be wondering: “What about industry specialization? Don’t I need an advisor who focuses on my industry?” There’s a good reason why industry expertise is not among these five advisor “must-haves.” It’s because technology has leveled the playing field. In fact, buyer contact information and transaction data across all industries are readily available today, making industry specialists in most sectors not a driving factor in selecting the right firm. An M&A firm that has invested in multiple data sources can offer insights into realistic value expectations and target buyers,
as well as provide the full-range M&A guidance to clients in virtually any industry.
If you’re thinking of selling your business, contact us for a preliminary conversation as to your company’s readiness for market or for a Free Value Assessment.
Senior Managing Director
561.337.5324 | 201.788.6844
Are You the Best Person to Sell Your Business?
Enhancing deal value and increasing certainty to close are what investment bankers do every day. As competition and technological advances continue to drive consolidation across many industries, it’s likely you’ve been contacted by a variety of buyers, or their agents, interested in acquiring your company.
According to The Wall Street Journal, private equity firms have a record amount of cash on hand which is estimated to be $1.5 trillion. They’re in business to secure returns for their investors so all that cash needs to find a home.
As an entrepreneur, you’ve succeeded by seizing opportunities, and it could be tempting to pursue a specific buyer who appeals to you. However, even if you’ve sold a company before, it’s rare that a business owner can maximize value and achieve superior deal terms on their own.
The Right Investment Banking Team Empowers You
The team you should rely on is one that has gained wisdom by completing hundreds of deals ‒ and seeing some failed deals too. For the most important sale you’ll ever close, it’s critical to engage the right investment banker who can empower you all along the deal process, from start to finish.
An experienced investment banking team can enhance the value of your business and increase certainty to close by providing:
· Multiple deal options – The only way to know if you’ve received the best possible offers for your business is through a competitive auction among buyers ‒ including those you’re aware of and those you never knew existed. An astute investment banking team has the capabilities, commitment and processes to present you with a range of options.
· Negotiating prowess – While you may be able to skillfully negotiate various transactions related to running your company, the team working on your deal is better positioned to garner the highest value and best terms for your business.
· A buffer between you and buyers – Staying focused on keeping your business growing and profitable is crucial during the marketing and sale process. Plus, selling a business can stir up a lot of emotion. Best to let professionals take the lead in negotiating value, deal terms and critical deal issues with buyers and other professionals throughout the transaction.
· Early warning system – A mature investment banking team can recognize when the other party is not sincere or when the certainty of closing a deal is low. You don’t want to waste time on a buyer who is displaying low odds of completing a successful deal.
· Guidance based on market trends and dynamics – Understanding current market value and terms is key to setting realistic goals. An effective team can identify and convey hidden value to buyers so you can receive a premium to market benchmarks when possible.
· Creativity and resourcefulness in resolving deal issues – Anticipating business issues that are likely to arise in due diligence and preparing management to address them will reduce the risk of a broken deal. Since few businesses have no shortcomings, challenging issues that arise either before or during due diligence often require investment banking creativity to resolve.
· Maximum deal control to your advantage – The deal journey can be formidable. Investment bankers are skilled at controlling the sale process and driving to the closing date.
Team Up with Experts
High-performing investment bankers don’t have just one or two techniques they rely on to achieve success. They set standards of excellence for themselves and are systematic about realizing those standards on every deal. By partnering with the right team, you’ll be bringing integrity, expertise, options, deal control and unshakeable confidence to the sale of your most valuable asset.
Senior Managing Director
561.337.5324 | 201.788.6844
A Wealth of Opportunity for Owners Considering Selling Their Businesses
The year ahead holds the promise of a dynamic seller’s market likely to drive a healthy mergers and acquisitions (M&A) market. Companies with strong operating performance should be highly competitive. With a flexible approach and proper planning, even those that suffered setbacks can garner buyers with attractive offers in an arena flush with capital.
The promising M&A market in the year ahead reflects the interplay of several key factors: low interest rates, abundant capital in search of targets, larger companies seeking to grow and diversify through acquisitions, aging baby-boomer business owners ready to exit and optimism for an economic landscape improving with the rollout of COVID-19 vaccines.
Despite the pandemic-induced economic crisis that raged throughout the year, the Dow and S&P 500 finished 2020 at record levels, up 7.25% and 16% respectively. Public market activity was also strong in 2020, with 480 Initial Public Offerings (IPOs) in the U.S. market, including 248 Special Purpose Acquisition Company (SPAC) transactions, an increase over 2019’s 233 IPOs, with 60 SPACs. After taking a significant hit in the second quarter of 2020, M&A activity, along with the stock markets, rebounded sharply in the third and fourth quarters – a trend expected to persist well into 2021.
Source: Capital IQ and PKF Investment Banking Research
Private company transactions in 2021 are expected to continue the
strong comeback pace set in Q3 and Q4, 2020.
Favorable Interest Rates: Interest rates remain at historically low levels with the 10-year Treasury rate at 1.10% and the prime rate at 3.25%, as of January 22, 2021.
Demand Exceeding Supply: The setbacks many companies endured in 2020 have limited both the quantity and quality of attractive acquisition candidates, contributing to a heightened level of buyer demand that exceeds supply by a large margin. According to the Wall Street Journal, there is abundant pent-up demand for deals, coupled with an estimated $1.5 trillion in private equity “dry-powder” that must be deployed. This excludes the capital held by non-financial buyers that are looking for acquisitions and investment opportunities.
An Industry-Specific Approach: The 2021 market could be considered a “tale of two companies.” One company with operating results not impacted by COVID-19 sells at the same valuation multiple or higher as it would have pre-COVID-19 with the same or similar consideration structure. Yet, another company with financial performance negatively impacted by COVID-19 sells at a reduced valuation multiple with a 3-year earn-out component. The first example is more likely to represent companies in the e-learning, cybersecurity and home entertainment sectors while the second group includes the entertainment, hospitality and retail industries that suffered substantially. Therefore, in cases where COVID-19 has negatively impacted a company’s operating performance, buyer creativity and seller flexibility will be key to completing a transaction.
Trends to Watch: Sellers should be aware of, and keenly attuned to, essential developments affecting business valuations and transaction terms in the year ahead. Understanding how these can influence a sale are central to preparing for, and orchestrating, a successful deal. Examples include the following:
- Stable or increasing valuation multiples in sectors with minimal or no negative impacts from COVID-19.
- Lower valuation multiples in certain sectors due to decreased debt leverage, lower financial performance and lack of visibility with future earnings.
- Increase in use of seller notes due to decrease in debt leverage and desire for more liquidity at transaction closing.
- Increase in use of contingent earn-outs due to lack of visibility with future earnings or to bridge valuation gaps between seller and buyer.
- Increased use of subordinated debt in the capital structure due to decreases in bank leverage.
- Elongated due diligence period due to buyer/lender’s desire to see more current operating results, additional financial modelling scenarios and work from home/travel concerns.
- Heightened attention on continuation of profitability and growth.
- Adjustments for non-recurring COVID-19 impacts, both positive and negative.
In today’s M&A market, more than ever, valuation multiples, consideration structure, deal terms and closing time are specific to the company and the industry. We encourage business owners considering a sale in this promising market to contact us for a no-obligation, confidential conversation.
Senior Managing Director
561.337.5324 | 201.788.6844