The merger and acquisition (M&A) process requires careful planning, professional support, and an understanding of the deal dynamics involved in the negotiations. Completing a transaction is not easy. Many sellers only do a transaction only once in a life time. Companies that have not been engaged in many M&A transactions frequently make mistakes that can result in a less favorable price or terms. They can even potentially destroy the deal.READ MORE >>
The UK is expected to be one of the most popular locations for deal activity in 2019, mirroring a successful year in 2018.
Megadeals boosted the value of transactions in 2018 as, while the volume of UK deals only rose slightly, deals such as Japanese-based Takeda Pharmaceutical’s acquisition of UK-based Shire for £62bn saw a 4% increase in transaction value from £291bn the year before.READ MORE >>
Benchmark International has successfully facilitated the acquisition of T3 Technologies, LLC (d/b/a T3 TigerTech) to Bluestone Government Solutions, LLC. Benchmark International worked diligently to find a buyer that was an ideal candidate to ensure the goals of the sellers were met, from both a financial and corporate-fit perspective.
T3 Technologies, LLC (d/b/a T3 TigerTech) is a diversified government contractor specializing in project management, predictive and big data analytics, program data management, and supply chain management for multiple government agencies.
DonZacherl, CEO of T3 said, “The Benchmark International team was very professional, responsive, and provided great guidance during our transaction process. Having Benchmark on our side, and focusing on the details of the transaction process, allowed our management team to continue to concentrate on the day-to-day running of
Bluestone Government Solutions, LLC provides information technology, agile development, big data analytics and geospatial intelligence services to public entities. It supports the federal agencies within the intelligence community and the greater DoD, along with
AudraFrizzell, CEO of Bluestone Government Solutions said “We are very excited about the acquisition of T3. The company comes with an experienced management team that has been at the core of its success.”
Benchmark International was able to procure a buyer for T3 Technologies, LLC that met its financial goals, was an ideal cultural fit, and also provided the buyer the additional resources it had been searching for. Benchmark International corresponded with numerous potential investors, and the owner of T3 Technologies had several
in-person meetings prior to being introduced to the representatives from Bluestone Government Solutions, LLC.
READ MORE >>
Benchmark International has successfully advised on a deal between the group of Pellings companies (Pellings LLP, J & A Pellings and Pelling Limited) and RSK Group Limited, which marks RSK’s ninth acquisition in as many months as well as its largest acquisition to date.
Pellings, a group of companies which provide a complete spectrum of architectural services, building surveying, project management and related professional services for housing, education and healthcare projects, have 125 staff and four offices covering North, West, South and Central London.
RSK is an integrated environmental, engineering and technical services consultancy, which has 36 international offices, more than 2,700 employees and an annual turnover of £200m. It is currently actively investing in Europe, the Middle East, India, Africa and former Soviet Union countries, and has an active client base of 7,000 organisations spread across these regions.READ MORE >>
Determining whether it is a good time to sell your business is one of the most challenging decisions a business owner has to make. There are innumerable factors that affect this decision and it’s important to not get overwhelmed. A few things to take into account are financial situation, the company’s future/outlook, the opportunity cost of time, and the type of deal structure being pursued.READ MORE >>
For the last several years, the saying has been “There’s never been a better time to sell.” Multiples have been high. Buyers have been plentiful. Debt has been cheap. Optimism has run strong. The truth is, it is undeniably still a great time to sell; it’s never been better. But …
It takes time to sell and for the first time since emerging from the Great Recession, certainty about whether or not the later part of the new year will be a good time to sell- the best ever – is down. Anyone who says they can predict these markets is a fool. But the probability of a turn is certainly high and increasing as we begin this year.
The good news is that the signs indicate not an immediate downturn but rather one that can still be beaten to the finish line. Selling a business should take six months to a year. Thus anyone moving out now on a process should be able to take advantage of these good times – if they get started fast and, more than ever, move diligently and place a higher emphasis on certainty of close when selecting their winning bidder.
The change in the tea leaves really began in November and accelerated throughout December. Some of the key indicators include:
- In a December Duke University poll, almost half of responding U.S. CFO’s stated that they believed a recession was likely to occur in 2019. Even more compelling, more than 80% of those CFO’s felt recession would strike by the end of 2020.Right or wrong; the respondents to this poll are the key influencers of the amount of M&A activity generated by strategic buyers – and those most responsible for bad deals. If the economy does sour, or they simply believeit is going to sour, they will not be sticking their necks out for adventuresome acquisitions at record multiples.
- The public markets provide several signs. The first is the relative comparison of the large caps, to the midcaps, and then to the small caps. The M&A market for privately-held companies can essentially be seen as a microcap extension of the public markets. While we all know the public markets did not do well last year, what most have not commented upon is that in the last four months of the year, according to the Wall Street Journal, (2) large caps were down 5.5%, midcaps were down 8.6% and small caps are down 16.4% going into the last trading week of the year.We’ve not yet seen the extension of this extrapolated line into the private markets but one must wonder how long the trickle-down effect will take. Smaller companies tend to do well at the beginning of an upturn and larger cap companies do better at the end.
- Debt is becoming a more attractive alternative for investors. This will be problematic to the sellers of businesses for various reasons. Most obviously, M&A buyers are large consumers of debt. They use it to buy companies. If they must pay more for their debt, they have less money left in their accounts to offer sellers. Less obviously but probably more significantly, the historically abysmal returns debt has offered for much of the last decade have led many typical debt investors, including insurance companies and pension funds, to provide equity to private equity funds. Flush with this extra cash, PE funds have been on a buying spree which is commonly stated to be the driving force behind today’s frothy valuations. As those investors shift back to the more normalized bond markets, private equity will have less energy and vigor for aggressive bidding.
- The financial press seems to be of the mind that the artificial boost to strategic buyers provided by the recent tax cuts has run its course. Is this a fair assessment or simply “Trump-bashing”? We have no idea but we all know that in the markets, sentiment is often more important than reality. Perhaps the fact that 2018 saw increasingly attractive results for sellers was a result of those tax cuts carrying the bull market on around for one last lap. Again, we are not talking certainties here, just indications and probabilities.
- The strong dollar has dampened the ability of foreign buyers to compete in the US markets.With yet another class of buyers lowering their activity levels, it may not be long before the laws of supply and demand kick in and the equilibrium point on the old supply and demand curves shifts down and to the left.
- China has largely gone home. As 2018 proceeded, the Chinese government tightened its grip on the export of capital. In the last half of 2018, the US government began to make Chinese investors feel unwelcome as well. Numerous high-profile deals were killed in a very visible fashion as a result of regulatory interference on both sides of the Pacific. These included, most notably, the purchase of Recurrent Energy Developments operations by Shenzhen Energy in August and then Broadcom’s acquisition of Qualcomm. According to CNN Money, Chinese investment in the US fell by 92% between the first half of 2018 and the first half of 2017 – 92% - and has been declining steadily since the second half of 2016.Add to this the late 2018 US-China financial cold war and China’s slowly increasing realization that it has been splurging on debt that is now coming due and proving hard to pay down, and the spigot is now approaching the closed position.
- Forecasted growth of companies in the US public markets has taken a definite downturn. The S&P 500 saw collective growth of 7.3% in sales and 8.2% in profit year-over-year in the third quarter. The Wall Street Journal has been consistently predicting over the last three months that those same figures in a year will have fallen to 5.4% and 4.1% respectively.While the private markets are not the public markets, both are selling that intangible asset known as future cash flows and if buyers feel the big companies can’t continue to deliver outsized returns, they are likely to share at least some of that sentiment when it comes to the private markets.
- Divided government might bring an end to the pro-business approach demonstrated over the last two years. The people that matter state that decreased regulation, lower taxes, and a more tolerant enforcement environment have benefited their businesses and increased the prices they are willing to pay for companies. But a period of more compromise is now inevitable and the uncertainty of the 2020 elections will likely only grow and bring with it a sense of increased risk that will affect valuations.
- All good things must come to an end. We have enjoyed a ten-year bull market in M&A, both private and public. That qualifies as “long in the tooth” to be as polite as possible. It seems that 4% GDP growth is not sustainable. Unemployment can’t go any lower. Further tax decreases seem unlikely. The federal deficit and debt are growing. Interest rates are not likely to drop. Confidence and sentiment could not be higher than they were three months ago and are in fact a bit lower now than they were then.
The good news is that we’ve seen absolutely no indication that the market for private companies has yet been affected by these indications. Furthermore, changes in valuation, whether favorable or unfavorable, have not historically occurred rapidly. If there is to be a drop in multiples, it will be perhaps not gradual but at least measured. That said, the probability we now face is that we are more likely than before to look back from a spot twelve months in the future and say “I remember when it, was the best time to sell.”
Benchmark International has advised on the transaction between NRG, a supplier of motors and controls for gates and barriers, to Indutrade.
NRG is a specialist supplier of drives, motors and controls for industrial, commercial and residential doors and shutters, also offering a range of gate and barrier automation. Customers are manufacturers and installation contractors of doors, shutters and gates in the UK and Ireland.READ MORE >>
Benchmark International has successfully facilitated the transaction between Intec UK, a specialist recruitment business in the energy and power sector, to NRL Group, a recruitment company with a c£170M turnover.
Intec has more than 35 years' experience, placing both temporary and permanent candidates with an engineering and technical skillset in various industries, offering a full complement of recruitment services.READ MORE >>
M&A Activity has remained steady over the last year, but can the same be expected of the years to come? A closer review of the annual activity for 2018 indicates that the peak of the M&A cycle is slowly coming to a plateau. It’s time for business owners to reflect and decide whether riding out the next few years is truly worth it.
Here’s what we know about M&A activity and what we can predict based on current trends. Year over year, the total number of completed deals has been on a slow and steady decline from 2015 to 2018. In 2015, there was a total of 16,566 deals completed. Whereas, in 2018, there have been 10,734 deals completed so far. Although there has been an impressive total deal value of more than $800 billion completed in deals so far in the US for the 2018 cycle, that value is a decrease from previous years.
What business owners have to look forward to in the coming years is a bit of uncertainty, especially following the anticipated 2020 presidential elections. 2019 is expected to be another great year for M&A transactions, but it may very well be one of the last for this incredibly hot activity we have experienced recently.
Following the 2016 elections, there was a short pause in activity followed by a quick uptick and a wave of transactions. The 2018 midterm elections were an indication of the coming “blue tsunami” predicted in 2020, with the Democratic Party taking hold of the House of Representatives. A change in political leadership can unsettle the ship that so many have been sailing upon for the last four years. President Trump’s 2016 campaign was centered on economic surety, and that surety brought a wealth of support for M&A transactions to follow. Should a new leader be at the helm of the nation following elections, volatility in the market is certain.
In addition to an anticipated election, there is no denying that the successful economic swing that has taken place thus far has also had an effect on the current market standing. A fourth interest rate increase is anticipated before the end of 2018, and three additional hikes are estimated to take place in 2019. Buyers will be wearier of transaction decisions as interest rates increase. They will not want to pay high valuations as those seen in previous years because the purchase risk will increase as a result.
Now is the time for business owners to act before the market shifts from a sellers’ market to a buyers’ market. Steadily increasing interest rates will give more power to buyers in transaction negotiations. Business owners should keep this in mind before they decide to wait a few more years to put their exit plans in place.
Moreover, the market is predicted to become somewhat saturated over the next decade as more adults are coming to retirement age. Baby Boomers make up approximately 60% of privately-held businesses in the in the US, and this means the number of businesses on the market are going to increase a great deal.
As a result, valuations for businesses will likely decrease. Buyers will have many options at their disposal for their ventures, so they will have a higher competitive advantage against sellers. Sellers can take advantage of the current market and get ahead of the game now.
A transaction can take anywhere from one year to eighteen months to complete on average. Getting a business on the market sooner rather than later will give sellers the power to take advantage of lower interest rates and getting a deal locked in before the market is filled with a myriad of new businesses.
A sell-side mergers and acquisitions firm helps business owners derive the most value for their businesses in a sale. Benchmark International is a firm with decades of experience and a wealth of dedicated professionals who are looking out for our clients’ best interests in a transaction from start to finish. If you want to learn more about where the market is headed and what your options are, we can help you formulate an effective exit strategy now.
WE ARE READY WHEN YOU ARE.
Call Benchmark International today if you are interested in an exit or growth strategy or if you are interested in acquiring.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkCorporate.com
Europe: Carl Settle at +44 (0)161 359 4400 / Settle@BenchmarkCorporate.com
Africa: Anthony McCardle at +2721 300 2055 / McCardle@BenchmarkCorporate.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $5B across 30 industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 13 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.
So you’ve made the big decision – you’re going to sell your business. This is likely a stressful time for you as have probably spent a lot of time and resource building up the company and may be nervous about seeing it pass over to new hands. So, from here on in, you would like to minimise the amount of stress involved by avoiding any mistakes which can easily be averted. The following are common mistakes to avoid and how Benchmark International can help:
Only Pursuing the Largest Acquirer
Surely pursuing the largest acquirer is in your best interests as they will be able to afford a premium for the company?
While they may be able to pay a premium for the company, they may not necessarily do so. An acquirer is likely to pay a premium for your company because there are synergies in place such as similar markets, products or customers that could be combined, but a large acquirer typically does not need to make the acquisition to enter these markets. An acquisitive party could also benefit from economies of scale and, therefore, will pay more for the target, but a large acquirer is unlikely to benefit from this. Even if a large acquirer is willing to pay a premium, they may absorb operations into their own company, which can cause complications for the handover, particularly if you are loyal to existing staff.
How Benchmark International Can Help: Look at all aspects of the deal and how it can benefit your company. Benchmark International can assist with sourcing the best fit for your company.
Not Looking at the Bigger Picture
You’ve just received an offer from a potential acquirer – on the surface of it, it looks good, surpassing your expectations. However, the structure of the deal as a whole needs to be considered, not just the total value. For example, the consideration could be deferred, or contingent on future earnings, meaning you are not receiving all cash upon completion. It is also important that if you do decide on a structured deal, that these elements are protected, ensuring you receive the consideration.
How Benchmark International Can Help: Benchmark International will thoroughly analyse all offers received, negotiate earn-out protections and can assess any contingent targets to ensure that the seller is able to maximise the consideration received.
Not Creating Competitive Tension
It can certainly be a benefit to enter into the M&A process with potential acquirers in mind, perhaps one of these has even approached you at some point. However, even though it may be tempting to dive straight into a deal with an acquirer that wants you and complements your company perfectly, it is still vital to create competitive tension by generating interest from other potential acquirers. If the acquirer in mind can sense that they are the only one with an offer on the table and that you are anxious to sell to them, they could take advantage of this with a low offer.
How Benchmark International Can Help: Benchmark International will employ an approach where all potential acquirers are approached and exhausted before accepting any offers.
Using an M&A Sector Specialist
This may seem like an odd ‘mistake’ to make – why wouldn’t you want to use an M&A specialist operating specifically in your sector, surely you don’t want a generalist?
The reasoning behind this is that a general M&A firm will be able to think outside the box and target a large pool of acquirers, not limiting itself to those just in your sector.
How Benchmark International Can Help: Benchmark International has a vast and growing number of contacts giving you the best chances of receiving multiple offers, as well as significant experience across a broad number of sectors, leveraging this to identify the areas where the greatest synergies can be exploited.
Leaving it Too Long
To obtain the best price and right fit for your company, it is crucial to enter the market at the right time. It is important to strike a balance between seeking to sell when the company is on a growth curve, but also not missing the window of opportunity in the market cycle. Equally, it is important not to sell when you become desperate (e.g. you are looking at retiring soon) as acquirers could become aware of this and lower their offer accordingly.
How Benchmark International Can Help: Look at selling earlier than anticipated, not when you want an imminent exit. Benchmark International can best advise on when the right time is
Neglecting the Day-to-Day Running of the Business
M&A transactions can be time consuming, but it is important not to let it get in the way of running the business. If an acquirer is interested in the business because profits are increasing, or a new product is due to be released to the market, for example, and this does not come into fruition because you have taken your eye off the ball, then this could lead a buyer to renegotiate, or call the whole deal off.
How Benchmark International Can Help: The pressure of selling your business can be alleviated by Benchmark International as it will handle negotiations, leaving you to focus on running your company.
Not Negotiating Effectively at Critical Stages
Offers may go back and forth between yourself and the potential acquirer and at this point you are in a good position to negotiate. It is not until the Letter of Intent (LoI) is signed that the advantage swings to the buyer. Although the LoI is not typically legally binding it does usually stipulate a period where the seller cannot pursue further leads in the market (an exclusivity period), so competitive tension is lost. It is important, therefore, that you are completely happy with the terms (which can include such things as price, length of the exclusivity period etc.) before the LoI is signed to avoid either having to back out of a deal that could have been lucrative or being tied to a lengthy exclusivity period.
How Benchmark International Can Help: In all stages of negotiating, Benchmark International will do this on your behalf with your best interests in mind.
T: +44 (0) 1865 410 050
READ MORE >>
The sale of a business owner’s business is a testing time and it requires the most talented teams in order to successfully consummate a transaction. As a business owner, it is very likely that you have already worked with legal representation that has assisted you through various legal processes such as the incorporation documents, customer/vendor contract negotiations, and other day to day and routine business transactions. So, you may ask yourself ‘Why not use the same business attorney that I have been using already?’ While you may have been using this attorney for your business needs, he or she may not have technical experience that is required for your long-term protection. Given that many deals require the involvement of a seller post-closing, an attorney must be highly specialized and experienced to ensure that you have the proper protections at the time of sale.
Having legal representation that specializes in M&A transactions is critical during the due diligence process. It is during the due diligence process that both the buyer and the seller’s teams begin formulating the definitive purchase agreement documents. When engaging an M&A attorney, it is important to understand the amount of experience the attorney has. M&A transactions tend to be much different than the aforementioned routine business dealings. A good indicator of an attorney’s experience is the amount of deals or transactions and attorney has worked on. The answer to this question will help a seller understand if this is a representative that can effectively represent him or her. The attorney’s legal team should not only be seasoned in M&A transactions but should also have expertise in specialty areas including but not limited to, tax, corporate finance, real estate, intellectual property, compensation and benefits, litigation, and employee matters. M&A transactions will involve complex deal structures, agreements and legal issues that are often argumentative and tasked to be completed quickly. Your lawyer must be a skilled advisor and negotiator that has the ability to work around imperative demands to keep the deal moving forward. Since each deal presents its own set of challenges, having representation that practices M&A transactions full-time is essential for being effective and time efficient when working with the opposing party.
Additional key components when considering legal representation for the sale of your business are the size and capacity of the firm. Like businesses, there are law firms of all sizes ranging from sole practices to firms with thousands of attorneys. In the lower-middle market, businesses typically range from $1million to $100 million in revenue. If you choose too large of a law firm, you run the risk of paying exuberant legal fees and your deal may not be a priority. If you choose too small of a firm, there is the concern of inadequate capacity and closing delays that can potentially break the deal apart. Choosing the firm that specializes in your deal size, geography and industry will ensure you have the right attention and expertise to achieve
a successful closing.
Our team at Benchmark International takes great consideration in ensuring our clients are backed by a strong and experienced team of advisors from accounting and wealth management to legal representation. If you would like assistance finding a specialist, Benchmark can arrange a no-cost, no-commitment meeting with experienced, specialized counselors appropriate to your budget, geography, and industry. These firms do not share fees with Benchmark, but in the past our clients have enjoyed tremendous success with each of the firms we would present.
Billy Van Buren
T: +1 (512) 861 3312
The art of starting a small business is a craft to which not every business person is well suited. It involves countless late nights, blood, sweat and tears, to turn an idea into a thriving small business. But, you’ve done that. You’ve successfully turned a one-bedroom or small machine shop, and spark of inspiration, into a community staple with a name that will outlast your time in business. But, you’ve also reached a point where your talents have been exhausted. And, you’re not sure what the next step is in taking your business to the next level. Once again you have an idea, but this time you need outside help to turn that vision into a reality.
Many businesses reach this point at which they feel that they are unable to further increase the scope of their operations. They find themselves turning away business or not able to expand into new and lucrative markets. Perhaps, what is holding you back, it is a lack of cash on hand, or a deficit in managerial expertise. Whatever the reason, bringing on additional investors is a key, and proven strategy through which a business is capable of gaining an infusion of needed capital and knowledgeable partners capable of taking a company to the next level.
Your passion is your business, and your clients have come to cherish your services. Bringing in new partners with an influx of capital is an excellent way for you to continue doing what you love while growing your company’s client base and expanding the services you offer. New partners may sound like dirty words you never thought you’d speak. You might think of new partners as greedy investors who will come in and milk your business dry without care for the name brand and quality you are known for.
That’s not always the case, and that’s where we at Benchmark International come in. You can rest assured that Benchmark International will help you find new partners that care about your business as much as you do. Partners who can bring the capital and experience you need in order to keep your business growing and thriving. These new partners could bring in experience in managing larger organizations, or experience in advertising a small business to a new market, they might even have connections to customers who could grow your client base.
In engaging Benchmark International, you can expect our deal preparation and transaction teams to present your business to the market and find the perfect fit to take your business to the next level. First, our deal preparation team will delicately craft marketing materials which accurately reflect the successes of your business and its potential for growth. After your approval of the marketing materials, the deal transaction team will take over and bring your company to the market. Whether a trade buyer or a fellow competitor, the team will work tirelessly to find the right partner to help you grow your business. This will ensure, that you take your business to the next level, without losing the heart of the business you painstakingly grew from an idea into a name synonymous with quality.
The process of staying onboard after a sale of your business or an injection of new capital is typically referred to as an elevator deal. For more information on how elevator deals function, please see.
T: +1 (512) 861 3314
As an owner of a business, there are often times when the employees of the business can become like an extension of the owner’s family. Employees are often present during challenging times in the business owners professional and personal life and the owners of the business can often be a stabilizing presence in an employee’s life. One of the biggest concerns of a business owner is what the welfare of their employees will be upon a successful sale of the business. Often times, the concerns can be placed into four broad buckets,
1.) Will the employees be keeping their jobs?
2.) Will the employees be keeping their same level of compensation?
3.) How will the insurance benefits change, if at all?
4.) How will our company culture change – do we still have team building events planned every quarter and holiday bonuses we can count on?
The answers to these questions can go a long way in determining whether a buyer is the perfect fit for a business, outside of the fundamental valuation and transaction structure. Mergers and acquisitions are complicated endeavors, involving an incredible amount of work and attention to detail. While in the midst of an acquisition, HR Departments are the group tasked with managing perhaps the most valuable part of a company – the human capital. Granted, some aspects of the transaction are unavoidable, including the letting go of employees in an underperforming division or in a role that will be redundant within the acquirer’s organization. But, if both buyer and seller can get on the same page and formulate a plan for informing the employees of a change, this will ease the transition and mitigate the fear of the unknown.
Now, to address the first question that will come to an employee’s mind upon finding out their firm is being acquired – am I going to keep my job? In the vast majority of transactions, employees will retain their roles and often times an acquisition can be an opportunity for upward mobility within a larger organization. Timing will be of the utmost importance when it comes to making any type of announcement regarding an employee’s employment status, whether positive or negative. One hurdle to avoid at all costs is raising alarms unnecessarily. In order to avoid this complication, it’s best to announce a merger or acquisition upon execution of a Definitive Purchase Agreement and the transfer of funds. This ensures that the deal is closed and official and will eliminate the risk of pulling the rug out from under the employees of a recently acquired company.
When the topic of compensation arises, there are numerous factors at play, including the performance of both the buyer, seller and individual employee as well as the defined compensation structure that already exists within the buyer’s corporate infrastructure. Having a discussion regarding compensation can also take a different tone – perhaps a buyer can offer employees a more compelling work/life balance, an office space that offers the opportunity to exercise, eat healthy or be in a location that is convenient and offers easy access to post office hours entertainment. Being able to pitch potential employees on all of the value that a buyer offers aside from the number on their paycheck can help bridge any perceived gaps
Beyond the importance of staying employed and maintaining the current level of earnings, individual employees will also be concerned with their benefits package and whether the buyer offers a more compelling insurance package or one that could be considered a down grade. In any event, being completely transparent about the pros and cons of the new benefits package will be important in mitigating the fear associated with change. A buyer who makes themselves available to answer questions that are both qualitative and quantitative in nature will be able to ensure a smoother transition. This would include providing feedback mechanisms such as one-on-one interviews, focus groups and anonymous surveys. In most cases, there is not a need to turn everything upside down immediately – buyers should not expect for all the new employees to join their new health insurance plan immediately, buyers should also consider letting the new employees keep their old PTO until the end of the year, if a new employees has already reserved PTO, a buyer can still honor that time and garner a little morale.
Ultimately, communication will be key - giving employees an opportunity to feel seen and heard will give them the sense of feeling valued by their new employers. Additionally, this will bring a level of comfort to the seller that those individuals who helped them achieve success will continue to be taken care of and that the culture of a company that takes years to create will remain intact and continue to permeate throughout the new company.
T: +1 (512) 861 3309
Benchmark International has successfully facilitated the acquisition of FullfillPlus, Inc to The Balwa Group. Benchmark International worked diligently to find a Buyer that was a good cultural fit for the business and would allow for the owners of FulfillPlus, Inc to achieve their personal and professional goals.
FulfillPlus, Inc is offers a wide range of fulfillment, warehousing, order processing, kitting, assembly and shipping services tailored to meet their client’s exact marketing needs. They are a single source supplier for all services related to delivering client’s products to their clients in a timely and cost efficient manner. Centrally located on the Gulf Coast, near the Port of Houston, they are ideally situated to handle large and small clients that manufacture in the United States or import products from as far away as China and India to reach their clients efficiently.
The Balwa Group is a company with investment holdings in diverse market segments including hospitality, real estate development and manufacturing. With a large international presence, the firm was looking to diversify their holdings in both market segment and geography and had a particular interest in the logistics business.
FulfillPlus, the Seller and Balwa Group, the Buyer, pictured together.
Benchmark International was able to procure for FulfillPlus, Inc a buyer that met their financial goals while also being an ideal cultural fit. Benchmark International corresponded with numerous potential buyers and the owners of FulfillPlus, Inc had several in-person meetings and offers to choose from however once they had the opportunity to meet with the representatives from The Balwa Group, both parties knew immediately that FulfillPlus would be a great fit for both.
Benchmark International’s Senior Associate, J.P. Santos, commented “The Benchmark International team is ecstatic that Chuck and Michele, the owners of FulfullPlus, chose a buyer that is going to contribute to the continued growth of the company. Chuck and Michele were communicative, responsive and collaborative through the Benchmark 360 process. Ultimately, the transaction will allow for Chuck and Michele to reap the rewards of years of hard work while continuing to focus on the positive trajectory the company is on and enjoy more leisure time. This was a great result and we couldn’t be happier for all parties.”
Charles Gleason, CEO of FulfillPlus wrote a beautiful letter to the Benchmark International team regarding his experience working with us:
Dear J.P. and entire Benchmark Team:
Michele & I would like to thank you for the great job your entire team did helping us sell our company. We selected Benchmark because of the professionalism shown by all of your representatives as well as the breadth and scope of your company.
Being the founder of this business, it wasn’t easy for me to decide to sell it. We had been so focused on running the company for so many years, dealing with day to day issues, we never had time to even think about selling, and I wasn’t quite sure I really wanted to. But we knew we needed some sort of exit strategy for retirement and decided to at least sit down and review the process with your team. Your team answered all of our concerns and made us feel comfortable enough to initiate the selling process. You re-affirmed to me that it would be my decision on who we sell to and there is no time limit on finding the right buyer. I was skeptical, but after going through the process, I now know its 100% true. You didn’t pressure us to make decisions and focused your efforts on guiding us through the valuation and sales process at our pace. Nowhere along the way did we feel that you were pressuring us for time or a quick decision.
When it came to meeting prospective buyers, you allowed us to review each prospective buyer’s background before they were allowed to see our financials or meet us. You let us meet (on the phone & in person) with each buyer on our own, then scheduled calls to review the meetings and get our feedback on each prospective buyer. When offers were made, you offered insights into buyer tendencies and how we should respond. It was truly a team effort.
We are now 2 weeks past the closing date and have been working day to day with the new owners. We feel we made the right decision and are now finding ourselves looking at golf course communities around the country trying to decide where we eventually want to retire. We’re looking at Anthem, Arizona, Palm Spring, Ca, San Antonio, Tx (Hill country), Austin, Tx, and Greensboro, Ga (Lake Oconee). All areas with beautiful homes and golf communities.
Thanks again for all your help and good luck with future sales,
The due diligence process for an M&A transaction can be very cumbersome for all parties involved. The usage of a data room is one of the most valuable ways to mitigate the headaches that arise from the motions of due diligence. There are generally two types of data rooms: physical and virtual. The former is not the most practical in most larger scale transactions with moving parts in varying geographies. Thus, you will almost always see the usage of a virtual data room (VDR) in an M&A transaction. These VDRs provide organization and security for sellers, buyers, and advisors.
Organization is probably the most easily identifiable benefit that VDRs provide. They provide a repository for all documents pertaining to the transaction. From a Phase 1 Environmental Site Assessment to the 2016 YE Income Statement to the buyer’s first draft of an Asset Purchase Agreement, it will reside in the data room. VDRs essentially eliminate the need to transmit documents through e-mail. When there are 10+ individuals across parties needing to review documents, e-mail transmission is not practical in terms of time or organization. Relying on e-mail may result in an organizational catastrophe, and many documents may quite simply be too large for e-mail transmission. Though it may be difficult to quantify in dollars, VDRs are undoubtedly a cost saver, particularly for sellers. Many intermediaries such as Benchmark International use and administrate VDRs for their sellers at no additional cost, whereas many transaction advisors focusing on the legal or financial aspects of a deal are likely to charge additional fees for the usage and administration of a VDR.
Security is a highly underrated and less thought of benefit to using a VDR. E-mail isn’t the best vehicle to transmit sensitive employee information, tax data, or any other sensitive diligence documents. While we all will use e-mail frequently to communicate over the course of diligence, it should be a last resort for the transmission of sensitive data. One e-mail in the wrong hands could easily derail not just the transaction, but the going concern of the business. Professional VDRs are also more secure than free or low-cost cloud hosted repositories such as Dropbox, Google Drive, and OneDrive. These repositories are excellent for personal use or small B2B transmissions, but they don’t provide anywhere close to the same level of security as a VDR. VDR data centers provide physical security (people and cameras), backup servers and generators, and top of the line digital security by way of multi-layered firewalls and 256-bit encryption. Another security benefit of a VDR is the ability to layer. Layers or levels allow administrators to dictate which individuals or parties have visibility to certain documents. It’s quite possible that certain information will not be accessible until diligence milestones are met. Layering the data room helps provide accountability, but most importantly: security.
There are countless other benefits, but these are some of the most crucial that impact all parties involved in an M&A transaction. Benchmark International, through its vendor, provides a tailored VDR experience and service to all of its clients to help facilitate seamless due diligence processes and successful deal closings.
T: +1 (615) 924 8511
Over 88% of business owners think their business will stay in the family. In fact, only about 30% of family-owned businesses survive into the second generation, 12% are still viable into the third generation, and only about 3% of all family businesses operate into the fourth generation or beyond. As baby boomers are heading for retirement, who is going to take over the businesses the boomers are looking to sell?
Today’s business owners are faced with multiple factors when deciding the right time to sell. The perfect time can be tricky to predict as several economic considerations need to be weighed. The majority of business owners begin this thought process when nearing retirement age, but is this too late? The most important considerations are current economic statistics, market conditions, and industry trends. These are good predictors of a sellers’ market and shows the types of buyers and private equity companies ready to invest. Buyers are looking for businesses in the growth and maturity stages of their business life cycles. During these stages, operational bottlenecks are becoming managed and demand, profits and lasting customer relationships have been built. Business owners sometimes have the tendency to postpone selling until operations and profits begin to decline. This is a costly mistake for any business owner wanting to maximize their company’s value.
Sellers should strive to put aside personal feelings anchoring their decision-making process when considering their exit strategy. When considering selling, business owners should focus their attention on asking is my business in a financial incline, is my staff in place able to succeed without me, do I have a diversified client structure, and are my capital expenditures under control?Business owners need to consider these objectives now and determine if a sale is the right decision. Economic environments quickly change and in order to achieve a premium sales price, a favorable market is the key. Currently, multiples are at a historic high with limited quality businesses available for sale. Baby boomers are holding on to their businesses and aren’t willing to sell until they have to.
This can be a hard-personal decision to make for owners who have built their companies from infancy. Owners are conflicted with their decision, asking did I do the right thing, did I maximize my company’s value, will my employees be taken care of, and what is next in my life.Before considering the sale of your business, define both the internal and external factors and remove any hidden traps that cloud your decision-making process and can result in missed opportunities. By having a written exit plan, an experienced team of advisors, and patience, business owners will realize the full value of their life’s work.
Here at Benchmark International, we understand the emotional and physical stress that accompanies the decision to sell. Our experienced advisors assist by providing an outside perspective to business owners and by identifying suitable conditions in the M&A sector. Our responsibility is to ensure our clients are presented with all the facts and strategies to move forward. Benchmark International values close relationships and ensures that our clients are fully prepared to make the right decision when the day comes.
T: +44 (0) 1865 410 050
READ MORE >>
In arriving at a valuation for their business, many managers come across the term EBITDA. For some this term is Greek and for others it’s a term they vaguely remember being mentioned during their days in business school. For many business owners it’s a completely new term, with no context, and why it is important is a complete mystery to them. But to buyers, EBITDA seems to be an incredibly important term. So what is EBITDA?
To begin let’s spell out the acronym. EBITDA stands for “Earnings before Interest, Taxes, Depreciation and Amortization,” that is, a company’s earnings before items which can be disassociated from the day to day operations of the business. EBITDA is therefore a measure of the financial strength of the business, and presents a proxy for the total cash flow which a potential buyer could expect to garner from the purchase of your business.
Let’s break down each part of the acronym, beginning with Earnings. In the case of your business, Earnings is represented by the bottom line income, what is labeled “Ordinary Business Income,” on your tax returns. This is the number arrived at by subtracting all expenses from Revenues and adding or subtracting any additional cost or income. Distributions and dividends are items which occur after “Earnings” is calculated and are therefore not included in this equation.
Interest payments are associated with debt that the company currently holds. Those interest payments whether they are on a Line of Credit to the local bank or for outstanding debt the company has taken on to purchase machinery or warehouse space, will likely be in some way included into the sales price of your business. Meaning, that when a new owner takes over operations, or comes on board to help grow your business, the business will be starting fresh. From the time of the sale going forward the new owners can expect all of the money previously paid to the bank, to flow through to bottom line earnings instead. For this reason, in valuing your company it is important to add back interest payments to your bottom line earnings.
Next, we arrive at taxes. Each and every business pays taxes, but the amount is variable by state and subject to current legislation. For that reason, we add back some, but not all taxes to your bottom line profits. In most cases the only tax added back will be your Franchise Taxes. Franchise Taxes are those taxes charged by a state to a company, as the cost of a business in that state. The tax varies based on the size of the business and the state in which the business is incorporated. Because a company may be incorporated in a different state, or the size of the business may drastically change after an acquisition, these taxes are therefore variable and not a reflection on the business’ earnings.
Depreciation is a fancy accounting term for something we all know. The amount of value your car loses the moment you drive it off the lot, is the most common form of depreciation we deal with during our lives. Say you purchased new machinery ten years ago, and it is still running and in good condition, humming along each day spitting out all the widgets you can sell. But your accountant may send you tax returns each year saying your machine is worth less and less. This amount that gets deducted by your accountant isn’t an actual amount of cash leaving your business, but it decreases your bottom line earnings. For this reason, we add depreciation back, to put back into your bottom line, an amount which was taken out on paper, but not out of your company’s checking account. An additional note, as we are dealing with your company’s Profit and Loss statement, we ignore the total amount of accumulated depreciation which is shown on your Balance Sheet, in order to capture the expense associated only with one accounting period.
Amortization is Depreciations baby brother. If you purchased a business ten years ago, you may have paid more for that company than what it was worth at that very moment based on the amount of assets and business you were garnering by purchasing that company and its clients. Let’s say that the business you bought was worth one million dollars, but you figured that the business’ client list and trademark was worth an additional half million dollars to you over the long run, and so you paid one point five million dollars for the business. This additional half million dollars is sometimes referred to as “good will”. It’s a value which can be reflected on paper and then turned into cash over a period of time. Just like your new car though, each year your accountant is going to take some part of this half million dollars and subtract it from your profits before he or she arrives at your bottom line net income. Since this number is an adjustment made on paper, just like depreciation, adding it back gives a better picture of the amount of cash flowing through your business.
In sum, each of these components of EBITDA combine to create a clearer picture of your company’s true value to potential buyers, and is therefore something buyers are particularly interested in. In order to understand Adjustments to EBITDA please see my coworker Austin Pakola’s piece on adjustments to EBIDA.
T: +1 (512) 861 3314
The Mergers and Acquisitions (M&A) process is exhausting. For most sellers, it’s a one-time experience like no other and a marathon business event. When done well, the process begins far in advance of the daunting “due diligence” phase and ends well beyond deal completion. This Seller’s guide summarizes key, and often overlooked, steps in a successful M&A process.
Phase I: Preparation – Tidy Up and Create Your Dream Team.
Of course, our own kids are the best and brightest, and bring us great pride and joy. Business owners tend to be just as proud of the company they’ve built, the success of their creation, and the uniqueness of their offering. Sometimes this can cloud an objective view of opportunities for improvement that will drive incremental value in a M&A transaction.
For starters, sellers must ensure that company financial statements are in order. Few things scare off buyers or devalue a business more than sloppy financials. A buyer’s Quality of Earnings review during due diligence is the wrong time to identify common issues such as inconsistent application of the matching principle, classifying costs as capital vs. expense, improper accrual accounting, or unsubstantiated entries. In addition, the ability to quickly produce detailed reports – income statement; balance sheet; supplier, customer, product, and service line details; aging reports; certificates and licenses; and cost details – will not only drive up buyer confidence and valuations, but also streamline the overall process.
Key in accomplishing the items above as well as a successful transaction is having the right team in place. Customarily, this doesn’t involve a seller’s internal team as much as his or her outside trusted advisors and subject matter experts. These include a great CFO or accountant, a sell-side M&A broker, a M&A attorney, and a tax and wealth manager. There are countless stories of disappointed sellers who regretted consummating a less-than-favorable transaction after “doing it on their own.” The fees paid to these outside subject matter experts is generally a small part of the overall transaction value and pays for itself in transaction efficiency and improved deal economics.
Phase II: On Market – Sell It!
At this stage, sellers that have enlisted the help of a good M&A broker have few concerns. The best M&A advisors are very hands on and will manage a robust process that includes the creation of world class marketing materials, outreach breadth and depth, access to effective buyers, client preparation, and ongoing education and updates. The seller’s focus is, well, selling! With their advisor’s guidance, a ready seller has prepared in advance for calls and site visits. This includes thinking through the tough questions from buyers, rehearsing their pitch, articulating simple and clear messages regarding the company’s unique value propositions, tailoring growth ideas to suit different types of buyers, and readying the property to be “shown.”
Most importantly, sellers need to ensure their business delivers excellent financial performance during this time, another certain make-or-break criterion for a strong valuation and deal completion. In fact, many purchase price values are tied directly to the company’s trailing 12-month (TTM) performance at or near the time of close. For a seller, it can feel like having two full time jobs, simultaneously managing record company results and the M&A process, which is precisely why sellers should have a quality M&A broker by their side. During the sale process, which usually takes at least several months, valuations are directly impacted, up or down, based on the company’s TTM performance. And, given that valuations are typically based on a multiple of earnings, each dollar change in company earnings can have a 5 or 10 dollar change in valuation. At a minimum, sellers should run their business in the “normal course”, as if they weren’t contemplating a sale. The best outcomes are achieved when company performance is strong and sellers sprint through the finish line.
Phase III: Due Diligence – Time Kills Deals!
Once an offer is received, successfully negotiated with the help of an advisor, and accepted, due diligence begins. While the bulk of the cost for this phase is borne by the buyer, the effort is equally shared by both sides. It’s best to think of this phase as a series of sprints and remember the all-important M&A adage, “time kills deals!” Time kills deals because it introduces risk: business performance risk, buyer financing, budget, or portfolio risk, market risk, customer demand and supplier performance risks, litigation risk, employee retention risk, and so on. Once an offer is received and both sides wish to consummate a transaction, it especially behooves the seller to speed through this process as quickly as possible and avoid becoming a statistic in failed M&A deals.
The first sprint involves populating a virtual data room with the requested data, reports, and files that a buyer needs in order to conduct due diligence. The data request can seem daunting and may include over 100 items. Preparation in the first phase will come in handy here, as will assistance from the seller’s support team. The M&A broker is especially key in supporting, managing, and prioritizing items for the data room – based on the buyer’s due diligence sequence – and keeping all parties aligned and on track.
The second sprint requires excellent responsiveness by the seller. As the buyer reviews data and conducts analysis, questions will arise. Immediately addressing these questions keeps the process on track and avoids raising concerns. This phase likely also includes site visits by the buyer and third parties for on-site financial and environmental reviews, and property appraisals. They should be scheduled and completed without delay.
The third and final due diligence sprint involves negotiating the final purchase contract and supporting schedules, exhibits, and agreements; also known as “turning documents.” The seller’s M&A attorney is key in this phase. This is not the time for a generalist attorney or one that specializes in litigation, patent law, family law, or corporate law, or happens to be a friend of the family. Skilled M&A attorneys, like medical specialists, specialize in successfully completing M&A transactions on behalf of their clients. Their familiarity with M&A contracts and supporting documents, market norms, and skill in selecting and negotiating the right deal points, is the best insurance for a seller seeking a clean transaction with lasting success.
Phase IV: Post Sale – You’ve Got One Shot.
Whether a seller’s passion post-sale is continuing to grow the business, retire, travel, support charity, or a combination of these, once again, preparation is key. Unfortunately, many sellers don’t think about wealth management soon enough. A wealth advisor can and should provide input throughout the M&A process. Up front, they can assist in determining valuations needed to achieve the seller’s long-term goals. When negotiating offers and during due diligence, they encourage deal structures that optimize the seller’s cash flow and tax position. And post-close, sellers will greatly benefit from wealth management strategies, cash flow optimization, wealth transfer, investment strategies, and strategic philanthropy. Proper planning for post-sale success must start early and it takes time; and, it’s critical to have the right team of experienced professionals in place.
The M&A process is complex, it usually has huge implications for a seller and his or her company and family, and most sellers will only experience it once in a lifetime. Preparing in advance, building and leveraging the expertise of a dream team, and acting with a sense of urgency throughout the process will minimize risk, maximize the probability of a successful M&A transaction, and contribute to the seller’s success and satisfaction long after the
T: +1 (813) 387 6044
Many individuals or companies feel that the best way to either enter an industry or expand within an industry is through buying a business. While this is often true, it is hard to know where to begin the process of buying a business.
Define your search criteria?
The first step to buying a business is to comprise a list of features that you are seeking in a business. Similar to the car buying process. Do you want leather seats, a certain brand, navigation, power windows, etc. Narrowing your search criteria will help save you time, resources, and frustration.
Here’s a few questions you will want to be able to answer as you begin your search:
- What size business are you seeking? This question relates to both revenue and profitability.
- Do you want the owner to remain apart of the business post-closing? If so, for how long?
- What geographical areas do you prefer?
- What industry and sectors are of interest to you? Be as specific as possible. If you are looking to buy a marketing firm, what type of end customers do you prefer? Do you want the business to cater to government customers, healthcare companies, etc?
- What is your budget?
Begin your search
There are many ways to uncover businesses for sale. You can search various websites, reach out to a Mergers and Acquisitions’ (M&A) specialist, or network to try to find deals that have not hit the market yet. Some buyers will approach business owners directly to see if they are interested in selling their business directly to the buyer.
Websites featuring businesses for sale often can be overwhelming. If you search several websites, you may see the same listing on multiple websites.
There are M&A specialist that work with buyers to find businesses for sale and others that work with sellers to find buyers. Some M&A specialist represent both buyers and sellers. If you are working with a specialist that represents both parties in a transaction, you will want to understand the intermediary’s incentives. It is hard to keep interest align if there are conflicts between the parties. If you are working with a sell-side M&A specialist, often times they will have exclusive listings meaning that you can only have access to that specific deal through that specialist. Also, a sell-side M&A specialist may take a commitment fee. This will show the seller’s commitment to the sale process.
Some potential buyers build a network to look for opportunities to purchase businesses or build their own database of potential businesses they would like to purchase and begin reaching out to those business owners. While this sounds like an easy process, do not be fooled by the amount of time and resources you will use trying to speak with the business owners and convenience them of completing a deal with you. Typically, business owners that are open to exploring the idea of selling will entertain a conversation but they eventually to want to go to market to test the valuation. Often times buyer will get close to the end of a transaction but then the seller will decide not to sale. If you are willing to pay an amount that is acceptable to the seller then they often wonder if there is someone that is willing to pay more and if they have undervalued their business.
Begin to review businesses
Sellers will want a Non-Disclosure Agreement in place prior to releasing confidential information. This practice is very typical in the lower mid-market. As a buyer, you will want to have the opportunity to speak directly with the business owner. They will know their business better than anyone and you will have specific questions that only the business owner will be able to answer. You will also want to visit the business’ facility. This visit will tell you a lot about the company, its cultural, and what type of liabilities you may want to explore further during the due diligence process. Once you find the perfect business, you will want to move swiftly to the next stage of the purchasing process as there are probably other buyers looking at the same opportunity and you do not want to miss out.
I found the perfect business, now what?
After you find the perfect business, you will need to comprise a valuation for the business. The valuation will be covered in a Letter of Intent (LOI) as well as the structure (how is the valuation going to be paid to the seller) of the offer and other high-level details. In the LOI, you will want to also include the seller’s involvement post close, an exclusivity clause allowing you the exclusive right to review the opportunity, the requirements of due diligence along with a timeline if possible, and the anticipating closing date. An LOI tends to include many more details, but above highlights some of the details a seller will want to understand prior to agreeing to move forward.
The LOI is executed. Where do we go from here?
After an LOI is executed, due diligence begins. As the buyer, you want to confirm that what you think you are buying is what you are actually buying. You will want to understand the risk associated with the purchase of the business. You will also want to engage your advisors to provide legal advice for the purchase agreement and tax advice for the structure of the transaction.
While purchasing a business sounds like a quick and easy process, it can take months, if not a year or two, to make the purchase. There are a lot of factors that you will encounter and unforeseen obstacles that stand in your way. An M&A specialist can help you navigate these obstacles and help you purchase a business within your desired timeframe. Whether you choose to seek to purchase a business on your own or bring in an M&A specialist, we wish you the best of luck with your journey.
T: +1 (512) 347 2000
Benchmark International is pleased to announce that it will be returning as pre-eminent sponsors to the Real Deals Mid-Market event in February 2019 for the sixth year running.
The event is to take place at the America Square Conference Centre in London and is attended by the UK and Europe’s most influential private equity professionals, providing an opportunity to network with hundreds of dealmakers, drawing attention to the opportunities currently represented by Benchmark International.READ MORE >>