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Is The End Near?

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.[1]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.
  1. 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.[1]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.[1]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.”

Author:
Clinton Johnston
Managing Director
Benchmark International

T: 1-813-898-2363
E: Johnston@benchmarkcorporate.com

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2019 is the Year to Put Your Exit Strategy in Motion; Here’s why:

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.

Schedule a call to speak to an Analyst

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.

Website: http://www.benchmarkcorporate.com
Blog: http://blog.benchmarkcorporate.com/

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Top Mistakes to Avoid When Selling

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.

 

Schedule a call to speak to an Analyst

 

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
to sell.

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.

Author:
Lee Ritchie
Senior Director
Benchmark International

T: +44 (0) 1865 410 050
E: Ritchie@benchmarkcorporate.com

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What type of attorney should I use for selling my business

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.

 

Author:
Billy Van Buren 
Senior Associate
Benchmark International

T:   +1 (512) 861 3312
E: VanBuren@benchmarkcorporate.com

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Taking Your Business to the Next Level

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.

Author:
Patrick Seaworth
Senior Associate
Benchmark International

T:   +1 (512) 861 3314
E: Seaworth@benchmarkcorporate.com

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Understanding EBITDA

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.

Author:
Patrick Seaworth
Analyst
Benchmark International

T:   +1 (512) 861 3314 
E: Seaworth@benchmarkcorporate.com

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I want to buy a business, where do I start?

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. 

Author:
Kendall Stafford
Managing Director
Benchmark International

T:  +1 (512) 347 2000 
E: stafford@benchmarkcorporate.com

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Women in Power

Posted on November 12, 2018 By in Women + business owner + Business Tips + Economy + US Election

“If particular care and attention is not paid to the ladies, we are determined to foment a rebellion, and will not hold ourselves bound by any laws in which we have no voice or representation;” these words were spoken by Abigail Adams, First lady of the United States and wife to John Adams, one of the founding fathers and writers of the Declaration of Independence.  

There is no doubt that women have been aggressively challenging the status quo in their pursuits for independence, equality, and active leadership over the last couple decades. This past Tuesday November 06, 2018, women took their achievements to a whole new level and broadened the gamut of political representation to include the largest body of female members of Congress thus far.

The ladies deserve a round of applause after the turnout of this year’s US midterm elections. There were some notable historic voting records surpassed. So far, there will be at least 119 women serving in the 116th Congress. This number is up from the historic high of 107.

The central message being supported by both sides of the fence is that this turnout of elections was a huge success for this gender group as a whole. Women are playing a much larger role in law declarations than ever before, and their voice is being represented at a louder volume than ever before.

This group of elected women represents several firsts for this minority. The next Congress will have a record number of women of color, a record number of non-incumbent women, its first Native American women, its first Muslim women, and the youngest woman ever elected to Congress. Exit polls illustrated that 8 out of 10 Americans said it’s important to elect more women to public office.

Women are upending the idea that “men wear the pants,” and are taking the reins in corporate settings as well. According to the National Association of Women Business Owners, “more than 11.6 million firms are owned by women, employing nearly 9 million people, and generating $1.7 trillion in sales as of 2017.” Moreover, women-owned firms account for 39% of all privately held firms. These stats have been growing consistently for the last two decades as women start to play larger roles in business development and implementation, and they are only expected to continue growing.

Benchmark International supports women in their pursuits of their passions and their drivers for success, and this is highlighted by the success of one of our very own inspirational women. On November 06, 2018 Managing Director, Kendall Stafford, challenged the mainstream middle-market mergers and acquisitions sector when she was awarded the title of Investment Banker of the Year by The M&A Advisor.

The awards presented by The M&A Advisor are essentially the equivalent to the Oscars for the M&A world. Stafford is a key player in transactions completed by Benchmark International, and she is a valued team member. Stafford was among a list of eight finalists, and she was the only woman on that list, and she came out on top. Benchmark International believes in fostering success and supports our employees and our clients in all they wish to achieve.

When it’s time to sell your business, you want a team that is on your side. If you are a woman looking to get the most from a full or partial sale of your business, we are dedicated to facilitating an acquisition that gets you the best value for your business in every facet.

If you are ready to start your exit strategy, you can call the Benchmark International headquarters at (813) 898-2350 to speak with a professional who can get you on the path you seek.

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Midterm Elections: The Results Are In, What Do They Mean for M&A?

Posted on November 9, 2018 By in US Election + US M&A + US Business + Business Tips

The 2018 midterm elections have presented little in the way of surprises this go around. As predicted, the Democratic Party took hold of the House of Representatives for the first time since 2010. The growth of Democratic representatives taking hold in Congress and some changes in historically Republican districts could be indicative of what’s to come in the 2020 Presidential campaign. 

It might not be as easy as first anticipated for Trump to remain at the top of the pyramid. Amidst some talk of a coming “blue tsunami,” this election may not have brought an overwhelming surge of Democratic leadership taking the helm, but there is no denying that the political party is coming ashore. What does this new shift in power and presence of a check on the executive branch mean for business owners considering a sale? 

Not knowing what’s to come in 2020 presents a feeling of uncertainty. With the results of the midterm elections, this feeling is heightened. Uncertainty is one of the most hindering factors for M&A activity. Investors are hesitant to make significant investments if they are unsure about future changes to fiscal policy. Thankfully, low interest rates and the tax cuts have contributed to a healthy M&A market producing high valuations for exiting business owners the last few years. The now divided Congress reduced the chances of any changes in policies that would significantly impact the market conditions before 2020. Unless we see significant bipartisanship, the most likely outcome is gridlock, which is good for the markets in the short-term. 

However, as the 2020 elections get closer the uncertainty will increase significantly. Rising interest rates combined with uncertainty in 2020 will likely put a halt to the favorable conditions sellers have enjoyed. This makes waiting to see who wins the 2020 elections quite the gamble if business owners are considering a full or partial sale before 2024 or even later. Owners must think hard about their plans for the next several years to avoid entering the market at the wrong time, which would bring haunting memories for many business owners going through the process from 2008 to 2013. 

Benchmark International specializes in facilitating exit and growth strategies for business owners in the lower middle market. The most important factor in achieving a successful exit is going to market when the market is strong and the business is ready. If an exit is at all in sight, it is critical now more than ever for business owners to speak to an M&A advisor and begin implementing a strategy because the market conditions will be changing very soon. 

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If Business Valuation Was A Science…

Determining the value of your business is not as simple as looking at the numbers, applying tried and tested formulas, and concluding. Were it that straightforward all business valuations would be virtually identical. The fact that they are not is sure proof that valuation is not a science, it can only be an art.

If Mergers and Acquisitions (M&A) was as straightforward as calculating the theoretical value of a business, based on historical performance and using that to determine market value I would need something more constructive to do with my time.

Valuation is not as primitive as we have been led to believe. Whilst transaction values are commonly represented as a multiple of earnings this is merely the accepted vernacular used to report on a concluded transaction and almost never the methodology used to arrive at the value being reported.

The worth of a business is often determined by the category of buyer engaged. Financial buyers can add significant value to a business in the right stage of its life cycle but may not assume complete ownership, thereby delivering value for the seller simultaneously with their own. The right strategic acquirer for any business would be one that can unlock a better future for the business, and is willing to recognize, and compensate, a seller for the true value the entity represents to them.

Comparing the experience of so many clients, over so many years, and avidly following the outcomes of all the transactions published in South Africa there is little dispute that businesses are an asset class, like any other, and that the best value of all asset classes are only ever realized through competitive processes irrespective of whether the acquirer has financial or strategic motives.  

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1.  The itch of business valuation

Simplistically, for the right acquirer - one seeking an outcome that extends past a short-term return on their initial investment - valuation is more a function of the buyer's next best alternative, than it is a businesses’ historic performance.

It would be naïve to think that the myriad of accepted valuation methodologies have no place in the process but identifying, engaging and recognising the benefits of the acquisition for a variety of strategically motivated buyers is essential in determining value in this context.

Considering a variety of appropriate valuation metrics, the parameters applied and then being able to balance these against the alternative investment required to achieve a similar outcome is where the key determinant of value lies. This is a complex process that unlocks the correct value for buyer and seller alike and it is a result that is rarely achieved without engaging with a wide variety of different acquirers and being prepared to "kiss a few frogs"

The most valuable assets on the planet are only ever sold through competitive processes where buyers have the benefit of understanding and determining value in the context of their own motives, having considered their available alternatives. It is for this reason that when marketing a business, it should never be done with a price attached. 

2.  An aggressive multiple

Whilst conventional wisdom is firm on industry average multiples, case studies abound, and the business community is regularly astounded by stated multiples achieved when companies change hands.

Beneath the glamour, the reality is that multiples are rarely used as a determinant of value, but almost without exclusion applied to understand it. Multiples represent little more than a simplistic metric that reflects an understanding of how many years a business would need to reliably deliver historic earnings in order for the acquirer to recoup their investment.

In the same way as a net asset value (NAV) valuation would unfairly discriminate against service businesses, multiples discriminate against asset rich companies. For strategic acquirers, with motives beyond an internal rate of return - measured against historic earnings - valuation is sophisticated.  It relies on an assessment of whether the business represents the correct vehicle to achieve the strategic objectives, modelling the future returns and assessing risk. Valuation in these circumstances will naturally consider it, but places little reliance on the past performance of a business constrained by capital or the conservatism of a private owner to formulate the future value of such investment. 

Whilst there are Instances where the product of such an exercise matches commonly accepted multiples, there are equally as many valuations that, on the face of it, represent unfathomable results. 

3.  A better tomorrow for the buyer

It would be irresponsible to advocate that that return on investment is not a consideration when determining value - corporate companies and private equity firms typically all have investment committees, boards and shareholders that assess the financial impact of any transaction. It is rare that such decisions are ever vested with a single individual, or that the valuation is derived from their personal desire to own a company or brand.

The art of valuation requires a reliable determination of the synergies between buyer and seller and an accurate assessment of the risks and benefits of the investment. Risk and reward are inherently related and skilled negotiation is required to find solutions that mitigate, or de-risk a transaction for buyer and seller alike, in order to underpin the value
of a transaction.

Financial buyers can be very good acquirers, especially in circumstances where they are co-investing alongside existing owners, staff or management to provide growth funding. When seeking a strategic partner for a business the acquirer should always be unable to unlock value beyond the equivalent of a few years of historical earnings. It is for this reason that the disparity between valuations by trade and financial buyers exists, and why determining the appropriate form of acquirer for any business is a function of the objectives of the seller.

4.  Passing-on the baton, or living the legacy

The motives for a sale can be varied and extend from retirement to funding and growth, from ill-health to a desire to focus on the technical (as opposed to management and administration) aspects, of the business.

Value for buyers and sellers comes in many different forms. For sellers it is their ultimate objective that determines whether they have achieved value in a transaction. For sellers it may be as simple as the price achieved or it could extend to value beyond the balance sheet as diverse as leveraging the acquirer’s BEE credentials, unconstrained access to growth capital or even to secure a future for loyal staff.

For both local and international buyers alike, the intangibles may be as straightforward as speed to market in a new geography who would otherwise not readily secure vendor numbers with the existing customers of the target business. An acquisition may be motivated by access to complimentary technology, skills or distribution agencies to diversify their own offering. Whatever the motives, an assessment of the future of the staff will always be an important aspect to both parties.

There are few, if any businesses, that are anything without the loyal, skilled and hardworking people that deliver for the clients of a business. The quality of resources, succession and staff retention are all factors that weigh on a decision to transact. Navigating the impact of a transaction on staff is a factor that cannot be ignored and the timing of such announcements can be meaningful.

Author:
Andre Bresler
Managing Director
Benchmark International

T: +44 (0) 1865 410 050
E: Bresler@benchmarkcorporate.com

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Five Ways to Value Your Business

The first question you will probably want to ask when thinking about selling your business is – what is it actually worth? This is understandable, as you do not want to make such a big decision as to sell your business without knowing how much it could command in the market.

Below are five different ways a business can be valued, along with which type of companies suit which type of valuation.

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Multiple of Profits

A common way for a business to be valued is multiple of profits, although this typically suits businesses that have an established track record of profits.

To determine the value, you will need to look at the business’ EBITDA, which is the company’s net income plus interest, tax, depreciation and amortisation. This then needs to be adjusted to ‘add-back’ any expenses that may have been incurred by the current owner which are unlikely to be incurred by a new owner. These could be either linked to a certain event (e.g. legal fees for a one-off legal dispute), a one-off company cost (e.g. bad debts, currency exchange losses), are at the discretion of the current owner (e.g. employee perks such as bonuses), or wages/costs to the owner or a family member that would be more than the typical going rate.

Once the adjusted EBITDA has been calculated this figure needs to be multiplied; this is typically between three and five times; however, this can vary – for example, a larger company with a strong reputation can attract towards an eight times multiple.

This provides an Enterprise Value, with the final ‘Transaction Value’ adjusted for any surplus items, such as free cash, properties and personal assets.

Asset Valuation

Asset valuation is suitable way to value a business that is stable and established with a lot of tangible assets – e.g. property, stock, machinery and equipment.

To work out the value of a business based on an asset valuation the net book value (NBV) of the company needs to be worked out. The NBV then needs to be refined to take into account economic factors, for example, property or fixed assets which fluctuate in value; debts that are unlikely to be paid off; or old stock that needs to be sold at a discount.

Asset valuations are usually supplemented by an amount for goodwill, which is a negotiable amount to reflect any benefits the acquirer is gaining that are not on the balance sheet (for example, customer relationships).

Entry Valuation

This way of evaluating the value of a company simply involves taking into account how much it would take to establish a similar business.

All costs have to be taken into account from what it has taken to start-up the company, to recruitment and training, developing products and services, and establishing a client base. The cost of tangible assets will also have to be taken into account.

This method for valuing a business is more useful for an acquirer, rather than a seller, as through an entry valuation they can choose whether it is worth purchasing the business, or whether it is more lucrative to invest in establishing their own operations.

Discounted Cash Flow

Types of companies that benefit from the discounted cash flow method of valuing a business include larger companies with accountant prepared forecasts. This is because the method uses estimates of future cash flow for the business.

A valuation is reached by looking at the company’s cash flow in the future, and then discounts this back into today’s money (to take into account inflation) to give you the NPV (net present value) of the business.

Valuing a business based on discounted cash flow is a complex method, and is not always the most accurate, as it is only as good as its input, i.e. a small change in input can vastly change the estimated value of a company.

Rule of Thumb

Some industries have different rules of thumb for valuing a business. Depending on the type of business, a rule of thumb can, for example, be based on multiples of revenue, multiples of assets or of earnings and cash flow.

While this method may have its merits in that it is quick, inexpensive and easy to use, it can generally not be used in place of a professional valuation and is instead useful for developing a preliminary indication of value.

To summarise, the methods of valuation can very much vary in terms of complexity and thoroughness, and different industries will find different methods more useful than others. A good M&A adviser can best suggest which way to value your business, as well as help to counter offers in the latter stages of the process with an accurate valuation in mind.

 

Author:
Tony Yerbury
Director
Benchmark International
T: +44 (0) 1865 410 050
E: Yerbury@benchmarkcorporate.com


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Why Do Buyers Take the Mergers and Acquisitions Route?

A merger is very similar to a marriage and, like every long-term relationship, it is imperative that mergers happen for the right reasons. Like many things in life, there is no secret recipe for a successful transaction. While the strategy behind most mergers is very important to obtain the maximum value for a business, finding the right reason to execute a merger could determine the success post-acquisition.

When two companies hold a strong position in their respective areas, a merger targeted to enhance their position in the market, or capture a larger market share, makes perfect sense. One of the most common goals for transactions is to achieve or enhance value; however, buyers have different reasons for considering an acquisition and each entity looks at a new opportunity differently. The following points summarize some of the primary reasons that entities choose the mergers and acquisition route.

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  1. Increased capacity

When entertaining an acquisition opportunity, buyers tend to focus on the increased capacity the target business will provide when combined with the acquiring company. For example, a company in the manufacturing space could be interested in acquiring a business to leverage the expensive manufacturing operations.  Another great example are companies wanting to procure a unique technology platform instead of building it on their own.

  1. Competitive Edge

Business owners are constantly looking to remain competitive. Many have realized that, without adequate strategies in place, their companies cannot survive the ever-changing innovations in the market. Therefore, business owners are taking the merger route to expand their footprints and capabilities. For example, a buyer can focus on opportunities that will allow their business to expand into a new market where the partnering company already has a strong presence, and leverage their experience to quickly gain additional market share.

  1. Diversification

Diversification is key to remain successful and competitive in the business world. Buyers understand that by combining their products and services with other companies, they may gain a competitive edge over others. Buyers tend to look for companies that offer other products or services that complement the buyer’s current operations. An example is the recent acquisition of Aetna by CVS Health. With this acquisition, CVS pharmacy locations are able to include additional services previously not available to its customers. 

  1. Cost Savings

Most business owners are constantly looking for ways to increase profitability. For most businesses, economies of scale is a great way to increase profits. When two companies are in the same line of business or produce similar goods or services, it makes sense for them to merge together and combine locations, or reduce operating costs by integrating and streamlining support functions. Buyers understand this concept and seek to acquire businesses where the total cost of production is lowered with increasing volume, and total profits are maximized.

The above points are merely four of the most common reasons buyers seek to acquire a new business. Even if the acquirer is a financial buyer, they still have a strategic reason for considering the opportunity.

Author:
Fernanda Ospina
Senior Associate
Benchmark International

T: +1 (813) 313 6150
E: opsina@benchmarkcorporate.com

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Best Practices When Preparing Your Business for Sale

The decision to sell your business can be incredibly difficult. In addition to the financial capital you have invested in your company, you have incurred an intangible amount of “sweat equity, through the hard work spent building your business and the natural emotional investment made in the company. That’s why, once the decision to sell has been made, it is imperative that proper preparation is put in place  to ensure your goals are met once your company is brought to market. Owners who approach exit planning systematically and methodically are more likely to maximize the value of their business and sell on their own terms.

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Financial Preparations

The primary factor influencing a company’s value is its earnings. It is essential  that the company’s financials present potential buyers with a clear story, allowing them to fully evaluate the company’s production. Presenting your business as efficient, with solid cash flows, a clean balance sheet, and low expense requirements, will position it as an attractive acquisition. There are several steps a business owner can take when reassessing their financials.

First, small private companies’ income statements are typically geared towards minimizing the company’s taxable net income. Although beneficial to the business owner, this approach is counterproductive in the context of a sale. As such, discretionary expenses that are not critical to operations and have not, or will not, impact revenues should be identified and eliminated. This could include owner/shareholder expenses, family-member salaries, fringe benefits or exorbitant perks, and extraordinary one-time expenses. Not only will this exercise maximize net income, but it will also present a normalized picture of the business to acquirers.

Second, organizing your balance sheet is key in preparing for a transaction. Sellers should remove all assets unrelated to their business from the balance sheet, as well as identify excess assets that could be converted to cash without adversely impacting the business. A buyer will not be interested in paying for excess inventory and, as such, this presents an opportunity for the seller to increase the total yield from the sale.

Third, it is important that a seller fully understands the company’s working capital before engaging a buyer. Working capital is often a point of negotiation between the buyer and seller. Buyers expect to receive a “normal” level, and often use low amounts of working capital to drive down the total cash paid at close. Managing working capital requires both time and effort, but it can result in greater efficiency and can lower the total level of working capital buyers expect to have delivered.

Lastly, the reliability of a company’s financial statements is critical in influencing a buyer’s decision. It is recommended that, before going to market, a seller contracts an independent accounting firm to review or audit their company’s financial statements. This will ensure the company is presented in an accurate manner, and will instill a sense of confidence in potential buyers, resulting in a greater level of trust and better valuations.

Operational Preparations

A company’s operations are just as important as financials. Potential buyers will seek to comprehensively understand the business practices behind a company’s earnings. A well-run business, with efficient operations, and good growth prospects will appear more attractive to any buyer. Unfortunately, businesses often have operational issues that could jeopardize a transaction. It is necessary for sellers to identify these issues before going to market and, in any case where the issue cannot be resolved, prepare to address it in a forthright manner.

For example, although a company’s clientele is not directly reflected in its financial statements, a company’s book of clients is a critical point of examination for a buyer. An ideal business has a broad customer base with little customer concentration. Dependency on a limited number of large customers could significantly reduce the marketability of a company. In these cases, it is important that the seller address this issue head on by either diversifying the company’s clientele before going to market, or developing a narrative to mitigate this issue and reassure buyers.

Additionally, a business owner’s level of involvement in the company is an important factor to buyers. They are acquiring the business, not the seller. As such, buyers will want to see a strong supporting management team, indicating the business will continue to be successful long after the owner has left. As a business owner prepares to go to market, it is key that they evaluate their role in business operations and implement a succession plan. 

Lastly, it is imperative that a business owner continues to grow revenues, as well as develop a realistic growth strategy. Buyers are purchasing the current and future cash flows of the business; historical growth, as well as a growth strategy with expansion opportunities, provides a blueprint for what’s to come. Presenting buyers with growth plans that are reasonable and achievable validates the credibility of management, and demonstrating that credibility through continued revenue growth illustrates the quality of the business.

For many business owners, selling a business happens once in a lifetime. When dealing with such a monumental event, a little more preparation today is certainly worth the added value tomorrow. Proper planning and advanced preparation is critical in order to maximize the value of your business and the probability of closing a transaction. Additionally, advice from seasoned professionals can provide you with savings and add significant value. At Benchmark International, we are proud to provide world-class mergers and acquisitions services, and we work hard to ensure your company’s value is maximized and your business is sold on your terms.  

Author:
Theodore Pince
Associate
Benchmark International

T: +1 (813) 898 23557
E: pince@benchmarkcorporate.com

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What is included in the M&A due diligence?

The due diligence process is one of the final steps in an M&A transaction where the potential buyer does its obligation to best confirm and verify the seller's company data and relevant information. This information typically includes but not limited to: financials, IT, operations, legal & compliance, insurance, corporate bylaws, contracts, customers, among other important information. Typically, the due diligence process follows the execution of a letter of intent (LOI), a non-binding document outlining the intent of both parties to commit to the transaction.

Once the LOI has been executed, the buyer will request a list of items to be shared by the seller with the intention of disclosing the selling company’s key details that could uncover risk buyer. As mentioned before, items can range all the way from financials to operations to insurance to contracts, among others. In cases where the seller owns the real estate, additional documents pertaining to the real estate, such as: deeds, mortgages, tax documents, owners’ insurance, etc. will need to be provided. Given today’s advancements in technology, once the due diligence request list has been sent to the seller, the team leading the deal will proceed to open what we call in the M&A world a “virtual data room” or a “data room.” These two terms are referred to as online portals that hold and store the information requested by the buyer with high levels of security only available for certain parties, including: buyer, seller, M&A attorneys, CPAs, advisors, among others. The data room allows activity within the room to be tracked and archived so there is a file of the information exchange after closing should any issues arise.

Once the due diligence starts, it is highly recommended for the buyer to hold, at the very least, weekly meetings or calls with the seller to discuss outstanding items or any questions that may have arisen from the process. As the due diligence process progresses, the buyer will become more familiar with the seller’s company. For an instance, should the buyer find any items that may play against the seller in the due diligence process, the buyer may use this to lower the valuation of the business which may ultimately result in a lower offer price.

In addition, this process can result as a discovery of potential opportunity to better structure the deal, find real synergies among parties, review any benefits and challenges for potential system integrations, and any associated risks that may arise from the result of this potential acquisition. 

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Is Your Business Killing You? Signs it Might Be Time to Exit …

Posted on September 17, 2018 By in Business Tips + financial + exit strategy

The dream of running your own business was once a thrill that filled you with excitement. Perhaps, it was the idea of being your own boss fueled the passion behind your drive, or the prospect of providing a new product to a targeted market. Whatever the case may be, you’ve made it to this point in time right now because something is different (hence, why you are reading this article).

Maybe business is great, you’ve reached a plateau or your company is in decline.  Irrelevant of the situation you aren’t fired up about your company like you used to be and you no longer have the same passion for your company that used to be there or, in the worst case, you feel like it is killing you!  Your dedication to your business seems to be affecting your personal life and your health, whether it be mental or physical, in a negative way. Going to work each day is getting tougher and tougher, a dreaded obligation, and you feel like your tank is running on empty.

When your personal life and your health are in decline, it’s probably time to explore your exit strategy options. The first step you need to take when you reach this point is to open up conversations with a sell-side mergers and acquisitions team who can help you determine what those options are.  Starting the discussion now will allow you to have a better “diagnosis”, but here are some flags to look for if you aren’t sure if now is the time to contemplate an exit:

1)    You’re spending too much time on back-office and administrative tasks– Most business owners who find themselves in this situation have driven their company to success and have a very nice company, having it from nothing at all.  The reality is that owners do this as the primary visionary who pushes business development and sales.  Truthfully, there is seldom an employee who can deliver the passion and expertise for your company than you can.  Over time as a company grows, many owners fall prey to becoming employees themselves who are constantly focused on obligations such as managing people, processing payroll, dealing with HR issues, keeping up with regulations, etc. which confines them to an internal office desk job.  If you are finding yourself in a this situation or similar, you aren’t the only one and there are many ways to revive your daily routine that a mergers and acquisitions team can share with you.

2)     You feel like you’re “married” to your business and are contemplating a divorce – Starting a business that you expect to last for the long run is a commitment. You have to be prepared for ups and downs all along the way. As the saying goes, the only constant in life is change.  As your business will change, so will your personal life, your priorities and your focus.It can be hard to take a step back from the business because it  requires so much of your time and attention. You don’t want your business to fail, but you also don’t want your personal life to suffer at its expense. Having a family, or missing out on life’s small moments repeatedly, can make you reevaluate your priorities. If you find yourself being at the business more than at your home, it’s probably time to start the exit conversation and learn more about your options. 

3)    Your Business has Grown Substantially and You Can’t Keep Up with the Demand – This appears to be a good problem to have, but in reality, if you can’t keep up with your business, then the business is walking a thin line between failure and success. Likewise, you are probably coming to your maximum height of stress too. So, what do you do? Being able to understand that you don’t know what you don’t know is key to catapulting your business further into success. Any one person can only do so much. At some point, you need to assess how you can be of more value to your business. If your value lies in innovation and new ideas related to the service you provide or expanding your footprint, but you can’t produce your products or deliver your services fast enough, or if you aren’t spending enough time on innovation because you’re busy on making sure your current client pool is satisfied … you are losing money, and your business will decline. The business you have grown from the ground up deserves to reach its full potential and there are many paths there.

4)    You Daydream About the Day When You Won’t Have to Work Anymore – Running your business has become a chore. You are constantly one foot in the door, even when you’re home. You’ve reached that point where it just feels like your life is your business, and retirement on white sandy beaches sounds more and more intriguing. Being a business owner isn’t a walk in the park, and you need a plan in place, so when those retirement dreams start flooding your mind, you can put your plan into motion.

If you have come to a point in your business where you feel like it is constant stress and you have no relief, then it’s probably time to sit down with a sell-side mergers and acquisitions specialist like Benchmark International and discuss your exit strategy options. There are a vastly more avenues you can explore that will relieve you from the status quo that will allow you to continue pursuing your personal and financial goals while ensuring the legacy of your company remains intact and that your employees will continue to be taken care of.

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Webinar Video: Now that the Valuation is Set, Here’s Where You will Win or Lose the Deal Part II

 

 

If you joined us for part one of this webinar last month, you already understand why coming up with the valuation is only one of many key deal points you will need to secure in order make your exit a success. In part two we examined another six key issues, this time focusing in on those that come even later in the process; after deal fatigue has set in and you feel like you can’t possibly have anything left to fight about or give away. 

1. Winning the net working capital fight 
2. Your indemnification of the acquirer 
3. How the disclosure schedules protect you 
4. Can reps and warranties insurance assist you? 
5. The inevitable non-competes 
6. Meet the Grim Reaper of your sale process - Delays 

If you missed part I, it can be found here (http://bit.ly/2nTsPk7) and we encourage you to take an hour to get caught up to ensure you get the most out of part II. 

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Strategic Vs. Financial Buyers

Posted on September 11, 2018 By in Business Tips + buyers + financial + strategic

If you are considering selling your business, it is important to dedicate some thought to the type of sale that best allows you achieve your goals. Do you believe a full sale where you walk away from the company after closing is best for you?  Are you the type of person who would work well with a strategic partner that, together, will allow for accelerated company growth?  Is there an amount of time you would like to continue working after the transaction with a plan to slowly exit over time?  Determining the type of sale that appears the most attractive (I only say ‘appears’ because many owners change their mind after learning what the market has to offer and will find a more attractive sale type than what was initially assumed to be the ‘best’) will also allow you to gain an understanding for the most likely type of buyer.

When selling your business, buyers typically fall into two main categories: strategic buyers and financial buyers. The best type of buyer for your business depends on personal goals you hope to achieve from the sale.

Strategic Buyer:

This type of buyer is more likely to pay a premium for a business because their reason for the acquisition is to add to their already existing business. A strategic buyer can be a competitor, supplier or vendor in the same industry.  A strategic buyer can also be a focused on businesses of similar model that service the same sector.  These attributes are commonly referred to as vertical and horizontal markets, respectively.  Using what your company has to offer can help them either expand their footprint or break into a new market.

They are looking for synergies in a prospective merger or acquisition. Synergies are characteristics of the two companies that compliment each other, so that when they are put together, the sum equals more than the two parts individually. In other words, a strategic buyer wants to have a relationship that makes the resulting business more valuable than the two businesses when they stand on their own.

Finding a strategic buyer to work with your business will give you more options in a sale. You can decide to stay on with your business for a transition period, while the new company takes over and for an integration period, eventually allowing you to exit completely, or you can negotiate your continued role in the business as a key player in its continued development.

A strategic buyer can often outbid a financial buyer because of the synergistic relationship they are looking to create in your business. Your businesses together yield increased value, sometimes exponentially, in one way or another.

Financial Buyer:

A financial buyer is looking to invest capital to get a return on their investment. Basically, they want to buy your business outright, make profits from it, and then sell it again to create liquidity. For this reason, a financial buyer is not typically willing to invest the same amount of capital they can invest into your business because they are not adding your business to an already existing company of theirs. Instead, they are buying your company as a whole and working with what you have in place already.

A financial buyer doesn’t have the ability to cut on backend costs that a strategic buyer does. They will need to buy a company with a good working structure and management team in place, since they may not be bringing a team of their own to take over all areas of the business. This allows owners to stay involved with their business to help it grow until the financial buyer decides it’s time to sell again.

The benefit to using a financial buyer is knowing that there is a high growth model in place for your business, and you will most likely play a role in its realized potential before it is sold again. This is a great option for a business owner who is looking for an eventual complete exit from his business.

Choosing the Best Fit

Now, there are some exceptions and looking at different buyers from a less seasoned perspective can make it difficult to understand exactly what type of buyer you are actually facing.  For example, a financial buyer may have a portfolio of business that compliments yours which can allow for a synergistic fit, thereby allowing you to enjoy some of the benefits a strategic buyer brings to the table.  It could also be that a financial buyer recognizes inefficiencies or ‘areas of improvement’ that will allow them to immediately increase the company’s profitability following an acquisition.  On the other hand, a strategic buyer may only want to buyer your business to eliminate a competitor and has no real intention of growing your business after the transaction takes place.  Simply put, they may just want to prevent your business from continuing to eat up market share whether that be by forcing the company to remain static or by closing the doors.When it comes to selling your business, it is important to consider all your options in a sale. You need to find a buyer that will bring what you are looking for to a sale. Selling your business for a high value is important, but is it worth compromising the culture of your business or your employees? You need to decide what is most important to you and let those values be driving factors in your decisions in a sale.

It is tough to find the best fit for your business on your own. That’s why using a sell side mergers and acquisitions firm like Benchmark International is essential. You will have someone on your side who can help you find the right buyer for your needs. You can also learn more about what you can negotiate in a sale and you can discuss what’s most important to you to make sure those needs are met in a sale.

If you are thinking of selling your business, Benchmark International is dedicated to helping business owners like you achieve what they are looking for in a sale.

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Top Tips to be Due Diligence Ready

It is imperative that during an M&A transaction thorough due diligence is conducted, not least because it helps to establish the true value of a transaction.

Due diligence is a term applied to the work acquirers undertake after signing HoTs (Heads of Terms) and falls into three main categories: commercial due diligence, financial due diligence and legal due diligence. It is a review of the seller’s company and includes looking into areas such as potential risks and liabilities, the seller’s competition, middle management and employees, financial status, intellectual property, and assets.

It is not an easy task to conduct, so here are five tips on how to ease the process:

TIP ONE: IT’S NEVER TOO EARLY TO PREPARE

An acquirer will want to see an extensive list of documentation which can include copies of contracts with suppliers, intellectual property registration, computer systems and data protection, employment contracts and pensions, and much more.

It is wise to draw up a due diligence checklist anticipating what an acquirer will want to know – most will provide this when the time comes but a checklist early on ensures that these documents are prepared and up-to-date.

Being prepared with this information, before an exit is even on the cards, is important as it can help expedite the transaction and make the company look more attractive to potential acquirers – if information can be provided quickly, an acquirer will know the transaction is being taken seriously.


TIP TWO: USE A DATA ROOM

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Mergers and Acquisitions in the Architecture and Engineering Industry

Over the last few years the architecture and engineering industry has seen a marked increase in mergers and acquisitions activity. Since reemerging from the depths of the recession, the industry has been ripe with activity; with everything from the expansion of the ever growing reach of firms like DLR, Perkins & Will, and HOK, to the merging of small businesses to facilitate the retirement goals of local industry experts. Considering there is typically a few year lag between economic fluctuations and corresponding changes in M&A activity, as the bull market run is approaching nine years, this type of inorganic growth activity shows no signs of slowing down.

As an industry agnostic mergers and acquisition leader, Benchmark International is in touch with leaders from a variety of industries on a daily basis. We’ve seen significant movement from corporate development teams in a number of industries which are beginning to expand their services to grow not only their customer base, but also to gain additional wallet share of their existing clients. This type of cross pollination has occurred in interior design, surveying, construction, architecture, engineering, and technology. We currently are in the midst of closing a transaction which would allow a specialized electrical engineer which focuses on the commercial and healthcare markets to broaden their end market to include the hospitality sector, and their service offerings to include the upstream design, planning, and engineering components of a building’s IT infrastructure needs.

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11 Reasons to Have the Exit Conversation

When the mention of selling your business comes up, you might feel a little uneasy about starting the discussion. Your business is your baby, and the thought of letting go can be overwhelming. The truth is; however, failing to plan is a plan to fail when it comes to your business exit strategy. You need to have an exit strategy in place for your business. Everyone thinks of their future, but they don’t always take active steps in the present to prepare for what they want tomorrow. There are many reasons why you should discuss when and how to exit your business. Here are eleven reasons to have the exit conversation now:

1) Anything can happen at any time – This is so true. We cannot anticipate what will happen unexpectedly. For this reason, you need to have an emergency exit plan in place. What will you do if you have something happen that requires you to step down from your business quickly?

2) Family obligations are taking more time from the business – Business owners run businesses and have families all the time, but depending on the size of your business and the size of your family, you may need to spend more time away from the business. If you don’t have a team in place that can run the business without you for a few days, exiting might be your best bet.

If obligations, such as an ill family member, or a lot of educational or extracurricular commitments for your children are taking from your time, you could experience a negative shift in the dynamic of your business. A strategic partner can help you free up some time for your family while still allowing you to take an active part in your business’s growth. This type of partnership doesn’t require an immediate exit from your business and allows you to discuss an end-goal for this exit strategy with the partner you join.

3) Personal health issues are pulling you away from the business – When your personal health is in decline, it can be difficult to continue running the business. A business owner doesn’t need the undue stress caused by juggling an illness and the company.

Furthermore, if you find your health declining, or the health of a close loved-one, your priorities might change. Your view on where your time needs to be spent might be more focused on your personal relationships versus constantly working on growing your business.

Again, spending your time away from the business will have a direct negative effect on your revenue and daily operations. This makes the goal of achieving maximum value more challenging. Therefore, having an exit plan is essential.

4) You don’t have anyone in place to take over the business – You’re a great leader, and you run your business like a well-oiled machine. However, what happens when you’re gone? You need to have a plan in place. If you find your children aren’t interested in taking over, or if you don’t have any children, or if you don’t have a manager in place to take over, you need to know what you will do when it’s time to leave your business behind.

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