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Benchmark International Successfully Facilitated the Transaction Between Vertex Software Corporation and Level 5 Lab

Benchmark International facilitated the transaction between Vertex Software Corporation and Level 5 Lab.

Vertex Software Corporation is a web-based solutions business specializing in building online, browser-based software applications. Vertex brings traditional software engineering methodology and discipline to web development, delivering robust solutions to its clients quickly and efficiently.

Benchmark International proved its value in finding a buyer with experience in the industry through its proprietary multi-medium marketing strategies.  In addition, Benchmark International incorporated several campaigns with local, regional, and national associations.

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President of Vertex Software Corporation David MacDonald commented, “Benchmark International’s team delivered on finding a buyer for my business that would take care of my team as well as would carry on the high level of service after the sale that our customers have come to expect.”

Deal Associate, Amy Alonso commented, “Benchmark International added value by negotiating this deal.  We saw throughout the entire process that the buyer, Level 5 Lab, was a perfect fit who stood to benefit greatly from the experience, industry knowledge and high-quality service that they would gain from the existing owner. With this knowledge, the team was able to negotiate a deal that would allow for the existing owner to successfully transition the business to a capable buyer.  We wish Vertex Software Corporation and Level 5 Lab the best of luck in their future endeavors.”

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Benchmark International Completes the Sale of Knowles Associates - Total Fleet Management Limited and Ensure UK Limited, to an EOT

Benchmark International is delighted to announce the successful sale of Essex-based Knowles Associates and Ensure UK, to an employee ownership trust (EOT).

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Benchmark International Completes the Partial Sale of I.C.P.M.S. Cones Limited to Alpha Resources LLC

Benchmark International is delighted to announce the partial sale of Cheshire-based precision engineers I.C.P.M.S. Cones to an entity ultimately owned by the shareholders of Michigan-based company, Alpha Resources LLC.

Incorporated in 2002 following an MBO by owners Dean White and Gareth Evans, I.C.P.M.S. Cones is a precision engineering company specialising in the design and manufacture of electroformed metal cones for use in mass-spectrometry scientific instruments. Alpha Resources is a manufacturer and distributor of analysis consumables, offering equipment for elemental analysis in multiple industries.

With RAC’s niche technical production process and strong relationships with a number of blue-chip clients, the acquisition provides Alpha Resources the opportunity to build on I.C.P.M.S.’s market stature, as well as offer complementary products to its current range. Both Dean and Gareth will remain with the company as Directors and shareholders to ensure the continued success of the combined entities.

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Benchmark International Successfully Facilitated the Transaction Between A Quality Service Ltd and Tudor Group

Manchester-based facilities management provider, Tudor Group, has acquired Cardiff-based cleaning contractor, A Quality Service (AQS).

Established in 2011, AQS specialises in stadium cleaning, as well as providing commercial cleaning for a variety of customers from factories and offices to the NHS.

Tudor Group provides a wide range of commercial cleaning services to clients nationwide and has been doing so for the last 30 years.

Do you have an exit or growth strategy in place?

The company has private equity backing from Foresight Group, who made its original investment in 2016. Since then, Tudor has scaled operations, introducing improvements to health and safety, finance and IT systems. The acquisition of AQS – on the back of a £1.1m boost – will allow it to grow revenues further.

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Sellers Vs. Buyers Disparate Interests in the Transaction Process

Buyers and Sellers approach a given transaction from different perspectives. The seller wants to receive as much as possible, as quickly as possible, with little or no potential liability to the buyer or parties associated with the seller’s pre-sale operation of the business. The buyer wants to pay as little as possible, defer payment as long as possible, contractually obligate the seller to indemnify the buyer against actual or potential known or unknown liabilities and ensure that the seller can make good on those obligations by escrowing sales proceeds or deferring payment. The give and take, or push and shove, over these issues takes place during the entire transaction process but predominantly during the negotiation and drafting first of the Letter of Intent and later the Purchase and Sale Agreement. 

Relative bargaining power, from whatever source, often determines which side controls these issues. The other major determinant is the level of experience and degree of sophistication of the parties’ M&A advisors and legal counsel. It is essential, but not sufficient, that a transaction party’s representatives understand what is in that party’s best interest. They must also understand what motivates the other side and how their representatives are likely to try to realize those goals. If both the seller and the buyer stand fast concerning their positions, no transaction will occur. This is where experienced M&A advisors are critical. Helping the parties understand which positions are crucial to their goals and which can be negotiated away is a key function of the professional advisor.

Below are several negotiating points common to many middle-market transactions, and the normal positions of the seller and the buyer with regards to those issues.

Material Terms in the LOI

Sellers are often best served by requesting as many material deal terms in the Letter of Intent as possible. This is because the maximum point of the seller’s leverage is just, before the execution of a Letter of Intent. At this stage, the buyer has expressed interest in the transaction and is unaware of issues that may surface in due diligence. The seller has not yet agreed to exclusivity, and the seller’s M&A advisors have created a competitive environment or at least the illusion of one. 

The buyer is best served by negotiating an exclusivity agreement and skipping the LOI altogether. That means, proceeding directly to the negotiation of a definitive purchase agreement. The buyer’s fallback position should be negotiating an LOI with as few binding terms as possible, except for exclusivity. Either approach gives the buyer strong negotiating leverage and the time to complete due diligence before negotiating material terms. These tactics also minimize the risk that the LOI will be considered a binding agreement giving rise to damages in the event the deal is not consummated. 

Stock vs. Assets

Nearly every corporate seller should sell stock rather than assets if the buyer will agree. However, nearly every buyer will refuse. The benefits to the seller from a stock sale include 1) potential tax savings if the target is a “C” corporation, 2) passing disclosed and undisclosed liabilities on to the buyer, and 3) a generally less complicated and less time consuming, thereby a less expensive transaction. On the flip side, an asset purchase generally provides buyers with a tax-advantageous step up in the basis for the assets and avoids liabilities other than those expressly assumed. Except for “successor liabilities” imposed by public policy such as environmental, product liability, employee benefits, and labor-related issues and liability under “bulk sales” laws. Experienced buy-side advisors will also be aware of potential “fraudulent conveyance” concerns by ensuring that adequate arrangements are made to pay the seller’s creditors and/or restricting distribution of proceeds to the seller’s equity holders until creditors are paid. Although this aspect of transaction structure is generally presented as a “fait accompli,” the seller, the buyer, and their respective advisors should be aware of the issues and how they bear upon the cost, timing, and structure of the deal. 

 

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Caps and Baskets

The buyer will insist upon the seller’s representations, warranties, and indemnifications going to issues that materially affect the buyer’s benefit of its bargain. The seller wants to avoid being “nickel and dimed” for minor issues and serving as the buyer’s insurer against the normal risk of doing business.

The seller will negotiate a cap on liability and attempt to avoid carve-outs from the cap for specific issues. The cap is often a percentage of sale proceeds, and from the seller’s perspective should be negotiated in the LOI. The cap or, lack thereof, can materially affect the value of the transaction and the seller is not well-served by giving up exclusivity until it has been negotiated.

The basket is, in effect, a deductible that must be satisfied before indemnification obligations begin. Accordingly, the buyer can only recover for the aggregate amount of damages over the basket (and below the cap). Variations on this theme include mini baskets related to specific issues and whether or not indemnification begins at the first dollar or is limited to amounts over the basket.

Non-Reliance

An important risk allocation to be negotiated is a non-reliance provision contained in the acquisition agreement. The seller wants this provision to force the buyer to acknowledge that it is relying solely on its due diligence, and the seller’s representations and warranties contained in the acquisition agreement. The buyer is precluded from asserting liability against the seller based upon statements, projections, and oral representations made outside the four corners of the document. The buyer will resist this provision.

Termination Fee (Reverse Breakup Fee)

A tactic not often addressed in middle-market transactions, but a valuable one is the termination fee. The seller requires the buyer to pay a fee, equal at least to the number of the seller’s expenses and perhaps as high as ten percent of the purchase price if the transaction is terminated at no fault of the seller (for example, if the buyer cannot finance the transaction). This type of liquidated damage provision may reimburse the seller for its out-of-pocket expenses, but it will not compensate for lost opportunity costs for failing to pursue alternative transactions because of exclusivity. Again, the reason the buyer will reject or seek to severely restrict such a provision is obvious.

Termination fees are sometimes referred to as reverse breakup fees because they turn a breakup fee on its head. Breakup fees are paid by the seller to the buyer if the seller won’t or can’t consummate the transaction at no fault of the buyer. The seller changes its mind, finds a better deal, or has insurmountable issues discovered during due diligence that adversely affect its value. In the middle-market, these provisions are generally intended to compensate the buyer for its out-of-pocket costs, rather than opportunity costs.

MAC Clauses

A MAC (Material Adverse Change) clause is one of the more contentiously negotiated provisions in the acquisition agreement. In a MAC, the seller warrants that as of a date certain (usually the closing date) there has been no material adverse change in the seller’s business. The M&A counsel has a field day negotiating the specific language. What is the applicable period? Are business “prospects” included? Should the target and its subsidiaries be taken as a whole or viewed independently for purposes of determining materiality? What should be excluded from the operation of the MAC provision? Simplistically speaking, if the seller’s business performance has declined during the relevant period or is an indemonstrable risk of decline (prospects), then the buyer can rely upon the MAC provision to terminate the deal and recover expenses.

In the middle-market, MAC clauses can be a significant cause of transaction failure. To boost enterprise value, the sellers often rely upon very recent favorable EBITDA numbers. If that performance cannot be sustained during the course of the transaction, for whatever reason, the buyer may rely upon the MAC clause to terminate or renegotiate the deal.

Escrows

A favorite buyer tactic is to attempt to escrow a portion of the purchase price to ensure that funds are available to compensate the buyer for breach of warranties by the seller. Sellers resist escrows and attempt to limit their impact. For example, the sellers should ensure that any escrow is held by an independent third party so that the buyer can’t just unilaterally offset. The seller should negotiate limitations as to the length of time the escrow is held and seek to restrict to the extent to which the escrow can be applied. If the seller cannot avoid an escrow, it should seek to limit the buyer’s recourse to only the escrow proceeds and preclude additional recovery.

Conclusion

The foregoing is just a few of the issues that may arise between the seller and the buyer is a strategic transaction. Every transaction is different; the relative positions taken by the respective parties will vary based upon their circumstances at the time. Experienced, knowledgeable M&A advisors, on both sides of the deal, are critical to the success of every transaction.

 

Author
Don Rooney
Transaction Director
Benchmark International

T: +1 813 898 2350
E: Rooney@benchmarkintl.com

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3 Ways To Grow Your Company

  1. Through a Merger

A merger unites two independent, similarly sized companies as one new entity, typically with a new name. This strategy adds value to both companies by growing into new market segments, gaining market share, or expanding geographic reach. A merger enables the new venture to benefit from the best that each company brings to the table as far as expertise, talent, technology, products, services, assets, and market penetration. In total, it offers a powerful competitive edge. A merger can also be less time consuming than other strategies, such as relying on organic growth.

  1. Through an Acquisition

In an acquisition, a company purchases a 51 to 100 percent stake in another company, taking control of it and all of its assets. Acquiring a business means acquiring its already established customer base, talent, geographic diversification, portfolio of services, and other immediate growth opportunities that would take years to create under organic growth.

Both mergers and acquisitions offer several advantages for a company looking to generate growth and value.

  • Expansion: M&A can easily extend the reach of a business in terms of geography, products and services, and market coverage. This translates into more customers gained without having to hire more salespeople or increase marketing expenditures.
  • Consolidation: M&A can unite two competitors to bolster market domination. It can also increase efficiencies by cutting surplus capacity or by sharing resources. Plus, M&A can increase production efficiency and bargaining power with suppliers, coercing them into lowering their prices. It can also allow a business with weak financials to combine with a stronger one and pay off debt.
  • More Capabilities: M&A can boost a company’s capabilities by quickly adding new talent and new technologies rather than taking the time and energy to develop each from scratch.
  • Lower Costs: By merging with or acquiring another business, you can lower costs and increase efficiency and output.
  • Speed: M&A empowers a business to grow more quickly, altering the landscape of the sector more rapidly than competition can adapt and respond.
  • Tax Perks: Profits or tax losses may be transferable within a combined business, benefiting from varied tax laws within certain sectors or regions.
  • Unbundling: Sometimes a company’s underlying assets are worth more than the price of the business as a whole. In this case, a company can acquire another and quickly sell off different business units to other buyers at a substantially higher price.

 

Ready to explore your exit and growth options?

 

  1. Through a Strategic Alliance

Mergers and acquisitions adjoin companies through total change in ownership. But there are ways that businesses can share resources and activities for a common goal without sharing ownership, known as strategic alliances. Strategic alliances enable a business to quickly grow its strategic advantage, but with less commitment. There are several ways a strategic alliance can be accomplished.

  • Equity Alliance: The creation of a new entity that’s owned separately by the two partners involved, such as a joint venture. Both companies remain independent but form a new company jointly owned by the parent companies.
  • Consortium Alliance: This is the same as a joint venture but can be formed with several partners.
  • Non-equity Alliances: These do not involve the commitment implied by ownership and are often based on contracts, such as franchising or licensing. Under this contractual alliance, one company gives the other the right to sell its products or services or to use intellectual property in return for a fee.
  • Scale Alliance: When businesses combine to achieve necessary economies of scale in the production of products or services or by lowering purchasing costs of materials or services.
  • Access Alliance: This occurs when a company needs to access the capabilities of another company needed in order to produce or sell its own products and services. An example of this is when an international company needs access to a local company to be able to product or sell the product.
  • Complementary Alliance: When companies of similar value combine their unique but complementary resources so both have any gaps filled or weaknesses strengthened.
  • Collusive Alliances: This involves companies colluding in secret to bolster their market strength, reduce competition, and demand higher prices from customers or lower prices from suppliers. Regulators usually discourage such behavior.

Mergers, acquisitions, and alliances can provide many benefits for a business that is seeking growth far above and beyond what is possible through organic growth. Each can enable:

  • Faster access to new products or markets
  • Instant market share
  • Economies of scale
  • Better distribution channels
  • Increased control of supplies
  • Lessened competition
  • Adding of intangible assets
  • Removal of entry barriers to new markets
  • Deregulation in an industry or market

Let’s Talk

If you are considering a merger or acquisition strategy to grow your business, we can make it happen. Our world-class team of experts at Benchmark International is a true game changer for accelerating your business growth in the smartest ways possible. Contact us today and look forward to a brighter tomorrow.

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Benchmark International Successfully Facilitated the Transaction Between Twenty First Century Engineering and J.S. Held

Benchmark International has successfully facilitated the transaction between Twenty First Century Engineering (“TFCE”) and J.S. Held LLC.

TFCE, based in Vero Beach, Florida is a renowned full-service professional engineering firm focusing on forensic services. TFCE provides civil, structural, forensic, and design/build services to individuals, corporations, and contractors throughout Florida, the greater Southeast United States, Texas, and the Caribbean. The company holds dual licenses in engineering and general contracting, which enable an expedited, turn-key process for clients.

J.S. Held is a global consulting firm with expertise in construction, environmental health & safety, forensic accounting & economics, water & fire restoration, equipment, and forensic architecture & engineering matters. According to the company’s announcement, “This acquisition further expands our forensic services for complex litigation needs, while also strengthening our geographic resources” (Bill Bracken, PE, J.S. Held Forensic Architecture & Engineering Practice Leader).

Ready to explore your exit and growth options?

John Carroll, the founder of TFCE, added in the announcement, “Our clients will have the benefit of a new suite of technical services and the accompanying specialized staff to support their needs on a variety of construction; equipment; environmental, health, and safety; as well as forensic accounting and economic matters.”

Regarding the deal, Senior Transaction Associate Sunny Yang Garten at Benchmark International commented, “It was a pleasure to represent TFCE in this strategic transaction. John and his team were wonderful to work with. They were engaging and always responsive to diligence requests. We’re excited to see that their legacy will be preserved and enhanced through this transaction with JS Held. On behalf of Benchmark International, we wish both companies continued success.”

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How COVID-19 Has Impacted Buyer Appetites In The Lower To Middle Market in South Africa

Benchmark International’s industry agnostic approach has proven to be informative during the Covid-19 epidemic. Interest in most of our client base has not declined and we are receiving queries from a wide range of parties.

Who are these interested parties and what is their investment approach? Analysing the data provides an interesting insight and some understanding of the shifting approach amongst these different categories of buyers.

• Listed Companies with their robust balance sheets are compelled to continue investing to meet forecast performance targets and stakeholder objectives. Generally, their acquisition mandates are governed by their investment committees where risk is a dominant factor. Turnaround and distressed assets are typically less attractive unless fulfilling a defined strategic need.

• Foreign Corporates from the Western to Eastern hemisphere still see South Africa as a stable foundation to expand through to Sub-Saharan Africa. South Africa’s well-developed IT and broadband infrastructure, advanced legal and banking sectors, safe aviation record, and access to a cost effective English-based labour pool facilitates business across the African continent. Themes of specific interest have emerged with a higher than normal volume of inbound enquiries for renewable energy, TMT, IT infrastructure and service as well as software businesses in particular.

• Private Equity in South Africa has grown and matured immensely over the last decade and remains one of the top acquirers/investee categories in the middle market for Benchmark international. Attached to the funds they raise are set acquisition criteria, investment limits and defined investment timelines where cash reserves must be spent. Similar to the listed segment, risk profiles are a key investment mandate consideration. During lockdown, Benchmark International has experienced a slight shift in the number of deals concluded towards those that have private equity components to them.

• Family Offices have shown resilience through the epidemic and continue to show interest in our opportunities. Their mandates are more flexible but are primarily based on where their strategic and financial input will maximise returns.

• Covid-19 has forced Large Private Companies to look at vertical integration of their supply chains. They also continue to seek to grow their market share through horizontal acquisitions and acquisitions of niche market opportunities.

• High Net Worth Individuals remain interested in growing their asset bases. They generally focus on opportunities in which they have existing investments and expertise and are able to achieve economies of scale.

 

Author
Anthony Monne
Transaction Senior Associate
Benchmark International

T: +27 (0) 21 300 2055
E: monne
@benchmarkintl.com

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How To Value A Business

When it comes to valuating a business, a major distinction is whether the company is privately or publicly held. For a publicly traded company, calculating the market value is somewhat simple: just multiply the stock price by its outstanding shares. For a private company, determining its worth is a much more complicated process because the stock is not listed and there is zero regulated public financial reporting. For these reasons, private company valuations must be based on a series of estimations, which can be well founded when done properly. There are several different approaches to calculating the market value of a private business. You can choose to one singular method, but using each method of assessment together can form a more complete picture.    

Comparable Company Analysis (CCA)

CCA is a common way to assess a private company’s value. Under this process, publicly traded companies that are most similar to the private company are identified. The similarities must reflect the companies’ sector, size, competitors, and growth rate.

Upon establishing an industry grouping of similar companies, their valuations are averaged to paint a picture of where the private firm fits among its peers. These averages are calculated on aspects such as cash flow, operating margins, and assets. CCA may also be referred to as trading multiples, peer group analysis, equity comps, or public market multiples.

Precedent Deals

If the business being valued operates within a sector that has witnessed several recent mergers, acquisitions, or IPOs, the financial information and value determinations from those transactions can be used to help calculate a valuation based on consolidated and averaged data. While useful, precedent transactions become dated as more time passes since they occurred.

 

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Enterprise Value (EV) Multiple

Also known as private equity valuation metrics, the enterprise value multiple tends to offer a more accurate valuation because it includes debt in the assessment. The EV multiple is calculated by taking the enterprise value (the sum of its market cap, value of debt, minority interest, preferred shares deducted from cash and cash equivalents) and dividing it by the company's earnings before interest taxes, depreciation, and amortization (EBIDTA).

Discounted Cash Flow (DCF)

The estimated discounted cash flow approach is a fairly detailed method of valuation. It compares the discounted cash flow of similar companies to the company being valued. The revenue growth of the company is estimated by averaging the revenue growth rates of similar companies. This process can be challenging depending on the business’s accounting methods. Personal expenses are sometime included in the financial statements of private companies, which can affect the estimation.

Once the revenue is estimated, any anticipated changes in operating costs, taxes and working capital are estimated, allowing for the calculation of free cash flow, or the operating cash remaining once capital expenditures are deducted. Investors often use free cash flow to determine how much money will be available to give back to shareholders in dividends.

Next, the peer grouping of companies are assessed to calculate their average beta (the market risk of a company without the impact of debt), taxes, and debt-to-equity ratios. In the end, the weighted average cost of capital (WACC) must be determined. This factors in the cost of equity using the Capital Asset Pricing Model, the cost of debt using the company’s credit history, capital structure, debt and equity weightings, and the cost of capital from the peer grouping of companies. Calculating capital structure can be challenging, but industry averages can help, keeping in mind that the costs of equity and debt for a private company will likely be higher than that of its publicly traded counterparts. The WACC furnishes the discount rate for the private company. By discounting its estimated cash flows, a fair value can be assigned.

Cost Approach

This method of analysis is less common within the corporate finance world. It assesses the actual costs of rebuilding the business, ignoring any value creation or cash flow generation. It is merely cost equals value.

Ability to Pay

Under this valuation approach, the maximum price a buyer can pay for a business while still reaching target is assessed. If the business will be ceasing operations, a liquidation value is estimated based on selling off the assets. This value is often highly discounted because it assumes the assets will be sold as quickly as possible.

Other Important Factors

While there are several financial methods of valuating a business, there are other somewhat intangible factors that should be considered. For example, the culture of the company is important because it motivates its underlying ethics and competitive strategy, creating an environment for less risk. Also, the company’s management is key, because their track records will say a great deal about the value they bring to the table and the level of confidence that they instill. Ultimately, they will have a deep understanding of the industry and have the skillset to foster and maintain a positive culture. Additionally, aspects such as innovative intellectual property, established branding that is well recognized in the market, retention of key talent, and strong customer and supplier relationships can drive up the value of a business.

Don’t Go It Alone

Due to a lack of transparency, the valuation of a private company is never an exact science, but there are advisory experts that have methodologies that do get it as close as possible. Our world-renowned M&A advisors are standing by, waiting to engage you in the process of taking your future to the next level. We are experts in helping to create added value for your business and getting the most value for it in a sale. Contact us to get this exciting process started.  

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Using Growth Capital To Grow Your Business

Every business owner wants to grow their company, but having access to capital to make it happen can make all the difference in the world. Growth capital is money that you borrow to help grow your business’s operations and, ideally, its profitability. There are many different forms of growth capital. It may be structured as a short- or long-term loan or as a line of credit. Long-term financing is the most common because it is easier to repay.

There are several reasons that growth capital can be secured by a business.

  • To purchase commercial real estate
  • To buy equipment to increase production
  • To increase workforce
  • To expand into new markets
  • To increase advertising and marketing efforts
  • To purchase another company

Growth capital is different from working capital because it is debt financing to create growth, while working capital is used for financing the daily operations of the business and keep it running. It is also different from equity capital, which requires relinquishing partial ownership and entering into a strategic partnership in exchange for investor funding. Growth capital does not require giving up any ownership.

 

Ready to explore your exit and growth options?

 

Types of Growth Capital Loans

There are several financing options for small to mid-size businesses seeking paths to growth.

  • Conventional growth capital from bank lenders. This method typically offers the lowest rates and fees, and longest terms. The average conventional business lender approves between 20 to 50 percent of all growth capital loans.
  • SBA financing with an enhancement guarantee by the Small Business Administration to cover your losses if you fail to repay. This financing is used for startups, acquisitions, expansion, construction, revolving funds, and working capital.
  • Asset-based growth capital that shows lenders collateral and substantial cash flow for approval. If you do not have adequate cash flow to get approved, you can use assets such as real estate, equipment, or inventory as collateral. These lending rates are often higher than that of banks, and the terms are shorter.
  • Alternative growth capital from private lenders, non-bank lenders, marketplace lenders and mid-prime alternative lenders have shorter terms but can be amortized over up to five years.
  • Cash advance capital is a short-term advance that involves selling a part of your business’s future receivables for a lump sum. This form of financing is usually more expensive, so the ability to increase revenue needs to justify the cost.

Applying for Growth Capital

When you apply for growth capital, lenders will assess the profitability of your company. They will want to ensure that your business model is proven, cash flow is adequate, and operations are efficient. After all, they want to feel confident that the loan can be repaid.

As defined by the National Venture Capital Association, growth equity investments feature the following attributes.

  • The business’s revenues are growing rapidly.
  • The company is cash flow positive, profitable, or approaching profitability.
  • The business is founder-owned and has no prior institutional investment.
  • The investor is agnostic about control and purchases minority ownership positions more often than not.
  • The industry investment mix is comparable to that of venture capital investors.
  • The capital is used for company needs or shareholder liquidity and additional financing rounds aren’t expected until exit.
  • The investments use zero or light leverage at purchase.
  • The returns are mainly a function of growth, not leverage.

How Can We Help?

At Benchmark International, we have an award-winning team of M&A advisors ready to help you take your business to the next level, whether it’s through a growth strategy, an exit plan, a merger, or an acquisition.   

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7 Small Changes That Will Make A Big Difference When You Sell Your Business

So you have started to think about selling your business in the near future.  Will you be ready?  There are changes that you can make now that can make a big difference when the time comes to sell and help you avoid leaving money on the table.  Begin by starting to plan 18-24 months before you begin looking for a buyer.  Take a look at your business through the eyes of a buyer and ask yourself ‘What would I see as a positive about this business?’  ‘What would I see as a weakness about this business?’.  We have included 7 small changes here for you to consider implementing:

  1. Understand your business’s financials. It goes without saying that buyers are going to be delving pretty deeply into your business’ finances.  If you aren’t able to provide statements that are professionally prepared, this can be seen as a risk to buyers.  If the buyer doesn’t feel that they can rely on the numbers, they most likely will either offer a lower purchase price or pull out of the transaction all together.  You should be prepared to answer all questions and have at least 3 years of financial statements in perfect shape.
  2. Take a look at your customer concentration. Do you have too much concentration placed on a single customer?  This can cause buyers to take pause and wonder what will happen if they lost that customer after the sale.  It’s best to begin to look for ways that you can grow your other customers as well as gain new ones in order to reduce the concentration issue.  Multiple sources of revenue can lead to a higher purchase price.
  3. Can your business survive without you? Many business owners become the main point of contact with customers as they grow their business over the years.  Now is a good time to begin shifting those relationships to other members of your team.  Otherwise buyers will have the concern that when you leave, clients may leave the company as well.  In addition, you should have designated employees that can continue to drive the business forward and increase revenues after you have exited the business.
  4. In the time leading up to placing your business for sale, be sure to resolve any legal disputes that may be pending. Nothing raised red flags more for a buyer than finding out there is a legal case pending against you.
  5. Closely analyze the business practices that you are currently using and if you decide that it’s necessary, implement more efficient operating procedures before the sale. This could include reducing or adding employees, or investments in new technology or equipment.  Taking these measures before a sale can result in a higher sell price.
  6. Create a master system of how you access, store, organize and update all of your systems. In most cases, this will be a collection of enterprise software or file folders with controls that have been put into place for who can access what.  This system should become a part of your employee culture and be used on a daily basis.  A prospective buyer will see that the knowledge needed to run your company does not lie with any one employee, but instead is contained in the systems of the company and can easily be maintained after a sale.
  7. Organize your legal paperwork and make sure that it is all in order and readily available as prospective buyers will request access to these documents. Review your permits, incorporation paper, leases, licensing agreements, vendor and customer contracts, etc.  Ensure that they are current and in order.

 

Ready to explore your exit and growth options?

 

Continue to keep your eye on the ball and run your business as if you are going to run it forever.  Benchmark International can be your partner throughout this process and help free up time for you to continue focus on running your business operations while selling at the same time.  With a team of specialists that arrange these types of deals every day, we can answer your questions and help you determine what is best for you, your business and your exit plan.  A simple phone call or email to us can start the process today.

 

Author
Amy Alonso 
Associate
Benchmark International

T: +1 615 924 8522
E: alonso@benchmarkintl.com

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Unexpected Upturn In The United States Economy

At 8:30 eastern time this morning, the US Bureau of Labor Statistics released its US Household Survey for May, stating that 2.5 million new jobs were created in the US during the month of May, and unemployment fell by 1.4%, even while the overall labor participation rate increased.

These results indicate a resilient economy in which unemployment fell not because workers stopped seeking work but because an increasing number of those seeking work were able to secure it while an increasing number of workers re-entered the job market.

According to the report, jobs increased by 2.5 million while the workforce itself increased by 2.2 million and unemployment fell to 13.3%. This was a wholly unexpected result that bodes well for middle market businesses. Bloomberg’s commentator stumbled over the result when reading it on air at 8:31 am EST this morning. “unemployment fell by … wait rose by … no fell by 1.4 percent.”

Such government numbers are often revised in the weeks following their release, and this may well happen to today’s figures. The government report is available here: https://www.bls.gov/news.release/empsit.nr0.htm

 

Author
Clinton Johnston
Managing Director
Benchmark International

T: +1 813 898 2350
E: Johnston@benchmarkintl.com

 

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As If Pronouncing EBITDA Wasn't Hard Enough, We Now Have EBITDAC

The novel Coronavirus's impact has been felt in companies large and small across the globe as business has been curtailed and economies have slowed.

In mid-April, Benchmark International published a blog article outlining some of the recommendations made to clients to record the pandemic's financial impact in order to readily identify any expenses or losses that arose as a consequence of this one-off event.

Whilst suggesting it would be naive to advocate that these non-recurring expenses, or losses, directly attributed to the effects of the COVID pandemic could simply be written out, it was evident that negotiations were bound to include provisions for such abnormalities.  The natural consequence of isolating these abnormalities would be that value could be preserved. However, one could expect deal structures to include deferred compensation - or earn out provisions - that will be triggered when the business demonstrates a return to prior performance and a resilience to the COVID impacts.

 

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Just a few short weeks later, a new acronym has emerged (as the financial sector always loves a good acronym) EBITDAC - the normalised Earnings calculated Before Interest, Tax, Depreciation, Amortisation, and Coronavirus.

At this early stage, this metric has only been adopted by a small number of European corporate companies to present a basis for the amount of debt they should be allowed to raise. Led initially by German manufacturer Schenk Process (owned by the US private equity firm Blackstone) and Chicago based building supplies firm Azek Corporation, the development certainly bodes well for M&A where corporate companies and private equity firms alike have formally recognised such adjustments and are thus likely to be open to negotiating value, subject to appropriate structuring of transactions.

Whilst not known for lightheartedness, it's an area where the industry has been able to poke a little fun at itself. Sabrina Fox, executive adviser at the European Leveraged Finance Association, commented on an item in the Financial Times, "It's a bit ironic to say we're adding back the effects of Coronavirus to deal with the effect of Coronavirus"!

Regardless of the diverse commentary surrounding this new metric, the reality exists. This one-off event has left a few companies untouched with certain sectors receiving significant boosts, and others impacted negatively. The factors attributable to the pandemic cannot be discarded or ignored, and diligent negotiation on issues related to it will be integral to any deal.

 

Author
Andre Bresler
Managing Partner
Benchmark International

T: +27 (0) 21 300 2055
E: Bresler@benchmarkintl.com

 

 

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Benchmark International Successfully Facilitated the Transaction Between Management Data, Inc. and Ridgeline Advisors

Ridgeline Advisors (“Ridgeline”), a Dallas-based private equity firm, is pleased to announce it has completed the recapitalization of insurance and annuity software developer Management Data, Inc. (“MDI”).

Founded in 1982, MDI has operated as a software developer and ASP provider to insurance and annuity companies. MDI serves its customers by customizing software needs and providing best in class service.

“We are pleased to partner with Pat and the MDI team, they have built an impressive organization that is well positioned to continue to serve its clients during this challenging operating environment. We are impressed with the MDI’s emphasis on technical expertise, product leadership and customer service,” said Worth Snyder, a Managing Director of Ridgeline. “MDI has developed a unique platform that creates a compelling customer value proposition, evidenced by its roster of blue-chip clients in the insurance category. We look forward to helping MDI continue to grow and enhance its product offering and value proposition,” commented Awais Shaikh, a Managing Director of Ridgeline.

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“After an intensive three-year search for the right successor, we have finally found an organization that shares our vision and commitment to total customer service and support for our employees. After 23 years of running MDI, I can transition control with the assurance that the legacy of our unique attitude of customer support and value for our clients will be carried on with the same commitment that I have had over these many years,” commented Pat Michael, President and CEO of MDI.

Tyrus O’Neill, Managing Partner with Benchmark International, added “We would like to congratulate Management Data and Pat Michael, as well as, Ridgeline Advisors on a successful deal. Everyone at Benchmark International was impressed by the professionalism of both parties throughout the entire process. Additionally, it’s fantastic to see continued deal activity despite everything taking place in the broader economy. We wish everyone involved nothing but the best moving forward and believe it’s the beginning of a great partnership for Ridgeline and Management Data.”

About Management Data, Inc.
Based in Pelham, Alabama, Management Data, Inc. (“MDI”), provides policy administration software and services and has supported insurance companies and banks offering insurance products since 1982. MDI is exclusively focused on the insurance segment, serving carriers who sell individual or group life, annuity, and health policies. MDI’s core system FIMMAS supports all product lines in a single implementation utilizing the synergy of cross product and client support for both Individual and Group products. FIMMAS supports complete end-to-end insurance functionality from a pre-sale quote through claims payments. FIMMAS is a robust and flexible policy administration system that helps insurers accelerate underwriting and claims to enhance the customer experience and support profitable growth. For additional information visit www.mgtdata.com.

About Ridgeline
Ridgeline is a Dallas-based investment firm that partners with seasoned management teams to invest in growing, profitable, privately-held companies across North America with a focus on four core industry sectors: technology, consumer, healthcare, and business solutions. The firm takes a selective approach to investing in high-potential businesses whose owners and management teams want an investment partner with the capital, experience, and record of successful collaboration required to achieve their liquidity and value-creation objectives.

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Benchmark International Is Honored To Support the TGH Foundation

Benchmark International received a thank you card from Tampa General Hospital (TGH), reminding us how important it is to support our neighbors and healthcare heroes during these unprecedented times.

On April 14th and 15th, our founders Steven Keane and Gregory Jackson purchased 400 pizza pies to feed the healthcare professionals at TGH. We wanted to give back to the community by supporting our favorite pizza place - Grimaldi's Pizzeria, while also feeding the healthcare professionals at TGH, who are selflessly working each day to help fight against COVID-19 and keep our community safe.

Benchmark International is honored to have supported Tampa General Hospital and their inspiring healthcare heroes.

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