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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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A Seller’s Guide to a Successful Mergers & Acquisitions Process

The Mergers and Acquisitions (M&A) process is exhausting. For most sellers, it’s a one-time experience like no other and a marathon business event. When done well, the process begins far in advance of the daunting “due diligence” phase and ends well beyond deal completion. This Seller’s guide summarizes key, and often overlooked, steps in a successful M&A process.

Phase I: Preparation – Tidy Up and Create Your Dream Team.

Of course, our own kids are the best and brightest, and bring us great pride and joy. Business owners tend to be just as proud of the company they’ve built, the success of their creation, and the uniqueness of their offering. Sometimes this can cloud an objective view of opportunities for improvement that will drive incremental value in a M&A transaction.

For starters, sellers must ensure that company financial statements are in order. Few things scare off buyers or devalue a business more than sloppy financials. A buyer’s Quality of Earnings review during due diligence is the wrong time to identify common issues such as inconsistent application of the matching principle, classifying costs as capital vs. expense, improper accrual accounting, or unsubstantiated entries. In addition, the ability to quickly produce detailed reports – income statement; balance sheet; supplier, customer, product, and service line details; aging reports; certificates and licenses; and cost details – will not only drive up buyer confidence and valuations, but also streamline the overall process.

Key in accomplishing the items above as well as a successful transaction is having the right team in place. Customarily, this doesn’t involve a seller’s internal team as much as his or her outside trusted advisors and subject matter experts. These include a great CFO or accountant, a sell-side M&A broker, a M&A attorney, and a tax and wealth manager. There are countless stories of disappointed sellers who regretted consummating a less-than-favorable transaction after “doing it on their own.” The fees paid to these outside subject matter experts is generally a small part of the overall transaction value and pays for itself in transaction efficiency and improved deal economics.

Phase II: On Market – Sell It!

At this stage, sellers that have enlisted the help of a good M&A broker have few concerns. The best M&A advisors are very hands on and will manage a robust process that includes the creation of world class marketing materials, outreach breadth and depth, access to effective buyers, client preparation, and ongoing education and updates. The seller’s focus is, well, selling! With their advisor’s guidance, a ready seller has prepared in advance for calls and site visits. This includes thinking through the tough questions from buyers, rehearsing their pitch, articulating simple and clear messages regarding the company’s unique value propositions, tailoring growth ideas to suit different types of buyers, and readying the property to be “shown.”

Most importantly, sellers need to ensure their business delivers excellent financial performance during this time, another certain make-or-break criterion for a strong valuation and deal completion. In fact, many purchase price values are tied directly to the company’s trailing 12-month (TTM) performance at or near the time of close. For a seller, it can feel like having two full time jobs, simultaneously managing record company results and the M&A process, which is precisely why sellers should have a quality M&A broker by their side. During the sale process, which usually takes at least several months, valuations are directly impacted, up or down, based on the company’s TTM performance. And, given that valuations are typically based on a multiple of earnings, each dollar change in company earnings can have a 5 or 10 dollar change in valuation. At a minimum, sellers should run their business in the “normal course”, as if they weren’t contemplating a sale. The best outcomes are achieved when company performance is strong and sellers sprint through the finish line.

Phase III: Due Diligence – Time Kills Deals!

Once an offer is received, successfully negotiated with the help of an advisor, and accepted, due diligence begins. While the bulk of the cost for this phase is borne by the buyer, the effort is equally shared by both sides. It’s best to think of this phase as a series of sprints and remember the all-important M&A adage, “time kills deals!” Time kills deals because it introduces risk: business performance risk, buyer financing, budget, or portfolio risk, market risk, customer demand and supplier performance risks, litigation risk, employee retention risk, and so on. Once an offer is received and both sides wish to consummate a transaction, it especially behooves the seller to speed through this process as quickly as possible and avoid becoming a statistic in failed M&A deals.

The first sprint involves populating a virtual data room with the requested data, reports, and files that a buyer needs in order to conduct due diligence. The data request can seem daunting and may include over 100 items. Preparation in the first phase will come in handy here, as will assistance from the seller’s support team. The M&A broker is especially key in supporting, managing, and prioritizing items for the data room – based on the buyer’s due diligence sequence – and keeping all parties aligned and on track.

The second sprint requires excellent responsiveness by the seller. As the buyer reviews data and conducts analysis, questions will arise. Immediately addressing these questions keeps the process on track and avoids raising concerns. This phase likely also includes site visits by the buyer and third parties for on-site financial and environmental reviews, and property appraisals. They should be scheduled and completed without delay.

The third and final due diligence sprint involves negotiating the final purchase contract and supporting schedules, exhibits, and agreements; also known as “turning documents.” The seller’s M&A attorney is key in this phase. This is not the time for a generalist attorney or one that specializes in litigation, patent law, family law, or corporate law, or happens to be a friend of the family. Skilled M&A attorneys, like medical specialists, specialize in successfully completing M&A transactions on behalf of their clients. Their familiarity with M&A contracts and supporting documents, market norms, and skill in selecting and negotiating the right deal points, is the best insurance for a seller seeking a clean transaction with lasting success.

Phase IV: Post Sale – You’ve Got One Shot.

Whether a seller’s passion post-sale is continuing to grow the business, retire, travel, support charity, or a combination of these, once again, preparation is key. Unfortunately, many sellers don’t think about wealth management soon enough. A wealth advisor can and should provide input throughout the M&A process. Up front, they can assist in determining valuations needed to achieve the seller’s long-term goals. When negotiating offers and during due diligence, they encourage deal structures that optimize the seller’s cash flow and tax position. And post-close, sellers will greatly benefit from wealth management strategies, cash flow optimization, wealth transfer, investment strategies, and strategic philanthropy. Proper planning for post-sale success must start early and it takes time; and, it’s critical to have the right team of experienced professionals in place.

The M&A process is complex, it usually has huge implications for a seller and his or her company and family, and most sellers will only experience it once in a lifetime. Preparing in advance, building and leveraging the expertise of a dream team, and acting with a sense of urgency throughout the process will minimize risk, maximize the probability of a successful M&A transaction, and contribute to the seller’s success and satisfaction long after the
deal closes.

Author:
Leo VanderSchuur
Transaction Director
Benchmark International

T:   +1 (813) 387 6044
E: VanderSchuur@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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Benchmark International is Set to Sponsor UK Mid-Market 2019 Private Equity Event

Posted on November 30, 2018 By in Mid-Market + Private Equity + networking + Real Deals

Benchmark International is pleased to announce that it will be returning as pre-eminent sponsors to the Real Deals Mid-Market event in February 2019 for the sixth year running.

The event is to take place at the America Square Conference Centre in London and is attended by the UK and Europe’s most influential private equity professionals, providing an opportunity to network with hundreds of dealmakers, drawing attention to the opportunities currently represented by Benchmark International.

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Benchmark International successfully facilitated the sale of Landtec Services, LLC., to RW Construction Services LLC DBA ERW Site Solutions (ERW)

Benchmark International has successfully facilitated the sale of Landtec Services, LLC., to RW Construction Services LLC DBA ERW Site Solutions (ERW). Landtec Services, LLC., is an Austin, Texas-based business that provides commercial landscaping services to the Central Texas market. It provides a turn-key solution that includes the installation of landscape, irrigation, hardscape and retaining walls, and property maintenance.

ERW Site Solutions (ERW) specializes in building retaining walls and providing job site services such as fine grading, hardscapes, monuments, job site cleanup, and slope protection & erosion control. ERW offers unmatched quality of service at prices other subcontractors can rarely beat while utilizing state of the art equipment and technology.

In reference to the transaction, Brandon Parish, Managing Member and Partner of Landtec Services LLC., explained his experience with Benchmark International, “I was recommended to Benchmark International by a fellow peer in the industry. He spoke highly of Benchmark’s team. My experience with Benchmark far surpassed any expectations. I truly felt like they understood what my goals were and they were relentless in their approach to get a deal done. Larry Quinn, Partner of Landtec Services, LLC., mentioned that “Benchmark International team knew from the beginning that we had unique goals; they carefully crafted a strategy that would allow Brandon and I to achieve them.”

Luis Vinals, Transaction Director at Benchmark International’s Austin office added, “Brandon and Larry were excellent to work with. Benchmark International’s Austin team enjoyed working with Brandon and Larry and found a deal that was ideal for them. This deal reflects Benchmark’s dynamic market position and negotiation prowess as both of our clients had naturally opposing goals. Brandon was looking for a transition and growth deal with a value added acquirer. On the other hand, Larry, wanted a shorter transition period for his eventual exit. The Austin team did a formidable job at negotiating a deal that would fit both of these objectives. From day one, our clients collaborated with us which paved the way for our proven model to forge a deal that would meet their needs.

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Benchmark International has Successfully Facilitated the Sale of Enroute Networks, Inc. to Dynamic Quest

Benchmark International, has successfully negotiated the sale of its client, Enroute Networks, Inc. (“Enroute”) to Dynamic Quest (“DQ”), a portfolio company of Spire Capital Partners (“Spire Capital”), a New York based private equity firm.

Founded in 2001 and based in Marietta, Georgia, Enroute is a leading information technology services provider managing the IT needs and security challenges of small to medium sized businesses. The company focuses on being a value-added reseller and cloud provider of computer networking, telephony, and systems solutions, as well as a fully capable IT managed service provider (MSP) of all solutions it implements. Today, the company employs over 15 people serving customers across the United States with a focus on the Southeast.

Headquartered in Greensboro, North Carolina, DQ is a managed service provider offering IT and cloud services to enterprises and businesses. Founded in 2000, DQ’s services include hosted cloud services, disaster recovery, managed IT, service plans, software maintenance and development, application support, virtual CIO and IT security services. In 2017, the Company serviced over 225 customers across a wide variety of market verticals. Dynamic Quest currently has 119 full time employees and satellite offices in Winston-Salem and Cary, North Carolina and Clark, Philippines. Spire Capital has supported DQ’s strategy of pursuing acquisitions to broaden its geographic reach and scale, while complementing its strong organic revenue growth. The acquisition of DQ marked the seventh platform investment in Spire Capital Partners III, and the strategic acquisition of Enroute represents an excellent addition to this.

Founder & CEO of Enroute, David Hampson, stated, “Benchmark International played an instrumental role in identifying an acquirer whose vision aligned with our own. The team brought multiple offers to the table, and created a competitive bid process among some of the top names in the industry. A big thanks to the Benchmark transaction team for the extraordinary effort in making this deal a reality.”

“It was a pleasure working with David (Hampson) from the early stages of his relationship with Benchmark through to closing. We received excellent feedback from the market early-on and were able to orchestrate a process that resulted in multiple offers and ended with an ideal acquirer sharing many of Enroute’s same core values,” said Trevor Talkie, Senior Associate at Benchmark International. “Enroute is a compelling addition to DQ under Spire Capital’s growing managed IT services platform, and we are truly honored to have worked alongside Mr. Hampson toward this successful outcome.”

Leo VanderSchuur, Director at Benchmark International added, “It was a pleasure to represent Enroute in this transaction, and we’re extremely pleased with the outcome. On behalf of Benchmark International, I’d like to wish both parties the best of luck moving forward.”

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Five Ways to Increase the Value of Your Business

You have a business with a strong bottom line and you are considering selling to realise its value. As a general rule of thumb, you used a five times multiple of earnings to work out a valuation for your company and are happy with the price you could command for your business. You put the company on the market but the prices offered are nowhere near what you expected – so what went wrong?

Companies that find themselves in this position are likely to be lacking in transferable business value. Transferable business value is a company with internal characteristics that will continue once the owner departs. Without this, no matter how strong the bottom line is, acquirers are likely to be unwilling to invest, or drive down the price paid for the company.

So, does your company have transferable business value? The below details five features that acquirers look for in a business which could increase its value.

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Take some chips off the Table with an Elevator Deal

Many business owners come to a point where they are ready to “take some chips off the table,” and continue to run their business on a day to day basis while cashing in on some of their hard-earned growth.  In these deals a business owner sells equity in the company while staying on and maintaining a salary.  These deals are known as elevator deals.  An elevator deal consists of a buyer taking a stake in the business for an agreed amount of cash while leaving day to day management to the current owner.

Perhaps your children have reached college age and you now have tuition bills coming in twice a year. Perhaps you’re not quite ready to retire, but would like to cash-in on some of your business’ current market value, and invest that money in your retirement fund.  Or, perhaps you’re simply ready to take some chips off the table while continuing to earn a salary.  In these cases, an elevator deal would be the right fit for you.

Elevator Deals include the owner selling part of their business in exchange for partial ownership. In this manner of exchange, the business owner(s) will maintain a minority equity stake in their company, while new ownership takes on the majority position.  These deals often include prior owners staying on, working on their business in a day-to-day capacity, while earning a salary, with a percentage of the business’ bottom line passing through to new ownership.  In some cases, owners are able to step outside of their prior managerial roles while maintaining a stake in the company and its profits. 

The goal for new investors is to grow the business and the value of their stake in the company. These owners may have the goal of a resale several years down the road, and growing your business and its place in your community, be it regional or national, just as you have done is their goal. In maintaining the high standard you have set for the quality of your products or services, equity investors are growing the value of their investment.

Many business owners worry about selling part or most of their company.  They worry that the buyer’s intent is to take as much cash out of the business as possible and leave prior owners, those people who built the business from scratch, with a company they love left in tatters.  Benchmark International will secure equity investors in your business are the right fit.  Ensuring that they intend to increase the value of your company while maintaining its true identity.

In engaging Benchmark International, our team will diligently craft marketing materials to accurately reflect your business to the market.  Once you approve of those marketing materials, our transaction team will take over and begin marketing your company to potential investors.  At this point, many business owners begin to feel as though they are pressured to sell to individuals who don’t understand the heart and values of their company.  Benchmark International will work tirelessly to ensure you never feel those emotions.  We will work for you until we find the right fit, in order to ensure that as you continue to manage your company you’re not hand-tied to investors who are simply concerned with how much they can take out of your business’ profits each year.

If you are interested in selling a portion of your business to help grow your company while maintaining a portion of your business, please reach out to us and let us help you take the
next step.

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Investment Banker of the Year Winner!

On November 06, 2018 Benchmark International professionals attended the 17th Annual M&A Advisor Awards in New York City and walked away winners. The award ceremony is part of a larger summit hosted by M&A Advisor that is dubbed ”the country’s premier gathering of professionals engaged in M&A, restructuring and financing.” Industry leaders, watchers, and influencers travel from around the world to participate in this renowned professional-development summit and to be recognized for their accomplishments.

Benchmark International is pleased to announce that its Managing Director, Kendall Stafford, has been awarded with the title of “Investment Banker of the Year.” Stafford was one of eight finalists for this award, and went up against other outstanding individuals in the M&A realm. Stafford is an exceptional leader on mergers and acquisitions transactions, and Benchmark International is elated to say she is a prime example to the philosophy that we leave no stone unturned.

“The award recipients represent the finest in the M&A industry in 2018 and earned these honors by standing out in a group of extremely impressive finalists,” expressed Roger Aguinaldo, Founder of The M&A Advisor. “From lower middle market to multi-billion dollar deals, we are recognizing the leading transactions, firms, and individuals that represent the highest levels of achievement.”

The recognition of the 17th Annual M&A Awards hosted by The M&A Advisor is additional support to the claim that Benchmark International truly strives to provide the best service to its clients. Benchmark International was also recognized earlier this year at the Emerging Leader Awards and the 10th Annual International M&A Awards, both also hosted by The M&A Advisor; the leader in M&A recognition globally. Benchmark International’s Transaction Director, Luis Vinals, was named an Emerging Leader, and Benchmark International won Regional Deal of the Year for North America for the acquisition of Gasco Affiliates, LLC by Tech Air, and also won Financials Deal of the Year for the acquisition of Silexx Financial Systems by the Chicago Board Options Exchange.

When it’s time to sell your business, you want a team on your side that will bring you the most value for your business in every facet. Benchmark International works with clients on every front, from emotional needs, to monetary needs, to cultural needs for business owners looking to exit their businesses. Call today to find out how Benchmark International can help you.

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Four Trends in the US Private Equity Industry You Should Know About

Posted on November 19, 2018 By in US M&A + Private Equity

There has been a surge in US private equity (PE) dealmaking throughout 2018 – 3,501 deals worth $508.8B closed, with the majority of transactions occurring in the third quarter. But what have been the trends in this industry and what has caused the increase in dealmaking?

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Benchmark International Successfully Facilitated the Acquisition of Columinate (Pty) Ltd. to InSites Consulting (Pty) Ltd.

Benchmark International is pleased to have successfully facilitated the acquisition of Columinate (Pty) Ltd to InSites Consulting (Pty) Ltd.

Columinate (Pty) Ltd (“Columinate”) is a highly awarded marketing research agency that provides quantifiable information to businesses in order to improve decision-making. The brand conducts its work exclusively through digital means – a methodology pioneered by Columinate in South Africa and where the business continues to be a proven leader in the space. The company employs a highly skilled team of over 40 research professionals and boasts a loyal and well-curated client base consisting of a diverse collection of both local and multinational customers.

InSites Consulting (Pty) Ltd (InSites) is recognised among the top 100 largest and top 10 most innovative market research agencies in the world. The agency helps global brands to make better and faster marketing decisions, combining smart digital technology with contemporary marketing methodology. InSites is now present on four continents with eight client service offices in Belgium, the Netherlands, the UK, the US, Germany, Romania, Australia and South Africa.

The transaction sets the groundwork for both businesses to leverage off each other’s mutually advantageous basket of services while instantly expanding InSites footprint and reach into South Africa and the broader African market.

Commenting on this, Andre Bresler of Benchmark International said: “This transaction evidences a defined trend whereby market leading businesses in all sectors have recognised the opportunities the African Market represents in the context of their own global clients and ability to service them internationally. Aside from the powerful synergies, the cultures of the two businesses are wholly aligned and we are equally delighted for Insites and Columinate both”.

On behalf of everyone at Benchmark International, we would like to wish both parties every success for the future.

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What Does the Draft Brexit Deal Mean for Business?

Posted on November 15, 2018 By in Brexit

Yesterday, Theresa May and her cabinet agreed to a draft agreement on Britain’s withdrawal from the European Union, and it is now pending approval from MPs and the other EU member states.

The agreement hasn’t come without its perils, with a series of resignations, but there are positives for business on the agreement so far.

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Tags: Brexit

Women in Power

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

“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 Business + US Election + US M&A + 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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Benchmark International has Successfully Facilitated the Acquisition of Mainplace Limited to Aquatronic Group Management PLC

Benchmark International is delighted to announce the sale of Southampton-based electromechanical engineer Mainplace, to Aquatronic Group Management (AGM).

Mainplace specialises in the distribution, installation and servicing of pumping equipment for a variety of clients operating in the commercial, industrial and retail sectors.

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Meet the Heroes Behind the Deals in the Latest Edition of The Mark

We have just released our latest edition of The Mark, a place where we share insights in the M&A industry and featured opportunities. 

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http://bit.ly/2PM4UT5 

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As we look back on activity in 2018, there have been upward trends in certain sectors for M&A activity, which have included healthcare and technology, which have, in turn, attracted interest from private equity firms. 

This issue also discusses the many decisions that arise for a seller in the M&A process, from the type of buyer to choose to when the optimum time is to sell, as well as the pitfalls that can occur in the M&A process and how these can be tackled or prevented. 

We hope you find this edition of The Mark insightful and informative, one day assisting you with decisions when selling your business, along with our friendly and helpful team at Benchmark International, who are here to help wherever you are in the world. 

Some Articles Included:

  • Looking to Buy a Business?  4
  • Top Mistakes to Avoid When Selling  6
  • The Winning Hit 10
  • When is the Right Time to Retire?  12
  • Five Ways to Value Your Business  16
  • If Business Valuation Was a Science  18
  • Why have interest rates been so low for so long?
          Why are they rising now? Why should you care?  22
  • Featured Opportunities  26
  • Meet the Heroes Behind the Deals  34
  • Preparing Your Business for Sale  36
  • How to Avoid Leaving Money on the Table When Selling Your Business 40
  • Why Now is the Time to Sell Your Company  50
  • Strategic vs Financial Buyers  58

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What Type of Company Should I Sell To? Five Types of Mergers and Acquisitions

If you are considering selling your business, then you are more than likely contemplating what type of company you want to buy your business.

As mergers and acquisitions are, broadly speaking, categorised into five different types of merger/acquisition, varying on whether the two companies are operating in the same markets or have the same products etc., this means that you have a choice of acquirer – you do not, necessarily, have to choose a buyer in the same industry doing the same thing.

Below details these five types of merger, along with benefits and disadvantages, and real examples from the industry.

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Benchmark International Successfully Facilitated the Acquisition of T.J. Baehr, Inc., D.B.A. Ground Hog Foundation Drilling to a Private Investor

Benchmark International has successfully facilitated the sale of T.J. Baehr, Inc., D.B.A. Ground Hog Foundation Drilling, to a private investor in Houston, Texas.

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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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What You Should Know About the 2018 Budget’s Effect on M&A

Posted on October 31, 2018 By in Entrepreneur + SME + UK M&A + 2018 Budget + Chancellor

Chancellor Philip Hammond this week announced the 2018 Budget, the last one before the UK leaves the EU. As negotiations continue over a Brexit deal, uncertainty surrounds the UK economy but Hammond appeared confident that a good deal will be secured and that austerity is coming to an end.

In the context of business, the Budget was largely positive – for example, rates for small businesses are to be cut, there will be a temporary increase in the annual investment allowance from £200,000 to £1m, and start-up loan funding is to be extended to 2021. As well, new enterprise allowance is to be extended for benefits claimants to help get their businesses off the ground.

Negatively affected by the budget are tech giants such as Google and Facebook with the announced introduction of a Digital Service Tax but, overall, the Budget is promising for SMEs and start-ups

But is the Budget equally pleasing for M&A?

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