What is Working Capital?                                                                                 

In the process of selling your business, it is important to understand working capital as you accept an LOI (Letter of Intent) and move into the due diligence stage. Buyers require the business that they are purchasing to leave a predetermined amount of working capital to continue running the business and cover the short-term obligations.

In simple terms, working capital is calculated by subtracting your company's current assets (excluding cash) from your current liabilities (excluding debt). However, the calculation can become more complex in practice. Typically, in the LOI, the buyer will outline how the working capital “peg” will be calculated. The “peg” is a benchmark amount of working capital that is agreed upon toward the end of due diligence by the buyer and seller. The buyer typically considers current assets to include items such as accounts receivable, inventory, and prepaid expenses as necessary to maintain the ongoing operations. Items such as lines of credit, short-term debt, and taxes are not included in this calculation.

How Does Working Capital Influence the M&A Process?

When buyers are reviewing your company for potential acquisition, they want to ensure liquidity once they take over. The minimum level of working capital is considered to be part of the valuation and accounted for in the price included in the LOI. It is important to note that most M&A transactions are set on a cash-free and debt-free basis, meaning the seller maintains cash in the business but is responsible for paying off bank debts.

The working capital analysis is typically part of the buyer’s diligence process, which will involve the analysis of balances at the account level. Some items under the accrued expense or accounts payable may not be operational in nature and therefore are excluded from the calculation. However, the buyer may determine that an item was improperly omitted from the balance sheet and they may adjust the balances. The primary reason for this analysis is to accurately determine what a true normalized level of working capital should be given the company's historical financials.

How Are Working Capital Targets Determined?

In most cases, the buyer will use a historical average, which is typically 12 months to calculate the appropriate target at closing. The reason is that the buyer will be basing their valuation on the revenue, EBITDA, and working capital needed to generate this income will need to be provided. As a seller, it is important to remember that your EBITDA will typically reflect account receivables as revenue and account payables as an expense. The 12-month period for working capital is used to average out potential fluctuations as this correlates to valuations, which are typically based on a multiple of the trailing 12-month EBITDA. Seasonality should also be considered in the calculation. For example, working capital could be much higher or lower depending on if the deal were completed during the peak season. In this case, the buyer would be required to pay more as the working capital would likely be much higher or lower than average. On the other hand, if the transaction were completed during the off-season, working capital would be reduced.

Adjustments During Diligence

As the seller, prior to the closing, you will deliver an estimate of working capital that you believe the business will have at closing. If this estimate exceeds the working capital target, you will receive an amount equal to the excess as an increase in the purchase price. However, if the estimate were less than the working capital target, the buyer would reduce the purchase price. After the closing, the buyer will perform their own calculation to determine the amount of working capital the acquired business had at closing. The purchase price would be further adjusted if the buyer’s calculation differs from the amount of the seller’s estimate. This process is typically referred to as a “true-up.”

Negotiating the Working Capital

During the true-up process, there is sometimes a dispute between the buyer and seller regarding the working capital calculation. From the seller’s point of view, they will argue that working capital should be calculated consistently with the methodology that was used to calculate the working capital target amount. This means that the seller is arguing that the purpose of the working capital adjustment is to compensate for deviations from the target working capital amount. For such changes to be calculated fairly, the closing amount of working capital must be calculated using the same methodology that was used in calculating the working capital target amount.

On the other hand, the buyer will sometimes argue that the purpose of the adjustment is to ensure that the business is delivered at closing with adequate working capital and that it should be made by calculating working capital in accordance with generally accepted accounting principles (GAAP). Both the buyer and seller viewpoints sometimes make their way into the purchase agreement regarding how working capital is to be calculated.

In the first half of 2021, medtech M&A deals already surpassed the total number of deals from last year, and this bustle in activity is forecast to continue through the second half of the year, as medtech companies have stockpiled billions of dollars in cash. The dollar value of deals in 2021 is also expected to far outpace that of 2020. Eleven megadeals were announced in H1, with a total deal value of around $128 billion.

Medtech M&A activity kicked off 2021 right out of the gate, with at least 10 deals announced in January alone. Companies emerged from 2020 flush with cash reserves and were ready to spend on dealmaking. The medtech sector recorded a total of 33 deals in the first half of 2021. That's up from 25 total in all of 2020. In fact, the first quarter of 2021 was the busiest for medtech M&A since 2016. While the initial rapid momentum may have slowed, the second half of 2021 should be abundant with new deals.

Benchmark International is pleased to announce the transaction between Just For You Personal Support Services (“JFYPSS”) and AccordCare, Inc. (“AccordCare”).

JFYPSS is a College Park, Georgia-based home care company that provides personal care, skilled nursing, respite care, and companionship services. Established in 1996 with the goal to provide personal care services allowing disabled and elderly persons the opportunity to achieve and maintain optimal levels of independence in the community. JFYPSS is AccordCare’s fifth transaction in 18 months.

AccordCare is a premier in-home personal care company providing services to people of all ages and levels of need. More than just personal care, it is specialized care custom-designed to meet a patient’s specific needs. They provide full-service private duty home care that is customized to patient’s needs, allowing them to stay in their home where they can feel the most comfortable. The company is based in Marietta, Georgia, and serves more than 1,300 clients daily.

Brandon Ballew, CEO of AccordCare, said in a press release, “Just for You has a great reputation and a commitment to providing excellent care to clients and driving an employee-first culture; it made them a natural fit for AccordCare.”

Senior Transaction Associate Sunny Yang Garten at Benchmark International added, “This acquisition represents a tremendous opportunity for both businesses and their teams. It was a pleasure to represent JFYPSS in this transaction. On behalf of Benchmark International, we wish both companies continued success.”

Benchmark International is pleased to announce the transaction between ARC Medical, Inc. based out of Tucker, GA and Typenex Medical out of Chicago, IL.

ARC Medical offers circuit filters for the anesthesia market and humidification for the respiratory, long-term acute care, and home care markets in the United States. Best known for its circuitGuard, ThermoFlo, and FilterFlo products, ARC Medical was founded in 1990 by Harold Norris.

Regarding the transaction, Mr. Norris stated, “The ARC Medical team is very excited about the future of circuitGuard, ThermoFlo, and FilterFlo. The Typenex partnership presents great opportunities for both companies, as well as the customers we serve.”

Acquirer Typenex Medical is a national provider of medical solutions to the healthcare industry. The company was founded in 2004 and has grown from a single product (Original Typenex Blood Band) company into a diversified firm offering an array of solutions across the healthcare industry.

The acquisition is backed by a private investment company, Chicago Venture Partners. Since 1998, the group and its affiliated entities have invested in over 200 portfolio companies.

Benchmark International's Senior Associate Jason Donker commented, “The combination of ARC’s unique product suite and Typenex’s vast reach and marketing capabilities will be truly powerful, and will hugely benefit both parties. It is always exciting to make such a highly synergistic marriage, and we are looking very forward to watching the combination grow moving forward.”

Benchmark International is pleased to announce the transaction between Essex-based law firm, Fisher Jones Greenwood (FJG), and private equity firm, Blixt Group.

FJG is a multi-award-winning firm of solicitors covering a broad spectrum of fields such as residential conveyancing, family law, probate, and immigration and asylum, as well as some niche specialisms. The company operates from four offices across Essex and one in London, employs 158 staff and has a £7.3m turnover.

Blixt is a private investment firm partnering with lower mid-market companies across Europe. Headquartered in London, the company targets businesses valued between €20m and €200m and has access to over €250m of committed institutional investor funding. Blixt is aiming to invest nationally in the legal sector with the goal of creating a national firm with a turnover of at least £100m in four to five years, and FJG is a springboard for these acquisitions.

Benchmark International’s new Tampa headquarters has been spotlighted by The Tampa Bay Business Journal’s 2021 feature called Workplaces Reimagined.

The series showcases how business offices in the Tampa Bay region have changed since the pandemic, focusing on new, innovative spaces in Hernando, Hillsborough, Manatee, Pasco, Pinellas, Polk, and Sarasota counties.

Workplaces Reimagined features one office per month in the weekly edition, and our fantastic new Tampa location in the MetWest building was covered by the publication on July 30, 2021. Our 15,000+ square-foot office was recognized for its welcoming atmosphere, sweeping views, unique décor, and ample amenities that enhance the workspace for our team.

It is just another example of how Benchmark International goes above and beyond to make sure our teams have everything they need to continue to be leaders and trailblazers in the community, and in our industry.

Selling a business comes with its share of challenges and concerns. Many business owners do not realize just how much time and energy is required to facilitate the sale of a company and are blindsided when they embark on the M&A process. The good news is that many of the pitfalls around selling can be avoided by learning from others' mistakes, like the 10 outlined below.

Benchmark International is pleased to announce the transaction between Millwork 360, LLC (“Millwork 360”) and The Marwin Company, a portfolio company of Validor Capital, a private investment firm.

Millwork 360, based in Tampa, FL, is a manufacturer of building products, including doors and custom moldings for residential and commercial projects. The company is proudly associated with Mastergrain Fiberglass Door Systems and exclusively distributes for the state of Florida.

For 70 years, Marwin has been a leading supplier of specialty access products for the single and multi-family new construction markets. Marwin’s line of attic stairways and specialty door products are offered exclusively through professional building products, and dealers provide exceptional value supported with superior customer service.

Senior Transaction Associate Sunny Yang Garten at Benchmark International added, “It was a pleasure to represent Millwork 360 in this transaction. There was a great strategic fit between Millwork 360 and The Marwin Company. Jamie and her team were extremely responsive during this process. This acquisition represented a tremendous opportunity for both businesses and their teams. On behalf of Benchmark International, we wish both companies continued success.”

Data released in a recent report by Pitchbook shows the unprecedented performance of U.S. Private Equity (PE) during the first half of 2021, continuing its intense pace for the third quarter in a row. PE firms closed on 3,708 deals worth a combined $456.6 billion. That’s almost two-thirds of the $711.6 billion deal value recorded in the entire year of 2020, and the two years prior.

Benchmark International is pleased to announce the transaction between design engineering consultancy, Qoda, and Efficient Building Solutions (EBS).

Established in 2011, Qoda is a highly experienced engineering consultant that brings a personal approach to the mechanical, electrical and sustainable areas of building design. The company, which has a 60-strong consultancy team and offices in Oxfordshire, London and Bristol, operates nationally across a variety of sectors including education, commercial, leisure and healthcare.

EBS aims to play a leading role in addressing the climate impact of the UK’s buildings and helping reduce fuel poverty by creating healthy energy efficient buildings. The group’s portfolio includes physics consultancy Enhabit, product supplier Green Building Store and an expanding renewable energy installation and service group, including Go Eco Renewables and Bright Green Renewables.

EBS is backed by Ansor, the UK’s leading business focused on establishing, acquiring and growing entrepreneurial SMEs.

As a result of the acquisition, EBS will benefit from Qoda’s considerable commercial track record and expertise which it will bring to the wider group, meaning that the combined companies can offer increased whole building design capability and capacity for clients.

There are various ways that companies can grow, such as through the institution of new services, the launch of new products, or the enlargement of their market. Yet, growth through acquisition can be a much quicker and easier way to create growth than via the expansion of sales efforts. If the acquisition is a growth option that you are interested in, there are various alternatives through which a deal can be financed, as acquisition financing is rarely secured through one source. Some of the more popular options are included here for your reference.

Cash Acquisition

Shares are usually exchanged for cash in an all-cash acquisition deal. Cash transactions usually happen in cases in which the company that is being acquired is smaller and has smaller cash reserves than the acquirer. In a cash transaction, the acquirer takes on the entire risk as to whether or not the expected value materializes.

Leveraged Buyout (LBO)

A leveraged buyout is the acquisition of a business using a significant amount of borrowed money to cover the cost of acquisition. The assets of the company being acquired as well as those of the acquiring company are frequently used as collateral for the loan. Under this option, there is a common ratio of 90% debt to 10% equity.

Mezzanine Debt

Mezzanine debt includes both equity and debt features. A mezzanine fund is a pool of capital that invests in mezzanine finance for acquisitions, growth, recapitalization or management/leveraged buyouts. Mezzanine financing is usually configured as preferred stock or subordinated and unsecured debt.

Seller Note

A seller note is when the seller agrees to accept a portion of the purchase price in a series of deferred payments. This is often used when the buyer does not have the entire purchase in cash and can only secure a commercial loan up to a percentage of the purchase price. Seller notes are generally unsecured and may be subordinated to other forms of debt. Because a seller note is riskier for the seller, it commands a higher interest rate. The use of a seller note can result in a higher purchase price for the seller but can speed up the closing process, as it is much simpler to negotiate these terms than with other forms of debt.

SBA 7(a) Loan

This Small Business Administration (SBA) loan is government-backed and offered by financial institutions such as banks and credit unions. While the SBA does not lend directly, it insures the loan in the event that a borrower defaults. The application process and paperwork can be quite drawn out because the lender is required to get approval from the SBA to back the loan. Typically, these loans will have better terms than traditional small business loans. The maximum amount allowed for a 7(a) loan is $5 million.

In all cases of sourcing capital for an acquisition, it is important how well the financing lines up with the goals of the deal, and what the plan is regarding the financing structure according to the circumstances of the deal.

What is Cryptocurrency?

It seems like everyone is talking about it, but what exactly is cryptocurrency, or crypto? It is a digital payment method that is exchanged online to pay for goods and services. Crypto uses blockchain, which is a highly secure, ledger technology that is spread between multiple computer systems that manage and record transactions. As of now, bitcoin (BTC) is the most popular digital token network, followed by ethereum (ETH). They are both decentralized, meaning that they are not issued or regulated by a central banking authority. In 2020, Bitcoin beat the investment returns of gold and the S&P 500.

Benchmark International is pleased to announce the transaction between London-based Meshh and Toronto-based Limelight Platforms.

Meshh was established in 2017 and operates with nine employees from offices in London, New York and Sydney. It is an award-winning location intelligence specialist that measures engagement and interaction in physical spaces to help clients learn how their customers behave in real-world environments.

Limelight Platforms is a SaaS platform that helps global brands deliver memorable consumer experiences and measure the impact of their experiential marketing.

The acquisition allows Limelight Platforms to grow its data insights division and to serve clients in Europe and beyond. Leadership from both organisations believe the partnership will accelerate organic portfolio growth with clients in the sports, retail, automotive, advertising, commercial property, and events and exhibitions industries.

Benchmark International is pleased to announce the transaction between Marietta, Georgia-based Design Environments, and Boston Trade Interior Solutions, with offices in Boston, Chicago, and San Francisco.

Design Environments is a nationally renowned interior design firm specializing in the interior architecture and merchandising of model homes, clubhouses, and amenity/sales facilities throughout the United States. The company was founded in 1991 by CEO Donna DeLuca, who has grown the firm into a national leader in delivering high-quality design services.

Regarding the transaction, Ms. DeLuca stated, “The whole Design Environments team is very excited about the opportunities this combination presents. We strongly believe that Boston Trade will make a great partner in our continued growth and expansion.”

Acquirer Boston Trade is a national leader in renovation, conversion, and new-build projects for the hotel and hospitality industry. The company’s focus on design-forward interior environments that exceed their clients’ economic, aesthetic, and functional requirements aligns perfectly with Design Environments’ long track record of service excellence to similar client sets.

The acquisition is backed by Blackford Capital of Grand Rapids, Michigan, a leading private equity firm in the lower middle market with over $650 million in transaction value and 35 acquisitions at the time of the Design Environments acquisition.

Boston Trade CEO Greg Kadens remarked, “We are thrilled to add such a prestigious and well-respected company to our portfolio. Design Environments is so well run that we can immediately focus on the opportunities created by combining it with our hotel interior design and procurement business. Donna’s leadership throughout the years has brought the company to this point, and we look forward to continuing to work with her as we strive to provide industry-leading services and solutions to our clients.”

This transaction reflects the power of Benchmark’s International’s proprietary “Fingerprint” process, which focuses on each client's unique value proposition when going to market. Regarding the Design Environments transaction, Benchmark International Transaction Director William Sullivan stated, “Our client’s goals and values were highly aligned with the buyer we sourced for them. From the leadership tier of the acquiring firm to the fund partners backing the deal, a shared vision was clear from the start. We are very proud of the role that Benchmark International played in the process.”

When financial buyers think of HVAC contractors, they see an industry ripe for consolidation. The trend of HVAC consolidation started a few years ago and has not slowed down.

Throughout the United States, there are thousands of independent HVAC contractors. Financial buyers, such as private equity, see the opportunity to consolidate the independent firms to create a regional or national presence. The market is roughly a $20 billion industry that is fairly recession proof, especially throughout warmer states, such as Texas and Florida.

Private equity seeks opportunities to expand businesses through acquisition and organic growth. Once they have a foothold in the industry, they can add related services, such as plumbing services, to the roll-up strategy.

HVAC consolidations tend to be in high demand in markets that have a need for the services. Some focus on new construction, while others focus on servicing existing units that can be viewed as a recurring revenue model. The competition in the local market is key when an acquirer is looking at an acquisition. Is the HVAC target company a big fish in a small pond, or vice versa? What is the growth potential within the market? Cities and towns that are growing tend to be more attractive.

Additionally, HVAC contractors might specialize in commercial or residential services. Depending on the roll-up strategy, the acquirers might have different goals on what they are looking for in the consolidation.

The consolidation allows for a larger firm to take advantage of perks that a smaller firm might not have access to due to size or cost prohibition. For example, the roll-up might be able to build out software and accounting systems to help increase the efficiencies of the company or recruit top executives to add a level of professionalism to the company.

Having this type of option within the market allows for the seller to have options about their company’s next phase. Having a larger, growing firm complete the acquisition allows the seller and the company’s employees opportunities that the selling firm could not achieve on its own. The seller may stay on post-closing in a different capacity or retire and allow employees to step into the management role. In any case, mergers and acquisitions can be an ideal solution for companies in the HVAC sector.

Selling your business is a paramount moment in your life. It’s something you absolutely want to get right so that you can extract the most value out of the deal—and so that you are protected from being swindled by a savvy buyer. It also takes a great deal of time and energy to sell a company, which can be rather difficult to spare when you are trying to focus on running a business. Most people simply do not have this time, energy, connections, or expertise that is required to put their company on the market. This is where the importance of an experienced M&A advisor comes in. By partnering with an M&A expert, they handle all the details of a deal, including due diligence, negotiations, marketing, vetting, and ensuring that you get the most value for your business. They also know how to navigate bumps in the process, and manage the expectations of all parties involved.

Benchmark International is pleased to announce the transaction between Londonderry, VT-based Jamaica Cottage Shop (JCS) and WHS Homes of Claremont, NH.

Jamaica Cottage Shop has been in operation since 1995 and is a builder of sheds and small homes. WHS Homes, which builds an array of home types under multiple brands, adds a key piece to its diversified set of homebuilding options through the acquisition of Jamaica’s smaller-signature capabilities.

“With the current demand coming out of the pandemic, the company is in a very good place, so it was very strategic to pull the trigger in 2021,” said JCS founder Domenic Mangano.

At the time of the closing, JCS was producing 2,000 buildings a year - most of which are used as cabins, cottages, and storage. In addition, the company sells kits and fully assembled homes and structures. JCS experienced buoyed results due to home purchasing dynamics fueled by Covid-19 during 2020 and 2021 and sought a strategic partnership to grow off a strong basis.

JCS staff and current leadership will continue to play key roles post-integration, helping to drive the company’s growth under a new set of opportunities moving forward.

“JCS is a key segment operator in a market that has experienced a significant boom during the last year and a half,” according to Benchmark International’s Transaction Director William Sullivan. “We knew now was the time to make this great match in a growing niche market. We believe that both the buyer and seller will benefit tremendously from this combination, and we’re very pleased to have played a key role in that process.”

Benchmark International is pleased to announce that County Antrim ventilation systems installer, RGM Vent, has secured a substantial investment from private equity firm, Foresight.

The funding is a co-investment between the Foresight Scottish Growth Fund and the Northern Ireland Opportunities Fund II, also managed by Foresight.

RGM Vent was established in 2010 and offers bespoke ductwork design and installation services to a broad customer base across the UK and Ireland, with the company completing work of prominent infrastructure developments including WuXi Pharmaceutical (Dundalk), University of Ulster (Belfast), Hampton by Hilton (Edinburgh) and Longwater Office Development (Reading). The company has experienced a significant period of growth over the last five years and now employs 75 staff.

Part of the company’s growth has seen it purchase Advanced Ventilation Systems, which focuses on the smoke, heat and exhaust ventilation market, and NSK Sheet Metal, which specialises in fabrication and manufacturing of ductwork.

Foresight is an award-winning listed infrastructure and private equity investment manager which has been managing investment funds on behalf of institutions and retail clients for more than 35 years. Foresight’s private equity team, comprising over 30 investment professionals, manages c£700 million in a portfolio of more than 100 companies.

Leveraging Foresight’s support, RGM Vent is now well primed to implement its growth strategy across the UK and Ireland.

Benchmark International proudly announces that our Managing Partner Kendall Stafford, from our Texas office, has been named Best Mid-Market Financial Services Business Leader 2021 by the 2021 Influential Businesswoman Awards, hosted by Acquisition International.

The winners' selection is made using careful analysis of the panel's final shortlist, as well as anything else that their internal research team learned while doing their online and public due diligence. In addition, the nominee must demonstrate a high level of excellence and work ethic within their chosen field, with their dedication to innovation, commitment, and business development taken into account.

The awards are based solely on merit and not the number of votes that a nominee receives or their financial stature, offering a level playing field for individuals to showcase their talents and achievements.

The Benchmark International team congratulates Kendall on this well-earned commendation, as this isn't the first time she has been recognized as one of the best in the business. "This award confirms everything that we already know about Kendall—that she is a true leader with a unique vision that helps to keep our firm on our trajectory of success and innovation," said Global CEO Gregory Jackson.

Benchmark International is pleased to announce that our chairman Steven Keane has been named Best International Chairman of the Year by the 2021 Global 100, which is comprised of the world’s leading firms and individuals with votes from global readers in more than 163 countries.

The purpose of the Global 100 is to provide its readers with a complete picture of the world’s true global leaders within their areas of specialty. The unique process follows a very strict format of self-submission and third-party nomination, with the winners then shortlisted based on a highly comprehensive set of criteria. The judging process assesses:

• The strategic nature of work conducted
• The complexity of work conducted
• The scale of work conducted
• Whether it was done in a timely manner and within budget
• Any groundbreaking or innovative processes used

In their own words, the Global 100 provides “a benchmark of the very best of the best industry leaders, exemplary teams, and distinguished organizations.”

Our team proudly congratulates Steven Keane on earning such esteemed recognition, which is well deserved. Global CEO Gregory Jackson said, “With Steven’s outstanding leadership, Benchmark International is strongly positioned to continue to thrive and reach new milestones. This acknowledgment is further validation of how our dedication to being the very best in the business is a philosophy that permeates all levels of our team from the top down.”

Benchmark International is pleased to announce the transaction between Shropshire-based CompCare and London-based Rubix.

Established in 2007, CompCare specialises in outsourced air, as well as oil free and large compressed air systems. The company is a market leader in variable speed drive conversions or retrofits, heat recovery packages, and multi station control systems. Its focus is on extending the life and improving the efficiency of compressed air systems so that customers generate full value from their assets.

Rubix is Europe’s largest supplier of industrial maintenance, repair and overhaul products and services. The company has over 750 locations across 22 countries and had a turnover of €2.4 billion in 2020.

The acquisition enables Rubix to provide greater and enhanced access to technical services related to compressed air in the UK. It also supports the group’s ongoing drive to remain the leading multi-specialist supplier of industrial products and services.

It is quite common in privately-held businesses for one or more of the owners of the client company to also own the real estate that the company occupies. That real estate may be in the name of the owner individually, or in name of another company (LLC, partnership, or corporation). In nearly every instance where the owner of the real estate is not an individual, such owner will be a pass-through entity (i.e., a subchapter S corporation, a partnership, or a trust). The company will lease the real property from the related party and recognize rent expense on the income statement. There may or may not be a formal, documented lease.  Generally, these leases are triple net, meaning the tenant company pays all the maintenance costs, the insurance, and the taxes for the property. 

There are several advantages for owners to hold their real estate outside of their operating business.

•  It provides an avenue for additional income to flow to the owner without the necessity of paying payroll taxes.
•  If the owners have other real estate holdings, they can use excessive rents to generate passive income to offset passive losses from other holdings.
•  It allows the owners to separate the operating activities of their business from the real estate holdings in the event of a sale. 

For business valuation purposes, we need to consider the effect of these related party leases that were not negotiated at arm's length. The lease rate may be more or less than the market. If the business is struggling, the lease may be below market. If the business is performing well, the rent will be above the market. For calculating an adjusted EBITDA, we should calculate an adjustment based on the difference between market rates and the related party lease rate. If the lease rate is below market, we have a deduction from book EBITDA. Conversely, if the lease is above market, we have an addition to book EBITDA. 

In calculating the adjustment, it is necessary to make a determination of what the market rent would be. In doing so, we must look at comparable properties in the area around the client’s property and find what the going lease rates are. LoopNet.com provides a relatively good comparison of properties that are on the market with asking prices. It is important to understand the characteristics of the building that the client is occupying and if there are any special use considerations. For example, a prospective client operates a precision CNC machine shop in Southern California in a 22,000 square foot building in an industrial area with a zoning of light industrial. They have about 16,900 square feet of outside space for parking and storage. Since they are operating CNC and heat-treating equipment, they need at least 1,000 amps of 3 phase power coming into the building. A comparable building, then, has these characteristics.  Comparing this property to Class A office space is not a good comparison.

Note: Some special purpose buildings can have characteristics that are hard to match in the market. In that case, we must estimate the additional costs associated with what makes the building unique. 

Pictured is a Loopnet.com example of a property search in Gardena, CA for industrial properties to lease in the 15,000 to 25,000 square foot range under $15 per foot. It indicates that there are several parcels that are comparable.

To continue the example, the prospective client company leases the real estate from a separate entity owned 100% by the sole shareholder for $60,650 per month. The asking price for comparable properties in the area is approximately $12.50 per foot. As such, the market rent for a 22,000 square foot facility would be $275,000 per year. In looking further at just land, the lease rate is about $7.20 per foot or another $123,708 per year. The total annual market rent for this site would be $398,708 compared to the actual lease rate of $602,461. In this case, we have a positive adjustment to book EBITDA of $203,753 per year.

Since the company in this example is paying the actual costs of the insurance and taxes, there is no need to make an adjustment for that. However, if the company is a tenant in a multi-tenant building owned by the same owner of the company, the comparison of the rent is the same, but there is a potential for the business to be paying all the taxes, insurance, and maintenance for the property, which would require additional adjustments.

Growth through acquisition is an excellent way to enhance and complement the growth trajectory of your business. But bringing companies together is about more than just increasing market share and profits. There are employees involved that can feel a range of emotions from excitement to anger to anxiousness about their future. Important decisions must be made when you are integrating people and teams. After all, while the project of closing the deal has come to an end, the process of operating, integrating and onboarding the business is just beginning for the buyer. Now is the time for the buyer to deliver on the intended results of the acquisition, and there are some important tips to keep in mind.

First, it’s always a smart idea to begin integration before the deal is formally announced. While due diligence will provide you with pertinent information about contracts, finances, customers, etc., the post-merger integration involves choices that should be made before a deal is closed. Managing and clearly defining post-merger integration is one of the most important factors to the transaction in the long run, as this will determine whether the deal will be a failure or a success. The planning should start months before the closing is even announced, and a team should be put in place to handle the intricacies of integrating the companies.

Each M&A deal is different due to unique challenges, business needs, and cultural benefits. In order to handle all of these differences, it is best for companies to institute a set of success factors that will pilot the post-merger integration. There are common success factors that mark most M&A deals that include retention, maintaining customer focus, ensuring stability, integrating cultures, employee communication, mission-critical systems, and aligning strategy and processes. How these points are addressed can define the deal’s success.

When putting together the Integration Team, it is essential to choose highly motivated and proficient employees from both companies. Working on this team will require an immense amount of effort from the acquired business, resulting in an extremely large workload. Keep a close eye on this team and watch for signs of fatigue in order to minimize the risk of losing key talent. Identifying future roles for these team members in advance is a good idea. It is not uncommon for integration to fail because no future plan was put in place for the employees that were selected for the team.

The integration structure should be divided into serviceable categories such as Service, Legal, Finance, Manufacturing, Human Resources, Information, and Technology. The specialists assigned to each area should be tasked with defining and performing tasks that are within their area of expertise. The integration plan must be clear and accountability must be set for each task, along with specific timelines in order to be successful. This will help to ensure that the integration runs in a clear, well-ordered manner. Certain cross-functional categories will need input from multi-disciplinary teams in order to capture positive results.

Finally, the more the integration team overlaps with the due diligence team, the higher the chances are for open lines of communication, collaboration, and faster synergy realization. Making changes to a newly acquired business will require attention to detail, focus, and exemplary organization. While an effective post-merger integration will not guarantee the business’s success, a properly developed plan absolutely enhances the probability of a successful merger of the two companies.

ERW Site Solutions (an RW Assets, Inc. company) announced the acquisition of Ratliff Hardscape, LTD.

Ratliff Hardscape is a well-established hardscape construction company with a long-standing history of providing various services for civil and hardscape projects. These projects include single-family, multi-family, commercial, municipal, state, and oil & gas projects. Their turn-key solutions include budget and time management, self-performed concrete and masonry, construction management, and quality assurance.

Booder McWhorter will continue operating Ratliff Hardscape as Chief Operating Officer and President along with the entire Ratliff team to continue to provide quality services to their customers.

RW Assets, Inc is an infrastructure construction holding company. It owns ERW Site Solutions, a retaining wall and site service company; LandTec, a landscape, and irrigation company; and DesignBuild Consulting Services, an engineering firm.

Randy O’Neal, Chief Operating Office of RW Assets, commented in the company’s press release, “This acquisition will further RW Assets’ market penetration from retaining walls, landscape and irrigation, engineering services and site services, into hardscape solutions such as screen walls, monuments, concrete solutions, such as sidewalks, patios, and other flat works. With the addition of Ratliff Hardscape, this aggregation will strengthen the brands of ERW Site Solutions, LandTec, and DesignBuild Consulting Services through the synergism created across the various product lines that are offered to our customers. Ultimately, we are now able to offer an array of products with an increased scope to better deliver our customers’ projects on time and on budget. The management team RWA has built over the last 5 years includes one hundred years of experience doing subcontracting and general contracting work across Texas and Southeastern United States.”

Kendall Stafford, Managing Partner at Benchmark International commented, “We are excited for ERW Site Solutions’ acquisition of Ratliff Hardscape. It appeared that the two companies share similar views in their visions and philosophies. We look forward to what the future has in store for the entities and wish them the best of luck with integration.”

Benchmark International is pleased to announce the acquisition of London-based Firebox by Austrian-based MH Direkt.

Established in 1998, Firebox.com is an online retailer of unusual gifts, games, gadgets, and food & drink goods. Launched on the back of its incredibly successful invention; the ‘shot glass chess set’, Firebox was one of the first UK e-commerce success stories.

MH Direkt is a one-stop provider for the e-commerce sector and works with a number of online retailers. It owns European gift sites Radbag, Troppotogo and CadeauxFolies.

The acquisition of Firebox is an important milestone in the growth strategy of MH Direkt as it looks to develop in the UK, with Firebox providing the opportunity to build up local warehouse and fulfilment capabilities. 

Post-acquisition, both shops will operate separately, but work closely together in terms of marketing and product development.

Benchmark International is pleased to announce the transaction between Cambridgeshire-based Aprenda and Leicestershire-based BRUSH.

Aprenda is a high voltage electrical apparatus engineer, specialising in the installation and refurbishment of substations for blue-chip clients throughout the UK. Projects include turnkey design & build projects, preventative maintenance, equipment upgrades and new substation installations.

Founded in 1889, BRUSH is the leading independent provider of equipment, services and solutions for electrical power generation and distribution and is the world's largest independent manufacturer of generators above 20MVA. BRUSH's products are used across a wide range of end markets, including utilities, industrial, maritime, rail, data centres and renewable applications.

The acquisition of Aprenda will provide BRUSH with a leading design engineering platform focused on UK power distribution network projects.

Benchmark International is pleased to announce the transaction between Retreat Homes and Lodges (‘Retreat’) and ABI (UK) (‘ABI’).

Established in 2004, Retreat manufactures timber-framed bespoke lodges from its manufacturing base on the edge of the Lake District. The company predominantly provides to the UK lodge and caravan park industry, as well as to private clients, schools, golf courses, and country houses and estates.

ABI is a premium caravan and luxury lodge manufacturer, building hand-crafted holiday homes for over 40 years from its factory in Beverley, East Yorkshire, supporting many of the UK’s most well-known holiday resorts. The acquisition allows the company to enter a new market by adding Retreat’s bespoke manufacturing capability to its repertoire.

For Retreat, joining ABI will provide the support and investment to allow the team, led by managing director Alan Rooke, to continue the development of the business, which has become synonymous with luxury bespoke lodges.

Benchmark International is pleased to announce the simultaneous acquisitions of PBSL Group and Securi-Flex by an MBI candidate, backed by private equity firm, Chiltern Capital.

Benchmark International facilitated the transaction of The Fox Consulting Group, Inc to SIB Fixed Cost Reduction.

The last time we saw leveraged buyouts (LBOs) occur with such frenzied speed and spending, it was during the years of 2006 and 2007, right before the financial crisis of 2008. As we recover from the COVID-19 pandemic, interest rates remain low, and many business owners forced into survival mode are seeking exit opportunities. Plus, private equity firms are more than ready to spend the record levels of cash on which they have been sitting for quite some time.

The lower middle market encompasses some of the most diverse selection of companies available to buyers, from “Mom & Pop” service shops to highly innovative technology firms paving the way for disruptive change at the highest levels. For this reason, lower middle-market companies have been the backbone of the U.S. economy from the very beginning—and remain so to this day. The value that these companies bring does not go unnoticed by the broader market, making this segment a high-activity space for engaged buyers and sellers. And motivated buyers are adept at spotting value, providing opportunities for well-informed sellers to maximize value on their exit.

Many companies at this end of the market operate in highly fragmented industries. From HVAC equipment providers and servicers to pool maintenance and other small businesses, you can see this fragmentation simply by driving around any local geography. When an industry is highly fragmented—and also highly profitable—it creates a “sweet spot” for both strategic and financial buyers. Private equity strategies, for example, will often follow a formula of buying a larger “platform company” then searching the lower middle market for smaller “bolt-on” acquisitions to grow the company from there. The strategy is often referred to as a “roll-up.” If done correctly, it can bring large returns for both the acquired company and the buyer. Strategic buyers (firms already operating in the same industry as the acquisition target) often regard M&A in this end of the market as a better way to grow market share versus slow and costly organic expansion.

Business owners and managers in the lower middle market are often looking to exit for retirement purposes. This reality can be advantageous for both buyers and sellers. Oftentimes, there is no succession plan in place heading into the retirement/exit decision and process. Many small businesses do not have a large chain of top executives that make a transition easy, and handing the business over to their children is often not a realistic option either. In other circumstances, the notion of selling the business comes up suddenly as a response to situations like health problems or other personal “black swan” events. In all circumstances, the right buyer—be they financial (private equity) or strategic—presents lucrative solutions that provide for the off-ramp and transition that ownership is seeking.

As such, there has been a large increase in demand for companies at this end of the market, as well as a corresponding awakening of ownership to recognize and test the benefits of a sale process. Investors are sitting on an ever-growing pool of capital that they are looking to deploy, seeking returns they cannot get elsewhere. The lower middle market allows investors of all stripes to purchase assets with relatively low debt (and, therefore, risk) compared to much larger companies. Additionally, the COVID-19 pandemic impact cannot be ignored when selling your business. COVID has hurt and even crippled a lot of businesses at the smaller end of the market. It also put an elongated pause in the mergers and acquisitions process. These two factors have led to pumped-up demand and lower supply, driving to significant increases in activity and deal volumes as the economy begins to pick up again.

When the time comes, business owners need to be ready to act quickly on sale opportunities. There are a lot of factors that go into selling your business. There will be different types of individuals and entities that come through to inquire about the potential acquisition of your company. While it might be tempting to jump at the first offer that comes, it is better to get a sound understanding of the wider market, and where the highest synergies/motivations (and therefore, the best valuations) can be found. There are always more opportunities to transact than one might think, and there are potential buyers out there for any type of company. The process of finding the right buyer always takes some “travel time”—with some speed bumps along the way—but a sound process that is run correctly can bring windfalls that will certainly justify the effort.

Benchmark International is pleased to announce that their client, a vehicle patrol security company in select neighborhoods to both residential and commercial properties on the West Coast, sold to Patrol Protect Secure, Inc (PPS).

• The acquisition was PPS’s fourth investment in the U.S. security industry. The value of this addition to PPS includes:
• Partnering with a long-tenured, energetic management team will be a force multiplier for the PPS team.
• Expanding the geographic footprint to include the West Coast market.
• The company’s vehicle patrol services are staffed by off-duty law enforcement officers, a segment of the security market where we have had much success, driven by market demand and the desire to staff armed functions with highly-trained law enforcement officers.
• The partnership provided ongoing leadership roles and opportunities for its management team while allowing one of the leaders to take a step back and transition into a part-time role, consistent with his goals.

PPS is backed by Sunlake Capital LLC and Mangrove Equity Partners. Despite challenges presented by COVID-19, Mangrove and Sunlake Capital worked closely with this add-on and Benchmark International’s transaction team to close the transaction with a straightforward structure.

Sunlake Capital LLC is a private investment firm focused on flexible, long-term investments in family and entrepreneur-owned companies with a sustainable competitive advantage. With diverse capital relationships, Sunlake is able to devote its resources to the operations and strategy of its portfolio of businesses. The firm further differentiates itself through its long-term investment style, unique management partnership approach, and focus on industries and situations often under-served by the private equity community.

Mangrove Equity Partners is a private equity fund in the lower middle market that leverages its extensive experience creating solutions and getting deals done. Mangrove’s four-person internal operating team allows them to work through the complexity and help the owner/operators build enduring value. Mangrove has completed 140+ deals in 60+ industries.

Kendall Stafford, Benchmark International Managing Partner, commented, “We are very excited for our client and the team at PPS, Sunlake Capital, and Mangrove Equity. Based on our client’s goals and the buyer’s position in the market, our team anticipated that there could be a strong fit between the various companies. We discussed the acquisition with the acquirers before going back. Once we went to market and our client had additional options for potential acquirers, it was clear that the cultural fit between the parties and the deal being offered was a great solution for our client.”

KAMIC Group AB has acquired all the shares in Talema Group LLC (“Talema”). Talema is a leading manufacturer of magnetic components such as transformers, toroids, inductors, and chokes with associated design work. The majority of components are developed specifically for bespoke customer applications, but standard components are also offered. The company’s customers are across a broad spectrum of sectors where the most important include logistics and warehousing, freight and transport, audio, and renewable energy.

Talema was founded in 1975 and has its registered office in the USA, but operational management is based at the head office in Donegal in northwest Ireland. The company has its own production facilities in the Czech Republic and India. Sales are conducted through own sales offices in the USA, Germany, Czech, India, and Ireland as well as a global network of agents and distributors. Talema has approximately 750 employees and annual sales of about EUR 12 million.

Former part-owner and President of Talema, Madison “Mac” Daily, commented, “We were a very unique family-run company: five companies in five countries on three continents. We had a potential buyer but needed expertise and guidance through the process of executing the sale. Tyrus O’Neill of Benchmark International provided the methodology, experience, and support needed to guide us successfully to completion. Without Tyrus’ assistance, I cannot imagine how we could have possibly finished the sale in such a strong position.”

KAMIC Group (www.kamicgroup.com) is a corporate group consisting of 40 companies active in both trade and manufacturing. KAMIC’s common aim is to be a leading supplier of technical products and services in several well-defined product and market niches. The Group has approximately 900 employees in 13 countries in Northern Europe, Asia, and North America and annual sales of approximately SEK 2.2 billion. Their customers are found mainly in the manufacturing industry but also among electrical installers and construction companies.

“Talema is a highly respected global player with strong skills in the design, development and production of magnetic components. They have experienced and powerful management, and the company’s customer base and geographic presence provide an ideal complement to our existing business in this area. Talema, therefore, is ideally placed to be a valuable addition to our corporate group,” says Fredrik Celsing, President and CEO of KAMIC Group.

Tyrus O’Neill, Managing Partner of Benchmark International, added, “We would like to congratulate and thank Mac, Fredrik, and everyone involved in this deal on a successful acquisition. There are numerous complexities to cross-border transactions, which would not have been possible without everyone working together. The synergies for the two organizations are apparent, and we are confident this will be a successful endeavor for everyone involved. Congratulations again, and we wish all parties the best moving forward.”

Benchmark International is pleased to announce the transaction between Winchester-based Vita Play and Bedfordshire-based Beds Construction.

Established in 2009, Vita Play provides turnkey solutions for children’s outdoor play spaces and environments, including fencing and street furniture, as well as specialist safety surfacing. Undertaking all work in-house, the company provides a complete service from design through to installation and maintenance. Operating from purpose-built facilities, the company primarily serve local authorities, schools, and private domestic clients across Hampshire and the surrounding counties.

Private equity backed Beds Construction is an established business in the construction sector. It seeks to pursue synergistic bolt-on opportunities with well-established companies that have a turnover between £1m and £15m, a strong balance sheet and a long operating history.

Benchmark International is pleased to announce that Oxfordshire-based Safety Services has been acquired by Nottingham-based Phenna Group.

Safety Services is a professional consultancy offering a comprehensive range of health & safety solutions including site inspections, incident investigations, training courses, documentation & policies support, safety equipment, and general consultancy services to the construction, retail, and manufacturing sectors. The company has developed a trademarked cloud-based system which produces electronic reports to streamline administrative processes and increase accessibility to key information.

Established in 2018, Phenna provides investment and strategic leadership to companies in the testing, inspection, certification, and compliance (TICC) sector. Its aim is to build a global portfolio of independent TICC businesses.

Safety Services is the group’s seventh acquisition in 2021 and the first in the UK focused on HSE services. The Safety Services transaction comes just after Phenna Group’s acquisition of Ecology Solutions, a transaction also conducted via Benchmark International. Phenna has also previously worked with Benchmark International on the acquisitions of GMES and Facit Testing.

Mike Fitchett, Founder of Safety Services commented: “I am very pleased to partner with Phenna Group. As I plan to step back from my managerial responsibilities, it was important for me to secure an experienced and ambitious partner to work with Jon Austin, who will lead the team as Managing Director. From my first engagement with Paul and his team, they have been professional and trustworthy. That has given me great confidence that the business is in capable hands and I look forward to the next phase of our expansion, working in close collaboration with the Phenna Group team.”

Many business owners are already aware of the myriad loan programs offered by the Small Business Administration (SBA). The lower market is saturated with buyers who frequently and successfully turn to the SBA for financing a transaction. For all its benefits, however, the SBA’s maximum check size can prove restrictive in how much a company can sell for. Additionally, the SBA requires that sellers exit their business within one-year post-close, which can shut out sellers who want to be part of the company for a longer period and watch it grow.

To bridge the gap between buyers and the broader market of sellers, the SBA created a robust, multi-billion dollar lending program designed to motivate the acquisition of lower-middle market companies. To meet their objective, the SBA began licensing a new class of buyers: the Small Business Investment Company (SBIC).

SBICs are committed-capital funds that start by raising money from limited partners before deploying it via a series of investments in lower-middle market companies with less than $6 million in net income and at least 51% of their employees in the United States. These investments can come in the form of either debt financing or straight equity purchases, with the latter being commonly used to help SBICs build a portfolio of companies that they own and help operate on a day-to-day basis.

The traditional SBA loan instrument is famous for providing buyers with up to $4.5 million in debt financing on the condition that buyers lose access to other important transaction instruments, such as seller notes, earnouts, and equity rollovers. Commercially speaking, these instruments typically play a major role in facilitating transactions by providing a more equitable outcome for all parties involved. Losing access to these instruments can, at times, interfere with deal completion. Unlike SBA loan-based buyers, SBICs have access to debt up to $175 million for the purposes of acquiring companies and have comparatively few limitations on other tools that help get a deal done. As a result, SBICs experience superior flexibility in pushing a deal over the final ten-yard line. Sellers are likely to be better compensated for their companies and on more mutually acceptable terms. The low cost of debt associated with SBICs translates to more cash on their balance sheet post-close—leaving more cash available for growth, fostering a stronger buyer-seller relationship, and helping to secure the seller’s legacy.

The success of SBICs goes beyond financial capacity, however. To become a licensed SBIC, its founders must undergo SBA scrutiny that will question their experience, background, industry knowledge, and fortitude to run an investment firm—which is a much higher barrier to entry than is faced by many buyers. Furthermore, the incentive to help their acquisitions succeed is heightened for an SBIC because, if they make poor choices, they will not only have to deal with angry shareholders but also will face ramifications from the SBA. As a result, starting an SBIC can be as difficult as opening a federally chartered bank. A final, critical requirement for becoming a licensed SBIC is that the founders must have significant experience either investing in or running small business investments; meaning, as buyers, an SBIC manager is more likely to relate to the daily highs and lows associated with running a company and can provide valuable insight based on lived experience.

When it comes to selling your business, choosing the right buyer is crucial. If you’re looking for someone to take your company to the next level, to help it grow, to set you up for a better exit, then the capabilities of an SBIC are hard to match.

According to the SBA, top brands such as Under Armour, Chipotle, Staples, and Apple benefited in their youth from SBIC funding. If your small business meets the eligibility requirements for an SBIC investment, this buyer class could substantially improve your company’s growth and help build a strong, recognizable brand.

Benchmark International is pleased to announce the sale of Worcestershire-based Ecology Solutions to Nottingham-based Phenna Group.

Established in 1996, Ecology Solutions is an ecology and environmental planning practice. The group offers an unrivalled turnkey service, supporting all stages from site assessment to public inquiry and implementation. The group’s expertise with legal processes, including presenting evidence in the courts and at public inquiries, has positioned it at the forefront of its marketplace and sees it maintain an enviable and unique profile within the Planning and Environment Bar, which is not replicated anywhere in the sector.

Established in 2018, Phenna provides investment and strategic leadership to companies in the testing, inspection, certification, and compliance (TICC) sector. Its aim is to build a global portfolio of independent TICC businesses.

Ecology Solutions is the group’s sixth acquisition in 2021 and the fifth business in its rapidly expanding Infrastructure & Construction Division. It also represents the third acquisition conducted via Benchmark International, which have included the acquisitions of GMES and Facit Testing.

Growing a company once it has reached a certain plateau of success can be challenging. Mergers and acquisitions are a powerful tool for boosting the growth of an existing company—especially cross-border M&A. As a business owner, you should consider the different ways your company can benefit from an international deal.

Timing the sale of a company can certainly be a tricky decision. You don’t want to sell too soon, and you don’t want to sell too late either. In both scenarios, you risk leaving money on the table if the timing isn’t right. So what is a business owner to do?

Benchmark International is pleased to announce the acquisition of Vanguardia and its subsidiary, Crowd Dynamic International Limited, by Buro Happold.

Vanguardia is an environmental and technology consultancy, working with architects, developers, stadium and arena operators, promoters, and end-user clients to enhance sound, minimise noise and improve the air quality of industrial and commercial projects and events. The company has undertaken major landmark projects in the sports and entertainment sector, working with major touring artists like The Rolling Stones and Bruce Springsteen, leading festivals such as Hyde Park’s Time and Reading & Leeds Festival, and iconic stadium/arena venues such as Wembley Stadium and The O2.

Crowd Dynamic provides modelling solutions and consultancy to support design and operational projects in the built and natural environment.

Buro Happold has been established for over 40 years and is an international consultancy of engineers, consultants and advisers, operating in 26 locations worldwide, with over 70 partners and 1,900 employees.

Previously, Vanguardia and Buro Happold have worked together on renowned sports and entertainment projects in venues such as Tottenham Hotspur Football Club, O2 Arena, Qatar Education City Stadium, London Stadium and The Fisht Olympic Stadium.

The acquisition will strengthen Buro Happold’s consultancy capabilities, specifically in acoustics and sound engineering, environmental advisory services, plus a broad range of electro-acoustic and technology offers. It also creates a platform for the continued growth of Vanguardia into new sectors and markets.