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The Current State Of Commercial Real Estate

The COVID-19 pandemic has had a negative impact on all classes of commercial real estate. Yet, it also created some new opportunities within the commercial real estate (CRE) market, such as affordable rental prices, improved digital communication and payment facilitation, as well as new opportunities for business owners and investors. And further recovery is well underway.  

CRE prices fell 11% between March and May of 2020. Since July, prices increased 7%, erasing over half of those pandemic declines. With investors sitting on wealth, more investment in stocks and bonds took place, which pushed prices up and interest rates down. With inflation being a growing concern, more investors may look to commercial properties with leases that have built-in rent increases to keep pace with inflation.

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Growing Business Trends For 2021-2022

Our world continues to change, and businesses must remain adaptive in order to keep pace with their competition and consumer demands. Thanks to new technologies, changing customer priorities, societal movements, and of course, repercussions from the COVID-19 pandemic, business owners can expect certain industry shifts that began leading up to 2021 to continue into 2022.

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EXTRACTING BALANCE SHEET CASH AT DEAL CLOSING

Most deal valuations are set out as a multiple of earnings, plus surplus assets. Nick Hulme’s article, Valuing Companies, is a great read for more detail on this.

As he mentions in the article, surplus assets come in many forms, and can include lump sums of cash sitting on the balance sheet, the company’s premises/real estate (if the sellers are going to keep these personally post-close) and even the yacht or Bentley in some cases.

Below are some simple rules for sellers to keep in mind when considering Free Cash, the most common surplus asset we encounter on our deals.


Rule #1 – Have Realistic Expectations 

A buyer will only allow you to extract cash at completion that is truly surplus to the requirements of the business going forward.

Think, perhaps, in terms of how much cash you could extract yourself without affecting the ongoing operations of the business, and how much you’d ordinarily want to leave in the business to guard against mid-month and month-to-month fluctuations in cash requirements.

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In some cases, this cash can be extracted in a tax efficient manner (for example, in the UK where Capital Gains Tax is presently significantly lower than Income Tax, subject to certain conditions being met).

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2021 Energy & Sustainability Report: Progress, Trends, And M&A

The COVID-19 pandemic revealed to the world just how unprepared entire business sectors can be when it comes to unexpected events of mass proportion, and just how delicate our global supply chains actually are. COVID has been a health crisis that impacted lives, economies, and industries. Climate-driven events and disasters occur on a more concentrated scale but have proven to be extremely costly and disruptive to multiple sectors in various geographies—a problem that appears to be growing more prevalent.  

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Understanding Working Capital in the M&A Process

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.

 

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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.

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Medtech M&A On Track For Strong Second Half Of 2021

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.

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10 Mistakes To Avoid When Selling Your Company

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.

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U.S. Private Equity Sets Major Record For H1 2021

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.

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Can you Fund M&A With Cryptocurrency?

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.

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HVAC: A Consolidating Market

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.

 

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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.

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What To Look For When Choosing An M&A Advisor

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.

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EBITDA Adjustments for a Related Party Rent Expense

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. 

 

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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.

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Post-Merger Integration Tips

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.

 

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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.

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Why Leveraged Buyouts Are Making A Huge Comeback

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.

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Should I Sell to an SBIC: Making Sense of an Often-Misunderstood Buyer Type

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.

 

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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.

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How Your Company Can Benefit From Cross-border M&A

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.

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Why 2021 Is A Seller’s Market

A Seller’s Market Versus a Buyer’s Market

In a seller's M&A market, excess demand for assets that are in limited supply gives sellers more power when it comes to pricing. Such demand can be generated and galvanized by circumstances that include a strong economy, lower interest rates, high cash balances, and solid earnings. Other factors that can instill confidence in buyers—leading to more bidders willing to pay a higher purchase price—include strong brand equity, significant market share, innovative technology, and streamlined distributions that are difficult to emulate or recreate from scratch.

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The Importance of Timing When Bringing a Company to Market

Any company sale process features numerous factors outside of the seller's control. These include the overall state of the economy, finance market behavior, and advancements within specific industries. Most sellers do not fully appreciate that taking the time to thoughtfully prepare a company for its own sale is one of the biggest opportunities to exert control in the process. This opportunity should not be missed.

In business, thinking long-term is crucial – if the overall goal revolves around an exit, business owners need to take advantage of their ability to shape and polish their companies in a way that will ultimately increase their chances of a successful exit. Preparation is key and when a sale is being contemplated, timing is essential. The earlier sellers start preparing, the higher their chances of finding the right buyer and successfully exiting. Ultimately, owners that plan and take enough time to address small issues/details make their businesses more attractive to both financial and strategic acquirers.

 

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Typically, it is not feasible to make radical changes to the nature of a business, product line, or management structure just before a sale, so conducting an internal review is generally the most time- and cost-effective approach – and one that gives sellers the best chance to maximize value. Below is a summary of key items for review prior to your sale process.

 

  • Financials – Getting your company's financials in good shape is essential and will ultimately facilitate getting a deal through each stage of the process smoothly. Choosing adequate accounting principles and standardizing monthly, quarterly, and annual statements (P&L, Cash Flow, and Balance Sheet) typically ensures businesses are valued fairly. Being able to show strong performance credibly – and present long-term sustainability – is essential. 
  • Litigation – If possible, sellers should settle all litigation before coming to market. Litigation is simply part of doing business, and buyers understand that. However, any more serious or particularly risky legal disputes will present an element of perceived risk and should be dispatched prior to the sale process.
  • Online Presence – Investing in sharpening the company's website and overall online presence is often a worthwhile use of time and resources when contemplating a sale. Consider developing and regularly updating the company's website. Be sure to announce company "wins," partnerships, contracts, and milestones on social media platforms. Prospective buyers will most likely access every available platform when engaging in purchasing activities; the more quality information they find, the better.
  • Management – In most cases, the Owner/CEO's leadership, relationships, and practices were key contributors to the business's overall success. When looking for the best deal, sellers must convince buyers that the stream of sales/earnings will remain unchanged (or, even better, grow) after they are no longer behind the wheel. This can be done by elaborating a succession plan (hiring/grooming a number two to take the Owner's position) and delegating critical tasks/functions of the business to members of the team that will remain with the company post-acquisition. 

Although the preparation period requires time and resources, by putting the effort in early, sellers can best leverage their companies’ overall position when entering the market. The chance of a successful transaction increases proportionately as time and effort are invested into preparation. When the business is fully prepared for a sale, all parties win, and the process usually runs most smoothly.

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Owning a Lifestyle Business

A lifestyle business is a business that sustains or supports the income and personal needs of the owner. The business is profit-oriented, but the owner's goal is not to grow the company but maximize profits. The goal of a lifestyle business is for the owner to enjoy a work/life balance while generating enough profit to support the owner's current lifestyle without negatively affecting the owner's personal life.

Often, lifestyle businesses are small businesses and center around the owner's passion. Some examples of lifestyle businesses include e-commerce clothing boutiques, breweries, and art galleries.

Lifestyle businesses are different than being self-employed. Typically, when you are self-employed, you work defied hours. Like any business, a lifestyle business has additional time requirements. You open it up daily and work long hours and weekends, but it intertwines with your personal life. The business may be online or have a physical presence. It may or may not sell goods, or it may provide services to others.

 

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Why would someone want to own a lifestyle business? The owner does not have to sacrifice their personal life. You are not required to work certain hours, answer to superiors, or deliver specific amounts of work on strict deadlines. There are no obligations to investors because the owner provides the funding for the business, so they also receive all the profits. You have freedom of time and location, so you can come and go as you please. The owner controls all aspects of the business. There is no board or third party to report to on the state of the business. The business provides financial freedom because the owner is earning an income that supports their chosen lifestyle. Typically, since there are few employees or other overheads, the lifestyle business tends to be positive cash flow early on.

Like all businesses, there will be challenges. The owner may struggle to fund the business at times or have limited funding. Finding the right employees could be challenging because a lifestyle business tends to have fewer employee benefits than other employers within the market.

When considering starting or buying a lifestyle business you should take the following steps:

  • Define your goals: Make a list of what you hope to achieve with a lifestyle business. What do you want to accomplish with the business? What are your personal goals? Consider the amount of freedom you are seeking. Set an income target for your personal needs.
  • Identify a passion or interest: Businesses can fail because the owner losses interest. A lifestyle has a higher chance of succeeding because the owner is passionate about the business or purpose. People tend to excel at their passion because they tend to spend more time on the topic because they enjoy it.
  • Find a problem that needs to be solved: The business is likely to have more customers for your business if you offer them an option to solve a problem. People should be willing to pay for the problem’s solution.
  • Decide on the business: After assessing the items above, you should have a good idea of what type of business to buy or start. Put together a business plan to help execute the strategy.
  • Execute on the plan: Now is the time to execute your business plan. If you are going to purchase a lifestyle business and need help, there are many resources available to help with the purchase process. If you are going to start the business, begin by establishing the business. You may need to purchase inventory and begin to target clients.

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Selling Your Company? Beware Of Strangers Bearing Gifts

If you are considering selling your company, you should be aware of a certain menace that could have you in its crosshairs. There are direct buyers out there who intentionally prey on business owners, attempting to acquire a company by blindsiding its owner with big promises and, more importantly, taking advantage of their lack of guidance from a seasoned M&A professional. These buyers purposely look to avoid competition for a company because competition drives valuations higher, and they want to make an acquisition on the cheap—in addition to other shady maneuvers.

Bait & Switch
Some buyers will attempt to pull “bait & switch” tactics. To initially intrigue a seller, the buyer will present a high dollar amount. As they conduct due diligence and get the target more and more committed to the deal, they begin chipping away at the value until they reach a price and terms that are far more favorable for the buyer. This is typically an exhausting process for the seller and can lead to plenty of regret. If the deal falls apart, the seller may be reluctant to restart the process with another buyer, thinking the process will just be the same. In reality, it could have been completely different for the seller if they had a reputable M&A specialist on their side from the beginning.

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Benchmark International Facilitated the Transaction of CPR Plus, LLC to Allied 100, LLC

On April 30th, 2021, Benchmark International facilitated the sale of CPR Plus, LLC (serving the Greater St. Louis area) to Allied 100, LLC of Madison, WI.

The seller, CPR Plus, provides life-saving skills training to more than 100,000 individuals for close to 30 years in the St. Louis area. Their comprehensive and convenient CPR training courses are accredited by the American Heart Association and administered by friendly instructors with extensive experience.

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The Impact of COVID-19 on Healthcare M&A

The Covid pandemic has placed us squarely in unprecedented times. We know this is not exactly news at this point. However, counter to the tenor of most pieces you've probably read on the topic during the past 12 months, this one aims to shine some light on one industry that has thrived: The US healthcare market, more specifically, healthcare M&A. Healthcare M&A has generally been a big winner in 2020 and into 2021 and it's happening at both ends of the market.

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Top Questions Buyers Should Ask during Management Meetings When Acquiring a Company

As anyone who has ever done it before will tell you, buying a company is a process. It can take anywhere from a few months to a couple of years to complete. To reduce uncertainties and understand the business as much as possible, buyers must conduct thorough due diligence and ask the right questions. Finances, potential synergy, liabilities, customer relationships, and key employees are just a few areas that the buyer should consider.

Here are five essential questions buyers should ask during management meetings when acquiring a company.

1. Why is now the best time for you to sell your business?

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Benchmark International's Gregory Jackson Named CEO Of The Year

In the GAMECHANGERS (ACQ5) 2021 GLOBAL AWARDS, Gregory P. Jackson, CEO of Benchmark International, has been named CEO of The Year in the area of Corporate Finance.

The ACQ is a leading corporate news publication serving the sector since 2003, with a global audience of more than 261,000 subscribers. The GAMECHANGERS (ACQ5) GLOBAL AWARDS celebrate achievement, innovation, and brilliance, recognizing the world's most outstanding organizations and professionals.

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Benchmark International Named International Mid-Market Corporate Finance Advisory Of The Year

In the GAMECHANGERS (ACQ5) 2021 GLOBAL AWARDS, Benchmark International has been named the International Mid-Market Corporate Finance Advisory of The Year.

The ACQ is a leading corporate news publication serving the sector since 2003, with a global audience of more than 261,000 subscribers. The GAMECHANGERS (ACQ5) GLOBAL AWARDS celebrate achievement, innovation and brilliance, recognizing the most outstanding organizations and professionals in the world. 

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M&A Expectations After The Covid-19 Pandemic

It’s no surprise that the COVID-19 pandemic slowed M&A deal activity overall in 2020. According to data from PitchBook, more than 2,000 transactions closed for a value of $336.8 billion in Q2 of last year. That represents a 41 percent decline in the number of deals from Q1. Yet, deals did pick up in the second half of the year, which is likely to continue, as businesses are poised for improved economic conditions that leave COVID-19 in the rearview mirror.

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Benchmark International Successfully Facilitated The Acquisition Of ASAP Group By Terratest Group

Benchmark International is pleased to announce the transaction between ASAP Group (“ASAP”) and Terratest Group (“Terratest”).

Founded in 2006, ASAP is a leading foundation company specializing in a broad variety of shoring and foundation support methods, with a unique patented Sheetpiler™ technology that makes ASAP one of the premier shoring companies in Florida.

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10 Factors That Drive Business Value Beyond Revenue

The value of a company extends beyond the amount of revenue it generates. As a business owner, you should be monitoring the value of your company at all times, but it is especially important if you are considering exiting or retiring within the next several years, or even up to a decade from now.

Company valuations are based on far more factors than just financial statements and multiples. The process involves the forecasting of the future of the business based on several key value drivers. Sometimes these can be sector-specific, but there are many core drivers that apply to any type of business, as outlined below.

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Mid-Management: Dreams of Owning a Business

Have you always dreamt of owning your own business? What about having your boss’ job? If you are in management and in a privately owned company, it might be possible for you to be the boss and the owner one day. However, many mid-level managers do not know how to accomplish their dream of owning a company that currently employs them. The good news is that your dream can become a reality.

One of the challenges of transitioning from an employee to a business owner is thinking like a business owner. As an employee, your manager/owner provides guidance, and often you may not question the guidance. As a business owner, you make all the decisions, set goals, and create a plan that will drive the future of the company. Then, you will be the one that has to drive and financially fund the vision. Yes, you will develop mentors around you, but as a business owner, you are the one that benefits and suffers from the positive and negative outcomes of your decisions.  

While you may work long hours currently, be prepared for a more immense workload and additional hours. Employees have a work schedule, and business owners that operate the company do not have work schedules. You are on call 24/7, and it is hard to get away from the business as you always carry that burden with you. Vacations are interrupted and weekends are often spent at the business. However, if you are in a place in your life where you can dedicate the required time, mentally and physically, to the business, the long term pay-off, whether it be financial or time freedom, can be significant.

Interview your owner and shadow him/her if possible. Ask the company owner for insight into their day. Understand the stresses that the business owner deals with daily. Some of the stresses will be confidential, such as employee issues or financial issues, so anticipate that your receiving limited insight.

 

Ready to explore your exit and growth options?

 

Then commit to making your dream a reality. Ask the business owner their exit strategy. Some owners may be open to a slow exit where you can purchase the company over a few years, or they may want a clean exit where you have the option to purchase the company immediately and the current owner walks away after a short handover period. Having an introductory conversation about your interest in purchasing the company is going to be important. Once you understand the business owner's personal goals regarding their exit, it will allow you to structure a deal to achieve both parties' goals.

It is important to prepare your financing so you know how much you can afford. This knowledge is key to structuring an offer. The business owner will need to share the information around the business' performance for a bank to underwrite an acquisition. The company's current banker might be a good starting point. After your conversation with the business owner, ask if they would be open to making an introduction to the company’s banker. The banker understands the business and risk as they have underwritten the business previously. Their goal would be to underwrite the business to incorporate the new ownership. 

Be patient and ask for help when needed. Purchasing any business can be an emotional process. If you have never been through the process previously, you may need to seek help from your advisers or hire an experienced buyer side M&A advisor. There are many resources available to you to help with the purchase.

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Can I Put My Business On The Market Even Though I'm Not Actively Looking To Sell?

Maybe you’re not sure if you are ready to sell your business, but you’re curious about what you could learn if you put it on the market. You can always put your company on the market at any time, but you should understand the right way to do it, and everything that you need to consider.

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Benchmark International Completes 52 Transactions in 52 Weeks for US Offices

What Does It Take to Complete 52 Transactions in 52 Weeks?
2020 brought us all a huge amount of uncertainty. From an unexpected global pandemic to an election year, business owners tooling with the idea of a transaction were skeptical of success and market interest. With immense challenges presenting themselves, Benchmark International US offices took the year by the horns and hit another record year of completed transactions.

Following their 2019 accomplishment of 40 successful deals, Benchmark International’s US  transaction teams saw the opportunity to take it one step further, completing 52 domestic deals. This is a 33% growth rate in the midst of one of the most trying economic environments to date.

The question here is: What does it take to complete an average of one deal per week, every week, in the midst of a global pandemic?

Keep the Consistency

The five US transaction teams showed consistency when working with our clients, no matter the deal size or time on market. Being industry agnostic allowed Benchmark International to bring a wide range of companies to market in 2020; from quick deals to major transactions, the team displayed prodigious work ethic to find the perfect fit for their clients.

COVID-19 tested global corporate environments, but Benchmark International adapted to the temporary work from home changes with ease. Distractions while working from home could have easily altered the company's success, but with virtual communication and determination to find the best for our clients, the team proved resilient. Benchmark International’s 2019 modernization of its tech systems, from top to bottom, paid off handsomely.  A new CRM, the move to cloud-based storage, and widespread adoption of Microsoft Teams for inter-office communications all occurred in the first months of 2020, just in time to a two-month work from home period, a minor annoyance as opposed to a hinderance.

Ready to explore your exit and growth options?

Show Resilience

Both buyers and sellers saw a shift in focus when COVID-19 hit challenging the way M&A firms traditionally go about business. It took tedious due diligence amongst the five transaction teams to ensure the value of the companies represented was preserved.

2020 financial concerns are guaranteed to be on business owners' minds when moving into conversations regarding a full/partial sale in 2021. There is not yet a "market standard" on COVID-19 "add backs." However, owing to the breadth of its transaction experience both domestically and globally over the last year, Benchmark International is helping to shape that emerging standard, pushing for fairness to sellers wherever possible and reminding buyers that their true interest lies in determining how the business will perform under normal circumstances..

Stick True to the Foundation of Benchmark International

Benchmark International was formed on the ideology that every business is a family business. The dedication demonstrated by everyone at the firm (from analysts to directors to executive leadership) is what stands this team apart from their competitors. Sticking to the robust business model originally set forth by the founders, Benchmark International was ready and able to handle challenges that were unrecognizable prior to the year 2020.

As Benchmark International continues to set records statewide, the notable accomplishments extend beyond that; for SIX years in a row, the company as a whole completed 100+ transactions per year. This shows that geographical location, although important, doesn't outweigh work ethic, consistency, and resilience amongst a team like Benchmark International.

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Can A PPP Loan Help or Hurt My Company Valuation?

The COVID-19 pandemic has impacted businesses of all sizes, affecting the value of many of those businesses. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was created by the U.S. government to get businesses through the pandemic, and includes the Paycheck Protection Program (PPP), which is designed to give private businesses access to cash so that they can continue to pay employees and cover other expenses, such as health insurance, rent/mortgages, and utilities, over a 24-week period. The loans contain provisions for forgiveness as long as the company meets certain requirements and certifications. The PPP loan and its associated forgiveness have impacted how company valuations should be determined for the recipients.

For company valuation purposes, there needs to be an understanding of the reasons that the business got the PPP loan. The loan could indicate that the company has been under duress. Because of this, past financial statements may not accurately represent the future of the business.

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Accelerating SaaS Growth With A Strategic Partner

Strategic partnerships can be game-changers for SaaS (Software as a Service) companies. Sales revenue is clearly of vital importance, but it takes more than just those numbers to make things happen on a larger scale. Relationships are the bedrock of business. If you are looking to drive growth, a strategic partnership can be a very powerful tool to help your company increase its audience, build upon the brand, and tap into new markets. All of this, in turn, can prop up your sales team and boost your overall growth.

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Why You Should Consider Private Equity

How Private Equity Works

Private equity firms raise financing from institutions and individuals and then invest those funds into the buying and selling of businesses. Once a pre-specified amount is raised, the fund closes to new investors and is liquidated. All of the fund’s businesses are sold within a set timeframe that is typically less than ten years. The more successfully a PE firm’s funds perform, the better its ability to raise money in the future.

PE firms do accept some limitations on their use of investments under fund management contracts, such as the size of any single business investment. Once the money has been committed, investors have nearly zero control over its management, unlike a public company’s board of directors. 

The leaders of the companies within a private equity portfolio are not members of the PE firm’s management. Private equity firms control its portfolio companies through representation on the boards of those companies. It is common for a PE firm to ask the CEO and other business leaders in their portfolios to invest personally. This offers a way to ensure their level of commitment and motivation. In return, the operating managers can get significant rewards that are linked to profits when the company is sold.

With large buyouts, PE funds usually charge investors a fee of around 1.5 to 2 percent of assets under management, plus 20 percent of all profits (subject to achieving a minimum rate of return). Fund mostly profit through capital gains on the sale of portfolio companies.

How Private Equity Improves Value

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Gamestop, Robinhood, And Drama On Wall Street

The free online trading app known as Robinhood has proclaimed to be “on a mission to democratize finance for all.” It was intended to open up the Wall Street stock market to the average American for investment “on their own terms,” with more easily digestible financial information readily available to novice investors. The app was designed to “let the people trade” and make the financial system more accessible for everyone, until things took quite a turn, all due to a fledgling brick and mortar video game retailer known as GameStop.

The amateur traders using Robinhood became pitted against the hedge fund honchos when they started buying up options and shares of GameStop (GME), enlarging those bets and also making large trades of other stocks, such as AMC Entertainment, Tootsie Roll, and BlackBerry.

How It All Happened

Professional hedge fund investors had been short selling shares of GameStop, essentially borrowing shares of stock to sell, and then buying them back later so they can return them. This lets them profit if the stock price drops (betting that the company will fail). If the stock does not continue to fall, investors are forced to cover their position or buy more stock to minimize their losses.

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2021 Is Here. Why You Should Sell Now

As a business owner considering the sale of your company, you may be asking yourself, “When is the right time to sell?” The answer is simple. The time is now.

The global recovery is underway, and 2021 has given us several reasons to be highly optimistic, and these reasons are why you should take action.

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2021 M&A Outlook

The Beginning of the End

The turbulent year of 2020 is finally in our rearview mirror. While so many lives have been lost and everyday life is still far from normal, effective vaccines for COVID-19 are being distributed, offering hope for a near-term end to the disruption we’ve endured for the past year.

Markets have begun to respond with optimism for the highly anticipated return to normal, but we’re not at the finish line quite yet. Mass distribution of the vaccine will take time, and people and businesses are still suffering as the virus is spreading at record-high levels and restrictions are being reinforced. This means that, yes, our world remains suspended in a state of uncertainty, but we have good reason to believe that the global economy will continue to recover, and mergers and acquisitions will lead the recovery. Research indicates that 53 percent of US executives plan to increase M&A investment in 2021. Some sectors have fared rather well during the pandemic. But how well—and how quickly—the overall economy recovers will depend on factors such as virus containment, fiscal and monetary policy, and inflation.

Virus containment remains the main priority for economic recovery to succeed. However, there are other possible risks to market performance. A lack of adequate policy support could occur due to concerns about mounting government debt. The technology conflict between the US and China is likely to continue even under a more traditional Biden administration, and the impacts are expected to take years to manifest. The decisions made by the two countries will affect regional economies and the businesses that operate within them. Other geopolitical factors could also shift investor attention away from recovery, but they are considered rather unlikely at this time.

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Why Choose An M&A Firm Over An Industry Expert?

Many business owners believe that enlisting an expert in their industry is the right way to go when selling their companies. But if you want to rake in the most value for your business, there’s a better way.

There is no question that mergers and acquisitions are complicated and subject to constantly changing market conditions and industry trends. An industry expert might know plenty about a particular industry, but they are not experts on selling and buying businesses. A mergers and acquisitions firm is.

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M&A As A Strategic Opportunity For Business Owners

It is not uncommon for a company acquisition to be viewed as a simple transaction that means transferring the business from one owner to another. But rather than just allowing the business to simply carry on as is under new leadership, a merger or acquisition should be viewed as a solid strategy to boost the company’s overall health, productivity, and bottom line. While M&A transactions can serve as great solutions for exit strategies, they can be so much more than that. M&A should be regarded as a powerful tactical opportunity.

Often times, M&A deals are considered to be a way to get out and cash out with instant gratification. But what else might be possible when a deal is carefully crafted to deliver sustainable returns and support a powerful legacy for the business in the long-term? M&A done right can translate into great success for a company and, ultimately, its leadership.

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2020 M&A In The Global Sports World

In early 2020, there was plenty of optimism for investment opportunities and growth in the sports sector prior to the COVID-19 pandemic, which has since caused disruption in nearly every sector around the world. Financial uncertainty has been a large factor in addition to issues surrounding player contracts and broadcasting rights. Mergers and acquisitions activity in the global sports world has experienced a downward trend but there is hope on the horizon.

Italian Football

Amidst COVID-19 delays, Italian football (calico) has had its share of off-the-field matters this year. In August, the Italian club A.S. Roma announced the completion of a takeover by Texas-based Friedkin Group: an 86.6% stake in for €591 million, a large decrease from the previously agreed upon figure of €750 million prior to the pandemic. This lower price demonstrates how lost matches, sponsorship, and broadcasting income all impact the valuation of sports clubs. In light of these decreasing valuations, PE firms could be motivated to seek out bargain M&A and financing opportunities.

Italy’s Serie A has also embraced private investment. In September, its 20 clubs agreed to create its own media company financed partially by PE funds in order to better organize the sale and promotion of the league's TV rights. The move is designed to improve governance and increase revenue, especially abroad.

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