The Complete Guide to Buying a Business
By Fred Steingold J.D.
If your business is in or serves one or more of the 8,762 neighborhoods identified by your state’s governor as a “Qualified Opportunity Zone” under the 2017 federal tax legislation, new buyers will be entering the market for your company in the coming months and they will be looking to make some quick deals.
When the tax cut law passed, investors in these zones were granted numerous attractive tax benefits including:
- Deferment until 2026 of tax on capital gains from the sale of projects outside the zones if those profits were now invested in any zone
- A 15% reduction certain capital gains taxes
- No capital gains taxes on any investment held for at least 10 years
But acquirers of businesses never took advantage of the new opportunity. Reports came back to the Administration that the statute called for the Treasury Department to implement regulations laying out the details as to which investments would qualify and absent those regulations there was too much concern that the “investments” would only cover real estate acquisitions and improvements.
Seeing that the real estate industry had wholeheartedly undertaken the desired action - investing in the zones – and wanting other investors such as acquirers of businesses to do the same, the President publicly released draft regulations last Wednesday.
The M&A investment community is quite pleased with the breadth and clarity of the regulations and appear to be jumping into action to exploit the new guidelines. And their action will likely be immediate. The incentives are set to cover only those investments made by the end of 2019.
To view all Qualified Opportunity Zones to see if your business may qualify, visit the IRS’s map here. https://www.cims.cdfifund.gov/preparation/?config=config_nmtc.xmland follow these instructions. https://www.cdfifund.gov/Pages/Opportunity-Zones.aspxAs this map of Tennessee demonstrates, you might be surprised which areas are covered. The official method of designation is by “census track” and you can also search this website by your track – if you know it.
The regulations remain complex as there are a number of independent ways for an operating business to qualify based on where income is generated, where labor is provided, where services are provided, where working capital is invested, and where tangible property is maintained – among others. But business acquirers are getting ahold of the new details, have the firepower to get command of them, and will very quickly be refocusing their searches in light of these significant benefits.
There is still time to get your business on the market to take advantage of this increased interest and the potential boost to your sale price that it should also carry with it. Eight months from engagement to closing is not difficult with a properly motivated seller and buyer – and nothing motivates people like tax breaks!
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Benchmark International is pleased to announce our exclusive attendance at the national ACG Intergrowth 2019 conference on May 6th-8th in Orlando, Florida. This is a valuable opportunity where we meet with thousands of well-funded private equity deal-makers and draw their attention to the opportunities we are currently representing.
We have had major success at this event in the past with offers on over 75% of the businesses we featured. This creates competitive tension between financial buyers and strategic buyers.
ACG’s annual event is specifically designed for those on the hunt for private capital in the middle market. With over 2,000 registered attendees and $189 billion of investable capital, this is not your typical meet-and-greet. We currently have 60 one-on-one meetings scheduled with business development team members (the people who analyze Teasers and CIMs) of these PE funds.
Would you like to be showcased to leading dealmakers with strong, acquisitive appetites? Naturally, we present only a select number of companies for each event, so we would encourage you to contact us now to ensure your business is included.
*All opportunities must be submitted by April 30th, 2019.
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Once you have decided it is the right time to sell your company, it’s time to find the right buyer. You are going to want to sell to someone that shares your vision for the business that you worked so hard to build. At the same time, you do not want to waste your time on prospects that are not serious or financially fit. An important step in the vetting process is knowing what information you should request from potential buyers. Start by reviewing this list of questions to generate additional ideas and help you manage expectations.
“Do you have prior experience with acquiring a business?”
A buyer’s track record is paramount when considering whether or not they have the necessary resources and competencies to handle an acquisition. What is their experience? Do they have any success stories? What about failures? Nobody wants to sell to someone who has acquired businesses only to see them fail.
“Why are you interested in buying my business?”
Understanding a buyer’s motives is crucial when seeking someone who is going to operate in the best interests of your company. If they share a passion for what you created and have a solid plan to build upon that success, they are far more likely to take your business in the right direction. Asking this question can also help you ascertain how serious they are about working towards a deal.
“How do you plan to finance the sale?”
Securing capital is often complicated and you can learn a great deal about a buyer from their answer to this question. It will demonstrate how experienced and how serious they truly are, helping you to weed out the dreamers. How do they plan to structure the deal? Can they prove that they have the funds available? How much cash is on the table? A serious buyer is going to be adequately prepared to answer this question and may even provide documentation.
“How long have you been looking to acquire a business?”
This is a serious question when it comes to avoiding giant wastes of your time. There are people who will claim to be eager and ready to invest in a business, but they really are more interested in talking about the idea of it, as opposed to actually sealing any deal. How many deals have they passed on, and why? Ask for explanations. Sometimes deals simply do not work out. But if someone has a routine of waiting around for the perfect deal for years, you probably want to move on.
“How do you plan to carry on the legacy of my family business?”
If you have a family-owned business, it is likely that it matters to you that the company’s legacy remains in tact. This means you need to find a buyer that cares about maintaining its heritage and has a plan to do so. If you have family that will continue to be employed with the company, you will want assurance that the new owner is including them in their plans.
Don’t go it alone.
There are many considerations when seeking the right buyer for your business. To help you navigate the entire process, it is vastly beneficial to partner with a mergers and acquisitions firm that has the connections and resources to match you with the right investor. A firm that cares about the future of your business. The experts at Benchmark International will do all the homework for you and protect your interests to ensure that you get the very best deal possible.READ MORE >>
Assumptions form the foundation of every facet of an M&A transaction. They permeate every fiber of a deal. Sellers make assumptions. Buyers make assumptions. Lawyers, accountants, wealth managers, and other advisors make assumptions. Deals are built upon assumptions. When assumptions are thoughtful, reasonable and defensible, there is a much higher likelihood of success.Buyers may assume they can get three turns of EBITDA in senior debt and another turn of second lien debt when determining both valuation and deal structure. However, what happens to the deal if those assumptions prove faulty? Assumptions should be tested. Before proceeding, apply a reasonable test.Determine if the assumptions will survive further scrutiny. Are they defensible? If they are not, challenge them and make the appropriate course correction.
Buyers often use Discounted Cash Flow (DCF) as at least a data point to derive a valuation. However, as any finance student or professional will tell you, DCF is limited by the inputs; the assumptions you make. One has to make assumptions as to the cash flows derived by the business, a terminal value, a growth rate and their cost of capital. Each of those is a lever that a seasoned professional can pull to move the results. So, the results are subject to confirmation bias. I can make the model spit out a number that aligns with my preconceived notion as to value. Further, I can make the results provide evidence to a narrative that portrays the business in the most positive (or negative) light. Again, assumptions matter. They need to be reasonable and defensible.
Sometimes we will see buyers assume that all businesses in a specific industry are perfect substitutes. I’ve seen buyers point to other sellers on the market with more “reasonable” price expectations. But that assumption, on its face, is flawed at best and perhaps intellectually dishonest. No two business are alike. They are living, breathing beings with unique people, processes, supply chains, distribution channels, relationships etc.Two businesses that compete with similar services or products will yield different valuations from buyers. Those differences in valuation may be vast. Why is that, you ask? The answer is businesses are not fungible. They are not interchangeable. They aren’t gold, silver, frozen orange juice or any other commodity. They don’t trade purely on price as they have unique aspects to them. As such, we at Benchmark, as a sell side mergers and acquisitions firm, really thrive when we encounter a buyer with this argument. We love it when a buyer brings that level of analysis to defend their assumptions. Our clients do too.
Assumptions matter on the sell side when contemplating net proceeds. Every seller concerns themselves with the amount they will take home once all fees and taxes are accounted for. More importantly, they want to know if they can “live on” those proceeds. When considering this question, make sure all of the inputs into the waterfall are reasonable and defensible. The waterfall demonstrates the net proceeds to the seller accounting for all expenses and taxes. Are your tax assumptions correct? Make sure you engage advisors that understand transaction tax. Your CPA may not be qualified to dig in here as the questions and answers aren’t black and white. Often times, the sell side law firm has an M&A tax specialist on the team and that person may be best suited to assist.
Let’s address the aforementioned question; how much do you need at closing to maintain my lifestyle? Again, as before, the assumptions here matter. You may not know the market opportunities available to you post-close as perhaps you’ve never had the power and influence that may come from a sizeable pool of investable capital. We suggest sellers speak to wealth advisors to determine if their risk tolerances and investment goals align with the cash flow they require. We have worked with wealth managers that specialize in working with small business owners transitioning out of ownership for the first time. They will work with you to determine the proper asset allocation for your proceeds and provide the basis for sound assumptions as to rates of return. They will also review your entire financial profile and exposure to assist you.
Assumptions matter for your advisors. Attorneys may mistakenly assume a seller is adamant about an issue that may in fact be unimportant to the seller. Other advisors may apply their own biases to a deal and assume both buyer and seller think as they do. I’ve found that making this sort of assumption, that buyers and seller think as I do on all matters, leads to poor guidance and poor decision making.
So, what is the cure for all of these issues that result form poor assumptions you ask? Simply ask the other party, whether on other side of the transaction or on the same side, to present and defend their assumptions. Once the assumptions are on the table it is easy to test them to determine if they are credible, reasonable and defensible.READ MORE >>
When selling your business, dealing with the various types of buyers present in today’s market is both a curse and a blessing. It’s a blessing in that, aspects of your business that may not appeal to a certain buyer type may appeal to, or at least not be an issue with, other types of buyers. But a hundred different curses almost offset this large benefit. What do different buyers prioritize? How do you appeal to two or more different types of buyers at the same time? How do different buyer types run their decision-making processes? Which buyer types should you pursue? How do you even know what type of buyer you are dealing with?
In a world with only one type of buyer, the company sale process is greatly simplified. They might all like to hear the company’s story the same way. They might look at the financial statements the same way. They might all operate on the same timeline with the same seasonal variations. And, they might even be susceptible to being found in the same place from time to time. But, what is currently driving the robustness of today’s M&A markets are in fact the imbalance between the number of buyers and the number of sellers in the arena. And this, in turn, is largely driven by the increasing diversity of buyer types now competing with one another for that limited supply of opportunities.
In today’s market, one of the worst moves a seller can make is to market to only one type of buyer or, even worse, run a process expressly excluding one or more types of buyers. The success of any current sale process relies on a much more sophisticated approach to marketing, than was the case a decade ago - one that catches the interest of all buyer groups simultaneously and excites them for the opportunity to investigate further. The first step in exploiting this development is to identify the strengths, weaknesses, and priorities of the various buyer types. This webinar will start with this analysis and then move quickly onto strategies for playing to various buyer characteristics.
Picture this for a moment: you’re up to bat with two outs, two runners on base and the Florida Championship on the line. Base hit up the middle scores one, possibly two, but if you pop up, ground out or strike out, it’s game over.
If you could visualize yourself in that situation, chances are you’re feeling a little nervous. Especially if you’ve never been there before. What if you’re a business owner in the process of transitioning your business or considering a transition? You’re up to bat with two outs and two runners on base – how do you handle it? Ideally, we’d all like to confidently drill the first pitch deep into the outfield to win the game, but what happens when the thoughts and concerns about the transition and life after the transition get in the way? Things might not work out as planned.
In the decades of serving high net worth and ultra-high net worth individuals and families, our team has worked with many who have made their wealth through the sale of the family business. Many of them were faced with a number of overwhelming thoughts and feelings: stress, anxiety, frustration, confusion and worry. Here are some of the questions we’ve often heard:
- Will this wealth be enough to sustain me and my family? How do I know?
- What about taxes? What’s the impact to me?
- How in the world am I going to invest this money to serve me and my family?
- What about my legacy and charity – how does all this fit in?
Finding the answers to these questions requires preparation. Unfortunately, many business owners are unprepared to address the complex financial decisions that need to be made for both themselves and their families both before and after the sale. Many would rather wait and leave the planning to another day. But a lack of planning and preparation has killed deals that should have closed, broken up families, and, in rare occasions, landed business owners in the hospital due to stress.
At BNY Mellon Wealth Management, we follow a collaborative, holistic, team-based approach to each business owner and family that we serve. Leveraging the strength and expertise of our global firm, we help provide clarity by working with business owners to implement:
Wealth transfer and tax mitigation strategies
- Pre- and post-sale cash flow optimization
- Pro forma net worth statements and estate flow projections
- Custom post-transaction investment strategies
- Family governance and next generation education plans
- Strategic philanthropy
Proper planning takes time, and having the right team of experienced professionals is critical to success. Armed with an experienced team who can assist with planning and preparation, you too can confidentially step up to the plate and win the game.
In arriving at a valuation for their business, many managers come across the term EBITDA. For some this term is Greek and for others it’s a term they vaguely remember being mentioned during their days in business school. For many business owners it’s a completely new term, with no context, and why it is important is a complete mystery to them. But to buyers, EBITDA seems to be an incredibly important term. So what is EBITDA?
To begin let’s spell out the acronym. EBITDA stands for “Earnings before Interest, Taxes, Depreciation and Amortization,” that is, a company’s earnings before items which can be disassociated from the day to day operations of the business. EBITDA is therefore a measure of the financial strength of the business, and presents a proxy for the total cash flow which a potential buyer could expect to garner from the purchase of your business.
Let’s break down each part of the acronym, beginning with Earnings. In the case of your business, Earnings is represented by the bottom line income, what is labeled “Ordinary Business Income,” on your tax returns. This is the number arrived at by subtracting all expenses from Revenues and adding or subtracting any additional cost or income. Distributions and dividends are items which occur after “Earnings” is calculated and are therefore not included in this equation.
Interest payments are associated with debt that the company currently holds. Those interest payments whether they are on a Line of Credit to the local bank or for outstanding debt the company has taken on to purchase machinery or warehouse space, will likely be in some way included into the sales price of your business. Meaning, that when a new owner takes over operations, or comes on board to help grow your business, the business will be starting fresh. From the time of the sale going forward the new owners can expect all of the money previously paid to the bank, to flow through to bottom line earnings instead. For this reason, in valuing your company it is important to add back interest payments to your bottom line earnings.
Next, we arrive at taxes. Each and every business pays taxes, but the amount is variable by state and subject to current legislation. For that reason, we add back some, but not all taxes to your bottom line profits. In most cases the only tax added back will be your Franchise Taxes. Franchise Taxes are those taxes charged by a state to a company, as the cost of a business in that state. The tax varies based on the size of the business and the state in which the business is incorporated. Because a company may be incorporated in a different state, or the size of the business may drastically change after an acquisition, these taxes are therefore variable and not a reflection on the business’ earnings.
Depreciation is a fancy accounting term for something we all know. The amount of value your car loses the moment you drive it off the lot, is the most common form of depreciation we deal with during our lives. Say you purchased new machinery ten years ago, and it is still running and in good condition, humming along each day spitting out all the widgets you can sell. But your accountant may send you tax returns each year saying your machine is worth less and less. This amount that gets deducted by your accountant isn’t an actual amount of cash leaving your business, but it decreases your bottom line earnings. For this reason, we add depreciation back, to put back into your bottom line, an amount which was taken out on paper, but not out of your company’s checking account. An additional note, as we are dealing with your company’s Profit and Loss statement, we ignore the total amount of accumulated depreciation which is shown on your Balance Sheet, in order to capture the expense associated only with one accounting period.
Amortization is Depreciations baby brother. If you purchased a business ten years ago, you may have paid more for that company than what it was worth at that very moment based on the amount of assets and business you were garnering by purchasing that company and its clients. Let’s say that the business you bought was worth one million dollars, but you figured that the business’ client list and trademark was worth an additional half million dollars to you over the long run, and so you paid one point five million dollars for the business. This additional half million dollars is sometimes referred to as “good will”. It’s a value which can be reflected on paper and then turned into cash over a period of time. Just like your new car though, each year your accountant is going to take some part of this half million dollars and subtract it from your profits before he or she arrives at your bottom line net income. Since this number is an adjustment made on paper, just like depreciation, adding it back gives a better picture of the amount of cash flowing through your business.
In sum, each of these components of EBITDA combine to create a clearer picture of your company’s true value to potential buyers, and is therefore something buyers are particularly interested in. In order to understand Adjustments to EBITDA please see my coworker Austin Pakola’s piece on adjustments to EBIDA.
T: +1 (512) 861 3314
Many individuals or companies feel that the best way to either enter an industry or expand within an industry is through buying a business. While this is often true, it is hard to know where to begin the process of buying a business.
Define your search criteria?
The first step to buying a business is comprise a list of features that you are seeking in a business. Similar to the car buying process. Do you want leather seats, a certain brand, navigation, power windows, etc? Narrowing your search criteria will help save you time, resources, and frustration.
Here’s a few questions you will want to be able to answer as you begin your search:
- What size business are you seeking? This question relates to both revenue and profitability.
- Do you want the owner to remain apart of the business post-closing? If so, for how long?
- What geographical areas do you prefer?
- What industry and sectors are of interest to you? Be as specific as possible. If you are looking to buy a marketing firm, what type of end customers do you prefer? Do you want the business to cater to government customers, healthcare companies, etc?
- What is your budget?
Begin your search
There are many ways to uncover businesses for sale. You can search various websites, reach out to a Mergers and Acquisitions’ (M&A) specialist, or network to try and find deals that have not hit the market yet. Some buyers will approach business owners directly to see if they are interested in selling their business directly to the buyer.
Websites featuring businesses for sale often can be overwhelming. If you search several websites, you may see the same listing on multiple websites.
There are M&A specialists that work with buyers to find businesses for sale and others that work with sellers to find buyers. Some M&A specialists represent both buyers and sellers. If you are working with a specialist that represents both parties in a transaction, you will want to understand the intermediary’s incentives. It is hard to keep interests aligned if there are conflicts between the parties. If you are working with a sell-side M&A specialist, often times they will have exclusive listings meaning that you can only have access to that specific deal through that specialist. Also, a sell-side M&A specialist may take a commitment fee. This will show the seller’s commitment to the sale process.
Some potential buyers build a network to look for opportunities to purchase businesses or build their own database of potential businesses they would like to purchase and begin reaching out to those business owners. While this sounds like an easy process, do not be fooled by the amount of time and resources you will use trying to speak with the business owners and convincing them to complete a deal with you. Typically, business owners that are open to exploring the idea of selling will entertain a conversation but they eventually want to go to market to test the valuation. Often times buyers will get close to the end of a transaction but then the seller will decide not to sale. If you are willing to pay an amount that is acceptable to the seller then they often wonder if there is someone that is willing to pay more and if they have undervalued their business.
Begin to review businesses
Sellers will want a Non-Disclosure Agreement (NDA) in place prior to releasing confidential information. This practice is very typical in the lower mid-market. As a buyer, you will want to have the opportunity to speak directly with the business owner. They will know their business better than anyone, and you will have specific questions that only the business owner will be able to answer. You will also want to visit the business' facility. This visit will tell you a lot about the company, its culture, and what type of liabilities you may want to explore further during the due diligence process. Once you find the perfect business, you will want to move swiftly to the next stage of the purchasing process as there are probably other buyers looking at the same opportunity and you do not want to miss out.
I found the perfect business, now what?
After you find the perfect business, you will need to comprise a valuation for the business. The valuation will be covered in a Letter of Intent (LOI) as well as the structure (how is the valuation going to be paid to the seller) of the offer and other high-level details. In the LOI, you will want to include the seller’s involvement post close, an exclusivity clause allowing you the exclusive right to review the opportunity, the requirements of due diligence along with a timeline, if possible, and the anticipated closing date. A LOI tends to include many more details but above highlights some of the details a seller will want to understand prior to agreeing to move forward.
The LOI is executed. Where do we go from here?
After a LOI is executed, due diligence begins. As the buyer, you want to confirm that what you think you are buying is what you are actually buying. You will want to understand the risk associated with the purchase of the business. You will also want to engage your advisors to provide legal advice for the purchase agreement and tax advice for the structure of the transaction.
While purchasing a business sounds like a quick and easy process, it can take months, if not a year or two, to make the purchase. There are a lot of factors that you will encounter and unforeseen obstacles that stand in your way. An M&A specialist can help you navigate these obstacles and help you purchase a business within your desired timeframe. Whether you choose to seek to purchase a business on your own or bring in a M&A specialist, we wish you the best of luck with your journey.
T: +1 (512) 347 2000
The first question you will probably want to ask when thinking about selling your business is – what is it actually worth? This is understandable, as you do not want to make such a big decision as to sell your business without knowing how much it could command in the market.
Below are five different ways a business can be valued, along with which type of companies suit which type of valuation.
Multiple of Profits
A common way for a business to be valued is multiple of profits, although this typically suits businesses that have an established track record of profits.
To determine the value, you will need to look at the business’ EBITDA, which is the company’s net income plus interest, tax, depreciation and amortisation. This then needs to be adjusted to ‘add-back’ any expenses that may have been incurred by the current owner which are unlikely to be incurred by a new owner. These could be either linked to a certain event (e.g. legal fees for a one-off legal dispute), a one-off company cost (e.g. bad debts, currency exchange losses), are at the discretion of the current owner (e.g. employee perks such as bonuses), or wages/costs to the owner or a family member that would be more than the typical going rate.
Once the adjusted EBITDA has been calculated this figure needs to be multiplied; this is typically between three and five times; however, this can vary – for example, a larger company with a strong reputation can attract towards an eight times multiple.
This provides an Enterprise Value, with the final ‘Transaction Value’ adjusted for any surplus items, such as free cash, properties and personal assets.
Asset valuation is suitable way to value a business that is stable and established with a lot of tangible assets – e.g. property, stock, machinery and equipment.
To work out the value of a business based on an asset valuation the net book value (NBV) of the company needs to be worked out. The NBV then needs to be refined to take into account economic factors, for example, property or fixed assets which fluctuate in value; debts that are unlikely to be paid off; or old stock that needs to be sold at a discount.
Asset valuations are usually supplemented by an amount for goodwill, which is a negotiable amount to reflect any benefits the acquirer is gaining that are not on the balance sheet (for example, customer relationships).
This way of evaluating the value of a company simply involves taking into account how much it would take to establish a similar business.
All costs have to be taken into account from what it has taken to start-up the company, to recruitment and training, developing products and services, and establishing a client base. The cost of tangible assets will also have to be taken into account.
This method for valuing a business is more useful for an acquirer, rather than a seller, as through an entry valuation they can choose whether it is worth purchasing the business, or whether it is more lucrative to invest in establishing their own operations.
Discounted Cash Flow
Types of companies that benefit from the discounted cash flow method of valuing a business include larger companies with accountant prepared forecasts. This is because the method uses estimates of future cash flow for the business.
A valuation is reached by looking at the company’s cash flow in the future, and then discounts this back into today’s money (to take into account inflation) to give you the NPV (net present value) of the business.
Valuing a business based on discounted cash flow is a complex method, and is not always the most accurate, as it is only as good as its input, i.e. a small change in input can vastly change the estimated value of a company.
Rule of Thumb
Some industries have different rules of thumb for valuing a business. Depending on the type of business, a rule of thumb can, for example, be based on multiples of revenue, multiples of assets or of earnings and cash flow.
While this method may have its merits in that it is quick, inexpensive and easy to use, it can generally not be used in place of a professional valuation and is instead useful for developing a preliminary indication of value.
To summarise, the methods of valuation can very much vary in terms of complexity and thoroughness, and different industries will find different methods more useful than others. A good M&A adviser can best suggest which way to value your business, as well as help to counter offers in the latter stages of the process with an accurate valuation in mind.
T: +44 (0) 1865 410 050
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A merger is very similar to a marriage and, like every long-term relationship, it is imperative that mergers happen for the right reasons. Like many things in life, there is no secret recipe for a successful transaction. While the strategy behind most mergers is very important to obtain the maximum value for a business, finding the right reason to execute a merger could determine the success post-acquisition.
When two companies hold a strong position in their respective areas, a merger targeted to enhance their position in the market, or capture a larger market share, makes perfect sense. One of the most common goals for transactions is to achieve or enhance value; however, buyers have different reasons for considering an acquisition and each entity looks at a new opportunity differently. The following points summarize some of the primary reasons that entities choose the mergers and acquisition route.
- Increased capacity
When entertaining an acquisition opportunity, buyers tend to focus on the increased capacity the target business will provide when combined with the acquiring company. For example, a company in the manufacturing space could be interested in acquiring a business to leverage the expensive manufacturing operations. Another great example are companies wanting to procure a unique technology platform instead of building it on their own.
- Competitive Edge
Business owners are constantly looking to remain competitive. Many have realized that, without adequate strategies in place, their companies cannot survive the ever-changing innovations in the market. Therefore, business owners are taking the merger route to expand their footprints and capabilities. For example, a buyer can focus on opportunities that will allow their business to expand into a new market where the partnering company already has a strong presence, and leverage their experience to quickly gain additional market share.
Diversification is key to remain successful and competitive in the business world. Buyers understand that by combining their products and services with other companies, they may gain a competitive edge over others. Buyers tend to look for companies that offer other products or services that complement the buyer’s current operations. An example is the recent acquisition of Aetna by CVS Health. With this acquisition, CVS pharmacy locations are able to include additional services previously not available to its customers.
- Cost Savings
Most business owners are constantly looking for ways to increase profitability. For most businesses, economies of scale is a great way to increase profits. When two companies are in the same line of business or produce similar goods or services, it makes sense for them to merge together and combine locations, or reduce operating costs by integrating and streamlining support functions. Buyers understand this concept and seek to acquire businesses where the total cost of production is lowered with increasing volume, and total profits are maximized.
The above points are merely four of the most common reasons buyers seek to acquire a new business. Even if the acquirer is a financial buyer, they still have a strategic reason for considering the opportunity.
T: +1 (813) 313 6150
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On November 12th, 2018, capital providers from across the country will be attending the Association for Corporate Growth Capital Connection in St. Petersburg, Florida. In addition to manning its exhibit table, the Benchmark International team in attendance will be holding one-on-one meetings with over sixty different strategic and financial acquirers.
“Our energetic participation in these conferences benefits our clients not only because of the occasional new acquirer that we meet but also, and probably more importantly, because it keeps our clients in the front of these active buyers’ minds. It’s one of the main reasons they come to Benchmark International first when they have a new investment plan. It’s also one of the ways we ensure these busy professionals will take our calls every time we have a new opportunity to put in front of them,” mused Benchmark’ Managing Director Clinton Johnston
The St. Petersburg Conference will be Benchmark International's fifth US Capital Connection exhibition of the year. If you’ve been unable to schedule a one-on-one with our team, Benchmark International’s booth will be in the exhibitors hall and manned from three hours before the conference starts until three hours after it ends. You can also call +1 813 898 2350 to schedule an appointment.
With 2018 soon drawing to a close, you may have begun considering your exit or growth plans for your business for the year ahead. Would you like to be showcased to leading dealmakers with strong, acquisitive appetites? Naturally, we present only a select number of companies for each event, so we would encourage you to contact us now to ensure your business is included.READ MORE >>
If you are considering selling your business, it is important to dedicate some thought to the type of sale that best allows you achieve your goals. Do you believe a full sale where you walk away from the company after closing is best for you? Are you the type of person who would work well with a strategic partner that, together, will allow for accelerated company growth? Is there an amount of time you would like to continue working after the transaction with a plan to slowly exit over time? Determining the type of sale that appears the most attractive (I only say ‘appears’ because many owners change their mind after learning what the market has to offer and will find a more attractive sale type than what was initially assumed to be the ‘best’) will also allow you to gain an understanding for the most likely type of buyer.
When selling your business, buyers typically fall into two main categories: strategic buyers and financial buyers. The best type of buyer for your business depends on personal goals you hope to achieve from the sale.
This type of buyer is more likely to pay a premium for a business because their reason for the acquisition is to add to their already existing business. A strategic buyer can be a competitor, supplier or vendor in the same industry. A strategic buyer can also be a focused on businesses of similar model that service the same sector. These attributes are commonly referred to as vertical and horizontal markets, respectively. Using what your company has to offer can help them either expand their footprint or break into a new market.
They are looking for synergies in a prospective merger or acquisition. Synergies are characteristics of the two companies that compliment each other, so that when they are put together, the sum equals more than the two parts individually. In other words, a strategic buyer wants to have a relationship that makes the resulting business more valuable than the two businesses when they stand on their own.
Finding a strategic buyer to work with your business will give you more options in a sale. You can decide to stay on with your business for a transition period, while the new company takes over and for an integration period, eventually allowing you to exit completely, or you can negotiate your continued role in the business as a key player in its continued development.
A strategic buyer can often outbid a financial buyer because of the synergistic relationship they are looking to create in your business. Your businesses together yield increased value, sometimes exponentially, in one way or another.
A financial buyer is looking to invest capital to get a return on their investment. Basically, they want to buy your business outright, make profits from it, and then sell it again to create liquidity. For this reason, a financial buyer is not typically willing to invest the same amount of capital they can invest into your business because they are not adding your business to an already existing company of theirs. Instead, they are buying your company as a whole and working with what you have in place already.
A financial buyer doesn’t have the ability to cut on backend costs that a strategic buyer does. They will need to buy a company with a good working structure and management team in place, since they may not be bringing a team of their own to take over all areas of the business. This allows owners to stay involved with their business to help it grow until the financial buyer decides it’s time to sell again.
The benefit to using a financial buyer is knowing that there is a high growth model in place for your business, and you will most likely play a role in its realized potential before it is sold again. This is a great option for a business owner who is looking for an eventual complete exit from his business.
Choosing the Best Fit
Now, there are some exceptions and looking at different buyers from a less seasoned perspective can make it difficult to understand exactly what type of buyer you are actually facing. For example, a financial buyer may have a portfolio of business that compliments yours which can allow for a synergistic fit, thereby allowing you to enjoy some of the benefits a strategic buyer brings to the table. It could also be that a financial buyer recognizes inefficiencies or ‘areas of improvement’ that will allow them to immediately increase the company’s profitability following an acquisition. On the other hand, a strategic buyer may only want to buyer your business to eliminate a competitor and has no real intention of growing your business after the transaction takes place. Simply put, they may just want to prevent your business from continuing to eat up market share whether that be by forcing the company to remain static or by closing the doors.When it comes to selling your business, it is important to consider all your options in a sale. You need to find a buyer that will bring what you are looking for to a sale. Selling your business for a high value is important, but is it worth compromising the culture of your business or your employees? You need to decide what is most important to you and let those values be driving factors in your decisions in a sale.
It is tough to find the best fit for your business on your own. That’s why using a sell side mergers and acquisitions firm like Benchmark International is essential. You will have someone on your side who can help you find the right buyer for your needs. You can also learn more about what you can negotiate in a sale and you can discuss what’s most important to you to make sure those needs are met in a sale.
If you are thinking of selling your business, Benchmark International is dedicated to helping business owners like you achieve what they are looking for in a sale.READ MORE >>
Benchmark International has successfully facilitated the acquisition of Plastic Revolutions, Inc. to Industrial Container Services.
Plastic Revolutions, Inc. is a plastic recycling company that diverts post-consumer and post-industrial waste from landfills. The company receives plastic material in various forms from manufacturers, material recovery facilities, and brokers.
The acquirer, Industrial Container Services, is the largest provider of reusable container solutions in North America. The company offers the most complete container management systems available including reconditioning, manufacturing, distribution, used container collection and recycling services for all major industrial packaging types.
Given the current market standards, the Benchmark International team decided to focus on synergistic buyers for the client. This allowed Plastic Revolutions to obtain the best possible value in a transaction as both parties would benefit from the acquisition. The acquirer can now bring plastic recycling in house.
Regarding the deal, Transaction Director Leo Vanderschuur stated “It was a pleasure to represent Plastic Revolutions in this transaction, and on behalf of Benchmark International, we are extremely pleased with the outcome. Allowing both the seller and acquirer to prosper and benefit is always an ideal end result.”
The President of Plastic Revolutions, John Hagan, stated that his experience with Benchmark International was top notch. "Benchmark was unbelievably helpful in assisting in the sale of my company. They explained the process and were in front of the pack the entire way to the finish line," he said. "I would highly recommend Benchmark to anyone wanting to sell their company."
Benchmark International has successfully facilitated the acquisition of Central Window of Vero Beach, Inc. by Florida Window and Door. Central Window of Vero Beach is a supplier and installer of windows, doors, and specialty screens for contractors and end-users.
Florida Window and Door and its affiliates have been in the replacement window business since 1983, and have successfully serviced over 80,000 residential and commercial properties throughout the Midwest, East Coast, and Florida. The company continues to expand its footprint through acquisition. Central Window fits well strategically with Florida Window and Door’s growth plan.
Wendy Labadie at Central Window stated that "Benchmark was very aggressive, in a professional way. The ‘time is of the essence’ mindset proved to be beneficial to us. We would not have been able to find a qualified buyer without their vetting process.”
Scott Berman, President of Florida Window and Door commented, “Central Window provides us the opportunity to acquire a business that has been in business for over 38 years with a stellar reputation and qualified staff. The company allows us to further expand our geographic footprint in the State of Florida. We look forward to the opportunity of growing this business and welcome the employees of Central Window to our company.” Mr. Berman also added, “Benchmark was extremely helpful in the process and allowed us to complete the deal on schedule as a result of their guidance.”
Regarding the deal, Transaction Director Leo VanderSchuur stated “It was a pleasure to represent Central Window of Vero Beach in this transaction and, on behalf of Benchmark International, we are extremely pleased with the outcome. Allowingboth the seller and acquirer to prosper and benefit is always an ideal end result.”
Benchmark International has successfully facilitated the merger between Network Technologies, Inc. and Automated Systems Design. Network Technologies, Inc.
(NTI) is an IT infrastructure design and planning firm, specializing in technology cabling, audio/visual design and control systems, security systems and wireless networks.
Automated Systems Design (ASD), is a nationwide provider of design, engineering, installation, and project management for workplace technologies for customers in a variety of industries.
Jeff Cook, President and majority owner of NTI said “The Benchmark team was very professional, responsive and provided great guidance during our entire transaction process. Having Benchmark on our side, focusing on the details of the transaction process, allowed our management team to continue to focus on the day to day running of our business. I would highly recommend partnering with Benchmark for any small to mid-size business owner that is considering the sale or merger of their firm. We are excited to be part of the ASD team and look forward to providing expanded services and capabilities to our clients through the synergies of the combined companies.”
“We are very pleased to welcome NTI, led by Jeff Cook and Scott Dupuis, to the ASD family. The combined companies of ASD and NTI is a strong strategic fit that will provide our customers a fully integrated design/build organization. NTI's experienced management team and operational staff will be a strong addition to our organization and we look forward to integrating the team over the next few months. We believe the merged companies further our goal to expand our service offerings to both NTI and ASD customers throughout the US. We look forward to building on the success of both organizations and to continue to grow our customer base through the strong reputation of delivering projects on time and budget.” said Kevin Kiziah, President and CEO of ASD.
Benchmark International is delighted to announce the acquisition of GPL Landscaping to Rotolo Consultants, Inc.
Benchmark International acted as the representative for GPL Landscaping throughout this transaction. This represents Benchmark International’s fourth successful deal closing in the Landscaping industry over the last two years. Benchmark International maintained a close relationship with the client to obtain a good value for both parties.
“The landscaping industry has become a hot sector for lower middle market M&A,” said Benchmark International Managing Director Clinton Johnston. “The volumes and multiples we are seeing now, as well as the sheer number of repeat buyers and closed transactions, especially below the Mason-Dixon Line, could never have been predicted even as recently as five years ago. While there is an exciting quantity of well-funded potential acquirers, each is looking for very specific criteria and will only pay the value sellers are demanding in cases where an exact match can be found for their criteria.”
GPL Landscaping provides landscape maintenance and installation services to commercial and high-end residential accounts located in Florida. Approximately 80% of revenue is based on recurring maintenance programs. An established bank of customers made them a positive prospect for potential buyers.
Rotolo Consultants (RCI) Is a well-established regional landscaping company. RCI has designed, constructed, and maintained many of the most innovative and beautiful landscapes in the southeastern US. Through the years, they have evolved from a small family nursery business to one of the largest, most respected firms in the industry. “We are very excited about the acquisition of GPL Landscaping. (The company) comes with an experienced management team that has been at the core of its success,” said Keith Rotolo, president and CEO of RCI. “RCI will now be able to offer our extensive landscape and construction scopes of work to a new client base while aggressively growing the existing landscape maintenance presence that GPL had established. We will continue to explore acquisition opportunities in northwest Florida as well as in our core markets.”
Benchmark International Transaction Director, John Deeks, stated, “This transaction was not without its bumps and delays. However, as we knew that this client represented a perfect fit for the buyer in terms of geography, commercial to residential mix, level of recurring business, and management practices; we knew this was the right deal for our client and the valuation offered by RCI would be difficult to replicate. As a result, we fought hard to keep this deal on track, reminding the buyer of this compatibility at every opportunity and fighting through some unusually lengthy roadblocks.”
As stated on Benchmark International’s website, our perspective makes us different. We strive to help clients reach their maximum value for the sale of their business. To accomplish that goal, it’s important to also have good buyside perspective.
Buyers look at companies differently than sellers and some advisors. Certainly, a company’s financials are a common barometer for both sides to gage a company’s performance and success. And cultural fit is a must. Beyond those metrics; however, buyers prioritize characteristics to mitigate investment risk. These characteristics include, scalability, stability, resiliency, and the ability to grow.
Scalability is about a company’s ability to accommodate growth – to behave as a larger entity. Some acquisitions result in smaller companies becoming part of much larger organizations. The new structure sometimes brings new processes, systems, and reporting requirements. These changes in scale can introduce risk if personnel lack the bandwidth, appetite, skills, or resources to ramp up. Buyers seek assurance that the team is adaptable and capable of scaling.
Many investors also seek stability. The project-based business with wild swings in revenues or heavy seasonality, for example, presents significant challenges in performance, planning, and execution. For most investors, consistency is vital and this is often tied to a company’s revenue model. This is a key reason why buyers prefer recurring revenue models. For industrial services businesses, long-term or preventive maintenance contracts provide recurring revenue. Many equipment manufacturers have transitioned to providing a service rather than hardware. For example, some compressor manufacturers retain the physical asset and provide an “air as a service” guarantee for a monthly fee. And software companies achieve this by transitioning to a subscription, or software as a service (SaaS) model. Together with a “sticky” customer base – high switching costs or risk – these all provide a level of revenue stability that might otherwise be absent.READ MORE >>
Benchmark International sponsored and attended the 2018 Texas ACG Capital Connection event in Houston, Texas from March 28 to March 29. Texas ACG Capital Connection is known as the most significant private equity and debt capital event in Texas and the Southern United States. It is also one of the largest ACG Capital Connections in the United States.
Benchmark International’s Managing Director, Kendall Stafford, feels that these types of events are essential to the team’s professional development and growth, and offer Benchmark International the opportunity to present their clients’ opportunities to many buyers. “These events allow us to connect with financial buyers across several industries, states, and countries at the same time,” she said. “Additionally, members of our team can attend keynote speaker sessions and they can share what they learn with the rest of the team, so we can focus on trends in today’s M&A market.”READ MORE >>
Irrespective of the outcome and the eventual deal Britain strikes with the EU, there will be greater uncertainty for businesses in the near-term.READ MORE >>
Timing is, without doubt, one of the most critical factors in mergers and acquisitions; a recent report found that it is, in fact, the single most reliable predictor in terms of creating real shareholder value.READ MORE >>