Several important factors play into the deal-making process if you are a business owner considering a merger and acquisition for your lower- to middle-market company. Timing is often one of these factors.

What is Net Working Capital?

Introduction

Working capital also called net working capital, measures a company's financial security. According to Jensen and Meckling, authors of the new famous Theory of the Firm (1976), the components of working capital measure the firm's shareholder value. Working capital helps evaluate a company's short-term health, liquidity, and ability to invest and grow its operations. Working capital is defined as current assets less current liabilities. Current assets often include cash, accounts receivable, customer unpaid bills, and inventory, with current liabilities encompassing accounts payable and short-term debts, to name a few.

When it comes to selling your business, and you are considering waiting or pausing, there are several factors to consider, such as market conditions and interest rates. But there is also something called the denominator effect.  

Many individuals at large institutions that trade in the public markets are turning to private ownership and pursuing majority equity positions in lower middle-market companies and even creating their own funds. This public-to-private trend is partially being driven by current and expected public market volatility over the next few years, combined with individual business circumstances, all with the expectation for a brighter future. The recent stock market instability is presenting attractive opportunities for companies that may perform better in the private market. Private equity and private investors have ample capital available to them at a time when public market valuations are sinking. The interest is coming from both private equity funds and strategies, as private markets are gaining ground on public markets. Take-privates are on pace for the second year in a row at $100 billion or more in deal value. That is a first for the industry in more than a decade.

Benchmark International was awarded Corporate/Strategic Deal of the Year ($10MM - $25MM) for the transaction of Performance Equipment to Mid State Restoration in The M&A Advisor's 21st Annual M&A Advisor Awards.

Benchmark International was awarded Cross-Border Deal of the Year ($10MM - $25MM) for the sale of Summus Group to Sia Partners at The M&A Advisor’s 21^st Annual M&A Advisor Awards.

Benchmark International has been named Leading Specialist M&A Advisory Firm of the Year 2023 in the United Kingdom by Acquisition International's Leading Adviser Awards.

Benchmark International is pleased to announce the transaction between Chustz Surveying, a Louisiana-Based Surveying Company, and GIS Engineering, a professional service firm across five locations in Louisiana.

How will running a competitive bid process help me?

The lower middle market remains very active, and we anticipate that this trend will continue for the foreseeable future. If you are a business owner, you have probably received unsolicited interest and perhaps even offers for your business. There is a lot of money chasing few deals, so buyers are looking to find off-market deals to build their pipeline and purchase a business below market value to boost their investors’ returns. Having additional buyers at the table tends only to benefit the seller.

When a buyer uncovers an off-market deal, they are often in a better position to buy the business at a discounted price than what they would pay in a formal auction or open bid process. Buyers seek acquisitions to help solve a problem or hit an ROI benchmark. If the buyer can purchase a business below market, then the buyer ends up winning both in the current transaction and future transactions. The business owner is the one who tends to have seller’s remorse. Our team commonly speaks with buyers who will not participate in auction processes because they do not want to pay top dollar, and those buyers know that they are not willing to do what it takes to win the bid.

If you have ever watched an episode of Shark Tank when all the sharks are bidding on an opportunity, you have seen how a competitive bid process can benefit the company pitching to the sharks. When Lori Greiner, Barbara Coroan, Robert Herjavec, Daymond John, Kevin O'Leary, or Mark Cuban share an interest in an opportunity, it often piques the interest of another shark who wants to jump in and try to win the bid. Sometimes, the sharks even go into the deal together. This process also happens for deals within the lower middle market. When two buyers go into a deal together, they are called co-investments. In this case, two can be better than one. However, you will not know if co-investments are an option until you go to market and run a process.

When a seller receives an offer from an unsolicited party, the offer only reflects one party’s view of the value of the business. Businesses are comprised of both tangible and intangible assets. That is, the value of the business lies not only in its tangible assets like machines and inventory but, perhaps more importantly, in the quality of its people, process, customer base, and intellectual property. Acquirers buy businesses for many reasons, including for geographic expansion, product line development, talent acquisition, and competitive advantages, to name a few. Why is a business worth 5x to one buyer but 7x to another? A business's real value is the opportunities an acquirer has post-closing. Ultimately, the only way to know if the offer in hand is a representation of the market or even the best option for the business owner is to explore multiple views of the value of the business.

If you move forward with the one offer available, what will you do if the deal falls apart during due diligence? Due diligence can be a time-consuming and overwhelming process. If you go through the due diligence process and the deal is unsuccessful, what? You will not have a second or third option. The sale process can be very emotional. Often, when a deal closing is not successful, a firm that ran a bid process will typically have a handful of bidders that they are able to re-engage to work toward a successful closing. The deal team can utilize the initial data request and due diligence process to make the workload lighter the second time around. An experienced M&A deal team will be able to craft a strategy to target active buyers from previous efforts and bring them back to the table. However, if you only have one option, you must start over from the beginning. By the time you start over, you are at risk of missing the market, which might cost you tens of millions of dollars.

The other great aspect of running a bid process is that you have leverage during due diligence. Typically, when a letter of intent is signed, the negotiation power shifts from the seller to the buyer. If you have other suitors waiting in the background, an experienced M&A deal team can use that competitive tension to help a seller secure the best deal on the market and keep the buyer in check. The buyer who ultimately wins a formal auction process knows that there were other suitors competing for the bid.

It is crucial for any seller considering a sale to hire a capable sell-side M&A firm to take them to market. A dedicated sell-side team virtually assures you that you will have multiple suitors and bids. You will be able to see several different views on the value of your business and be able to determine the optimal deal structure. The process will allow you to explore other partnerships and understand what competitive advantage various firms can bring to the table. If you compare the company sale process to dating, it is good to know what other suitors offer so you can pick the best one for you! Having an experienced M&A team take you to market to uncover your best options will give you the peace of mind that you have the information you need to make the best decision for you and your business.

  Author
  Kendall Stafford
  Managing Partner
  Benchmark International

  T: +1 512 347 2000
  E: STAFFORD@BENCHMARKINTL.COM

Global Big Data Security Market

The global big data security market was valued at $24 billion in 2021 and is projected to reach $115 billion by 2030. That is a compound annual growth rate (CAGR) of 19% over the forecast period of 2022 to 2030. North America led the global market and is expected to grow at a CAGR of 17.5%.

Benchmark International is pleased to announce that it has been ranked 7^th in the top 10 by Mergermarket for the number of deals it has conducted in Ireland. KPMG, Deloitte, Goldman Sachs, and PwC are amongst the companies to also rank in the top 10. An Acuris company, Mergermarket delivers M&A intelligence, data, and research. 

The global green industry is forecast to grow at a significant rate between 2022 and 2026. Over the past decade, the green economy’s market capitalization grew from $2 trillion in 2009 to more than $7 trillion in 2021. It also nearly doubled its share of the global investable market from 4% to more than 7%. Last year, the market grew at a steady rate and is expected to continue to do so with the growing adoption of strategies by key players.

The seller, Neil Dornbusch and Associates, located in New Prague, Minnesota, has been providing pumping and fluid handling solutions since 1988. They fabricate and custom-build food processing plants, specializing in sanitary and stainless-steel applications. They also assist with the design of fluid handling systems.

The global business analytics market was valued at $76.5 billion in 2021 and is forecast to reach $122.5 billion by 2027, growing at a compound annual growth rate (CAGR) of 8.1%.

In 2021, the global space market was valued at $388.50 billion and is expected to reach $540.75 billion by 2026. The sector has expanded by an impressive 70% between 2010 and 2020. The space economy is expected to grow at a compound annual growth rate (CAGR) of 6.84% between 2022 and 2026. Analysts also predict that the space industry will reach $1 trillion in annual revenue by the year 2040, with launch costs lowered by 95%. As the cost of accessing space falls, opportunities for expansion and innovation will increase. The fastest growth is predicted to stem from new space applications and industries.

Deal activity continues to heat up in the cryptocurrency space as the adoption of crypto becomes more mainstream. Last year was a huge year for cryptocurrencies. In 2021, the price of bitcoin was up 49%, Ether was up 390%, and Dogecoin was up a whopping 1,600%. The M&A market for cryptocurrency soared by nearly 5,000% last year. But this is nothing compared to the activity for M&A of crypto companies.

There are two types of buyers: strategic buyers and financial buyers. Commercial lenders, family offices, private equity funds, mezzanine funds, independent investors, and other capital providers are all financial buyers. Strategic buyers include everything else. It can be beneficial to entertain both financial and strategic buyers when you are selling your business. Still, it is important to understand how financial buyers think and what you’re dealing with as you work through conversations and negotiations.

In the world of small to mid-market mergers and acquisitions, a number that is very important is a company’s adjusted EBITDA. The adjusted EBITDA is meant to find a company’s true normalized earnings by taking away any outside influences or ownership influences on the company’s bottom line. Some companies do not have to make many adjustments in order to find adjusted EBITDA, while some companies may need many adjustments to arrive at adjusted EBITDA.

A family business is technically defined as an organization that is owned and operated by at least two members of the same family. Family businesses actually account for around two-thirds of all companies worldwide, and 90% of companies in the U.S. The largest 500 family-owned companies generate annual revenues of $6.5 trillion. Global research has also demonstrated that well-run family companies are more profitable and stay in business longer than other companies, even with the many challenges they face. 

Last month, small business sentiment in the U.S. fell to its lowest level in nearly 9-1/2 years due to concerns surrounding inflation. Yet, at the same time, demand for labor remains more substantial than expected as companies continue to pursue growth.

Join us for the complimentary webinar: What You Need To Know About Selling Your Business To A Strategic Buyer.

Several elements play into a successful merger or acquisition, from finance to sales and from operations to HR. Leading up to a transaction, it’s not uncommon for business owners to focus more on these elements and not the area of marketing as an essential part of their M&A strategy.

Marketing is an incredibly important part of ensuring the success of a deal and the integration of companies in the agreement. In addition, effective marketing strategies can help the company create value and growth in several capacities.

The Retail Industry
Now that we seem to finally be closing in on the end of the COVID-19 pandemic, 2022 is likely to continue to see overall growth in the retail sector, but not without its share of challenges.

What is an M&A Strategy?
A strategy for a merger or acquisition is the rationale behind the transaction. Your objective should determine the type of deal that is right for your company. Maybe there is even more than one objective. Commonly, these goals are focused on boosting financial performance and mitigating risk.

When it comes to mergers and acquisitions, it is common for a seller to struggle to see the transaction from a buyer’s point of view. This is quite understandable because a business owner spends years, and even decades, building their company into a successful venture. It makes it more difficult to see the transaction from a potential buyer’s perspective. Many M&A transactions fall through because the seller and buyer simply cannot get on the same page. As a seller, you can work with an experienced M&A advisor to help you manage your expectations for the value of your company so that you can not only get the most out of your deal but also make sure the deal goes through. If you’re selling a business, you should understand how the valuation of a company works, what it is based on, and what is important to a buyer.

In the first quarter of 2022, global middle-market M&A activity maintained the momentum that we saw in 2021. Last year, lower and middle-market companies played major roles in deal-making activity. Companies of all sizes enjoyed significant buyer interest in sectors ranging from tech, transportation, healthcare, manufacturing, and logistics.

 A notable imbalance in supply and demand in the lower and middle markets has been driving up the valuations of healthy companies in hot sectors. This trend is expected to continue through 2022 for strong companies in the lower and middle markets, especially in sectors such as healthcare, cybersecurity, cloud computing, artificial intelligence, and niche manufacturing.

Handover Process

After completing the sale of your business, there is typically a handover process between the seller and the buyer. One of a buyer’s most significant concerns when taking over a business is that the company’s performance continues as it was before the sale. When a seller is willing to stay on for a handover process post-closing, the buyer has increased trust in the business, resulting in the business selling more quickly and at a higher valuation. Therefore, it will be beneficial to both parties to plan this part of the process well and in advance of the time that the handover will take place. The length, compensation, etc., of the Handover period will be worked through during the Purchase Agreement negotiations. If there is a failure to recognize and offer an acceptable handover period for the business, it could cause a deal to fall apart while it is in due diligence.

Stages Of A Business Handover

The typical stages of a business handover are the Training Stage, Handover Stage, and Assistance Stage. Immediately following the sale, the seller will usually continue to run 100% of the business. During this time, the new owner will take some time to familiarize themselves with the business. Then, as the Training stage begins, the seller will slowly reduce their involvement while the buyer continues to increase theirs. In the Training stage, the seller must create a checklist of items that he can run through with the new owner. Mark each item as complete once it’s finished, and keep this for your records if you run into any issues down the road. It is a good idea to observe how a day in the life of your business typically goes. Take note of every payroll task you complete, every person you communicate with, any supplier or contractor documentation, provide copies of all budgets, information about cash flow, etc. Continue with this process until you feel that you have been able to document all of the particulars that the new owner will need to know in order to keep the business operating smoothly. As the seller trains the new owner, the seller will slowly start to reduce their involvement while the buyer continues to increase theirs. This sequence will continue until the complete handover is achieved.

During the Handover stage, the new owner runs 75%-100% of the business with the seller still on hand to help answer questions and ensure that processes are running smoothly. If you have had a successful Training stage, the new owner will have increased confidence in successfully running the business. This may matter to the seller as well, particularly if there are any deferred payments or earnouts that have been agreed to in the structure of the sale. It is imperative to train the buyer and put them in a position to be successful, as both parties benefit from doing so. The new owner will now be in charge of making crucial decisions and bringing innovative ideas and future plans for the business to the table. Customer and employee relationships with the new owner should be solidly in place at this point, and the seller should have very limited involvement in the day-to-day activities of the business.

Once the new owner is running 100% of the business, it is common to enter the Assistance stage, where both parties have made an agreement to remain in contact for a set period of time in case there are any questions that come up. While the seller is no longer directly engaged with the daily runnings of the company, it is best for them to make themselves available to answer any questions that the new owner might have. Many times the majority of this communication can be handled through email and phone conversations. An essential item to have established for this stage is the amount of time the new owner can expect to receive help from the seller, paying particular care to have the expectations and limitations outlined.

A properly planned Handover period can help the seller and the new owner is mentally prepared for the seller’s exit and help prepare the business, customers, and employees for the handover. Once the handover is complete and the seller exits fully, they can know that the business is in good hands. It is time for them to recover from and reflect on the ownership handover period and identify their next goal to get excited about.

  Author
  Amy Alonso
  Transaction Director
  Benchmark International

  T: 512 861 3301
  E: Alonso@benchmarkintl.com 

The global food & beverage services market is forecast to grow from $3,232.94 billion in 2021 to $3,678.61 billion in 2022. That represents a compound annual growth rate (CAGR) of 13.8%. Growth is primarily due to companies rearranging operations amid recovery from the COVID-19 pandemic that resulted in so many challenges for the industry. By 2026, the market is expected to surge to $5,235.52 billion at a CAGR of 9.2%.

The global fintech market was valued at $6.5 trillion in 2021 and is estimated to grow at a compound annual growth rate (CAGR) of 13.9% between 2022 and 2028 to reach $16.65 trillion.

If you are considering selling your business, you undoubtedly need to understand its value. Unfortunately, arriving at that answer can entail many different methodologies, and it often involves the familiar valuation formula of applying a multiple of Earnings Before Interest, Tax, Depreciation, and Amortization (EBTIDA).

For example, if a company boasts EBITDA of $1 million, and a five times EBITDA multiple is applied, the company’s estimated value is $5 million. But how do we know what multiple applies to your business? And how do we know if the EBITDA number is even accurate? After all, EBITDA will not be the same for every business.

2021 was a strong market for business owners looking to sell their companies. The market remains ideal and will do so as we move into the first quarter of 2022. As we are in the middle of this year, there is no better time to consider putting your business on the market.

2021 Recap
M&A activity was moving at a record pace in 2021, thanks to economic recovery, a strong stock market, low-interest rates, rapid digitalization, more SPACs, confident boardrooms, and available debt. The U.S. had reported more than $2 trillion in M&A activity in 2021, with the year on pace to be the most active in history. Not to mention that the second quarter of 2021 was the third straight, with total global M&A value surpassing $1 trillion. That is the first time this has ever happened in three consecutive quarters. So even in the middle of the year, when things typically slow down, we are still seeing a great deal of investment, and the market is still flooded with capital.

The Global Marketing Consulting Market

The global marketing consulting market is expected to grow by $3.83 billion between 2022 and 2026, increasing at a compound annual growth rate (CAGR) of 4.75%.

Market growth is being driven by various factors, including continued education, the rising need for improved customer digital experiences, and the providing of custom-made solutions.

Because the global marketing consulting market is rather fragmented, we are seeing vendors trying to remain competitive by deploying growth strategies such as forming strategic partnerships. Over the next four years, 35% of the global market’s growth will originate from North America. 

Is the bull market for privately held companies over? No, that’s not (yet) the reality. But one of the hallmarks of the glorious decade for selling businesses is no more. And unfortunately, many of the acquirers’ gatekeepers weren’t around the last time there was a bull market that looked like this one.

So what is this new normal? Let’s first look at the old normal that we enjoyed from 2010 to 2019 - a nice, slow, smooth macroeconomic recovery. The normalcy of the “teens” allowed small and medium businesses to grow smoothly under ideal conditions. As a result, many businesses experienced near-constant year-over-year growth. And when they’ve failed to do so (or failed to do better), the reasons for the deviation could almost always legitimately be traced directly to some internal event; perhaps the loss of a key salesperson, the launch of a bad enhancement, the lack of ability to pass on an increase in inputs to the customer, or the inability to keep up with a specific competitor.