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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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Post-COVID Due Diligence

No one knows for sure how much longer the COVID-19 pandemic will be affecting our lives and our businesses. But we do know that mergers and acquisitions are still happening, deal activity will pick up, and the way we approach due diligence in a post-COVID world has the power to make major differences when it comes to selling a company. While there are new obstacles to consider, there are also significant opportunities to identify and create value, and help companies outperform the market.

Real-time Data

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Printing & Packaging M&A In 2020

In the printing and packaging sectors, M&A activity has slowed since August of 2019 with around 14 percent fewer deals closing. Deal activity was strong at the beginning of 2020, and then the COVID-19 pandemic brought everything to a standstill in the spring, with activity starting to return to normal in late summer. In fact, there were 16 transactions in August, which happens to be the same number as August of 2019.

The pandemic has made it more challenging to complete deals because of social distancing and how it impacts personal relationships, but buyers have not lost their strategic focus. The packaging side of the business has shown a heightened level of interest in labels, corrugated cartons, and folding cartons. Private equity and large corporate investors remain in the game. There is increased interest in flexible packaging, but the number of these transactions has been limited by the availability of target businesses in this segment.

 

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2020 Automotive M&A Update

During the first half of 2020, M&A activity in the automotive industry was down from previous years due to uncertainty stemming from the COVID-19 pandemic, with cross-border deals becoming more complex. However, the pandemic also resulted in new opportunities for consolidation within the industry.

There were $11.9 billion in M&A deals, which represented a 54.8% decrease in value compared to the first half of 2019. Most investments were in the pursuit of CASE (Connected, Autonomous, Shared, Electrified) technologies. This type of tech is predicted to drive M&A through the end of 2020. Dealmakers are expected to concentrate on securing supply chains and increasing resiliency rather than expanding globally.

Global Deal Activity

The majority of deal value in volume in the first half of 2020 took place in Asia and Oceania, followed by North America. The largest automotive transaction in the first half of the year was valued at $2.9 billion, with Traton SE, a vehicle-manufacturing subsidiary of Volkswagen AG, acquiring Navistar International Corporation. Volkswagen Group China continued to strengthen its electrification strategy by making two acquisitions valued at more than $1 billion each: Gotion High-tech Co. and JAC Volkswagen Automotive Company.

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When Is The Right Time To Retire?

The right time to retire is going to be different for everyone based on individual circumstances and goals. While finances are obviously a major factor in the decision, being emotionally and mentally ready is equally important. Here are some points you should consider if you are thinking about embarking on retirement.

Financial Stability
Retirement hinges upon having the appropriate income to support a comfortable lifestyle in the future. This entails having an accurate and realistic picture of what your expenses will be and how much you will need in order to cover them, including income from your savings, pensions, social security, 401ks, IRAs, and any other assets. The earlier you plan to retire, the more significant your nest egg will need to be. Waiting a few years can help you build up more financial security through tax-advantage investment accounts. So if you love what you do, a later retirement means that you can continue doing it while you shore up your savings for the future. A common algorithm for retirement planning is to have savings that are 25 times the amount of your annual expenses.

No Debt
When heading into retirement, it is advised that you make sure you do not have outstanding debt in the form of high-interest credit cards and outstanding loans aside from a mortgage or car financing, which can be taken into account for your needed expenses. By eliminating debt, your retirement income can be used for current expenses instead of past expenses and offer you added peace of mind.

The Economy
While there is no way to be sure what the future holds, if there are signs of an economic downturn, you may want to hold off on the retirement plans for a bit. This will give the markets time to recover, which will help you recoup your invested assets and retire with a better bottom line.

 

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6 Considerations When Selecting A Transaction Advisor

The most expensive mistake in selling a business is to undersell it. A qualified intermediary can add significant value to a transaction simply by virtue of experience.

Putting this into context, buyers are fit for transactions, they conclude deals in multiple jurisdictions and often have dedicated teams that focus exclusively on mergers and acquisitions. Business owners may typically have done a transaction or even two in their careers, but most often they have not yet sold a business and can benefit enormously by having a seasoned sell-side advisor on their team.

Whilst there are very broad categories of advisor; no two intermediaries are the same. In selecting an advisor there are some fundamental questions to ask that will help establish whether the firm will meet your specific needs and requirements.

1. Who will manage my deal?

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Benchmark International Is Proud To Be A Part Of The 2020 OCFO Founders Conference

Benchmark International is proud to be a part of the 2020 OCFO Founders Conference, taking place virtually, during Global Entrepreneurship Week on 19th November 2020.

As part of the event, Dustin Graham, Managing Partner of Transactions for Benchmark International's South African offices, will be speaking on the topic Building Your Business For Sale.

Topic: Building for Sale,  14:40–15:00 – Dustin Graham
Event date and time:
19th November 2020, 13:00–16:00
Location: Virtual event
Link to register and ticket sales:  https://zcu.io/1od4
Link to event agenda: https://www.foundersevents.co.za/agenda/

OCFO Founders Conference Annual Event
The annual Founders Conference normally takes place in the heart of beautiful Cape Town during Global Entrepreneurship Week. However, in the light of Covid-19, It was decided to host the Founders Conference as a virtual event this year.

The conference brings together top business people, investors, and entrepreneurs in South Africa for powerful networking, learning, and inspiration. The Founders Conference is one of the biggest gatherings of entrepreneurs on the African continent—not to be missed by any serious founder. Speakers include some of the most successful founders around the globe and investors who have raised and invested billions.

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How To Successfully Maintain A Strategic Partnership

Strategic partnerships or alliances can be very effective business tools and are important to the health and growth of a company. They can enhance capabilities, and open up shared access to new markets, channels, intellectual property and lowered risk. But they can also be complex. Once you form this type of partnership, it takes some effort to maintain it and ensure that it is a win-win for both parties involved. By taking the right steps and having a clear vision for your long-term strategic partnership, you can help it create value, thrive, and boost your business. 

Narrow Your Focus

There are many businesses that you could form a partnership with, but you have to narrow it down to what makes the most sense. What partners serve similar customer bases that make sense? For example, if you have a landscaping business, consider partnering with a nursery or a landscaping supply company. You’ll be serving the same buyer and can pass on referrals while streamlining the process and relationship for the customer.

See Both Sides

A strategic partnership, like any relationship, needs to work for both sides in order for it to flourish and yield mutual benefits. When you’re pitching the alliance to a potential partner, consider the benefits for them and present them clearly.

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How PPP Loans Affect Your Ability To Sell Your Business – We Now Have Guidance

In this webinar, Clinton Johnston, Managing Director at Benchmark International, will share Benchmark International's collective insights from the various transactions we have closed for clients with outstanding PPP loans both before and after the issuance of the SBA's October 2nd guidelines regarding PPP loans and changes of ownership. 


Click Here To Watch The Webinar: How PPP Loans Affect Your Ability To Sell Your Business - We Now Have Guidance 

 

We have also included handouts that go along with this webinar for you to download and view at your convenience. Please see the handouts below:


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Enhancing Company Value By Enhancing Culture

Culture Affects the Bottom Line

When a company demonstrates that it’s thriving with happy and motivated talent, it is more likely to garner a higher business valuation when going to market for a merger or acquisition.

There is a proven link between culture, employees, productivity, and profit. Research shows that:

  • Businesses with satisfied employeeshave been noted to outperform competitors by 20 percent.
  • Happiness leads to a 12 percent boost in productivity and companies with strong cultures see a 43 percent increasein revenue growth.
  • When employees are engaged, absenteeism falls 41 percent, productivity rises by 17 percent, and turnover is cut by 24 percent.
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The Value Of Professional Exit Planning

Exit planning is how business owners prepare to depart from their private company and maximize its value through a merger or acquisition to increase shareholder value or transition the company to serve other objectives. It basically arranges for you to leave your company on your own terms. Unfortunately, many business owners do not recognize the value in professional exit planning because they do not see their company from the perspective of a potential buyer, resulting in significant loss of value when exiting the business.

A solid exit plan clearly defines the business owner’s objectives, and lays out a comprehensive strategy that accounts for all personal, business, financial, legal, and taxation aspects of reaching those objectives, including leadership succession and the future of the business. These objectives include the maximization of value, mitigation of risk, conducting an expedient transaction, and finding the right investor to take over the business in its best interests. The strategy may also cover worst-case scenarios, such as illness or death of the business owner. Quality exit planning usually should take place around 10 years prior to transitioning the business, to allow for value strategies to flourish.

Why It’s So Important

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In Case You Missed It, Catch Dustin Graham’s Fireside Chat At The Recent SA Innovation Summit.

Dustin Graham, Managing Partner at Benchmark International, Cape Town, virtually chatted to innovators and business owners about the critically necessary planning for their exit and their worth at the recent SA Innovation Summit.

The SA Innovation Summit is the largest startup event in Africa, and brings together top entrepreneurs, investors, corporates, and thought leaders to inspire sustained economic growth across Africa. The Summit provides various platforms for developing and showcasing African innovation, as well as facilitating thought-leadership.

The interaction between Dustin and Jonathan Smit, founder of PayFast, is well worth a listen.

Listen Now on Vimeo: Planning Your Exit

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2020 Financial Services Sector Update

As the world still faces the COVID-19 pandemic, businesses in the financial services sectors are preparing themselves for life after coronavirus. This includes the management of credit risk for borrowers, and turning to digital strategies to drive revenue growth.

Insurance and Innovation

The COVID-19 pandemic is forcing the entire insurance sector to implement and leverage digital platforms that enhance customer experiences as a key part of their business strategies in a transformed world in which people are working remotely and driving their vehicles less often. The pandemic has led insurance companies to implement premium relief efforts, offer payment deferral plans, and expand coverage, but these companies are also turning to more digital strategies, emphasizing online customer experiences at a time when more and more transactions occur online versus in person. Consumers are demanding new products such as cyber insurance, more modern life insurance options, and usage-based car insurance. Middle-market insurance companies have always been a bit technologically behind the big players, but they now must adopt new innovations in order to merely keep up with convenience, simplicity, mobility, and modern interfaces that customers have come to expect.

Banking and Lending

Financial institutions are in a position where they need to understand borrowers’ needs and current financial states more than ever. They must also find new ways to measure performance through the rest of 2020. They have already provided assistance to many small and mid-size businesses during the crisis, some of which will be forgiven. Loan modifications have been provided to help businesses survive, and there is likely to be some loan losses. As the economy begins to recover, banks will be able to get a better understanding of borrowers’ financial states, knowing that it will take some time for businesses to bounce back. Deciding whether to lend more credit will be a difficult decision for financial institutions, especially for harder hit sectors such as hospitality and retail. Understanding the recovery of these industries as a whole will be critical through the use of data and payment activity monitoring.

Family Offices

Family offices are private wealth management firms that serve high-net-worth individuals and their families by offering a total outsourced solution to managing finances and investments. There are nearly 2000 of these types of firms around the world, with more than half in the U.S.

These firms have typically relied on physical offices to conduct business. Now in the wake of COVID-19, a shift to virtual family offices has become a necessity during a time where remote work has become commonplace. This has been a challenge for many family offices because most simply do not have the appropriate technology and infrastructure to result in a seamless transition to a virtual office. These businesses will be forced to evolve technologically into the rest of 2020 and beyond. As outdated technology is replaced with better performing innovations, family offices will become more mobile and agile, as well as better equipped with more adequate cybersecurity. Connectivity is also a timely issue, as Millennials will be inheriting family wealth in the future and they demand immediate access to data without disruption and with more transparency. This digital transformation to virtual family offices will also allow for a leaner staff that can deploy resources more quickly.

Capital Markets

The events of 2020 have led capital markets to affect businesses in different ways. Underwriting slowed for high-yield borrowers. Mergers were put on hold. Stock markets have been up and down, and a record number of securities and their values have been exchanged. As financial conditions improve, confidence combined with cheap credit will have companies seeking liquidity to get through the rest of the crisis. Corporations have been tapping into the public debt markets at high rates. While this generated profits at the start of the recession, bonds are less likely to be issued as businesses restore their reserves and establish liquidity that will be needed into the future.

For the rest of 2020 and into 2021, investment banking associated with M&A activity will continue to be tied to the economic recovery amid a softer deal pipeline. When the economy finally bounces back, there will be opportunity for a backlog of deals, boosting advisory revenues.

Data and Private Equity

In the time of COVID-19, certain private equity trends have emerged and are expected to be here to stay. People are still paramount, but how they work has changed. Data continues to be more important to deal making to determine the areas for greatest earnings impact. Datasets will track strategic movements and metrics within companies to gauge their performance. Remote workforces will allow competitive PE firms to source key financial talent from entirely new geographic regions. Firms are also expected to outsource more of their back-office work functions and instead focus on front-office responsibilities.  

Ready to Sell?

If you are a business owner who is considering making a move, our M&A experts at Benchmark International would love to discuss how we can help with the sale, exit or growth of your company.  

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2020 Retail Sector Update

The COVID-19 pandemic and the resulting government responses have had a significant impact on consumer spending, with retailers closed for months and shoppers staying home starting in the early part of 2020, with the timing of closures varying by country. Many consumers continue to stay home, even as most businesses have reopened. Online shopping has surged due to the pandemic. In the U.S. and Canada, e-commerce orders are up 146%.

Household consumption increased over the summer and is forecast to continue. Certain consumer behaviors that were newly formed during the earlier stages of the pandemic are expected to permanently influence spending habits. Retailers will need to clearly understand these behavioral shifts as they navigate the immediate future, and into the long term if they plan to succeed amid the new normal.

Digital as Key Driver

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Key Steps For Expanding Your Business Into New Markets

As globalization becomes more common in our world, many businesses are choosing to take advantage of the growth opportunities that lie in expanding into new markets. But expansion can be a significant undertaking for small and middle-market businesses, with many moving parts. As a business owner, you need to fully assess and understand the risks and rewards that expansion can present for your company. The following steps outline areas on which you should focus, and which elements of your business you should have ready in order for an effective expansion into new markets.

Impact Assessment

Before expanding your company into new markets, you must have a comprehensive understanding of what the overall impact on your business will be. Conduct market segmentation and product gap analyses to assess whether your product or service will sell in the target market and do a SWOT analysis to see how it stacks up against local competitors. You need to know if there is a need for your company and if anyone will buy what you are selling. You will also need to consider how large the market is and how long it may take to reach your target sales numbers.

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Middle Market M&A Valuation Gaps And Expectations

Many factors can impact middle-market M&A deal making, but one of the most significant issues that can affect closing is a valuation gap between the seller and buyer. This tends to be more common during a seller’s market because business owners with successful companies are inclined to wait for the best offer, versus a buyer’s market that occurs when there are fewer buyers, which motivates sellers to jump at an offer. Unrealistic expectations about valuation multiples often stem from the comparison of a mega deal to a middle market deal—a situation under which the same multiples are typically not going to apply.

There is also often a disparity between what a seller needs to maintain their retirement lifestyle and what value can be extracted at the time of the sale. There may be differences between a buyer’s offer, what they pay, and what the seller ultimately receives, as taxes are always a factor in a transaction. Additionally, the timing of the deal and the perception of risk regarding future growth and earnings flow for the business can play a major role in the size of the valuation gap. Selling a business is a highly complex process and it comes with great emotional implications for a seller. Emotional ties coupled with overt optimism can easily cloud one’s vision when it comes to the actual value. As a business owner, you put in a great deal of work starting your company and building it into what it is today. In contrast, selling that business is completely unchartered territory for most owners. When you are looking to sell, you need to be realistic regarding the company’s current value and its growth rate, and what the buyer will be getting out of their investment. Buyers are not going to recognize the hard work you put into starting the business in the same light that you do. All that work you did in the beginning is not on their radar—they are going to be focused on their returns.    

 

Ready to explore your exit and growth options?

 

Valuation gaps also result when private equity firms and strategic buyers compete for quality investments and relatively inexpensive financing is available. This can be both good and bad for middle-market business owners. Significant buyer interest creates considerable competition for quality deals, which is great. But at the same time, if the market is hot and demand is high, unrealistic valuation expectations and skewed perspectives can result in a valuation gap.

This is why a thorough evaluation of a business is so crucial to the M&A process. A good M&A advisor will take meticulous steps to best determine an accurate current business enterprise value, while also managing the seller’s expectations of a valuation range before going to market. So, if you are a business owner, and you plan to approach buyers without professional M&A representation, you need to understand company valuation gaps, your intrinsic risks as a seller, and how to bridge these gaps. This can require a great deal of education on your part and can be very time consuming. Or you can simply enlist professional M&A advisory expertise and have the peace of mind that the fate or your business is in the best possible hands. The best advisors will work diligently on your behalf to help you attain your goals for your business and your financial future. It requires a team with proven experience, resources, and best practices to successfully navigate the many legal, accounting, due diligence, and marketing considerations involved in arriving at an accurate and realistic company valuation and getting a quality deal done.

Engage Our Expertise

Our top-notch M&A analysts at Benchmark International can help you with your company, from creating growth strategies to selling it for maximum value. Set up a time to talk with us and we can determine what solutions are best for you and your business.

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2020 Business And Professional Services Sector Update

Business and professional services (BPS) firms are facing increased uncertainty amid the COVID-19 global pandemic. This climate is resulting in less investment and more reliance on revolving credit to maintain access to cash for operating expenses, and keeping priorities on payroll and workforce decisions. Companies with strong liquidity will shift to growth strategies and digital transformation. Also, with a greater need for mobility in a more remote-working world, there is a greater emphasis on cybersecurity, especially for government contractors and law firms.

Government Contracting: A Hot Market for Acquisitions

Government contracting is a significant moneymaker, especially in the United States. These firms rely on the needs of the government and the availability of financial resources for public investments. Government spending is often used to stimulate the economy during a slump. Through the first two quarters of 2020, government spending held steady, with health spending peaking along with the COVID-19 response, with billions going to national interest agencies and programs related to the pandemic.

The middle market in government contracting is comprised of several small, technically specialized service providers that offer high growth opportunities for larger companies that are seeking more capabilities and specific contract access. The pandemic slowed deal flow in the first half of 2020, but deals still happened with transactions expected to continue in the second half of the year. Private equity firms are seeking stable streams of cash flow and government contractors are relatively insulated from recession, making them a solid target for strategic investment and bolt-on acquisitions. M&A activity in the government contracting space is forecast to continue into 2021 as the sector (with the exception of aerospace) has been less impacted by the coronavirus and there is a need for more consolidation in the market.

 

Ready to explore your exit and growth options?

 

Cybersecurity is paramount for government contractors for obvious national security reasons. In July of 2020, the U.S. Department of Defense issued the Cybersecurity Maturity Model Certification (CMMC) to build upon cybersecurity best practices from established industry standards with the goal of reducing cyber-risk among its contractors. Other departments of the government will likely do the same, prompting contractors to prepare for it in advance.

The big commercial tech companies typically draw the top tech and cybersecurity talent, making it challenging for government and its contractors to attract talent and offer competitive salaries. During times of increased unemployment due to a pandemic, many skilled workers are seeking out less risky positions. Government contractors should jump on this opportunity to attract young, tech savvy talent.

Law Firms: Challenges and Opportunities

Due to the pandemic, law firms have had to deal with furloughs, layoffs, pay cuts and reducing expenses while finding new ways to boost revenues while working remotely. Liquidity equals agility in uncertain times, so firms should seek to expand their credit lines while making the most of government assistance options.

Human capital remains the single biggest asset for law firms. Working remotely has brought about new challenges for attorneys and staff as they juggle the demands of working, parenting and caregiving. Investing in programs, technology, and other ways to support staff is more important than ever. Amid cutbacks and a lack of contact with colleagues, talent needs to know they are still valued and connected to the firm’s success. Firms also need to take this time to assess what lessons have been learned from remote working regarding obstacles, delays and infrastructure needs and how they can address needs, especially in regard to digital support.

Security and privacy are major issues for law firms operating remotely as they need their files and records to be accessible from outside the office. A digital security strategy is key even once the pandemic has passed, as no one knows for sure what the new normal will look like. Once security is implemented and established, focus can shift to maintaining client relationships and creating revenue growth into the future. Investment in mentoring programs and empowerment of staff can help grow the business and identify new opportunities to support the firm once the pandemic is over and the economy is ready to bounce back.

Contact Us

If you are thinking about a merger or acquisition for your business, please reach out to our M&A dream team at Benchmark International to discuss how we can help you accomplish great things.

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The Impact Of 5G On M&A

Next-generation 5G networks are widely viewed as one of the most impactful and anticipated technological developments in current times. With super-high speeds of 100 times faster than that of 4G networks, 5G is expected to bring broadband connectivity to 10 times the wireless devices and usher society into a digital industrial revolution that will open up new possibilities, innovative applications, reduced energy consumption, and economic growth.

The Impact of the 5G Value Chain on the Global Economy for 2020-2035

  • Up to $13.2 trillion of goods and services through 2035
  • $2.1 trillion in GDP growth
  • 22.3 million new jobs
    *According to a study commissioned by Qualcomm Technologies, Inc.

When Will 5G Finally Be Available?

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2020 Industrials Sector Update

The industrials sector has had to adapt to significant disruption due to the global COVID-19 pandemic, and the challenges associated with it. While 2020 started on a very positive note with rapid growth for the global manufacturing sector, manufacturing output plummeted throughout the beginning of the year and into May due to shutdowns around the world. Output, new orders, exports, and purchases all fell to levels not seen since the 2008 recession. Many large manufacturing countries were under lockdowns into April, but restrictions were eased in May, which helped deter the overall rate of decline. In the wake of the crisis, many companies have found ways to evolve and use digital solutions to transform their business models, discovering changes that will continue to be beneficial in a post-COVID world. This adaptability is crucial to the survival and future relevance of these businesses.

Industry Highlights

  • Automation and connective worker technologies have become even more important to boosting productivity.
  • Migration to the cloud allows companies to be more flexible in dealing with disruptions.
  • The auto manufacturing industry is growing more resilient due to greater supply chain visibility.
  • For oil and gas companies, advanced digital technologies are a vital investment.

The Fourth Industrial Revolution

Industrial companies that made prior investments in digital technologies and IT infrastructure were able to operate efficiently during the earliest phases of the pandemic. The Fourth Industrial Revolution, also known as Industry 4.0, has enabled manufacturers to evolve their traditional supply chains and processes into highly interconnected systems. Leading organizations have been investing heavily in developed digital platforms specific to the industrials sector, pivoting business models towards being more software-centric. Additionally, smart manufacturing technologies are now transforming traditional manufacturing processes and paving the way into the future. More and more companies will be exploring digital technologies to enhance their flexibility and operate more innovatively. Robotics and 3D printing are among the most popular operational solutions that are expected to see continued heavy investment.

While remote work has become a relatively easy and normal option for many employees across different sectors, the industrial manufacturing sector is not one of them simply for logistics reasons. For example, machines need operators to keep them running. However, it has been demonstrated that technology can help limit the number of people needed to maintain operations. 

 

Ready to explore your exit and growth options?

 

Connected worker technologies are helping to streamline and hasten solutions. Typically, machine repairs require operators to contact service technicians, sometimes located in different facilities or at the original equipment manufacturer. Also, training new or existing workers has typically been face to face. Augmented reality is helping to eliminate in-person interaction for the purposed of repair, service and training and empowering workers to be more independent through digital on-demand access to manuals, instructions, and other resources.

While manufacturing companies tend to be more hesitant about migrating operations to the cloud, these organizations are realizing that cloud technologies enables them to move inventory, work smarter, customize products, and shift resources in much more flexible manner. The cloud is also an effective asset-performance tool that gives supervisors a remote window into facilities, production lines, and individuals.

Robotics and automation have significantly increased productivity for manufacturing processes. By replacing manual processes with automated alternatives, it helps to mitigate workforce availability challenges and reduces the impact of low-cost labor decisions.

Additive manufacturing and 3D printing continues to evolve and has shifted from the production of prototype applications to finished products. These manufacturing technologies are gaining more traction and offer efficient value chain solutions that enable on-demand production, less working capital, reduced supply chain complexity, fewer tools or parts needed, and less frequent human intervention.

The Auto Industry

Technology and connectivity is now the third most cited investment priority for the

automotive manufacturing industry. The future lies in edge computing, monitoring software, and the Industrial Internet of Things. Companies are able to collect and analyze data on site and in real time, connect applications to essential equipment, and conduct advanced monitoring and remote controls.

Another result of the pandemic for the auto industry is a need for more transparency in global supply chains. Thanks to AI, there is a shift from existing models in equipping automakers so that suppliers can use analytics to respond to changes in real time. For middle-market companies that have been known to underinvest in tech, this shift is especially important. Investment in IT infrastructure will help establish a more nimble and scalable environment, and will create more valuable data. The sequentially distributed databases of Blockchain technology are also changing supply chain management and adoption is expected to increase greatly into the future.

The Oil and Gas Sector

Digital technologies are also being adopted by oil and gas companies in order to bolster cost and operational efficiencies, improve safety, and reduce environmental impacts.

Robotics, AI, cloud solutions and Blockchain are all being used more and more to advance the industry. According to Bloomberg, oil companies are expected to spend $1.3 billion on advanced analytics alone in 2021. The big oil and field services companies with more experience aggressively adopting innovation and that are in favorable cash positions are more likely to continue investing in new tech. Human intervention is being scaled back. Maintenance procedures are being automated. Drones are being used to monitor real-time conditions and detect leaks. AI sensors are monitoring conditions such as temperature and vibration. At the same time, small and mid-size companies that were less mature coming into the pandemic are likely to focus spending on technology that helps them keep their businesses running.

Contact Us

No matter what sector your business operates within, Benchmark International is here to help. Contact us to discuss how we can help you grow or sell your business for maximum value.

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2020 Real Estate Sector Update

The real estate industry, both commercial and residential, is undergoing transformation due to the effects of the COVID-19 pandemic. People are working from home, traveling less, and some are migrating to smaller cities. Digitalization is becoming more prevalent, as owners, developers and managers of properties are seeking out virtual and touchless solutions to ensure safety and boost efficiency in a competitive market. Middle-market companies that keep up with the demand for innovation are poised to thrive under these new-normal conditions. 

Real Estate Trends Expected to Continue

  • Office spaces are being reconfigured to offer more space for each worker.
  • Remote work is facilitating home purchases farther away from large cities that are home to corporate headquarters.
  • Virtual touring experiences are becoming standard for home sales.
  • Hotels are adapting to new measures to ensure guest safety.
  • Retail properties are being used for other commercial uses.
  • Leasing arrangements are becoming more creative to improve liquidity and cash flow.
  • The inability to have in-person property experiences are hampering due diligence efforts.
  • The construction sector will continue to employ virtual tools such as 3-D modeling and site management platforms.

 

Ready to explore your exit and growth options?

 

Remote Working and the New Office

As millions of office workers have been working remotely to help avoid spreading the COVID-19 virus, employers were somewhat surprised to see that workers were more productive while working from home. Analyses show that average workdays increased in hours and big tech companies announced that remote working would continue into the long-term future. A result of this is that companies are:

  • Looking to reduce the cost of office space.
  • Providing more space per worker for any necessary in-person collaboration.
  • Using video conferencing setups in small team rooms to bridge home and office work.
  • Implementing thermal scanners, improved ventilation, UV light for cleaning and other safety measures.

Property owners and managers of office spaces have been able to continue to collect rent payments during the pandemic. However, as unemployment rises and the economy remains uncertain, it could impact the financial markets, making property and mortgage payments more difficult. Additionally, pension fund managers for large unions often invest in office markets due to their stable rents and cash flows, but if tenants cannot pay rent, pension payments may be cut.

Residential Real Estate

Residential home buying is also changing due to the coronavirus. Prior to the pandemic, Millennials were already willing to sacrifice job opportunities to buy homes in secondary cities in search of affordable housing. A study by Redfin showed that more than 50 percent of workers in major tech hub cities would move elsewhere if their company offered a remote work option, with the desire to live someplace less expensive. New tech advancements in a more remote-work-driven world are enabling these workers to pursue both dreams. Major tech companies are recognizing the cost burden that comes with maintaining sweeping campuses in major metro areas and are leading the way in the trend to shift to remote working as more professional services companies follow suit.

How homes are being purchased is also changing. Online home shopping by Millennials was already on the rise before the pandemic, causing realtors to adapt their selling processes. Virtual reality tours and 3D floor plans are becoming standard practice. Appraisers are using drones for exterior photography. Paperwork is reduced and replaced by electronic filing and signing.

Retail Real Estate

Retail property owners have many tenants that have been forced to close due to COVID-19 restrictions and many of these tenants are refusing or unable to pay rent while closed, forcing landlords to devise workarounds and, in turn, struggle to pay their own bills. Retailers were already struggling pre-pandemic due to increasing e-commerce popularity. Now landlords are providing rent abatement periods, rent waivers, flexible payments, and interest-free repayment in order to aid in their tenants' survival.

Hospitality Real Estate

The pandemic has limited non-essential travel, as business travelers are working from home and many leisure travelers are choosing to stay home for safety reasons. The hospitality sector has taken a massive hit under these circumstances amid changing restrictions and stay-at-home orders. As economic loss negatively impacts the hospitality industry, operational priorities are shifting from personal guest experiences to the safety of guests. Economy lodging is being less affected than larger, upscale hotels because essential construction workers are still traveling to job sites in smaller markets while large conferences are cancelled and professional group business travel is being limited. Investments in new technologies by hotel operators are also crucial to the hospitality real estate industry as extensive safety measures are needed. Typical in-person processes are being replaced by digital options. Common areas are being reassessed to offer social distancing. New cleaning and ventilation measures are being implemented. These changes are expected to aid in the economic recovery in this sector.

Construction

A new era of technology is playing a major role in the construction industry. Enhanced safety protocols are being implemented in existing commercial buildings. Construction companies are embracing new technologies in the development and management of new projects. Prefabrication and modular buildings, as well as virtual construction methods, are seeing accelerated growth amid the new circumstances due to the pandemic. A recent survey showed that construction executives foresee double-digit

increases in single-trade and multi-trade prefabrication assemblies, as well as permanent modular construction, over the next few years. These construction techniques offer better project schedule performance, lower construction costs, and improved construction quality.

Considering M&A?

No matter what sector your business operates within, our M&A experts at Benchmark International are eager to discuss your future with you, whether it’s selling your business, growing your company, or devising your exit or succession plan.

 

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2020 Technology, Media And Telecom Sector Update

As the COVID-19 pandemic continues to impact everyday life, the technology, media and telecom sectors are playing critical roles in keeping people connected, working, and entertained. As more people work remotely and home school, the services provided by tech and telecom companies remain in peak demand by families and businesses.

  • Acquisitions are driving growth in the tech sector, and there is more investment in innovation and R&D.
  • Collaborative tech is expected to see sustained growth.
  • As tech companies embrace working-from-home, talent is being spread out more geographically.
  • Telecommunications companies are being relied upon for connectivity more than ever during the pandemic, and the focus on 5G-network implementation is a major priority.
  • Broadcast TV faces challenges amid declines in advertising and fewer live sports, but ad revenue is expected to increase as many major sports are returning to play. Digital streaming and retransmission fees could also offer new opportunities.
  • As video gaming and e-sports have undergone dramatic growth spurts during the pandemic, acquisition activity is expected to increase.
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10 Things To Do During This Slowdown If You Plan To Sell In The Next Three Years

The explosion of the tech bubble, popping of the telecom bubble, 9/11, the financial crisis, now this. One of the benefits of working on mergers and acquisitions through unfortunate times is that you gain a good perspective on what lies ahead after the crisis passes. More specifically, you learn how acquirers will react and this in turn teaches you how to minimize the damage during the crisis. Every crisis is different but with four or five now under the belts of our senior staff, Benchmark International has been able to identify the acquirer behaviors almost certain to appear after this – and the next, and every other – dip in the inevitable rise of the middle markets.

To be clear, the dip here is not one of buyer interest or even multiples being offered to this point. As we near the fourth quarter, we continue to close deals, sign letters of intent, and bring clients to market. Please see our earlier post What is Covid-19 Doing To The M&A Markets Now?which continues to accurately describe the conditions we are seeing. What we mean by “dip” is the likely drop in your company’s revenue and all the other financial metrics that influences - and to some degree controls.

It is no secret that acquirers’ primary tool for determining their interest in, and their valuation of, a business is its financial performance. Businesses with growing revenue, healthy margins, and consistent performance sell for the highest multiples.

The situation we now face likely threatens all three of these characteristics and if your business has otherwise had a stellar historical performance concerning these three metrics, you may be extremely concerned that its performance during this period of the global slowing will forever mark its luster and lower its sale price.

While it is true that recapturing lost growth (i.e., growth that is not occurring at the moment) is hard to do, this is distinct from the real issues here – preserving the high multiple your business deserves. Fortunately, our experience indicates that your deserved multiple is salvageable – if you know how to do it. Yes, getting those record-high multiples for businesses at the end of the company sale process will be more complicated for the next few years, just as it was in 2009- 2012, but with the right preparation now and process later, you should have no reason to believe your multiple will be subpar in the future just because of the current financial setbacks.

Here are some key things to do and remember:

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2020 Healthcare Sector Update

As we reach the middle of Q3, a look back at the past several months in the healthcare sector indicates certain key trends for the industry and how it is expected to undergo transformation into the future.

Continued Innovation

Even during a pandemic, innovation and development continues. Pharmaceutical, biotech, healthcare IT and medical device companies are persevering with new and highly advanced mechanisms that will impact outcomes and patient experiences. From specialty drugs to artificial intelligence applications and from 3D printing to virtual reality, the healthcare and life sciences sector is expected to remain an attractive investment area into the future.

Under the demand for COVID-19 testing, contact tracing, and the race to find a vaccine, governments are shifting more of their budgets to healthcare services. Also, in vitro diagnostics testing (IVD) will continue to increase as major players such as CVS and Walgreens build it into their location infrastructures.

Healthcare IT companies have lofty aspirations for enterprise-grade artificial intelligence platforms that can predict pandemics, forecast patient volumes, authenticate reimbursement, and enhance drug management and self-care. Big data in healthcare also continues to draw interest and grow at a high CAGR.

Elective Procedures

Social distancing and COVID-19 has resulted in the deferral of elective and non-urgent medical procedures. According to a study by JP Morgan:

  • 13% of respondents will be postponing elective procedures until there is a vaccine available.
  • 15% will be waiting until a treatment is developed.
  • 40% said they plan to wait until within a few months of the crisis subsiding.

 

Ready to explore your exit and growth options?

 

Telehealth

The use of telehealth services continues to grow in popularity as patients prefer to avoid in-person visits due to pandemic concerns. Prior to the pandemic, telehealth saw slow growth due to a lack of state and federal reimbursement, physicians’ resistance to adopting the new technology, and patient unfamiliarity with virtual visits. COVID-19 and changes to reimbursement have resulted in a massive uptick in telehealth visits over the past several months, growing at a rate of 7.9 percent. Telehealth is also being used more frequently for virtual urgent care and ER visits, as well as for mental health.

Healthcare Jobs

The healthcare labor market has been impacted by the current recession and other factors. 1.4 million healthcare jobs were lost as of April but 380,000 jobs were added back in May. Hospitals lost an additional 26,000 jobs. Many clinicians not treating COVID-19 as well as administrative staff are working remotely for the first time in an industry that has typically resisted virtual work. A certain level of virtual work is expected to remain in place into the future.

M&A Deals

Because of the global pandemic, many private equity firmshave a heightened focus on their own portfolio businesses. However, the majority are still open to looking at quality opportunities; in addition, strategic buyers such as health systems and hospitals are considering M&A plans in the medium term. Overall, deal volumes are expected to increase between now and H1 of 2021.

Ready to Make a Move?

The M&A experts at Benchmark International are eager to start the conversation about your future, whether it is growing your company, selling your company, maximizing its value, or planning your exit strategy. We are committed to getting you results that fulfill your ambitions and exceed your expectations.

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What’s Unique About Selling a Government Contracting Business

Every business is unique and grammar experts will tell you that you cannot place a modifier before the word “unique”. That said, selling government contracting business is a very unique art. Here are some insights from Benchmark International’s extensive experience with these engagements. 

What makes selling a government contracting business unique?

Most importantly, there are far fewer financial buyers (e.g., private equity funds, family offices). This means the potential buyer population is both smaller and skewed toward strategic buyers, such as competitors, suppliers, and businesses in adjacent sectors. Therefore, the buyer outreach effort must be more robust, the marketing strategy, as with all writing, must focus on the proper intended audience, and each potential buyer that reaches out must be treated with extra care.

What keeps other buyers away from government contracting businesses?

The main issue is customer concentration. Many companies rely on one specific government or one specific agency for the vast majority of their revenue, for example, the Department of Defense or their state’s Department of Transportation. Knowing how to address this issue is not only key to attracting buyers on the edge of the process but also to stoking interest in all potential buyers in the process. “Customer concentration” is routinely cited in buyer surveys as the number one concern in the early stages of target selection. Thus, failing to address this issue head-on and intelligently can greatly reduce the buyer pool.

Do these businesses trade at a lower multiple than others?

No, there is no “government contractor discount.” These entities are viewed as “counter-cyclical” so when the economy is falling or expected to fall, they can demand a premium over their counterparts that only work with private sector clients. 

The business itself may have characteristics – such as customer concentration – that can impact value, but the same is true of any business with any client base. And, to the contrary, the payment history of governments is far better than that of private sector companies and the reliability of these collections gives government contractors a boost on their multiples. This reliability premium moves inversely with the number of bankruptcy filings nationwide.

 

Ready to explore your exit and growth options?

 

What type of government contractors get the highest multiples?

To a degree, the same factors that affect any business matter here – defendable intellectual property, long-term customer relationships, moats around the business, the strength of the management team that will stay on after the deal, the stickiness of the product or service offered, reputation, etc.

Additionally, the actual customer contracts draw an excessive amount of attention in these deals. 

The longer the contract is the better. For service businesses, a dollar of revenue from a maintenance contract tends to yield more dollars in the sale than does an implementation or repair contract. 

Some buyers place a higher value on fixed cost contracts, others on cost-plus or time and materials. Primes tend to get higher multiples than subs but not always, depending on the sub’s specialty. For smaller businesses that will likely have fewer open contracts, the length of time remaining on each contract and its rebid/extension terms are often points of high interest.

Lastly, whether or not the person who has relations with the government office is staying on or not is a big deal. If you are leaving and you have those relations, the sale process must be structured around this fact. This means customization of the type of buyers that are targeted and the story that is initially told to the market. Some buyers won’t mind so they would need to be the primary targets and those that will mind needing to be told at the right time and in the right manner.

What about preserving the set-aside nature of the business?

This is a question that all clients ask but few buyers care about it. We find that most clients don’t use their set aside status to win the majority of their work. More importantly, though, most government contracts do not require the prime to update the government in the event of a loss of status by one of their subs or even by the prime itself. The contracts tend to be “shoot and forget” in this regard. While it can affect some extensions or renewals, we often see that not being the case.

And buyers just don’t care. Today’s multiples are too high for buyers to win company sale processes just because they are looking for a set-aside business. If they aren’t paying for the brainpower, the relationships, the cash flow, or any other standard deriver of value, they aren’t making offers our clients will accept.

Is selling a government contracting business harder than selling a similar business serving the private sector? 

Yes, for all the reasons above it’s a bit smaller of a needle to thread. But with the right process, a good deal team, patience, and a motivated attitude on the part of the owner, the process is entirely doable, and these businesses sell every day of the year.

What’s the market like at this minute? 

As of the end of July 2020, the market has never been better. We are seeing multiples for all business types staying up at their pre-COVID record levels across the board. Also, we are seeing buyers that previously passed on government contractors reaching out specifically to see what government contracting companies are currently available.

 

To see a selection of our completed government contracting deals, please click here

Author
Clinton Johnston
Managing Director
Benchmark International

T: +1 813 898 2350
E: Johnston@benchmarkintl.com

 

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What is COVID-19 Doing to the M&A Markets Now?

What’s the latest effect (as of late-July) COVID is having on lower middle-market M&A in the US? 

Some deals have fallen out resulting in some new buyer requests emerging. As with stock in the publicly traded markets, we are seeing what you might call a “sector-rotation.” Any time you have a change in the macro-environment, whether favorable or unfavorable to the economy overall, you see buyer preferences shift.

Is activity shrinking?

Demand has moved and it takes time for supply to catch up. Also, it takes upwards of three months to close an M&A deal, even in the smoothest of times. So, replacing those deals that fell out that were in the middle or even their end phases will require some time. But the buyers still keep calling. We aren’t seeing a deeper trend, which would be concerning, about money being pulled out of private equity. So, the ship has taken a roll but there is no sign it's taking on any water.

Why haven’t buyers dried up?

Institutions and wealthy individuals invest in private equity and turn into the lower middle-markets because they need a place to set their money to work for them. 

Globally, governments have slashed interest rates in response to the pandemic. That made every other class of investment less attractive. Coming into 2020, we were concerned that rising interest rates would make those other asset classes more attractive, and we would see the historic record inflows to private equity dry up. But that has now been deferred for another year or so. Once governments recognize the need to pay off these massive bills they’ve just created, probably at the end of the next budget and tax cycle, we will see interest rates rise, perhaps even faster than we had expected as governments raise taxes and attempt to inflate away their debt.

 

Ready to explore your exit and growth options?

 

That’s fine for financial buyers but what about strategic buyers? 

Yes, some have headed for the sidelines for the time being. But operating companies, as always, need to grow their revenue and the healthiest businesses will continue to look for growth opportunities. In the present scenario, we also have companies that weren’t as healthy or as growth-oriented that now need to replace some revenues and that need to, in a way, reinvent themselves or find alternate routes to market. We also are seeing trade buyers entering the market because they have lost key suppliers or are worried about losing key suppliers, and they are looking to integrate upstream. Fortunately, larger companies went into this situation with overall corporate debt at record lows. That means there are companies out there that have the room to borrow even if their operations are not going gangbusters at the moment.

But are banks lending? 

Debt is tightening at the moment. Lenders don’t like uncertainty. This is part of the reason that deals that were negotiated pre-COVID are falling out. Buyers use as much debt as possible and if interest rates go up (which they did for M&A debt even though no-risk and low-risk interest rates were brought down), then the math of the deal gets reshuffled and someone backs out. But banks adapt and as the risk-free rate hovers near zero, they find ways to get comfortable with handing out M&A debt. Seeing senior debt on deals now brings them around 6% and mezzanine debt 12-14%, is helping them adapt faster at the moment. We are seeing deals carry a little less debt over the last few months, but bankable deals are still getting debt. Unfortunately, though, lenders are a little more investigative and slower than normal, so we are seeing this add perhaps a month to many deals.

What effect does this have on the price? 

So far buyers are being creative, and those that are not are losing their deals. The good buyers are coming back and tinkering with the deal structure to keep the overall multiple up rather than lose the deal. We are seeing them ask for more seller debt and more rollover. Deals that used to have a 20% rollover component now might have 30 or 40%, leaving the sellers a bigger second bite at the apple while still satisfying their need or desire for a transaction. 

So, is it still a good time to enter the market? 

The best time to enter the market if you are selling ice is the summertime. But the amount of time it takes to get a company to market is longer than the range of our visibility at present into where the market will be when the company is truly at the step of “entering the market”. So that question carries a bit of a false pretext. The real question is: “Is it time to start the process?” 

The answer to that question is: “It’s always time to be ready to sell.” And because of today’s added volatility, to the extent, an owner is trying to time a window they are going to have a better shot at it if they get started, get their marketing materials made, learn the process, and stand ready to enter.

Is it really all about market timing? 

No. You can sell ice in the winter, and you can sell it for the same price as in the summer if you know what you’re doing. You just have to work harder and maybe be a bit more patient, creative, or flexible. You need a solid process, broad market outreach, and a good M&A team around you. I’ve known too many owners that waited for the right wave and by the time they realized it had come, it was past. At least those that were sitting on their board out in the surf could try to chase that wave or ride the back of it, as opposed to those waiting on the beach. You can certainly sit out a solid tough spell but getting the right deal is not about hitting the market at just the right time. Buyers come and buyers go. There is always a quality buyer out there that needs the business and will pay top dollar if handled properly.

Final thoughts on the current situation?

Selling a business is too important of a decision to let any single factor decide for you. The business is usually the owner’s life’s work and therefore the considerations are infinite. Never will all of them fall into a perfect line. In other words, there are always reasons to not sell. Fortunately, starting the process and deciding to sell is not the same thing. Starting the process simply requires the reasons to sell being slightly greater than the reasons not to sell. Then, six months or a year later when the contract is on the table and the pen is in your hand, the relative importance of the pros and cons shifts. Our clients pass up offers all the time. Just because they pass on an offer does not mean that they should not have started or entered the market when they did. As long as they retain absolute discretion to sell or not to sell throughout the process, being worried about where the market is or where it might be going should not be a major concern.

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Why You Should Consider Expanding Into New Markets

If your business is successful in your geographical region, it could be time to look at moving into new markets. Expanding your company into new markets can be a powerful solution for creating growth for several reasons. If your business is based in the United States, just stop and consider the fact that 96 percent of the world’s consumers reside outside of America’s borders. Globalization is becoming more and more common for brands, and it is here to stay.

Gain New Customers and Boost Revenue

When a business is performing well, it is not uncommon for its growth opportunities to become exhausted within its home market. By turning to expansion strategies, new markets open up significant potential to reach a broader customer base, in turn increasing sales and revenue. In fact, reports show that 45 percent of middle market companies make more than half of their revenue overseas.

Diversify

By taking your company into new markets, you have the opportunity to diversify, making revenue more stable. Say your domestic market is slowing. By being in a more global market, you gain the advantage of having it as a protective measure during slower economic times at home.

Enhance Your Reputation

When you provide your product or service to customers in new markets, it bolsters your reputation both abroad and at home. A favorable reputation inherently attracts new customers. Expansion also builds name brand recognition and gives your business more credibility on a larger scale.

 

Ready to explore your exit and growth options?

 

Get a Competitive Edge

This one is simple. Get into new markets before your competitors do. This is especially important if you are operating in a saturated market. If you get there first, you get the customers first and can take measures to retain them. This is much easier than being the second or third in the new market and trying to lure customers to switch to your business for similar products or services. This is why it’s no surprise that nearly 60 percent of middle market companies include international expansion into their growth strategies.

Access More Talent

More geographical reach means a bigger talent pool. It also means adding valuable advantages such as language skills and varied educational backgrounds. It also allows you to employ local talent that has the expertise to effortlessly serve and communicate with your customers in the same time zone. This can be a key strategy if your company is older and has decades of experience operating in your home market.

Save Money

Believe it or not, expanding can actually lower your company’s operational costs and save you money, especially if your business involves manufacturing. In other markets, you may find lower costs of labor and more affordable talent. Also, advancements in e-commerce and logistics have lowered the cost of doing business overseas. And lets not forget about taxes. Several countries around the world offer tax incentives to companies looking to expand internationally because it brings new business opportunities to their homeland.

Contact Us

If you are a business owner looking for ways to grow your company, talk to our M&A experts at Benchmark International. We have extensive experience, a massive network of global connections, and plenty of great ideas. You can take comfort in knowing that everything we do is predicated upon doing the right thing for you and your business.

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10 Important Post-merger Integration Tips

Having a solid integration plan in place for your company merger is critical to the future success of your business. These tips can help prepare you for the process.  

  1. Begin planning from the earliest possible point in time. Outline all of your goals and objectives, employ best practices, and identify any gaps in your plan. Make sure all the key parties involved in the merger are in agreement on the integration plan. You should start implementing the integration process before announcing the deal. This enables you to begin integration immediately versus rushing to make important decisions at the last minute.
  2. Create an integration team and clearly communicate the strategy for moving ahead with all necessary parties involved. Assess your key areas of value and designate the teams or persons responsible for these areas, making sure they understand the exit criteria they will need to meet.
  3. Make sure leadership roles are clearly defined during and after the merger. You may even want to consider bringing in leadership from outside both companies to benefit from a neutral perspective. Insist that leadership is committed to both the big picture for the company and the details of getting integration done right.
  4. Synergy is important in all aspects of the business, but especially in its culture. Commit to one culture and take measures to ensure that it will be preserved.

 

Ready to explore your exit and growth options?

 

  1. You are going to want your staff to be positive and excited about the merger, rather than nervous and/or cynical. This means you are going to have to sell the deal to them, ensuring they understand why the move will be good for them. Craft an internal communication plan that makes sure that no one is left in the dark at any point along the way. You will want to make sure you keep the overall messaging consistent to manage expectations properly.
  2. Have a solid plan for all things IT. This is a critical component of any business. How the technology will be integrated must be completely planned out to avoid any communication breakdowns or loss of important data. Implement a structure to track progress and identify potential risks so that they can be addressed in a timely manner.
  3. Understand what type of deal you are making and how it will dictate the days ahead. For example, a scale deal is an expansion in the same or overlapping business. A scope deal is an expansion into a new market, product or channel. All of your integration decisions will be based on this.
  4. All sorts of things can crop up and slow down or sidetrack an M&A transaction. Do your best to stick to the timetable you outlined while ensuring that you make smart decisions rather than just following the process for the process’s sake.
  5. Just like easing the minds of your employees, you will need to do the same for your customers. Make every effort to ensure minimal disruption for all of your customers and clearly communicate your plans with them to address any concerns.
  6. Remember you are still running a business. Avoid becoming so distracted by the transaction that you neglect business priorities such as your customers’ needs. You must keep the company on track and running smoothly if you expect the deal to be a success.

Finally, be sure to celebrate your successes. After an arduous process, employees should feel that their work is appreciated and everyone should share in keeping the momentum going moving forward.

Contact Us

At Benchmark International, our highly esteemed M&A experts are eager to roll up our sleeves and get you a stellar deal for your company. Reach out to us at your convenience.

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How Biden's Proposed Tax Plan Could Impact Your Company's Exit Strategy

Tax implications could be drastically different 18-24 months from now and M&A markets are preparing to react to increased liquidity events in 2021 and beyond. The implementation of the proposed Biden Plan would have negative tax consequences which would cause a significant impact on net proceeds from any potential M&A transaction. Taxes on capital gains could rise to 40 percent for proceeds of a business sale over $1M. Individuals can expect a reversal of at least half of Trump’s signature tax cuts to pay for the plan.

For business owners generating over $1M in the sale of the business, expect to have earnings (“capital gains”) taxed as ordinary income under the Biden plan. Today, capital gains are taxed as income. A capital gain is a profit from the sale of a capital asset, such as a stock or home, from the time that asset is acquired until the time it is sold. Taxpayers pay the difference on the purchase price of the asset (“basis”) less the sales price.

Three Major Components Of The Plan

The plan has three major components: raising the corporate income tax rate to 28 percent, revoking the TCJA’s income tax cuts for taxpayers with taxable income above $400,000, and imposing a “donut hole” payroll tax on earnings in excess of $400,000.

The Biden Plan has considerable impact to business owners; careful consideration to the timing of an exit and liquidity strategy needs to be at the mind’s forefront as the 2020 election quickly approaches. If endorsed, the plan impacts owners directly through the implementation of new tax obligations or the elimination of tax benefits. This includes a 19.6 percent increase on the tax rate of material long-term capital gains for those with adjusted gross income (AGI) exceeding $1M, and a 7 percent increase in the overall corporate income tax rate as noted in the table below.

Example: Assume a $2.0M EBITDA business receives a valuation multiple of 10x for a total transaction value (taxable gain) of $20.0M. Under the Biden Plan, the seller would lose $3.92M in the sale. To receive the same net proceeds, a multiple of 13.2x would need to be secured.

Independent of the 2020 election, taxes are being reevaluated at the state level. This includes increased tax burden on transaction proceeds. The adoption of the proposed graduated income tax rates proposed in states such as Colorado, Illinois, and Michigan would result in a higher state tax burden for high earners. California has already adopted this measure and has a 13.3 percent top marginal tax rate for individuals with income above $1.0M.

 

Ready to explore your exit and growth options?

 

What If I Want To Transfer My Wealth?

The step-up in basis for inherited capital assets may cease under the plan. This elimination translates to more taxes on wealth passed to heirs and ending favorable tax rates on capital gains for anyone making over $1M.

How Are My Stocks Affected?

The 2017 tax reform law dropped the corporate income rate to current 21 percent level. The proposed plan increases the corporate tax rate from 21 to 28 percent.

For people that earn $300,000 a year, you more than likely own shares in publicly traded companies. Under the plan publicly traded companies will be paying higher taxes which means less cash available for dividends to stockholders. Biden is suggesting a 15 percent minimum tax on large corporations. Goldman Sachs has projected that Biden’s tax plan would lead it to reduce its 2021 earnings estimate by 12 percent.

The tax rate on Global Intangible Low Tax Income (GILTI) earned by foreign subsidiaries of US firms will double from 10.5 percent to 21 percent.

How Is The Overall Economy Affected?

Experts suggest this plan would shrink the size of the economy by 1.51 percent due to higher marginal tax rates on capital and labor. A decrease of 3.23 percent in capital stock and reduction of 0.98 percent to the overall wage rate would lead to 585,000 fewer full-time equivalent jobs according to the Tax Foundation’s General Equilibrium Model.

Over the course of the next 12 to 24 months sellers and buyers alike will be keeping a pulse on the results of the 2020 presidential election and the possibility of a significant tax overhaul. It is important to note the reality of the Biden Plan coming to fruition can be driven by not just a Biden election; other drivers can include Democrat control over the U.S. House of Representatives or a change in control in the U.S. Senate from Republican to Democrat.

With the 2020 election on the horizon, it is crucial that business owners contemplate the potential tax consequences and consider crafting an exit strategy now to be ahead of the tax changes.

The recipient should consult their own tax, legal, and accounting advisors before engaging in any transaction. This document has been prepared for informational purposes only and is not intended to provide, and should not be relied on, for tax, legal, or accounting advice.

Sources: Tax Foundation, Kipingler, Houlihan Lokey and Yahoo Finance

 

Author
Emily Cogley
Director
Benchmark International

T: +1 813 898 2350
E: Cogley@BenchmarkIntl.com

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The 2020 U.S. Election And M&A

Past presidential elections in the United States have coincided with macroeconomic circumstances that affect markets. For example, in 2000, the dot-com bubble burst. In 2008, America was in the midst of the Great Recession. And now in 2020, we are in the middle of a global pandemic, dealing with the impacts of the COVID-19 virus, coupled with sweeping protests regarding racial injustice and the repercussions that forced closures have on businesses. In the wake of all of this, four months remain until the November election. Unfortunately, we cannot predict the future, but we can take a look at how the M&A market has been impacted in the past.

M&A activity is cyclical in nature, subject to underlying circumstances that include changing technology, electoral politics, and regulatory changes. As the current M&A cycle winds down, it is worth noting that the dealmaking wave that ceased during the financial crisis actually got started during a slowdown in 2003. Leading up to the 2008 election, M&A activity in the U.S. was strong and it did not bottom out until later when the worst of the recession had passed. Two major relief packages, the Emergency Economic Stabilization Act of 2008 enacted by the outgoing administration, and the American Recovery and Reinvestment Act of 2009, enacted during the first year of the new administration, boosted recovery in capital markets and helped companies adapt to adverse macro conditions in the near term, and eventually paved the way for a new M&A cycle because the cost of capital was reduced to historic lows, injecting liquidity into equity and bond markets.

The level of dealmaking activity in the multiquarter period leading up to the 2012 election compares favorably to the financial crisis period that coincided with the 2008 election at $802.6 billion in 6,087 deals, topping activity for the same period the year before. In the first three quarters of 2012, M&A activity saw a combined $837.5 billion in 6,864 completed deals. The JOBS Act was enacted in 2012, designed to encourage small businesses to become public companies. As a result, the SEC made the filing process easier to manage.

 

Ready to explore your exit and growth options?

 

M&A activity peaked in Q4 ahead of a decline in 2013 Q2 that bottomed out at $241.3 billion in 2,049 transactions. In mid-2013, M&A activity accelerated and the cycle expanded, partially stimulated by strategic buyers contending with financial sponsors armed with record levels of dry powder. Private equity has kept that cycle going from 2013 to 2019. Volume met or exceeded 900 completed transactions and at least $70 billion in value over the same timespan.

Certain conditions that were a result of the financial crisis spurred expansion of the M&A cycle and have proven favorable for private equity and venture capital dealmaking, such as enterprise restructuring around developing regions, expansion of business portfolios, and optimization for tax benefits and accessing cash outside the U.S.  

During 2014, completed transactions grew 26% year-over-year, while deal value increased by an additional $500 billion. This cycle of completed transactions peaked in 2015 at 12,523 deals of $1.9 trillion in value. Annual volume remained above 11,000 transactions with deal value at around $2 trillion for each of the past five years.

Leading up to the 2016 election, M&A activity was pushed to its highest levels per quarter in a decade. In the first three quarters of 2016, 8,825 transactions worth a combined $1.6 trillion closed. Activity dropped in Q4, but rebounded in 2017. Since 2018 began, M&A has steadily declined and Q4 2019 posted the lowest total since Q2 2013. 2019 saw levels return to those last seen in 2013. On June 8, 2020, the National Bureau of Economic Research announced that the U.S. entered into a recession in February of 2020.

While the global pandemic has undoubtedly been costly and detrimental to many businesses, it has also opened up opportunities for growth for some companies as consumer behaviors adapt to a changed world. Global supply chains were massively disrupted, hampering global trade, all of which has a negative impact on dealmaking. How it will play out in the later half of 2020 and into 2021 will depend partly on if there is a second wave of the virus and the availability of a vaccine. Technology remains a continuously evolving area of opportunity and the pandemic has changed the ways that we work and collaborate. Environment, social and corporate governance practices will continue to designate the convergence of technology and regulation. How the election will impact M&A markets remains unknown, but history has shown that emerging out of a recession tends to spawn accelerated M&A activity well into the future. Every M&A cycle develops in response to different conditions, yet all have emerged during periods of economic recovery combined with improvements in capital markets after consecutive quarters of underperformance.

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Now Is The Time

If you are thinking of selling in the near future, now is the time to get to market. We are in an unprecedented time making it challenging to run a business but also to sell a business. 

The M&A market is changing daily and many factors are affecting deals in 2020. We do not have a crystal ball however there are a few trends that if you are considering selling your company in 2020, then now is the time.

  • This year is a presidential election year. As we begin the second half of the year, we begin to think about Q3 and Q4 2020. Buyers are actively seeking acquisitions and deals are still being completed. However, the closer we get to November, buyers will begin to focus more on the election and want to revisit their acquisition plans after the election is over. As we go into the end of the year, planning for 2021 will begin. One would anticipate that the end of the year will be quiet for the M&A market as companies, financial buyers, and others will want to see what lies ahead in 2021.

  • PPP forgiveness will take place soon. Once the loans are forgiven, if the businesses have not improved their performance, we would anticipate that layoffs will continue and potentially at a higher rate than what we are currently seeing at this time. If this happens, it will continue to harm the economy as additional businesses will also fail.

  • The credit market is changing daily. We are seeing lenders backing away from term sheets based on their bank’s industry exposure, small discrepancies that emerge during due diligence, and more conservative underwriting. There is talk within the market that lenders may continue to tighten their lending standards making it harder to obtain credit for acquisition. This may have a direct effect on multiples.

  • While we know that the tax environment is today, we can only anticipate that long term, taxes will increase. With the various US federal initiatives related to COVID-19 and the economic decline, we suspect that the US will have to raise taxes to overcome the growing debt burden that has been created in 2020.

All these factors contribute to the M&A market, valuations, and deal structures. The best time to sell is now.

Author
Kendall Stafford
Managing Partner
Benchmark International

T: +1 512 347 2000
E: Stafford@Benchmarkintl.com


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5 Tips For Preparing Your Company For Sale

When the time comes to sell your company, you obviously want to get the most value and the highest possible price. There are several steps you can take before going to market to increase the likelihood of you cashing out for more in a merger or acquisition.

  1. Focus on Profits and Growth

You will want to increase your net revenues and profits, keeping in mind that buyers will focus on EBITDA (earnings before interest, taxes, depreciation and amortization) for valuation. This is the number you want to boost because the higher your EBITDA, the higher your sale price will be. Your company’s growth potential will also be important to acquirers so you should put extra effort into growing your sales, even if it means hiring more sales talent (as long as it justifies the costs—adding salaries and benefits need to be worth the results).

  1. Get Your House in Order.

The M&A process will certainly include a comprehensive audit of your financial records and any other business concerns. It is key to get all of your documentation in order before embarking on a sale. The more complete and orderly your record keeping is, the more confidence it will instill in potential buyers. This also means you should address any unsavory topics, conflicts or legal issues. Getting any discrepancies resolved will prepare you to honestly answer difficult questions and demonstrate your commitment to getting a transaction done. Buyers do not want to be faced with surprises during the due diligence process.

 

Ready to explore your exit and growth options?

 

  1. Do a SWOT Analysis. 

Take the time to assess your Strengths, Weaknesses, Opportunities and Threats. You need to understand where your company stands in the current market, how it stacks up to competition, and how to maximize its strengths. If you have a complete understanding of your SWOT profile, you can take the necessary measures to position your company to buyers in the best light possible by uncovering growth opportunities and being proactive against any impending risks.

  1. Trim the Fat. 

Think about any areas of your business operations that could be tidied up, such as redundancies or costs that do not add any value to the company. Can you justify everyone that is on your payroll? Would outsourcing be more cost effective? Can you spend smarter when it comes to equipment? Are you carrying outdated inventory? Is there property that you are paying taxes on that you really do not need? What can you do to avoid adding new expenses? This doesn’t mean you should cheap out on anything that affects your core competencies. But sometimes simply reallocating resources can help you optimize the financial health of your company.

  1. Get an M&A Advisor. 

M&A advisors handle a significant amount of the complicated work that goes into the lengthy deal process. Their exclusive connections will get you access to quality potential buyers. They will help you prepare and market your business effectively, finding ways to make it more enticing to buyers. Another benefit of an M&A partner: not only will buyers know that you are serious about selling, but you will also know that they are serious about buying. They will also help you organize your due diligence documentation and present your financials, coordinate meetings, help with exit or succession planning, and ensure that you have peace of mind through such a momentous time in your life.

If you are ready to sell your company, please contact our M&A advisory experts at Benchmark International to get you on the path to a deal that meets all of your aspirations.

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Sellers Vs. Buyers Disparate Interests in the Transaction Process

Buyers and Sellers approach a given transaction from different perspectives. The seller wants to receive as much as possible, as quickly as possible, with little or no potential liability to the buyer or parties associated with the seller’s pre-sale operation of the business. The buyer wants to pay as little as possible, defer payment as long as possible, contractually obligate the seller to indemnify the buyer against actual or potential known or unknown liabilities and ensure that the seller can make good on those obligations by escrowing sales proceeds or deferring payment. The give and take, or push and shove, over these issues takes place during the entire transaction process but predominantly during the negotiation and drafting first of the Letter of Intent and later the Purchase and Sale Agreement. 

Relative bargaining power, from whatever source, often determines which side controls these issues. The other major determinant is the level of experience and degree of sophistication of the parties’ M&A advisors and legal counsel. It is essential, but not sufficient, that a transaction party’s representatives understand what is in that party’s best interest. They must also understand what motivates the other side and how their representatives are likely to try to realize those goals. If both the seller and the buyer stand fast concerning their positions, no transaction will occur. This is where experienced M&A advisors are critical. Helping the parties understand which positions are crucial to their goals and which can be negotiated away is a key function of the professional advisor.

Below are several negotiating points common to many middle-market transactions, and the normal positions of the seller and the buyer with regards to those issues.

Material Terms in the LOI

Sellers are often best served by requesting as many material deal terms in the Letter of Intent as possible. This is because the maximum point of the seller’s leverage is just, before the execution of a Letter of Intent. At this stage, the buyer has expressed interest in the transaction and is unaware of issues that may surface in due diligence. The seller has not yet agreed to exclusivity, and the seller’s M&A advisors have created a competitive environment or at least the illusion of one. 

The buyer is best served by negotiating an exclusivity agreement and skipping the LOI altogether. That means, proceeding directly to the negotiation of a definitive purchase agreement. The buyer’s fallback position should be negotiating an LOI with as few binding terms as possible, except for exclusivity. Either approach gives the buyer strong negotiating leverage and the time to complete due diligence before negotiating material terms. These tactics also minimize the risk that the LOI will be considered a binding agreement giving rise to damages in the event the deal is not consummated. 

Stock vs. Assets

Nearly every corporate seller should sell stock rather than assets if the buyer will agree. However, nearly every buyer will refuse. The benefits to the seller from a stock sale include 1) potential tax savings if the target is a “C” corporation, 2) passing disclosed and undisclosed liabilities on to the buyer, and 3) a generally less complicated and less time consuming, thereby a less expensive transaction. On the flip side, an asset purchase generally provides buyers with a tax-advantageous step up in the basis for the assets and avoids liabilities other than those expressly assumed. Except for “successor liabilities” imposed by public policy such as environmental, product liability, employee benefits, and labor-related issues and liability under “bulk sales” laws. Experienced buy-side advisors will also be aware of potential “fraudulent conveyance” concerns by ensuring that adequate arrangements are made to pay the seller’s creditors and/or restricting distribution of proceeds to the seller’s equity holders until creditors are paid. Although this aspect of transaction structure is generally presented as a “fait accompli,” the seller, the buyer, and their respective advisors should be aware of the issues and how they bear upon the cost, timing, and structure of the deal. 

 

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Caps and Baskets

The buyer will insist upon the seller’s representations, warranties, and indemnifications going to issues that materially affect the buyer’s benefit of its bargain. The seller wants to avoid being “nickel and dimed” for minor issues and serving as the buyer’s insurer against the normal risk of doing business.

The seller will negotiate a cap on liability and attempt to avoid carve-outs from the cap for specific issues. The cap is often a percentage of sale proceeds, and from the seller’s perspective should be negotiated in the LOI. The cap or, lack thereof, can materially affect the value of the transaction and the seller is not well-served by giving up exclusivity until it has been negotiated.

The basket is, in effect, a deductible that must be satisfied before indemnification obligations begin. Accordingly, the buyer can only recover for the aggregate amount of damages over the basket (and below the cap). Variations on this theme include mini baskets related to specific issues and whether or not indemnification begins at the first dollar or is limited to amounts over the basket.

Non-Reliance

An important risk allocation to be negotiated is a non-reliance provision contained in the acquisition agreement. The seller wants this provision to force the buyer to acknowledge that it is relying solely on its due diligence, and the seller’s representations and warranties contained in the acquisition agreement. The buyer is precluded from asserting liability against the seller based upon statements, projections, and oral representations made outside the four corners of the document. The buyer will resist this provision.

Termination Fee (Reverse Breakup Fee)

A tactic not often addressed in middle-market transactions, but a valuable one is the termination fee. The seller requires the buyer to pay a fee, equal at least to the number of the seller’s expenses and perhaps as high as ten percent of the purchase price if the transaction is terminated at no fault of the seller (for example, if the buyer cannot finance the transaction). This type of liquidated damage provision may reimburse the seller for its out-of-pocket expenses, but it will not compensate for lost opportunity costs for failing to pursue alternative transactions because of exclusivity. Again, the reason the buyer will reject or seek to severely restrict such a provision is obvious.

Termination fees are sometimes referred to as reverse breakup fees because they turn a breakup fee on its head. Breakup fees are paid by the seller to the buyer if the seller won’t or can’t consummate the transaction at no fault of the buyer. The seller changes its mind, finds a better deal, or has insurmountable issues discovered during due diligence that adversely affect its value. In the middle-market, these provisions are generally intended to compensate the buyer for its out-of-pocket costs, rather than opportunity costs.

MAC Clauses

A MAC (Material Adverse Change) clause is one of the more contentiously negotiated provisions in the acquisition agreement. In a MAC, the seller warrants that as of a date certain (usually the closing date) there has been no material adverse change in the seller’s business. The M&A counsel has a field day negotiating the specific language. What is the applicable period? Are business “prospects” included? Should the target and its subsidiaries be taken as a whole or viewed independently for purposes of determining materiality? What should be excluded from the operation of the MAC provision? Simplistically speaking, if the seller’s business performance has declined during the relevant period or is an indemonstrable risk of decline (prospects), then the buyer can rely upon the MAC provision to terminate the deal and recover expenses.

In the middle-market, MAC clauses can be a significant cause of transaction failure. To boost enterprise value, the sellers often rely upon very recent favorable EBITDA numbers. If that performance cannot be sustained during the course of the transaction, for whatever reason, the buyer may rely upon the MAC clause to terminate or renegotiate the deal.

Escrows

A favorite buyer tactic is to attempt to escrow a portion of the purchase price to ensure that funds are available to compensate the buyer for breach of warranties by the seller. Sellers resist escrows and attempt to limit their impact. For example, the sellers should ensure that any escrow is held by an independent third party so that the buyer can’t just unilaterally offset. The seller should negotiate limitations as to the length of time the escrow is held and seek to restrict to the extent to which the escrow can be applied. If the seller cannot avoid an escrow, it should seek to limit the buyer’s recourse to only the escrow proceeds and preclude additional recovery.

Conclusion

The foregoing is just a few of the issues that may arise between the seller and the buyer is a strategic transaction. Every transaction is different; the relative positions taken by the respective parties will vary based upon their circumstances at the time. Experienced, knowledgeable M&A advisors, on both sides of the deal, are critical to the success of every transaction.

 

Author
Don Rooney
Transaction Director
Benchmark International

T: +1 813 898 2350
E: Rooney@benchmarkintl.com

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3 Ways To Grow Your Company

  1. Through a Merger

A merger unites two independent, similarly sized companies as one new entity, typically with a new name. This strategy adds value to both companies by growing into new market segments, gaining market share, or expanding geographic reach. A merger enables the new venture to benefit from the best that each company brings to the table as far as expertise, talent, technology, products, services, assets, and market penetration. In total, it offers a powerful competitive edge. A merger can also be less time consuming than other strategies, such as relying on organic growth.

  1. Through an Acquisition

In an acquisition, a company purchases a 51 to 100 percent stake in another company, taking control of it and all of its assets. Acquiring a business means acquiring its already established customer base, talent, geographic diversification, portfolio of services, and other immediate growth opportunities that would take years to create under organic growth.

Both mergers and acquisitions offer several advantages for a company looking to generate growth and value.

  • Expansion: M&A can easily extend the reach of a business in terms of geography, products and services, and market coverage. This translates into more customers gained without having to hire more salespeople or increase marketing expenditures.
  • Consolidation: M&A can unite two competitors to bolster market domination. It can also increase efficiencies by cutting surplus capacity or by sharing resources. Plus, M&A can increase production efficiency and bargaining power with suppliers, coercing them into lowering their prices. It can also allow a business with weak financials to combine with a stronger one and pay off debt.
  • More Capabilities: M&A can boost a company’s capabilities by quickly adding new talent and new technologies rather than taking the time and energy to develop each from scratch.
  • Lower Costs: By merging with or acquiring another business, you can lower costs and increase efficiency and output.
  • Speed: M&A empowers a business to grow more quickly, altering the landscape of the sector more rapidly than competition can adapt and respond.
  • Tax Perks: Profits or tax losses may be transferable within a combined business, benefiting from varied tax laws within certain sectors or regions.
  • Unbundling: Sometimes a company’s underlying assets are worth more than the price of the business as a whole. In this case, a company can acquire another and quickly sell off different business units to other buyers at a substantially higher price.

 

Ready to explore your exit and growth options?

 

  1. Through a Strategic Alliance

Mergers and acquisitions adjoin companies through total change in ownership. But there are ways that businesses can share resources and activities for a common goal without sharing ownership, known as strategic alliances. Strategic alliances enable a business to quickly grow its strategic advantage, but with less commitment. There are several ways a strategic alliance can be accomplished.

  • Equity Alliance: The creation of a new entity that’s owned separately by the two partners involved, such as a joint venture. Both companies remain independent but form a new company jointly owned by the parent companies.
  • Consortium Alliance: This is the same as a joint venture but can be formed with several partners.
  • Non-equity Alliances: These do not involve the commitment implied by ownership and are often based on contracts, such as franchising or licensing. Under this contractual alliance, one company gives the other the right to sell its products or services or to use intellectual property in return for a fee.
  • Scale Alliance: When businesses combine to achieve necessary economies of scale in the production of products or services or by lowering purchasing costs of materials or services.
  • Access Alliance: This occurs when a company needs to access the capabilities of another company needed in order to produce or sell its own products and services. An example of this is when an international company needs access to a local company to be able to product or sell the product.
  • Complementary Alliance: When companies of similar value combine their unique but complementary resources so both have any gaps filled or weaknesses strengthened.
  • Collusive Alliances: This involves companies colluding in secret to bolster their market strength, reduce competition, and demand higher prices from customers or lower prices from suppliers. Regulators usually discourage such behavior.

Mergers, acquisitions, and alliances can provide many benefits for a business that is seeking growth far above and beyond what is possible through organic growth. Each can enable:

  • Faster access to new products or markets
  • Instant market share
  • Economies of scale
  • Better distribution channels
  • Increased control of supplies
  • Lessened competition
  • Adding of intangible assets
  • Removal of entry barriers to new markets
  • Deregulation in an industry or market

Let’s Talk

If you are considering a merger or acquisition strategy to grow your business, we can make it happen. Our world-class team of experts at Benchmark International is a true game changer for accelerating your business growth in the smartest ways possible. Contact us today and look forward to a brighter tomorrow.

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7 Small Changes That Will Make A Big Difference When You Sell Your Business

So you have started to think about selling your business in the near future.  Will you be ready?  There are changes that you can make now that can make a big difference when the time comes to sell and help you avoid leaving money on the table.  Begin by starting to plan 18-24 months before you begin looking for a buyer.  Take a look at your business through the eyes of a buyer and ask yourself ‘What would I see as a positive about this business?’  ‘What would I see as a weakness about this business?’.  We have included 7 small changes here for you to consider implementing:

  1. Understand your business’s financials. It goes without saying that buyers are going to be delving pretty deeply into your business’ finances.  If you aren’t able to provide statements that are professionally prepared, this can be seen as a risk to buyers.  If the buyer doesn’t feel that they can rely on the numbers, they most likely will either offer a lower purchase price or pull out of the transaction all together.  You should be prepared to answer all questions and have at least 3 years of financial statements in perfect shape.
  2. Take a look at your customer concentration. Do you have too much concentration placed on a single customer?  This can cause buyers to take pause and wonder what will happen if they lost that customer after the sale.  It’s best to begin to look for ways that you can grow your other customers as well as gain new ones in order to reduce the concentration issue.  Multiple sources of revenue can lead to a higher purchase price.
  3. Can your business survive without you? Many business owners become the main point of contact with customers as they grow their business over the years.  Now is a good time to begin shifting those relationships to other members of your team.  Otherwise buyers will have the concern that when you leave, clients may leave the company as well.  In addition, you should have designated employees that can continue to drive the business forward and increase revenues after you have exited the business.
  4. In the time leading up to placing your business for sale, be sure to resolve any legal disputes that may be pending. Nothing raised red flags more for a buyer than finding out there is a legal case pending against you.
  5. Closely analyze the business practices that you are currently using and if you decide that it’s necessary, implement more efficient operating procedures before the sale. This could include reducing or adding employees, or investments in new technology or equipment.  Taking these measures before a sale can result in a higher sell price.
  6. Create a master system of how you access, store, organize and update all of your systems. In most cases, this will be a collection of enterprise software or file folders with controls that have been put into place for who can access what.  This system should become a part of your employee culture and be used on a daily basis.  A prospective buyer will see that the knowledge needed to run your company does not lie with any one employee, but instead is contained in the systems of the company and can easily be maintained after a sale.
  7. Organize your legal paperwork and make sure that it is all in order and readily available as prospective buyers will request access to these documents. Review your permits, incorporation paper, leases, licensing agreements, vendor and customer contracts, etc.  Ensure that they are current and in order.

 

Ready to explore your exit and growth options?

 

Continue to keep your eye on the ball and run your business as if you are going to run it forever.  Benchmark International can be your partner throughout this process and help free up time for you to continue focus on running your business operations while selling at the same time.  With a team of specialists that arrange these types of deals every day, we can answer your questions and help you determine what is best for you, your business and your exit plan.  A simple phone call or email to us can start the process today.

 

Author
Amy Alonso 
Associate
Benchmark International

T: +1 615 924 8522
E: alonso@benchmarkintl.com

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Unexpected Upturn In The United States Economy

At 8:30 eastern time this morning, the US Bureau of Labor Statistics released its US Household Survey for May, stating that 2.5 million new jobs were created in the US during the month of May, and unemployment fell by 1.4%, even while the overall labor participation rate increased.

These results indicate a resilient economy in which unemployment fell not because workers stopped seeking work but because an increasing number of those seeking work were able to secure it while an increasing number of workers re-entered the job market.

According to the report, jobs increased by 2.5 million while the workforce itself increased by 2.2 million and unemployment fell to 13.3%. This was a wholly unexpected result that bodes well for middle market businesses. Bloomberg’s commentator stumbled over the result when reading it on air at 8:31 am EST this morning. “unemployment fell by … wait rose by … no fell by 1.4 percent.”

Such government numbers are often revised in the weeks following their release, and this may well happen to today’s figures. The government report is available here: https://www.bls.gov/news.release/empsit.nr0.htm

 

Author
Clinton Johnston
Managing Director
Benchmark International

T: +1 813 898 2350
E: Johnston@benchmarkintl.com

 

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As If Pronouncing EBITDA Wasn't Hard Enough, We Now Have EBITDAC

The novel Coronavirus's impact has been felt in companies large and small across the globe as business has been curtailed and economies have slowed.

In mid-April, Benchmark International published a blog article outlining some of the recommendations made to clients to record the pandemic's financial impact in order to readily identify any expenses or losses that arose as a consequence of this one-off event.

Whilst suggesting it would be naive to advocate that these non-recurring expenses, or losses, directly attributed to the effects of the COVID pandemic could simply be written out, it was evident that negotiations were bound to include provisions for such abnormalities.  The natural consequence of isolating these abnormalities would be that value could be preserved. However, one could expect deal structures to include deferred compensation - or earn out provisions - that will be triggered when the business demonstrates a return to prior performance and a resilience to the COVID impacts.

 

Ready to explore your exit and growth options?



Just a few short weeks later, a new acronym has emerged (as the financial sector always loves a good acronym) EBITDAC - the normalised Earnings calculated Before Interest, Tax, Depreciation, Amortisation, and Coronavirus.

At this early stage, this metric has only been adopted by a small number of European corporate companies to present a basis for the amount of debt they should be allowed to raise. Led initially by German manufacturer Schenk Process (owned by the US private equity firm Blackstone) and Chicago based building supplies firm Azek Corporation, the development certainly bodes well for M&A where corporate companies and private equity firms alike have formally recognised such adjustments and are thus likely to be open to negotiating value, subject to appropriate structuring of transactions.

Whilst not known for lightheartedness, it's an area where the industry has been able to poke a little fun at itself. Sabrina Fox, executive adviser at the European Leveraged Finance Association, commented on an item in the Financial Times, "It's a bit ironic to say we're adding back the effects of Coronavirus to deal with the effect of Coronavirus"!

Regardless of the diverse commentary surrounding this new metric, the reality exists. This one-off event has left a few companies untouched with certain sectors receiving significant boosts, and others impacted negatively. The factors attributable to the pandemic cannot be discarded or ignored, and diligent negotiation on issues related to it will be integral to any deal.

 

Author
Andre Bresler
Managing Partner
Benchmark International

T: +27 (0) 21 300 2055
E: Bresler@benchmarkintl.com

 

 

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How Much Time Will The M&A Process Require Of Me?

As a business owner, you may be curious regarding how much of your time you should expect to invest in the process of a merger or acquisition from start to finish. First and foremost, it is important to recognize that any M&A deal will take time. This can be anywhere from several months to years, depending on various circumstances such as the state of the current market and the type of business. The good news is that if you hire an experienced M&A advisory team to handle the transaction, it will not require much of your time at all in the early stages.

The Preliminary Phase

A quality M&A team will handle the vast majority of the necessary work required to facilitate a transaction with the understanding that you have a business to run and you need to stay focused on doing just that. This early phase of work includes:

  • Compiling due diligence documentation
  • Studying the market
  • Assessing the data
  • Creating a solid marketing strategy
  • Vetting potential buyers

Of course, you should constantly be kept informed of all developments in the process, but you will not need worry about doing all the legwork and dealing with time-consuming details. An M&A team will guide you through every step, making sure that all communications are clear and concise, and that you can stay focused on your day-to-day life with some peace of mind.

 

Ready to explore your exit and growth options?

 

There are many reasons why enlisting an M&A advisory firm as your partner offers you a major advantage in a deal. You could try handling a sale yourself, say with the help of your lawyer or CPA, but it is a complicated process that makes it very difficult for a business owner to juggle running their business while dealing with all the minutia involved in an M&A transaction—especially when you have no prior experience in selling a company. Think about how much you really know about corporate and antitrust laws, securities regulations, and where to even find a buyer. Not to mention that experienced buyers will recognize that you are in unchartered waters and will not hesitate to take advantage of your lack of practice. Keep in mind that it is firmly established that the majority of mergers and acquisitions (70 to 90 percent, according to the Harvard Business Review) fail. This makes it even more crucial that you have an experienced team working on getting you results. Experienced M&A advisors know how to get deals done because they do it every day.

But there is more to it than that. Selling your company is an emotional journey. Your personal feelings can easily cloud your judgment regarding a sale. It is incredibly helpful to have a team in your corner that is looking out for your best interests while being able to assess buyers on their true merit. A good M&A advisor will have empathy for you during this difficult process and know how to help you through it while getting a high company valuation and the results that you deserve.

 

The Later Stages

Once you agree to an offer, it will require a little more participation on your part, but in a way that you should welcome, because this great milestone is finally nearing completion. You will be introduced to prospective acquirers and presented with their letters of intent. Contract negotiations and financing strategies will be underway. Your M&A deal team will work with you to evaluate the top bidders and narrow down the options, and get you across that coveted finish line to an exit strategy that is designed specifically to fulfill your unique aspirations for the future. Once you have decided on a buyer, you will need to work together to formulate integration strategies for the ultimate success of the business.

Thinking About Selling?

Even if you have not made up your mind to sell, it can still be fruitful to have a conversation about the possibilities for your future. The M&A experts at Benchmark International would love to discuss your options and help you gain insights into what and when is right for you, your company, and your family. If you choose to sell, our proprietary methodologies and global connections will help you find the right buyer and get the maximum value for the business you have worked so hard to build.

 

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How To Look Good To Clients

In any industry, it is always important to look good to clients and to live up to their expectations. When working with clients you should always try to go above and beyond what they expect, which will help your firm look good. Regarding mergers and acquisitions, impressing clients is key when it comes to selling their businesses. From the onboarding process to the closing of the sale, looking good is essential. There are many ways to look good to a client but focusing on the firm’s professionalism, knowing your client, and building relationships with customers are a few keys ways to look good to your clients.

Professionalism

Looking good to clients starts with a first impression and how professional you appear to a client. A firm handshake, an appropriate suit, and a friendly greeting can help impress a client, but professionalism is ongoing and will continue throughout the process of selling a company.

A few ways to maintain professionalism are:

  • Well-rehearsed presentations
  • Constant communication
  • Proper business etiquette

Clients want to be respected and treated appropriately in a business setting. Clients will expect professionalism, so it is important to go above and beyond their expectations. Providing well-rehearsed presentations about the client’s company, market, and industry will help you stand out against other firms.

Constant communication and updates on the status of the client’s file are key to impressing the client. Clients will be impressed by proper business etiquette how well you can articulate an understanding for their industry and particularly their business structure. 

Know your client

Knowing your client is about more than just understanding what they do and whom they serve. There are many aspects to a business, and clients will be impressed if you take the time to understand the ins and outs of their company.

Businesses are multidimensional and no one knows the business as well as the owner. Before you meet with a client make sure to know some of the important aspects of their businesses. Some key things to research before your initial meeting with a client include:

  • Details of services and products provided
  • The markets they operate
  • Customer review

Understanding and knowing your client starts before the initial meeting in person. Complete your research on the company prior to the meeting, note public information about the markets they operate, and their customers.

Building Relationships

Selling a company can be a very emotional process for business owners and building a relationship with the sellers is key to looking good to clients. Clients want to know that you are taking the time to understand what they are expecting to get out of selling their business. For some this can be monetary, for others it can be retirement or a change in their careers. Regardless of the reason, it is important to take the time to understand what they are looking for and understand those key aspects.

Some crucial ways to build and maintain relationships are

    • Always be available
    • Be open to listening to concerns and honest with responses
    • Be realistic, do not over-promise

Clients want to know they are being taken care of when it comes to selling their businesses. It is important to build a relationship, establish trust, and let your client know you will be available through every step of the process. By building relationships, you will look good to clients and help them feel at ease throughout the mergers and acquisitions process.

When it comes to looking good to clients, there are many ways to be impressive. However, professionalism, knowing your client, and building relationships are fundamental. When you can provide professional materials and a true understanding of their company and industry, you will look good to clients. Diving deeper with your clients and showing an understanding on more than a basic level will set you apart from competitors and impress the clients. Building relationships and maintaining those throughout the process will also impress clients. While there are many ways to look good to clients, showing clients that you are professional, understand their business, and want to build a strong relationship with them will help you look good to clients.

 

Author
Madison Culberson
Transaction Support Analyst
Benchmark International

T: +1 615 924 8950
E: culberson@benchmarkintl.com

 

 

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