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Leading Positive Change After an Acquisition

Though every business will go through changes as it evolves, being acquired by a business is perhaps the one that can be the most stressful for its employees. There can be much uncertainty for a company that is acquired. If not handled properly, the buyer can lose some of their people (along with their customer relationships, institutional knowledge, etc.) that made the company successful. Managing the change positively during this tumultuous time can reduce a mass exodus after a sale is completed.

Key employees may be worried about whether their jobs will be intact after an acquisition. Perhaps they feel their role won't be needed, or the buyer will want to use their people to perform their functions. At the same time, the buyer may be worried that these key employees will leave. Leaders and other influencers within organizations set the tone for a company's culture, innovation, and strategic initiatives. Losing them reduces the value of the company they are acquiring.

One key to reducing uncertainty for the acquired company’s employees is first to create readiness for change. People will resist change unless they are ready for it. On the other hand, when they are open to change, employees are more likely to accept everything that comes with it. These employees will be an essential part of the transitional period after the acquisition. Getting their buy-in will pave the way for creating a stronger company in the future.

 

Ready to explore your exit and growth options?

 

In their book Developing Management Skills, Whetten and Cameron suggest four ways to create readiness when leading positive change:

Benchmark best practice and compare current performance to the highest performance

Within the context of an acquisition, it's possible (likely even) that each of the involved organizations can perform certain functions better than the other. This may be one of the catalysts behind the acquisition. In that respect, synergies can be experienced when buyers and sellers learn each other’s best practices and implement improvements. Improvements can mean doing things better, faster and/or cheaper.

Institute symbolic events to signal the positive change

Symbolism can have a significant impact. The authors indicate that to be "successful in leading positive change, you must signal the end of the old way of doing things and the beginning of a new way of doing things." This can be accomplished in a variety of ways and can be elaborate or more reserved.

Create a new language that illustrates the positive change

Changing the way people talk about the change that is occurring is vital. If negativity abounds, positivity must replace that language. Taking the time to reframe things with a positive outlook can impact how employees view change.

Overcome resistance

People are typically against change because of the unknown. Finding common ground and having people participate in the change helps. Converting resistors is especially important because they have a way of influencing the rest of the team. Proactively identify the employees most likely to undermine the change and help them get on board first. They will, in turn, help persuade other employees.

Helping people understand the importance/urgency of the change that is happening through the acquisition will increase the likelihood they will stay and help ensure a smoother transition of ownership. The key is conveying that the company's employees are an essential part of the company's success going forward and preparing them for the change they will experience.

 Benchmark International Buyer Profiles

Want to be the first to know when new opportunities come to market that fit your acquisition criteria? Create a buyer profile today. While you're there, be sure to check out all the resources we've created specifically for buyers, including opportunities, on-demand webinars, buyer events, and our latest edition of The Mark magazine.

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2021 M&A Outlook

The Beginning of the End

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

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

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

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

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

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

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M&A As A Strategic Opportunity For Business Owners

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

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

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2020 M&A In The Global Sports World

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

Italian Football

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

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

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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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Grow Your Business Through A Strategic Alliance Or Strategic Partnership

Mergers and acquisitions are proven highly effective strategies for business owners that want to create growth, diversify, save a struggling business, or craft an exit strategy for their retirement. But maybe you are seeking a less-permanent measure to boost your bottom line. By forming a strategic alliance or a strategic partnership with another business, you can create significant growth and cost savings for both companies. 

Strategic Alliances
Your business can gain a series of advantages through a legal strategic alliance agreement. An alliance can improve operations, pool resources, share core competencies, change the competitive landscape, create economies of scale, and offer a lower cost way to enter new sectors. There are three main types of strategic alliances:
  • Joint Venture: When two or more parent companies form an entity together with a business objective, sharing in the risks and returns, and retaining their individual legal statuses. It can be an equal joint venture, in which both parent companies own an equal portion of the entity, or it can be a majority-owned venture, in which one partner owns a larger percentage of the company. A joint venture can help to save money, combine expertise, or enter new markets. It is not a partnership, consortium, or merger. 
  • Equity Alliance: When one company purchases a specific percentage of equity in another company. 
  • Non-Equity Alliance: When two companies enter into a contractual relationship, which allocates resources, capabilities, assets, or other means to one another.
 
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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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M&A Outlook Under Biden Election Win

Now that Biden was named the President-elect, what does this mean for mergers and acquisitions under a Biden administration? The good news is that mergers and acquisitions activity is expected to increase regardless of the election results. Many experts predict that M&A activity will return to pre-pandemic levels in the next year, and that the market will be favorable for the next few years.

Taxes
President Biden’s proposed tax plan raises the corporate tax rate from 21% to 28%, which would likely make M&A deals more expensive. Biden has also voiced support for an increase in capital gains taxes, which could impact M&A activity. The proposed plan would tax long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6% on income over $1 million, and eliminates step-up in basis for capital gains taxation. Sellers may be anxious to complete deals prior to 2021 to dodge higher taxes and potentially lower valuations, and to avoid having increased capital gains taxes cut into profits from a deal.

The Biden plan also restores the top individual federal income tax rate from 37% to the pre-Trump rate of 39.6%. It also promotes tax provisions to penalize the exporting of jobs overseas and to incentivize investments in new infrastructure and green energy, transportation and manufacturing, and establishes a minimum tax on corporations with book profits of $100 million or more, structured as a 15% alternative minimum tax, to prevent them from paying no taxes. The plan also offers tax credits to small businesses for adopting workplace retirement savings plans and creates a Manufacturing Communities Tax Credit to reduce the tax liability of businesses that face workforce layoffs or a major government institution closure.

It is important to note that getting tax code changes enacted into law requires congressional leadership and the White House to work together to reach consensus. This can be challenging, and can also take a considerable amount of time, meaning that there may not be immediate tax implications for M&A. But you still may not want to wait until 2021 to sell your company. Here’s why.  

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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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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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Why You Shouldn’t Wait For 2021 To Engage With An M&A Advisor

2020 has certainly served up its share of uncertainties and economic concerns thanks to the COVID-19 pandemic. There seems to be a popular attitude that once 2021 arrives, everything will simply return to normal. If you are considering selling your company, you may not want to wait until next year. Here’s why.

Some Things Haven’t Changed

Regardless of the pandemic and economic concerns, certain factors remain constant. Investors sitting on plenty of capital are always seeking opportunities, no matter what is happening in the economy.

First, it is important to note that there was a record-setting amount of capital raised in 2019.

  • Across 1,064 private equity, venture capital, infrastructure, and real estate funds, an astounding $888 billion was raised.
  • Globally, PE firms raised more money than any previous year, closing on almost half a trillion dollars
  • More than $300 billion was raised in U.S. private equity alone.
  • More than $100 billion in capital is still unspent in funds that are six years or older. 
  • In the U.S., venture capital funds saw a huge year for investment realizations, and exit value more than doubled year-over-year. This cash will eventually be distributed to limited partners and investors are likely to reinvest it in new funds.

It could easily be a seller’s market in your sector. Plenty of businesses have seen valuations rise because their services are in higher demand in the current environment. If your business is fortunate enough to fall into this category, selling now can be critical to getting maximum value.

Additionally, tens of thousands of Baby Boomers are still reaching retirement age and many of them are also business owners. Those who own companies that have suffered due to the pandemic may be more likely to consider retirement and an exit strategy because they don’t want to put in the time, effort and money to rebuild their business at their age. They could flood the market at any time, meaning you will be facing increased competition, giving buyers the upper hand. This scenario can also result in a lower valuation for your business. It is another solid reason you should consider starting the M&A process sooner rather than later.

 

Ready to explore your exit and growth options?

 

We Know the NOW

Nobody can say for sure what the future holds for the economy, but we do know what the state of it is today. When we know and understand what is certain right now, we can make educated decisions based on current circumstances. These circumstances include political factors, trends within your sector, what your competition is doing, buyer demand, as well as current market values, tax rates, and interest rates.

  • Right now, the U.S. is seeing the lowest interest rates in its economic history. On September 16th, the Federal Reserve left the target range for its federal funds rate unchanged at 0-0.25%, and signaled that it would keep them at that level through at least 2023.
  • At this time we also know the current tax environment. We can only expect that taxes will increase in the long term in order to overcome the growing debt burden that has been created in 2020 because of economic damage caused by the COVID-19 pandemic.

While you might feel that waiting until 2021 will allow you to sell your company for more money, that is not necessarily the case. There is no proven data to support that theory, and you could actually end up selling your company for a lower valuation because you chose to wait. Also, the right timing depends heavily on the activity in your sector. What type of business you own can constitute the best time to sell, even during a pandemic. It could actually be the perfect time.

You Can’t Prepare Too Soon

Timing is everything when it comes to selling a business. And sure, 2020 seems to have turned everything upside down, but we also cannot predict what 2021 holds. Optimism for the future is somewhat human nature during a long-term crisis, but questions surround the timing and availability of a vaccine for the virus, and how quickly the economy will fully recover.

It is important to note that plenty of businesses are still being bought and sold in 2020. If you put off a sale too long, you could run the risk of missing out on a great opportunity to get the most value for your company. But at the very least, you should not put off the preparation for a sale. It can take several months to years to complete a merger or acquisition. Even if you are unable to sell this year, starting the preparation process now can position you for a seamless transaction down the road. You should engage now to ensure that your company can be put on the market at the beginning of 2021. When the process is done correctly it can take 30-60 days just to get a business on the market, and a total of 6-12 months to close a deal. Waiting until January to act could put you at a major disadvantage with buyers on market at the beginning of the year.

Preparing now will also position you as a more patient seller, versus one that is panicking to unload your business without a solid exit plan. Buyers will see you as desperate, leading them to offer you less money. If you demonstrate that you have been carefully preparing for a sale and have done your due diligence, you are likely to garner a higher sale price.

Another advantage of preparing for a sale is that it can put you in the position to test the market. Maybe you are not sure if you should sell. So, why not put your business out there and see what kind of offers come back? You might be surprised at what emerges. If you still don’t want to sell, you can simply take your business off the market and wait for a better time. However, if you choose to do that, you do run the risk of appearing that you are not a serious seller in the future. Working with a reputable M&A firm can help steer you through the process and protect you from making common seller mistakes. They will also help you control the narrative, so that your business remains positioned in a positive light no matter what decisions you ultimately make.  

Let’s Start the Conversation

Our M&A experts at Benchmark International know how hard you have worked to build your business. Even if you are not sure if you are ready to sell, reach out to us and we’ll help you figure out what is best for you, your company, your family, and your financial future.

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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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Life Sciences And Biotech M&A During Covid-19

The COVID-19 pandemic has created an urgent demand for testing, treatments and a vaccine from life sciences and biotech companies. It has also changed the deal-making landscape in this sector. Advances in genetic sequencing have led to the development of new immunotherapies and approaches to medicine that has lowered risk and boosted M&A value and volume.

Over the past five years, biotechnology M&A activity has generated hundreds of completed deals and hundreds of billions of dollars in aggregate value. Leveraged buyouts accounted for one fifth of all acquisitions completed in three of the past four years. The compound annual growth rate of the biotech market is 7.4 percent, on pace to reach $727.1 billion by 2025. There are currently upward of 100 experimental COVID-19 treatments and vaccines in development, including 11 being studied in clinical trials.

The life sciences sector is the key to a solution for COVID-19, from testing improvements to vaccine candidates. In April, Moderna Therapeutics was given $500 million from the U.S. Department of Health and Human Services to accelerate development of its mRNA vaccine. Over the past ten years, public and private sector researchers across biotech have collaborated to greatly reduce the lag time between genetic sequencing of a virus and running human trials. With academia partnering with governments to speed up development, it is expected to be positive for the long-term strength of the sector.

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Guide To A Healthy & Wealthy Retirement

You have worked so hard to build your business and when retirement is finally on the horizon, it is a very exciting time. But it can also come with many questions. These tips will help you navigate the ins and outs of retirement so that you can live your best life.

Keep Making Plans

Just because you are approaching retirement, it doesn’t mean you are retiring from life. Keep planning for your future. Consider five-year plans and goals. Think about taking college classes or acquiring new skills you have always dreamed about. Getting another degree, learning something like playing an instrument, or learning a new language can be great ways to keep your juices flowing and open up new opportunities in life.

Explore the Best Places to Retire

The world is brimming with amazing places to consider for your retirement years. Maybe you are perfectly content staying where you are. But have you even thought about the possibilities? Check out our article about some of the greatest places to retire…and be inspired.  

Have a Solid Financial Plan

This includes investment options, taxes, and more. There are many ways to invest, such as mutual funds, stocks, bonds, real estate, dividends, CDs, annuities, and exchange-traded funds. Additionally, having an exit plan can ensure that your future is protected. Prior to exiting your company, mergers and acquisitions strategies can help you grow your business and maximize its value for a sale, laying the groundwork for worry-free retirement wealth. Experienced M&A advisors can help you make the most of this. You will also need to consider how much you will need to pay in taxes after you retire. This is something you will definitely want to get right. Some estimates suggest that for each 1% error in effective tax rate, you face an 8% error in your final savings balance.

Stay Structured

Maintaining a routine can be a major game changer for keeping your sanity in retirement. You no longer need to go to the office. So what do you do? It is easy to find yourself meandering and not knowing what to do with yourself. That’s why it’s important that you stay busy and have some sort of structure to your everyday life now that you are no longer on the clock. Engaging in activities such as volunteering, gardening, and exercising can keep you healthy, happy and regimented.

 

Ready to explore your exit and growth options?

 

Maintain a Youthful Perspective

They say age is just a number. And there are actually studies that support how mental attitude can improve overall health and even reverse the effects of aging. Thinking young can actually help keep you feeling and functioning as young. It helps to stay inquisitive, continue to develop and improve yourself and expand your horizons. Falling into a rut after retiring can be detrimental to your state of mind and your physical health. It can also be very helpful to maintain social relationship with younger people to keep up with changing perspectives, get inspired, and hear about more than gripes regarding the aches, pains, and medications associated with aging.

Map Out Your Legacy

In addition to the impact you will be leaving on the world through your professional endeavors, you will want to make plans for your estate to determine what you wish to leave for your heirs. This is when a financial planner can be of great help. You will need to think about estate taxes, appropriate inheritances, and the roles of your family if they will be taking over your business.  

Consider Catch-Up Contributions

You already know that there is a limit to how much you can save in your IRAs or 401(k)s. But did you know that once you reach the age of 50 in the U.S., the IRS allows you to make additional catch up contributions that are beyond annual contribution limits? It’s a way to make it easier for savers over the age of 50 to boost their retirement savings.

Understand How to Protect Yourself from Fraud

Fraudsters are known to target people over the age of 60, especially in today’s digital society. Stay educated on what scammers are up to and know how to discern between what may be real and what may be fake regarding emails, texts, phone calls, and the physical mail. A good rule of thumb is to remember that if it sounds to good to be true it probably is. Also, unsolicited offers can be common traps. Other things you can do include not answering robocalls, not clicking on pop-up ads or email attachments, being skeptical of free offers, and not paying up front for promises.     

Think Long Term

Today’s life expectancy rates are much higher than they used to be just decades ago. You should plan your retirement with a long future ahead. This is not only good for your mental wellbeing, but also important for your financial future. Consider that your savings will need to last longer. Your healthcare costs may be higher. Search for retirement calculators online to help you get a better picture of what your needs will be. 

Get a Dog

The many benefits of having a dog to health and wellness are well documented. Dog owners have been proven to enjoy lower blood pressure and stress factors, and need fewer doctor visits than those without pets. Having a dog can also help to keep you active and engaged with other people. Plus, all that unconditional love releases beneficial hormonal chemicals such as serotonin and oxytocin that are proven to fight depression and make you feel good. 

Ready to Retire?

Contact our M&A experts at Benchmark International to start the conversation about selling your company, planning your exit strategy, and getting on the road to a prosperous retirement.

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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.    

 

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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 Apparel, Beauty & Home Furnishings Sector Update

The COVID-19 pandemic has brought about disruptions for businesses operating in the fashion, beauty and home furnishing sectors. This is because of complicated global supply chains and reliance on discretionary spending by consumers amid record unemployment levels. Keeping these types of businesses adaptive is crucial to their recovery and long-term success.

Supply Chain Disruption

“Nearshoring” is a term that describes the relocation of the production of goods so that they are moved geographically closer to consumer-dense regions such as the U.S. and Europe. This has been an attractive option for fashion and home furnishings companies, yet the cost of displacing established supply chains and vendor relationships have prevented them from making the move. But the landscape could be changing due to COVID-19, geopolitical turmoil, and antiquated supply chain practices.

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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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Should You Consider Cross-border M&A?

The world economy’s appetite for cross-border mergers and acquisitions continues to grow in popularity amid globalization and the emergence of new technologies. These types of global deals offer their fair share of risks and rewards. So how do you know if it’s the right strategy for your company? While there is no magical equation to answer that question, you can take the time to understand what you will be faced with in a cross-border transaction, how it may make sense for your particular business within your sector, and what precautions you will need to take.

Motivations for Cross-Border M&A

There are several different reasons that business leaders turn to cross-border deals to address their needs and benefit their companies. These objectives include:

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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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Overview Of Steps In The M&A Process

The processes behind mergers and acquisitions can be quite complicated. Each deal is unique and has its own level of intricacies. However, all M&A transactions tend to follow a basic framework of steps. Most M&A advisory firms follow this basic framework, but bring their own methodologies to the table. This outline will give you a rudimentary view of the process.  

What Are The Steps In The M&A Process?

1. Target List Creation

In order to engage in the selling or buying of a business, you must have potential buyers or sellers. Suitable M&A targets can include competitors, vendors, or customers. This is also a good time to consider how much geographical factors should be taken into account.

2. Contact Initiated

Once the target list is established, contact is made and discussions begin to gauge the interest level of the buyer or seller.

3. Sending of a Teaser

A teaser is a document that sellers send to buyers. It supplies just enough information to entice the buyer into wanting to know more. It showcases topline info such as the company’s product or services, its unique selling points, industry overview, ownership structure, potential areas of growth, and high-level financials.

4. Confidentiality Agreement Signing

This ensures that all sides in the deal agree to keep all discussions and materials confidential.

 

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5. Sending of the Confidential Information Memorandum (CIM)

The CIM serves is drafted by the sell-side of a transaction and serves as a type of handbook. It provides all the information a buyer needs to ascertain whether they want to make an offer, such as company management, operations details, financial data, future projections, customer diversification, market opportunities, competition, and other relevant specifics.

6. Submissions of Indication of Interest (IOI)

Upon their review of the CIM, the buyer then expresses interest in moving forward by submitting a non-binding written offer. An IOI typically provides a valuation range for the sale price, transaction structure, timeframe, and other important details. It limits the buyer’s time and financial resources devoted to the deal if the proposal falls short of expectations and other bids. For the seller, an IOI helps them to measure the market appetite for the company, compare different buyers’ views on value, and perform preliminary due diligence on the buyer’s ability to complete the transaction.

7. Management Meetings

After the initial communications that establish interest on both sides, it is time for the buyer and seller to meet and take the conversation further. Both sides take this time to learn more about each other to get a better idea of compatibility and whether it is a good fit.

8. The Letter of Intent (LOI)

The buyer submits a detailed document with a price and deal structure that details items such as closing dates and conditions, an exclusivity period, any break-up fees, management compensation, escrow, and so on. These are usually non-binding, but they can be denoted as binding.

9. Formal Due Diligence Process

This important phase is when all documentation and records are compiled by the seller and provided to the buyer. The findings help the buyer assess their risk and improve the decision-making process. Due diligence examines an extensive level of information on the company, including all financials, intellectual property, customer base, management, talent, synergy, outstanding litigation, technology, infrastructure, stockholder issues, production, inventory, supply chains, real estate, marketing plans, and anything else that is relevant to the business.

10. The Purchase Agreement

A Purchase Agreement supersedes any previous IOI and LOI. This binding document lays out the final terms of the deal including the purchase price, a detailed list of definitions used in the agreement, timeframes for the delivery of final statements, executive provisions, representations, warranties, schedules, indemnifications, closing conditions, and break-up fees.

11. Pre-Closing Period

Sometimes there is a pre-closing period during which the seller and buyer prepare all deliverables and fulfill closing conditions such as government approvals and third-party consents. The duration of this period can vary depending on the closing conditions.

12. Closing

Once all of the closing conditions are met, the transaction is ready to close. Funds are exchanged and the buyer assumes possession of the business.

13. Post-Closing Period

After the deal closes, there are usually post-closing financial adjustments and integration topics to be addressed between the seller and buyer.

Ready to Make a Deal?

Our M&A experts at Benchmark International would love to hear from you regarding your company and its potential. Our world-renowned team offers the unparalleled transaction experience, remarkable resources, and global connections that you need in your corner to in order to get the most value possible out of your M&A deal. Learn more about our unique Benchmark Fingerprint Process here.

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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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2020 Mid-Year U.S. Economic Outlook

The COVID-19 global pandemic is having a significant impact on economies across the world and business owners are understandably concerned. In these times of uncertainty, many are asking what can be expected in both the short and long term for the United States economy.

Looking Back at Q1 and Q2

After several years of economic expansion, the U.S. gross domestic product (GDP) dropped 5% in the first quarter of 2020, and plummeted 52.8% in the second quarter. The National Bureau of Economic Research (NBER) declared that the U.S. economy officially entered recession in February. 

  • Consumer spending was down 13.6% in April, slightly rebounding in May, up 8.2%.
  • In May, U.S. employers added 2.5 million workers back to payrolls and housing rebounded moderately.
  • The Federal Reserve cut interest rates and rolled out a $2.3 trillion effort to help local governments and small- to mid-sized businesses, and the U.S. government approved nearly $3 trillion in aid.
  • 8 million jobs were added in June, while more than 19 million Americans were still receiving unemployment insurance benefits.
  • June retail sales jumped 7.5%.

 

Ready to explore your exit and growth options?

 

Forecasting Q3 and Q4

Goldman Sachs forecasts U.S. GDP growth of 25% in the third quarter, down from a previous forecast of 33%. The NBER Conference Board expects a 20% rebound in quarter three, with growth slowing to 1% in quarter four.

The manufacturing and construction sectors continue to recover, with predictions of 8% growth in the fourth quarter. Additionally, existing home sales have rebounded at a record pace.

Consumer confidence is going to depend on how rapidly the virus is brought under control. In July, coronavirus cases spiked in many areas of the country, causing some state and local governments to step back on reopening plans. The recent resurgence in cases has slowed expected consumer spending, as many Americans are unable to visit certain places due to state restrictions. Markets will likely remain erratic until there are solid indicators for increased confidence. The economy will recover, it is just a matter of when, keeping in mind that recoveries tend to be longer and stronger than downturns, and returns are usually highest after the market bottoms out. As of late July, September is a hopeful target for a bounce-back in spending.

Even once restrictions are lifted and businesses are able to operate as normal, the recovery will hinge on how willing Americans may be to participate. Consumer demand is expected to remain sluggish through the latter half of the year, but there are positive long-term investment opportunities that arise out of such an environment, especially for companies that have shown that they can adapt under dire circumstances.

New developments in COVID-19 clinical trials indicate that a vaccine could be available by 2021. A vaccine or treatment will be critical to boosting consumer confidence and economic growth.

Finding Opportunities Within a Crisis

While the virus has had devastating impacts across several sectors—especially travel and hospitality—it has also created opportunities for certain industries. Types of businesses that have seen strong growth during the pandemic include telemedicine, online retail, food and grocery delivery services, home improvement, educational services, gaming, cleaning products, RVs, and even puzzle makers.

With people working and schooling from home, people’s lives are now more digital than ever. Demand for cloud-based services has skyrocketed. Streaming services and mobile payment services are increasingly popular, and reliable broadband is a must-have. During mandatory lockdowns, consumers became more likely to try things for the first time, such as grocery or alcohol delivery, and may opt to continue to use them following the COVID-19 pandemic. These types of outcomes could translate into even healthier e-commerce growth potential in the future, not just in the U.S, but also globally.

There will also be possibilities for partnerships through mergers and acquisitions. Prior to the crisis, private equity was sitting on an estimated upwards of $1 trillion in dry powder and will likely play a key part in the revival of the economy. M&A opportunities are expected to be in the most resilient sectors post-pandemic, and bidders are predicted to become aggressive in seeking out company valuation bargains in the hardest hit industries such as the transportation, hospitality, and energy sectors. Additionally, in the more stable sectors, deals could be driven by the need to vertically integrate and address supply chain issues to get back on track. There is also the possibility for stock deals to become more appealing as equity prices fall.  

Schedule a Virtual Valuation

Contact the M&A advisors at Benchmark International to discuss the possibilities for the future of your business. We are here for you, even throughout the pandemic, getting deals done and making great things happen in the most trying of times. You can even schedule a Virtual Valuation in order to practice social distancing while gaining an understanding of the current value of your company.

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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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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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Be Wary of EBITDAC

Nick Hulme, Managing Director for Benchmark International’s Manchester site, wrote an article pre-Covid around company valuations based on ‘multiples of earnings’.

Recently, articles around ‘EBITDAC’ have emerged – a measure of Covid adjusted earnings, and while he agrees that there is some great literature about EBITDAC, Nick warns that we need to be wary when negotiating so it doesn't take over.

In this blog, Nick summarises the most important takeaways from Covid, and what we can look forward to post-Covid.

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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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How To Value A Business

When it comes to valuating a business, a major distinction is whether the company is privately or publicly held. For a publicly traded company, calculating the market value is somewhat simple: just multiply the stock price by its outstanding shares. For a private company, determining its worth is a much more complicated process because the stock is not listed and there is zero regulated public financial reporting. For these reasons, private company valuations must be based on a series of estimations, which can be well founded when done properly. There are several different approaches to calculating the market value of a private business. You can choose to one singular method, but using each method of assessment together can form a more complete picture.    

Comparable Company Analysis (CCA)

CCA is a common way to assess a private company’s value. Under this process, publicly traded companies that are most similar to the private company are identified. The similarities must reflect the companies’ sector, size, competitors, and growth rate.

Upon establishing an industry grouping of similar companies, their valuations are averaged to paint a picture of where the private firm fits among its peers. These averages are calculated on aspects such as cash flow, operating margins, and assets. CCA may also be referred to as trading multiples, peer group analysis, equity comps, or public market multiples.

Precedent Deals

If the business being valued operates within a sector that has witnessed several recent mergers, acquisitions, or IPOs, the financial information and value determinations from those transactions can be used to help calculate a valuation based on consolidated and averaged data. While useful, precedent transactions become dated as more time passes since they occurred.

 

Ready to explore your exit and growth options?

 

Enterprise Value (EV) Multiple

Also known as private equity valuation metrics, the enterprise value multiple tends to offer a more accurate valuation because it includes debt in the assessment. The EV multiple is calculated by taking the enterprise value (the sum of its market cap, value of debt, minority interest, preferred shares deducted from cash and cash equivalents) and dividing it by the company's earnings before interest taxes, depreciation, and amortization (EBIDTA).

Discounted Cash Flow (DCF)

The estimated discounted cash flow approach is a fairly detailed method of valuation. It compares the discounted cash flow of similar companies to the company being valued. The revenue growth of the company is estimated by averaging the revenue growth rates of similar companies. This process can be challenging depending on the business’s accounting methods. Personal expenses are sometime included in the financial statements of private companies, which can affect the estimation.

Once the revenue is estimated, any anticipated changes in operating costs, taxes and working capital are estimated, allowing for the calculation of free cash flow, or the operating cash remaining once capital expenditures are deducted. Investors often use free cash flow to determine how much money will be available to give back to shareholders in dividends.

Next, the peer grouping of companies are assessed to calculate their average beta (the market risk of a company without the impact of debt), taxes, and debt-to-equity ratios. In the end, the weighted average cost of capital (WACC) must be determined. This factors in the cost of equity using the Capital Asset Pricing Model, the cost of debt using the company’s credit history, capital structure, debt and equity weightings, and the cost of capital from the peer grouping of companies. Calculating capital structure can be challenging, but industry averages can help, keeping in mind that the costs of equity and debt for a private company will likely be higher than that of its publicly traded counterparts. The WACC furnishes the discount rate for the private company. By discounting its estimated cash flows, a fair value can be assigned.

Cost Approach

This method of analysis is less common within the corporate finance world. It assesses the actual costs of rebuilding the business, ignoring any value creation or cash flow generation. It is merely cost equals value.

Ability to Pay

Under this valuation approach, the maximum price a buyer can pay for a business while still reaching target is assessed. If the business will be ceasing operations, a liquidation value is estimated based on selling off the assets. This value is often highly discounted because it assumes the assets will be sold as quickly as possible.

Other Important Factors

While there are several financial methods of valuating a business, there are other somewhat intangible factors that should be considered. For example, the culture of the company is important because it motivates its underlying ethics and competitive strategy, creating an environment for less risk. Also, the company’s management is key, because their track records will say a great deal about the value they bring to the table and the level of confidence that they instill. Ultimately, they will have a deep understanding of the industry and have the skillset to foster and maintain a positive culture. Additionally, aspects such as innovative intellectual property, established branding that is well recognized in the market, retention of key talent, and strong customer and supplier relationships can drive up the value of a business.

Don’t Go It Alone

Due to a lack of transparency, the valuation of a private company is never an exact science, but there are advisory experts that have methodologies that do get it as close as possible. Our world-renowned M&A advisors are standing by, waiting to engage you in the process of taking your future to the next level. We are experts in helping to create added value for your business and getting the most value for it in a sale. Contact us to get this exciting process started.  

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Using Growth Capital To Grow Your Business

Every business owner wants to grow their company, but having access to capital to make it happen can make all the difference in the world. Growth capital is money that you borrow to help grow your business’s operations and, ideally, its profitability. There are many different forms of growth capital. It may be structured as a short- or long-term loan or as a line of credit. Long-term financing is the most common because it is easier to repay.

There are several reasons that growth capital can be secured by a business.

  • To purchase commercial real estate
  • To buy equipment to increase production
  • To increase workforce
  • To expand into new markets
  • To increase advertising and marketing efforts
  • To purchase another company

Growth capital is different from working capital because it is debt financing to create growth, while working capital is used for financing the daily operations of the business and keep it running. It is also different from equity capital, which requires relinquishing partial ownership and entering into a strategic partnership in exchange for investor funding. Growth capital does not require giving up any ownership.

 

Ready to explore your exit and growth options?

 

Types of Growth Capital Loans

There are several financing options for small to mid-size businesses seeking paths to growth.

  • Conventional growth capital from bank lenders. This method typically offers the lowest rates and fees, and longest terms. The average conventional business lender approves between 20 to 50 percent of all growth capital loans.
  • SBA financing with an enhancement guarantee by the Small Business Administration to cover your losses if you fail to repay. This financing is used for startups, acquisitions, expansion, construction, revolving funds, and working capital.
  • Asset-based growth capital that shows lenders collateral and substantial cash flow for approval. If you do not have adequate cash flow to get approved, you can use assets such as real estate, equipment, or inventory as collateral. These lending rates are often higher than that of banks, and the terms are shorter.
  • Alternative growth capital from private lenders, non-bank lenders, marketplace lenders and mid-prime alternative lenders have shorter terms but can be amortized over up to five years.
  • Cash advance capital is a short-term advance that involves selling a part of your business’s future receivables for a lump sum. This form of financing is usually more expensive, so the ability to increase revenue needs to justify the cost.

Applying for Growth Capital

When you apply for growth capital, lenders will assess the profitability of your company. They will want to ensure that your business model is proven, cash flow is adequate, and operations are efficient. After all, they want to feel confident that the loan can be repaid.

As defined by the National Venture Capital Association, growth equity investments feature the following attributes.

  • The business’s revenues are growing rapidly.
  • The company is cash flow positive, profitable, or approaching profitability.
  • The business is founder-owned and has no prior institutional investment.
  • The investor is agnostic about control and purchases minority ownership positions more often than not.
  • The industry investment mix is comparable to that of venture capital investors.
  • The capital is used for company needs or shareholder liquidity and additional financing rounds aren’t expected until exit.
  • The investments use zero or light leverage at purchase.
  • The returns are mainly a function of growth, not leverage.

How Can We Help?

At Benchmark International, we have an award-winning team of M&A advisors ready to help you take your business to the next level, whether it’s through a growth strategy, an exit plan, a merger, or an acquisition.   

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What Is A Buy and Build Strategy?

A buy and build strategy is commonly used by private equity firms seeking to expand operations, generate value, and increase returns. It is accomplished through the acquisition of a platform company with already established internal capabilities that can be further built upon. This can include the acquisition of several smaller businesses, combining their operations to create more value. Buy and build transactions, which can be aggressive, tend to occur more often in slower economies because private equity firms become even more interested in improving returns at a time when organic growth and operational efficiencies are not enough. They are also more common in highly fragmented sectors.

Buy and build can be a great formula for expansion and added value. It allows businesses to acquire skills and expertise that would normally require a great deal of time to build on their own. It can help a company expand into other markets in a much more efficient manner. Usually, these private equity firms have a relatively short holding period of around three to five years and investors expect a fair amount of interest after an agreed time period. Buy and build deals result in an average internal rate of return of 31.6% from entry to exit, versus 23.1% for standalone deals. While private equity is the most common employer of buy and build strategies, this tactic is also used by strategic buyers, stock listed companies, and family-owned companies.

 

Ready to explore your exit and growth options?

 

Because it brings about a great deal of change, a buy and build strategy must be executed properly in order to succeed. Otherwise, the resulting effects can actually be detrimental to value. In an ideal situation, the private equity firm will have significant experience in the particular sector of the company that they are acquiring. Having a strong CEO and management team with a solid background in the field of business is also important because the transition and integration process can be complicated and needs to be handled adeptly. The leadership should also have a certain skillset that includes an understanding of areas such as risk management, operational metrics, and change management. This is especially true when the acquired companies are competitors and there needs be vertical integration of supply chains. Additionally, a buy and build strategy can take several years because it involves the acquisition and integration of multiple companies.

To learn more about why buy and build strategies work, check out our previous post here.

Time to Make a Move?

Whether you are looking to sell your business, create strategies for growth, or craft an exit plan, our experts at Benchmark International will take the time to carefully devise strategies designed for your specific needs. Your goals are our goals and we will put all of our resources and global connections to work for you, getting you the most value possible for your business.

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