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Preparing for Due Diligence: Sell-Side

Due diligence is a buyer’s detailed investigation into the matters of your company in preparation for a possible sale transaction. For many business owners, this is one of the most dreaded parts of selling their business. After a letter of intent (LOI) is signed and a price range is agreed to, buyers have the right to dig into the business to ensure that they know what they are buying, and to identify any potential risks of owning the business. While buyers and sellers have different objectives and motives, both parties benefit from a thorough and efficient processes. Whether your company is pursuing a capital infusion or positioning itself for an acquisition by a strategic or financial buyer, due diligence is a critical component of every investment.  It’s an intrusive process and, like everything else about the sale of your business, you need to be prepared.

Ready to explore your exit and growth options?

When a potential buyer assesses your company, they will want to fully understand the essentials of the business such as organizational information, financial records, regulatory matters and litigation, employment and labor matters, and many others. When your company is well-prepared for the exit process, long before it is anticipated, not only will it make the company look more attractive to potential buyers but it will also maximize the value and expedite the transaction timeline. If not properly prepared, this can result in an incredible demand on a company and its resources, give a buyer the perception that the company is disorganized, and create operational difficulties within the company.

Below are four ways to prepare for due diligence and secure the deal you want:

Start with a Due Diligence Checklist

Most buyers will provide the target company with a due diligence checklist but, before receiving that list, sellers should ensure that common checklist items are available, up-to-date, accurate, and organized. The data needed for the due diligence process should be in order and ready to be uploaded to a virtual data room within a couple of days of initiating due diligence. This is not only necessary in the event of an acquisition, but it is also a valuable discipline to maintain as the company grows.

Invest in Professional Accounting Practices

The due diligence process is dependent upon the strength of the seller’s accounting system. It is essential that the company’s financial reports present potential buyers with a clear story, allowing them to fully evaluate the company’s earning potential. Buyers will be concerned with all of the target company’s historical financial statements and related financial metrics, as well as the reasonableness of the projections of its future performance. A business’ financial records should be clearly stated and easy to follow. If not, this could create confusion, misunderstanding, and devaluation.

Planned transactions have failed, even though the business itself was healthy and growing, when the financial reporting was outdated, inaccurate, or incomplete, and the buyer could not trust the data. Accurate financial statements are also necessary for the seller to support the business valuation. What assets does the business have? How profitable is the business? What is the working capital? What are the growth trends? All of these are major factors in the valuation of the business, so the data representing them needs to be accurate and precise.

To avoid issues, it is recommended that, before going to market, a seller contacts an independent accounting firm to review or audit the company’s financial statements. This will help to ensure that the company financial data is accurate and complete, will instill a sense of confidence from the buyer, and will more likely result in an efficient and successful due diligence process.

Engage Qualified Representation

A team of good professional advisors is crucial to a successful sale of a company. These advisors will steer sellers in terms of what they need to do to get their company ready for sale. Tap into these resources because they will have dealt with enough transactions to know what you should be focusing on to ensure a successful sale. Some recommended professional advisors include, but are not limited to, a M&A broker, an accountant, a tax advisor, a M&A lawyer, a wealth advisor, an investment banker, and a trusts and estate lawyer, if needed. With advance planning and the help of good advisors, a seller can ensure that his or her best interests are fully represented, common pitfalls are avoided, and the transaction will run smoothly and efficiently.

Responsiveness to Requests

During the due diligence process, potential buyers will seek to comprehensively understand the business practices behind a company’s earnings. It is the sellers job to guide the buyer through the learning curve. Respond to the buyer’s due diligence requests in an organized, detailed, and complete manner. If there are requests for missing data, respond punctually. This responsiveness allows the seller to gain credibility with a buyer, and provides buyers additional comfort with the quality of the business they are buying.

Conclusion

Due diligence is a vital and complex part of M&A transactions. Preparing beforehand can help a company position itself for higher valuations, stronger negotiations, and better outcomes. Understanding the importance of due diligence to both parties in a transaction, planning in advance, enlisting the support of specialists, and investing the time to run a thorough due diligence review early in a transaction will help prevent unwelcome surprises and potential liabilities for both parties.

Ready to explore your exit and growth options?

Author
Kayla Sullivan 
Associate
Benchmark International

T: +1 813 898 2350
E: Sullivan@benchmarkcorporate.com 

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Should I Start a Business or Buy One?

Maybe you are a lot like Sam. Sam has been working at a job that he doesn’t love, going to work each day and feeling unfulfilled.  Sam would really like to quit and go into business for himself but he has a wife and a child to support.  This leaves him with a big decision to make; should he start a business or buy an existing one?  As Sam does his research, he discovers the many factors that will influence his decision.

Sam, like many of us, has a family to support so most important to him is to have sufficient income to continue supporting his family.  Taking on the risk of possibly not generating any income for several years with a startup is not a realistic option for Sam.  Since starting up is not an option for Sam, buying an existing business will allow him to have the necessary cash flow from day one as he will be taking a salary directly from his business.  In addition, depending on the way he chooses to acquire his new business he will be able to keep investing back into the business so it can continue to grow.  While Sam understands that there will be many headaches and long days because of his new business owners he will be free to be his own boss.  Furthermore, this new business will likely relieve a lot of the financial stress that he currently has as his family’s expenses continues to grow. 

Like most people going into business for themselves, Sam will need to secure financing and/or attract investors to help him get started.  He quickly learns that banks and investors strongly prefer dealing or lending to a business that has a proven track record and strong historic financial performance rather than a higher risk start up business with so many uncertain factors such as high debt, or customer concentrations.  With the right guidance from a reputable M&A firm such as Benchmark International, Sam will be able to find financing to be on his way to fulfilling his dream of business ownership.

Like many young entrepreneurs, Sam is excited and motivated by the idea of growing a business.  He understands that there is a marketplace for businesses he is currently looking for and is much less interested in the grueling legwork and struggle of getting one up and running.  He knows that buying a business will give him an established brand that has been tried and tested along with any patents, copyrights and valuable legal rights that may come with that.  Having acquired a business, rather than starting one, will have be doing the work he is most passionate about from day one.

Sam’s wife Helen is a very active member in their community and their home is usually filled with family and friends. Like many of us, friends and family are very important to Sam and he wants to make sure he will still have time for those things and does not miss out.  Sam is especially enthusiastic about four children’s school activities.  He realizes that by buying an existing business, he will have an established vendor, customer base, goodwill, equipment and suppliers.  Things he would otherwise need to spend countless hours acquiring.  Sam will also have an experienced and trained staff in place ready to go that will know and understand the business so he can take a couple of hours and see his children flourish.  The seller has spent time teaching and training those people and Sam will reap the benefits of that.  From day one, he will have people in place who are able to help run the business and teach him things while he gets settled in.  Sam understands the target business and he knows that with a few tweaks and changes here and there it will be running the way he wants to in no time.  While at the same time being able to spend the evenings at home with his wife and kids. 

Business ownership may seem like a daunting thought but it really should not be that hard.  Sam’s experience shows us some of the things to think about when making such an important life decision.

So, what about you?  Are those advantages important to you as well?  Do you have a unique idea that may be easier to get off the ground by incorporating it into an existing business?  As we move into a time where more and more baby boomers are looking to retire and sell their businesses, the opportunities are endless for budding entrepreneurs.  Your time may be now!

And what happened to Sam you wonder?  Sam did make the decision to purchase an existing store rather than start his own and was very successful in growing it.  In fact, Sam Walton grew his Wal-Mart stores to be the largest retail chain in the United States.  What business will you grow? 

Author
Amy Alonso 
Administrator
Benchmark International

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

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Rising Interest Rates – How Does This Affect the Sale of My Business?

Most business owners have become acutely aware of how a change in interest rates can impact their financing decisions.  Whether it means taking advantage of a competitive rate and refinancing previous notes or whether it means holding off on acquiring a needed piece of equipment until the monthly payment becomes more manageable; the interest rate associated with obtaining debt can play a major role in the decisions a business owner makes in the day-to-day operations of their company.  But, how do interest rates impact the sale of a business?  Is there a correlating relationship between interest rates and activity in the M&A market?  If there is, what is the importance of timing the sale of a business based on the indications provided by the Federal Reserve?  All of these questions are important to consider as a business owner begins to contemplate the potential sale of their company.

Ready to explore your exit and growth options?

The Federal Reserve has indicated that it is planning on increasing interest rates as it is continuing to pull back from its decade-long effort to stimulate economic growth.  As of November, 2018, the Wall Street Journal Prime Rate was 5.25% whereas one year prior it was 4.25%.  This metric is important as it consists of a survey of the 30 largest banks and is the rate at which banks will lend money to their most credit worthy customers; additionally, this rate will move up or down in lock step with changes made by the Federal Reserve Board.  So, what does this mean for those who are in the market to sell their business?  An increase in the federal funds rate increases the cost of borrowing and hence affects the value of merger deals, especially if a portion of the transaction is being financed through loans.  If the company to be acquired is highly leveraged and the cost of debt goes up, the internal rate of return is impacted, lowering the valuation of the company. 

The timing of when a business enters the open market for sale as well as the speed at which interest rates rise also plays a role in the impact that interest rates have on activity in the M&A market.  A methodical rise combined with a strengthening economy, which the United States has experienced over the past 18 months, should not have a detrimental impact on the aggressiveness with which buyers enter the acquisition market.  The reason that a controlled and steady increase in interest rates mitigates the risk associated with increased cost of debt has to do with the corresponding increase in corporate confidence.  With interest rates having been at historical lows over the past several years, many companies in the market to buy are armed with strong balance sheets earned via normal operations of the business as well as having taken advantage of low market interest rates to issue debt.  This cash held on the balance sheets of acquirers in the market may deflect some of the increase in borrowing cost due to the availability of deployable capital.  Specifically addressing those sellers looking to sell a business in the middle to lower middle market space – a slow rise in rates will give them an opportunity to cash out and use this new-found liquidity to put their money back to work in a recovering and dynamic market. 

In conclusion, the general consensus is that rising interest rates aren’t going to put a damper on mergers and acquisitions activity, at least not in the near-term.  However, as interest rates continue to increase, there will come a time when the increased cost of borrowing shifts the economics of valuation and activity.  The buyers most affected by the increase in rate will be those that rely heavily on financing through loans to complete an acquisition.  Fortunately for sellers, interest rates being at historical lows has helped buyers compile large amounts of cash on their balance sheet which, when combined with acquirer confidence in the business and consumer marketplace, a taxation environment that can be viewed as business friendly, the ideal conditions for selling begin to take shape.  It is important to take note that an increase in interest rates does not have as large of an immediate impact as the speed at which those interest rates increase.  As the Federal Reserve continues to be relatively transparent with their intentions regarding gradually increasing interest rates, and with firms having taken advantage of historically low interest rates and compiling large amounts of cash on the balance sheet, the ideal time to sell a business, particularly one in the lower middle market space, will be sooner rather than later.  As time goes on and increased rates continue to take a bite out of returns on investment, there will come a time when the balance will shift from a sellers’ market to one that is in favor of the buyer.

 

Author
JP Santos 
Senior Deal Associate
Benchmark International
Ready to explore your exit and growth options?

T: +1 615 924 8522
E: Santos@benchmarkcorporate.com 

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Benchmark International completes Sale of MC2, INC to Stark Holdings America, INC.

TAMPA, FL - International M&A specialist, Benchmark International, has successfully negotiated the sale of its client, MC2, Inc. ("MC2 ") to Stark Holdings America, Inc. ("Stark"), formerly known as Stark Technologies Group, Inc., a New York corporation. 

Do you have an exit or growth strategy in place?

Based in Sanford, Florida, MC2 is recognized as Florida's automated control and security systems leader, with more than 20 years of on-site experience. MC2 has successfully evolved into a premier provider of engineered, state-of-the-art direct digital control, energy management systems, security access control, and closed circuit television systems, and lighting control for customers in both public and private sectors. 

Under President Roy G. Hoffman Jr.'s leadership, the company has successfully expanded and continues to increase its service footprint throughout the state of Florida. With a team of more than 50 knowledgeable engineers and technicians trained in a variety of automation and security systems, the company is prepared to deploy professionally designed systems to meet customers' specific needs. MC2' s flexibility allows the company to offer proprietary and non-proprietary systems, including integration services to third party systems, offering complete low voltage building solutions. 

Mr Hoffman stated, "While Benchmark was involved throughout the process, their assistance on getting extra value built into the deal after the acquirer's initial valuation was received really demonstrated their unique expertise and command of the process." 

With more than 29 years in business, Stark is a North American provider of comprehensive intelligent building and energy management solutions. The company boasts over 250 employees and has been involved in projects across all 50 states, as well as 1 0 Canadian Provinces. While Stark continues to experience year-over-year revenue growth, the acquisition of MC2 provides Stark with an expanded geographic presence in the Florida market. 

"MC2 is a compelling addition to Stark's platform, and we are truly honored to have worked alongside the MC2 team toward this successful outcome", said Trevor Talkie, Senior Associate at Benchmark International. 

Leo VanderSchuur, Director at Benchmark International added, "Allowing both the seller and acquirer to prosper and benefit is always an ideal end result. On behalf of Benchmark International, I'd like to wish both parties the best of luck moving forward." 

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What if you’re a business owner in the process of transitioning your business or considering a transition? How do you handle it?

Picture this for a moment: you’re up to bat with two outs, two runners on base and the Florida Championship on the line.  Base hit up the middle scores one, possibly two, but if you pop up, ground out or strike out, it’s game over.

Is transformation important to your business?

If you could visualize yourself in that situation, chances are you’re feeling a little nervous.  Especially if you’ve never been there before.  What if you’re a business owner in the process of transitioning your business or considering a transition?  You’re up to bat with two outs and two runners on base – how do you handle it?  Ideally, we’d all like to confidently drill the first pitch deep into the outfield to win the game, but what happens when the thoughts and concerns about the transition and life after the transition get in the way?  Things might not work out as planned. 

In the decades of serving high net worth and ultra-high net worth individuals and families, our team has worked with many who have made their wealth through the sale of the family business. Many of them were faced with a number of overwhelming thoughts and feelings: stress, anxiety, frustration, confusion and worry.  Here are some of the questions we’ve often heard:

  • Will this wealth be enough to sustain me and my family? How do I know?
  • What about taxes? What’s the impact to me?
  • How in the world am I going to invest this money to serve me and my family?
  • What about my legacy and charity – how does all this fit in?

Finding the answers to these questions requires preparation.  Unfortunately, many business owners are unprepared to address the complex financial decisions that need to be made for both themselves and their families both before and after the sale.  Many would rather wait and leave the planning to another day.  But a lack of planning and preparation has killed deals that should have closed, broken up families, and, in rare occasions, landed business owners in the hospital due to stress.

At BNY Mellon Wealth Management, we follow a collaborative, holistic, team-based approach to each business owner and family that we serve.  Leveraging the strength and expertise of our global firm, we help provide clarity by working with business owners to implement:
Wealth transfer and tax mitigation strategies

  • Pre- and post-sale cash flow optimization
  • Pro forma net worth statements and estate flow projections
  • Custom post-transaction investment strategies
  • Family governance and next generation education plans
  • Strategic philanthropy

Proper planning takes time, and having the right team of experienced professionals is critical to success.  Armed with an experienced team who can assist with planning and preparation, you too can confidentially step up to the plate and win the game. 

Author:
Christopher Swink
Senior Wealth Director
BNY Mellon Wealth Management
T: +1 (813) 405 1223
E: christopher.swink@bnymellon.com
Visit the BNY Mellon Website

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Benchmark International, has facilitated the sale of Integrated Legacy Solutions, LLC (“ILS”) to NXTsoft, LLC (“NXTsoft”).

Benchmark International M&A specialist, Benchmark International, has facilitated the sale of Integrated Legacy Solutions, LLC (“ILS”) to NXTsoft, LLC (“NXTsoft”).

Based in Trussville, Alabama, ILS offers image and data conversion migration technology for the financial services industry. The company specializes in data management through one of three methods: full data conversion into a new system, data migration into its flagship OmniView Browser™ or a blended approach that combines the two.

NXTsoft, located in Birmingham, AL, is concentrated in risk management, including solutions in cybersecurity, compliance, and data analytics. Like ILS, several of NXTsoft’s portfolio companies also provide high quality software solutions serving financial institutions. NXTsoft is backed by a team with a 25-year track record of successful technology start-ups.

ILS founder, Kris Bishop commented, “I would like to thank the Benchmark International team for their dedication and persistence. Their team and hands on approach provided excellent marketing documents, broad coverage across various types of prospective buyers, and resulted in multiple offers over the term of our engagement”

Leo VanderSchuur, Director at Benchmark International, stated, “It was a pleasure to represent ILS, Kris Bishop and Jason Alfano in this transaction. On behalf of Benchmark International, we are extremely pleased with the outcome. Allowing both the seller and acquirer to prosper and benefit is always an ideal end result.”

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Will 2019 Be the Year of the Family Office?

For the last decade, private equity players have held the driver’s seat in looking at, winning auctions for, and acquiring lower middle market businesses in the United States. But early results for 2019 indicate this trend may be at an end. The family office has come to the fore and appears poised to become the dominant bidder and buyer in this market.

Ready to explore your exit and growth options?

Family offices are similar to private equity funds in that they take a pool of money and invest it across a range of companies seeking diversification to mitigate risk. But what’s more important are the differences between the two buyer types. These include:

  • Private equity funds have mandatory exit time frames imposed by their organizational documents and their agreements with their investors. A typical private equity fund has a life of about ten years so it must buy, grow, and then resell all of its investments in that time frame. Family offices, on the other hand, typically have no time horizon for re-selling. They are more often “buy and hold” acquirers.

  • Private equity funds primarily invest “other people’s money”. Family offices invest their own money. While a family office will typically have a management team working for the capital provider and that has the appearance of a private equity-style management company, the management team’s relationships, compensation, career path, and rigidity of investment criteria are each vastly divergent from those of private equity funds.

  • Private equity funds operate under some limitations as to the breathe of their investments - a tech fund can’t buy farmland – but they do seek diversification in very broad terms within these limitations. Family offices tend to have a narrower focus. They hew close to the Warren Buffet mantra that investors should only buy stocks within their "circle of competence." A family office that has made money in landscaping is likely only to look at landscaping businesses and if the family made its money in commercial landscaping, to only look at commercial landscaping businesses. As a result, they tend to come across to Benchmark Internationals’ clients as more knowledgeable about their business.

  • Also owing to their tighter range of interest and the fact that they do not have outside investor to whom they owe fiduciary duties, they tend to move faster, perform less diligence, and produce shorter contracts. Over the last ten years, as multiple have increased, private equity funds and trade buyers have ratcheted up their due diligence to levels our clients find very painful. This is understandable as higher multiple mean more risks for these buyers. But family offices seem more comfortable with this heightened risk and rely on their expertise in the narrower industry to alleviate the risk other buyers reduce via diligence.

  • Family offices also tend to use less debt in their deals than do private equity funds. Perhaps as a result of this fact, or maybe not, they tend to use their existing debt facilities to provide the extra leverage needed to put in competitive bids. As a result, the lenders due diligence is either greatly reduced or eliminated from the acquisition process. This also increases the speed to close and reduced the stress for sellers. When a private equity fund, or even a typical trade buyer, sets up a new transaction, they also set up a new lending arrangement and the bank providing the debt sends in its own diligence team to investigate the deal and the company being acquired. Double the diligence, double the fun!

  • Because a family office’s money is coming from one source as opposed to many, they tend to seek out smaller opportunities than do private equity funds. There are some very small private equity funds these days and there are also some rather large family offices now. But in general, the managers at a family office are more accustomed to dealing with smaller business, more owner-operated businesses, and businesses with less data to share during the due diligence process. As a result, our clients often find them easier to work with and have more interest in working with them on an ongoing basis following the closing.

  • Private equity funds often have a mechanism in place to have their “deal costs” covered by third parties. Deal costs primarily consist of due diligence costs, legal fees, and travel. It is not uncommon to see a private equity funds deal costs amount to over 5% of the transaction value. Family offices, on the other hand, have no one to turn to for their deal costs. This has two favorable results for sellers. First, they spend less on the process, making it shorter and easier. Second, their certainty of close is higher. While private equity funds can somewhat mitigate the costs of a “blown deal,” family offices only have one pocket to pull from – their own (or, in other words, their boss’s personal pocket).

  • The characteristic that is probably self-evident by this point is the higher certainty of close. Family offices know the market batter, they have less bandwidth to use time inefficiently, they have more discretion, they are less reliant on banks, and they don’t want to waste their own money on blown deals. They are thus more cautious, put in fewer bids, and call things off much sooner than other buyer types. In short, if they are proceeding, they are more serious than they average buyer.

  • They are harder to find. They do not have to register with the SEC. There is no secret club they belong to.  They are too short-handed to attend many conferences. Many even enjoy anonymity and don’t even have websites.

Do you have an exit or growth strategy in place?

This last characteristic is what makes selling to family offices tricky. Any broker can produce a Rolodex of private equity funds. In fact, an impressive one could be produced from scratch in a matter of hours. Furthermore, because their focuses tend to be so narrow, the first 100 family offices in the Rolodex would probably not be a good fit for any given business but a similar list of private equity funds would probably produce a few interested buyers in most any growing business. A broker is either into the family office world or they are not. There is no break through moment in this regard. It requires years of dedicated effort to identify and establish relationships with these hidden gems. It requires dozens of researchers and outreach efforts.  It also requires having an inventory of businesses for sale that keeps these buyers interested. Brokers focused on larger deals and boutique brokers lacking global reach simply can’t devote the time and energy necessary to gain access to this strengthening pool of buyers. Only brokerages such as Benchmark International have the capability to do so and many of those with the capability have simply not made the effort.

Our family office relationships are continually growing and in 2019 these efforts have rewarded our clients handsomely.  Keep your eyes open. I bet you’ll soon start to see the Wall Street Journal talking about family offices and the rise of the family office.  When you do, remember that you heard it here first and Benchmark International is your gateway to those buyers.  

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Benchmark International has successfully facilitated the sale of Adapt Laser Systems, LLC and Teka North America, LLC to Boyne Capital Partners, LLC

Benchmark International has successfully facilitated the sale of Adapt Laser Systems, LLC and Teka North America, LLC to Boyne Capital Partners, LLC.

ABOUT ADAPT LASER SYSTEMS, LLC:

Headquartered in Kansas City, Missouri, Adapt Laser has supported North America since 2003, providing pioneering laser cleaning solutions to many bonding, corrosion, and surface treatment issues facing complex industrial processes. Adapt Laser, in partnership with CleanLASER, is the only supplier of fiber-coupled, compact, mobile or stationary laser cleaning units, with 20 to 1000 watts of laser power for a wide-range of handheld or automated applications. Illustrative uses include composite part tool cleaning, defense and military applications, oxide removal, paint & varnish removal, weld & joining pre-treatment, and mold cleaning. End-markets served include aerospace, automotive, defense, nuclear utilities, semiconductors, and food production

President of Adapt Laser Systems, Georg Heidelmann, stated, “Benchmark International was paramount to the success of our deal. Not only did Tyrus and the team at Benchmark demonstrate their expertise in all areas of M&A but they also took time to really understand my specific business and industry. Through Benchmark’s process a number of potential partners were identified which allowed me to select the group who truly aligned with Adapt’s people, culture, and vision for the future. I would like to thank the Benchmark transaction team for the extraordinary effort in making this deal a reality.”

Do you have an exit or growth strategy in place?


Tyrus
O’Neill, Managing Partner at Benchmark International, stated, “It was a pleasure to represent Georg and Adapt in this deal, and on behalf of Benchmark International, we are very pleased with the outcome. Both sides of the transaction were extremely professional throughout the process and it was a pleasure to work alongside Georg and the group at Boyne. The parties have numerous strategic synergies which has led to a great process and overall result. This has been a thoroughly satisfying experience and we wish both parties the best of luck moving forward.

ABOUT BOYNE CAPITAL PARTNERS, LLC:

Boyne Capital is a Florida-based private equity firm focused on investments in lower middle market companies. Founded in 2006, Boyne has successfully invested in a broad range of industries, including healthcare services, consumer products, niche manufacturing, and business and financial services among others. Beyond financial resources, Boyne provides industry and operational expertise to its portfolio companies and partners with management to drive both company performance and growth. Boyne specializes in providing the capital necessary to fund corporate growth and facilitate owners and shareholders' partial or full exit.

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Strong M&A Activity Continues In Nashville For The Healthcare Industry

Since the early 70’s, Nashville has been considered a hub when it comes to the health care industry.  Nashville has developed and changed the landscape of the industry in the past 50 years.  The development of the community began with Hospital Corporation of America (HCA). Largely through hundreds of mergers, acquisitions and well as new companies, we’ve seen industry trends set in Nashville, as well as startups and spinoffs bringing different sectors of the industry to Nashville. 

Do you have an exit or growth strategy in place?

Before the Hospital Corporation of America, most hospitals were non-profit or affiliated to a religion.  In 1969, one year after inception, HCA became a publicly traded company.  This changed the landscape of the industry for good.  Through an abundance of M&A transactions, HCA now owns and operates more than 170 hospitals in 20 states across the country. In 1995, the Nashville Health Care Council was established, understanding the Nashville health care industry was responsible for $3.7bn in revenue at the time, while providing 53,000 jobs.  Today, the council reports $92bn in annual revenue generated, all while providing more than 570,000 people employed around the globe by healthcare companies based in Nashville.  There are over 900 companies that directly provide health care services, or are in some way involved in the industry.  These numbers are massive, and spurred a ripple effect around the country causing more private equity spending to focus into the industry.  This effect has led to eighteen publicly traded healthcare companies calling Nashville their home, while enticing more than $1bn in venture capital investments over the past decade.  The leaps and bounds made during the past 50 years are obvious, as the entire landscape of the industry has complete changed.  During 2006, Bain Capital, Kohlberg Kravis Roberts & Co. and Merrill Lynch completed a $33bn leveraged buy-out of HCA.  This was the largest leveraged buy-out to date and spurred an unprecedented amount of investment in the industry.  In 2011, HCA returned to the public market in the largest US private equity-backed IPO to date ($3.79bn raised).  HCA’s chain system business model was emulated by hundreds of not-for-profit hospitals throughout the country, and they are considered to be the trailblazer of the industry. 

The M&A landscape continues to change the healthcare industry to this day.  Through the first half of 2018, the healthcare sector saw deal value increase to $315bn, up from $154bn in the same period the previous year. The healthcare sector ranks third in terms of total deal value.  From a valuation perspective, healthcare M&A transactions were at an all time high in 2017.  A large driver within the space was within the senior housing and care marketplace. The number of announced transactions is on pace to set a new record, but the dollar amount of these deals will not exceed the record.  While this shows the hyperactive nature of the marketplace, these deals are occurring as smaller transactions rather than the mega-deals we’ve seen in the past.  This is a very attractive marketplace for sellers all things considered.  Private equity groups accounted for a large uptick in spending during Q4 of 2018. Financial buyers are notably optimistic about the healthcare market, with 120 total deals announced in the final quarter of 2018.  This bodes well for 2019 with 2018 in the rearview, healthcare continues to expand due to high valuations, a very large number of transactions, and an increasingly attractive marketplace. 

For the third year in a row, the number of small business transactions reached record numbers, as reported by BizBuySell.  Financial performances of the small businesses are increased year over year, as well. 49% of sellers said their businesses performed better in 2018 compared to 2017, and another 36% had similar figures comparably.  With financial performance increasing, the value of the transactions inevitably grew.  The medium asking price for small businesses in the US grew 10% from 2017, a clear indication that buyers are willing to pay more for businesses with a proven financial track record and promising futures. 

Author
Sean Ryan 
Analyst
Benchmark International
Ready to explore your exit and growth options?

T: +1 615 924 8522
E: Ryan@benchmarkcorporate.com 

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How Can I Expand My Business Internationally?

Expanding into new markets around the world is an exciting opportunity for business growth. But where do you start? There are several factors you will need to consider when undertaking a venture of this magnitude.

First and foremost, you will need to determine if expanding into a new country will be profitable. Identify your target market and assess the need for your commodity in that market. Perform a product gap analysis or SWOT analysis to determine demand and how your product or service stacks up to local products. You basically need to determine whether anyone will buy it, so it can be a wise move to test your product in that market before going any further.

Create a localized business plan to evaluate your preparedness for the venture, and set reasonable goals for the process. Expanding into new markets is akin to starting something new and it’s going to bring a new set of challenges. Consider if you need to create a new executive team to help manage the transition or if your existing team can hit the
ground running.

One of the most important steps you can take in expanding to a new market is to make sure you take the time to understand the country’s culture. Etiquette, language, and business culture can vary greatly and impact the success of your endeavor.For example, make sure your product or business name translates appropriately into the native language.

You will also need to think about the country’s logistics and how you plan to distribute your product or service. Consider legal regulations, tax laws, insurance needs, banking transactions, transport costs, data protection, and labeling requirements. You should also protect your intellectual property by looking into trademarks, patents, and design rights. Hiring an international business consultant can help you avoid any pitfalls and ensure that all your bases are covered.

Taking a product into new markets also means understanding the ins and outs of exporting. The good news is that it’s often in the best interest of most governments to boost exporting, so seek out ways that they can help you with market research, trade support, and exportation training programs. This information is typically available on government websites. You can also contact trade commissions, chambers of commerce, and other organizations
for assistance.

If you plan to acquire an existing business, you will need the proper guidance from an experienced business acquisitions firm to help find the best opportunities and broker a successful deal. There is plenty of due diligence required to adhere to local laws and make sure the terms of the acquisition suit all parties involved. At the same time, the right acquisition can be quite advantageous and reduce some of the risk that comes with an international venture. The business to be acquired has existing infrastructure in place and understanding of the local market’s regulations and relationships, offering some stability to a complex process. A sound strategy can make all the difference when buying a company.

There is a great deal to manage when expanding a business internationally, but you don’t have to do it all alone. World-class business experts with strong global connections, such as Benchmark International, can help you analyze the market, navigate the process, and tackle the world.

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BENCHMARK INTERNATIONAL SUCCESSFULLY FACILITATED THE MERGER BETWEEN AMTIS, INC. AND BLACKFISH FEDERAL, LLC.

Benchmark International has successfully facilitated the acquisition of AMTIS, Inc. by Blackfish Federal, LLC. AMTIS, Inc. (AMTIS) is a diversified government service company providing leadership development, executive coaching, strategic planning facilitation, training development, business processing and professional services for multiple Federal government agencies. BlackFish Federal, LLC (BlackFish), is an IT and healthcare solutions provider dedicated to helping solve its customers’ biggest business problems. Whether through applying innovative IT solutions or providing healthcare management support services, BlackFish consultants use their problem-solving skills to turn challenges into opportunities.

Barbara Stankowski, President and owner of AMTIS said “The sale of my company was an extremely lengthy and taxing process. Throughout the entire sales effort, the Benchmark team was very professional, responsive and kept their eye on the end goal, allowing me to continue running my business. I would highly recommend Benchmark to any small to mid-size business owner that is considering the sale or merger of their firm. I am excited for the AMTIS employees, and all of our customers who will remain in qualified and capable hands with BlackFish leadership team now behind the wheel.”

“We’re very pleased to have recently completed the acquisition of AMTIS. Together, BlackFish and AMTIS create a strong strategic fit that will provide our customers a fully integrated leadership and professional services organization. Our overlap in customer base and services offered, accompanied by AMTIS' experienced management team and operational staff will create a seamless transition for each of AMTIS’ existing clients.” said Donald Jones, CEO of BlackFish.

Benchmark International Associate Director David Steverson stated, “We would like to congratulate AMTIS, Inc. and Barbara Stankowski, as well as the buyer, BlackFish Federal. This acquisition was disrupted by a number of external forces, including a partial government shutdown, but ultimately concluded with a completed transaction. Special thanks goes to the various specialists working on both sides of the transaction beyond Benchmark: Shuffield Lowman, PilieroMazza, Genaesis, and McMahon Welch and Learned.”

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Benchmark International Successfully Facilitated The Acquisition of Jackson Galloway Associates LLC. by FGM Architects, Inc

Benchmark International has successfully facilitated the acquisition of Jackson Galloway Associates, LLC to FGM Architects, Inc. Benchmark International worked effectively with the sellers to ensure that their goals were met from a financials as well as cultural perspective.

Jackson Galloway Associates, LLC is a highly-reputable firm that provides full-service architecture and interior design for the Texas market.  The majority of their clients are churches, public and private schools, athletic facilities and non-profit organizations in the Texas market with a high focus in Austin, one of the fastest growing cities in the country.

FGM Architects is a professional service firm with an emphasis on design and service.  Since 1945, FGM Architects has specialized in the planning and design of environments for PK-12 Education, High Education, Municipal and Federal clients. They offer a unique combination of experience, talent and a collaborative design process.

Benchmark International was able to procure for Jackson Galloway Associates a buyer that met their goals in regards to financial terms as well as cultural fit and an aligned vision in regards to their design capabilities.  Benchmark International represented the sellers for over two years in a diligent effort to find the ideal buyer.

According to John Jackson, AIA, now Managing Director of the Austin Office of Jackson Galloway FGM Architects “'Our transition was assisted by the personal and professional team at Benchmark, International, who walked us through every step and helped us to stay on task to the very end.”

Benchmark International’s Senior Associate, J.P. Santos, commented “The Benchmark International team is very happy for John Jackson, Bob Galloway and the entire Jackson Galloway Associates team.  From the outset, the shared vision in terms of design and corporate culture between Jackson Galloway Associates and FGM was apparent and was helpful in coming to equitable terms.  Both parties were collaborative in their efforts to bring this deal together and we are excited to see what the combined firms can do going forward.”

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Top Mistakes to Avoid When Selling

So you’ve made the big decision – you’re going to sell your business. This is likely a stressful time for you as have probably spent a lot of time and resource building up the company and may be nervous about seeing it pass over to new hands. So, from here on in, you would like to minimise the amount of stress involved by avoiding any mistakes which can easily be averted. The following are common mistakes to avoid and how Benchmark International can help:

Only Pursuing the Largest Acquirer

Surely pursuing the largest acquirer is in your best interests as they will be able to afford a premium for the company?

While they may be able to pay a premium for the company, they may not necessarily do so. An acquirer is likely to pay a premium for your company because there are synergies in place such as similar markets, products or customers that could be combined, but a large acquirer typically does not need to make the acquisition to enter these markets. An acquisitive party could also benefit from economies of scale and, therefore, will pay more for the target, but a large acquirer is unlikely to benefit from this. Even if a large acquirer is willing to pay a premium, they may absorb operations into their own company, which can cause complications for the handover, particularly if you are loyal to existing staff.

How Benchmark International Can Help: Look at all aspects of the deal and how it can benefit your company. Benchmark International can assist with sourcing the best fit for your company.

 

Schedule a call to speak to an Analyst

 

Not Looking at the Bigger Picture

You’ve just received an offer from a potential acquirer – on the surface of it, it looks good, surpassing your expectations. However, the structure of the deal as a whole needs to be considered, not just the total value. For example, the consideration could be deferred, or contingent on future earnings, meaning you are not receiving all cash upon completion. It is also important that if you do decide on a structured deal, that these elements are protected, ensuring you receive the consideration.  

How Benchmark International Can Help: Benchmark International will thoroughly analyse all offers received, negotiate earn-out protections and can assess any contingent targets to ensure that the seller is able to maximise the consideration received. 

Not Creating Competitive Tension

It can certainly be a benefit to enter into the M&A process with potential acquirers in mind, perhaps one of these has even approached you at some point. However, even though it may be tempting to dive straight into a deal with an acquirer that wants you and complements your company perfectly, it is still vital to create competitive tension by generating interest from other potential acquirers. If the acquirer in mind can sense that they are the only one with an offer on the table and that you are anxious to sell to them, they could take advantage of this with a low offer.

How Benchmark International Can Help: Benchmark International will employ an approach where all potential acquirers are approached and exhausted before accepting any offers.

Using an M&A Sector Specialist

This may seem like an odd ‘mistake’ to make – why wouldn’t you want to use an M&A specialist operating specifically in your sector, surely you don’t want a generalist?

The reasoning behind this is that a general M&A firm will be able to think outside the box and target a large pool of acquirers, not limiting itself to those just in your sector.

How Benchmark International Can Help: Benchmark International has a vast and growing number of contacts giving you the best chances of receiving multiple offers, as well as significant experience across a broad number of sectors, leveraging this to identify the areas where the greatest synergies can be exploited.

Leaving it Too Long

To obtain the best price and right fit for your company, it is crucial to enter the market at the right time. It is important to strike a balance between seeking to sell when the company is on a growth curve, but also not missing the window of opportunity in the market cycle. Equally, it is important not to sell when you become desperate (e.g. you are looking at retiring soon) as acquirers could become aware of this and lower their offer accordingly.

How Benchmark International Can Help: Look at selling earlier than anticipated, not when you want an imminent exit. Benchmark International can best advise on when the right time is
to sell.

Neglecting the Day-to-Day Running of the Business

M&A transactions can be time consuming, but it is important not to let it get in the way of running the business. If an acquirer is interested in the business because profits are increasing, or a new product is due to be released to the market, for example, and this does not come into fruition because  you have taken your eye off the ball, then this could lead a buyer to renegotiate, or call the whole deal off.

How Benchmark International Can Help: The pressure of selling your business can be alleviated by Benchmark International as it will handle negotiations, leaving you to focus on running your company.

Not Negotiating Effectively at Critical Stages

Offers may go back and forth between yourself and the potential acquirer and at this point you are in a good position to negotiate. It is not until the Letter of Intent (LoI) is signed that the advantage swings to the buyer. Although the LoI is not typically legally binding it does usually stipulate a period where the seller cannot pursue further leads in the market (an exclusivity period), so competitive tension is lost. It is important, therefore, that you are completely happy with the terms (which can include such things as price, length of the exclusivity period etc.) before the LoI is signed to avoid either having to back out of a deal that could have been lucrative or being tied to a lengthy exclusivity period.

How Benchmark International Can Help: In all stages of negotiating, Benchmark International will do this on your behalf with your best interests in mind.

Author:
Lee Ritchie
Senior Director
Benchmark International

T: +44 (0) 1865 410 050
E: Ritchie@benchmarkcorporate.com

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What type of attorney should I use for selling my business

The sale of a business owner’s business is a testing time and it requires the most talented teams in order to successfully consummate a transaction.  As a business owner, it is very likely that you have already worked with legal representation that has assisted you through various legal processes such as the incorporation documents, customer/vendor contract negotiations, and other day to day and routine business transactions. So, you may ask yourself ‘Why not use the same business attorney that I have been using already?’ While you may have been using this attorney for your business needs, he or she may not have technical experience that is required for your long-term protection.  Given that many deals require the involvement of a seller post-closing, an attorney must be highly specialized and experienced to ensure that you have the proper protections at the time of sale.

Having legal representation that specializes in M&A transactions is critical during the due diligence process.  It is during the due diligence process that both the buyer and the seller’s teams begin formulating the definitive purchase agreement documents. When engaging an M&A attorney, it is important to understand the amount of experience the attorney has. M&A transactions tend to be much different than the aforementioned routine business dealings. A good indicator of an attorney’s experience is the amount of deals or transactions and attorney has worked on.  The answer to this question will help a seller understand if this is a representative that can effectively represent him or her. The attorney’s legal team should not only be seasoned in M&A transactions but should also have expertise in specialty areas including but not limited to, tax, corporate finance, real estate, intellectual property, compensation and benefits, litigation, and employee matters. M&A transactions will involve complex deal structures, agreements and legal issues that are often argumentative and tasked to be completed quickly. Your lawyer must be a skilled advisor and negotiator that has the ability to work around imperative demands to keep the deal moving forward. Since each deal presents its own set of challenges, having representation that practices M&A transactions full-time is essential for being effective and time efficient when working with the opposing party.

Additional key components when considering legal representation for the sale of your business are the size and capacity of the firm. Like businesses, there are law firms of all sizes ranging from sole practices to firms with thousands of attorneys. In the lower-middle market, businesses typically range from $1million to $100 million in revenue. If you choose too large of a law firm, you run the risk of paying exuberant legal fees and your deal may not be a priority. If you choose too small of a firm, there is the concern of inadequate capacity and closing delays that can potentially break the deal apart. Choosing the firm that specializes in your deal size, geography and industry will ensure you have the right attention and expertise to achieve
a successful closing.

Our team at Benchmark International takes great consideration in ensuring our clients are backed by a strong and experienced team of advisors from accounting and wealth management to legal representation. If you would like assistance finding a specialist, Benchmark can arrange a no-cost, no-commitment meeting with experienced, specialized counselors appropriate to your budget, geography, and industry. These firms do not share fees with Benchmark, but in the past our clients have enjoyed tremendous success with each of the firms we would present.

 

Author:
Billy Van Buren 
Senior Associate
Benchmark International

T:   +1 (512) 861 3312
E: VanBuren@benchmarkcorporate.com

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Taking Your Business to the Next Level

The art of starting a small business is a craft to which not every business person is well suited. It involves countless late nights, blood, sweat and tears, to turn an idea into a thriving small business. But, you’ve done that.  You’ve successfully turned a one-bedroom or small machine shop, and spark of inspiration, into a community staple with a name that will outlast your time in business.  But, you’ve also reached a point where your talents have been exhausted. And, you’re not sure what the next step is in taking your business to the next level.  Once again you have an idea, but this time you need outside help to turn that vision into a reality.

Many businesses reach this point at which they feel that they are unable to further increase the scope of their operations.  They find themselves turning away business or not able to expand into new and lucrative markets.  Perhaps, what is holding you back, it is a lack of cash on hand, or a deficit in managerial expertise.   Whatever the reason, bringing on additional investors is a key, and proven strategy through which a business is capable of gaining an infusion of needed capital and knowledgeable partners capable of taking a company to the next level.

Your passion is your business, and your clients have come to cherish your services.  Bringing in new partners with an influx of capital is an excellent way for you to continue doing what you love while growing your company’s client base and expanding the services you offer.  New partners may sound like dirty words you never thought you’d speak.  You might think of new partners as greedy investors who will come in and milk your business dry without care for the name brand and quality you are known for. 

That’s not always the case, and that’s where we at Benchmark International come in.  You can rest assured that Benchmark International will help you find new partners that care about your business as much as you do. Partners who can bring the capital and experience you need in order to keep your business growing and thriving. These new partners could bring in experience in managing larger organizations, or experience in advertising a small business to a new market, they might even have connections to customers who could grow your client base.

In engaging Benchmark International, you can expect our deal preparation and transaction teams to present your business to the market and find the perfect fit to take your business to the next level.  First, our deal preparation team will delicately craft marketing materials which accurately reflect the successes of your business and its potential for growth. After your approval of the marketing materials, the deal transaction team will take over and bring your company to the market.  Whether a trade buyer or a fellow competitor, the team will work tirelessly to find the right partner to help you grow your business.  This will ensure, that you take your business to the next level, without losing the heart of the business you painstakingly grew from an idea into a name synonymous with quality.

The process of staying onboard after a sale of your business or an injection of new capital is typically referred to as an elevator deal.  For more information on how elevator deals function, please see.

Author:
Patrick Seaworth
Senior Associate
Benchmark International

T:   +1 (512) 861 3314
E: Seaworth@benchmarkcorporate.com

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I Want to Sell My Business.  But How Can I Be Sure My Employees Are Taken Care Of?

As an owner of a business, there are often times when the employees of the business can become like an extension of the owner’s family.  Employees are often present during challenging times in the business owners professional and personal life and the owners of the business can often be a stabilizing presence in an employee’s life.  One of the biggest concerns of a business owner is what the welfare of their employees will be upon a successful sale of the business. Often times, the concerns can be placed into four broad buckets,

1.) Will the employees be keeping their jobs?

2.) Will the employees be keeping their same level of compensation?

3.) How will the insurance benefits change, if at all?

4.) How will our company culture change – do we still have team building events planned every    quarter and holiday bonuses we can count on?

The answers to these questions can go a long way in determining whether a buyer is the perfect fit for a business, outside of the fundamental valuation and transaction structure.  Mergers and acquisitions are complicated endeavors, involving an incredible amount of work and attention to detail.  While in the midst of an acquisition, HR Departments are the group tasked with managing perhaps the most valuable part of a company – the human capital.  Granted, some aspects of the transaction are unavoidable, including the letting go of employees in an underperforming division or in a role that will be redundant within the acquirer’s organization.  But, if both buyer and seller can get on the same page and formulate a plan for informing the employees of a change, this will ease the transition and mitigate the fear of the unknown. 

Now, to address the first question that will come to an employee’s mind upon finding out their firm is being acquired – am I going to keep my job?  In the vast majority of transactions, employees will retain their roles and often times an acquisition can be an opportunity for upward mobility within a larger organization.  Timing will be of the utmost importance when it comes to making any type of announcement regarding an employee’s employment status, whether positive or negative. One hurdle to avoid at all costs is raising alarms unnecessarily.  In order to avoid this complication, it’s best to announce a merger or acquisition upon execution of a Definitive Purchase Agreement and the transfer of funds. This ensures that the deal is closed and official and will eliminate the risk of pulling the rug out from under the employees of a recently acquired company.  

When the topic of compensation arises, there are numerous factors at play, including the performance of both the buyer, seller and individual employee as well as the defined compensation structure that already exists within the buyer’s corporate infrastructure.  Having a discussion regarding compensation can also take a different tone – perhaps a buyer can offer employees a more compelling work/life balance, an office space that offers the opportunity to exercise, eat healthy or be in a location that is convenient and offers easy access to post office hours entertainment.  Being able to pitch potential employees on all of the value that a buyer offers aside from the number on their paycheck can help bridge any perceived gaps
in compensation.

Beyond the importance of staying employed and maintaining the current level of earnings, individual employees will also be concerned with their benefits package and whether the buyer offers a more compelling insurance package or one that could be considered a down grade.  In any event, being completely transparent about the pros and cons of the new benefits package will be important in mitigating the fear associated with change.  A buyer who makes themselves available to answer questions that are both qualitative and quantitative in nature will be able to ensure a smoother transition.  This would include providing feedback mechanisms such as one-on-one interviews, focus groups and anonymous surveys.  In most cases, there is not a need to turn everything upside down immediately – buyers should not expect for all the new employees to join their new health insurance plan immediately, buyers should also consider letting the new employees keep their old PTO until the end of the year, if a new employees has already reserved PTO, a buyer can still honor that time and garner a little morale. 

 Ultimately, communication will be key - giving employees an opportunity to feel seen and heard will give them the sense of feeling valued by their new employers.  Additionally, this will bring a level of comfort to the seller that those individuals who helped them achieve success will continue to be taken care of and that the culture of a company that takes years to create will remain intact and continue to permeate throughout the new company.

Author:
JP Santos
Senior Associate
Benchmark International

T:   +1 (512) 861 3309
E: Santos@benchmarkcorporate.com

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Benchmark International Successfully Facilitated the Acquisition of Fulfill Plus to The Balwa Group

Benchmark International has successfully facilitated the acquisition of FullfillPlus, Inc to The Balwa Group.  Benchmark International worked diligently to find a Buyer that was a good cultural fit for the business and would allow for the owners of FulfillPlus, Inc to achieve their personal and professional goals.

FulfillPlus, Inc is offers a wide range of fulfillment, warehousing, order processing, kitting, assembly and shipping services tailored to meet their client’s exact marketing needs. They are a single source supplier for all services related to delivering client’s products to their clients in a timely and cost efficient manner. Centrally located on the Gulf Coast, near the Port of Houston, they are ideally situated to handle large and small clients that manufacture in the United States or import products from as far away as China and India to reach their clients efficiently.

The Balwa Group is a company with investment holdings in diverse market segments including hospitality, real estate development and manufacturing.  With a large international presence, the firm was looking to diversify their holdings in both market segment and geography and had a particular interest in the logistics business. 

FulfillPlus, the Seller and Balwa Group, the Buyer, pictured together.

Benchmark International was able to procure for FulfillPlus, Inc a buyer that met their financial goals while also being an ideal cultural fit.  Benchmark International corresponded with numerous potential buyers and the owners of FulfillPlus, Inc had several in-person meetings and offers to choose from however once they had the opportunity to meet with the representatives from The Balwa Group, both parties knew immediately that FulfillPlus would be a great fit for both.  

Benchmark International’s Senior Associate, J.P. Santos, commented “The Benchmark International team is ecstatic that Chuck and Michele, the owners of FulfullPlus, chose a buyer that is going to contribute to the continued growth of the company. Chuck and Michele were communicative, responsive and collaborative through the Benchmark 360 process. Ultimately, the transaction will allow for Chuck and Michele to reap the rewards of years of hard work while continuing to focus on the positive trajectory the company is on and enjoy more leisure time.  This was a great result and we couldn’t be happier for all parties.”

Charles Gleason, CEO of FulfillPlus wrote a beautiful letter to the Benchmark International team regarding his experience working with us: 

Dear J.P. and entire Benchmark Team:

Michele & I would like to thank you for the great job your entire team did helping us sell our company. We selected Benchmark because of the professionalism shown by all of your representatives as well as the breadth and scope of your company.

Being the founder of this business, it wasn’t easy for me to decide to sell it. We had been so focused on running the company for so many years, dealing with day to day issues, we never had time to even think about selling, and I wasn’t quite sure I really wanted to. But we knew we needed some sort of exit strategy for retirement and decided to at least sit down and review the process with your team. Your team answered all of our concerns and made us feel comfortable enough to initiate the selling process. You re-affirmed to me that it would be my decision on who we sell to and there is no time limit on finding the right buyer. I was skeptical, but after going through the process, I now know its 100% true. You didn’t pressure us to make decisions and focused your efforts on guiding us through the valuation and sales process at our pace. Nowhere along the way did we feel that you were pressuring us for time or a quick decision.

When it came to meeting prospective buyers, you allowed us to review each prospective buyer’s background before they were allowed to see our financials or meet us. You let us meet (on the phone & in person) with each buyer on our own, then scheduled calls to review the meetings and get our feedback on each prospective buyer. When offers were made, you offered insights into buyer tendencies and how we should respond. It was truly a team effort.

We are now 2 weeks past the closing date and have been working day to day with the new owners. We feel we made the right decision and are now finding ourselves looking at golf course communities around the country trying to decide where we eventually want to retire. We’re looking at Anthem, Arizona, Palm Spring, Ca, San Antonio, Tx (Hill country), Austin, Tx, and Greensboro, Ga (Lake Oconee). All areas with beautiful homes and golf communities.

Thanks again for all your help and good luck with future sales,

Charles Gleason
CEO
FulfillPlus, Inc.
 

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The Benefits of Data Rooms (VDRs)

The due diligence process for an M&A transaction can be very cumbersome for all parties involved. The usage of a data room is one of the most valuable ways to mitigate the headaches that arise from the motions of due diligence.  There are generally two types of data rooms: physical and virtual.  The former is not the most practical in most larger scale transactions with moving parts in varying geographies. Thus, you will almost always see the usage of a virtual data room (VDR) in an M&A transaction. These VDRs provide organization and security for sellers, buyers, and advisors. 

Organization is probably the most easily identifiable benefit that VDRs provide.  They provide a repository for all documents pertaining to the transaction.  From a Phase 1 Environmental Site Assessment to the 2016 YE Income Statement to the buyer’s first draft of an Asset Purchase Agreement, it will reside in the data room. VDRs essentially eliminate the need to transmit documents through e-mail.  When there are 10+ individuals across parties needing to review documents, e-mail transmission is not practical in terms of time or organization.  Relying on e-mail may result in an organizational catastrophe, and many documents may quite simply be too large for e-mail transmission. Though it may be difficult to quantify in dollars, VDRs are undoubtedly a cost saver, particularly for sellers.  Many intermediaries such as Benchmark International use and administrate VDRs for their sellers at no additional cost, whereas many transaction advisors focusing on the legal or financial aspects of a deal are likely to charge additional fees for the usage and administration of a VDR. 

Security is a highly underrated and less thought of benefit to using a VDR.  E-mail isn’t the best vehicle to transmit sensitive employee information, tax data, or any other sensitive diligence documents.  While we all will use e-mail frequently to communicate over the course of diligence, it should be a last resort for the transmission of sensitive data.  One e-mail in the wrong hands could easily derail not just the transaction, but the going concern of the business.  Professional VDRs are also more secure than free or low-cost cloud hosted repositories such as Dropbox, Google Drive, and OneDrive.  These repositories are excellent for personal use or small B2B transmissions, but they don’t provide anywhere close to the same level of security as a VDR.  VDR data centers provide physical security (people and cameras), backup servers and generators, and top of the line digital security by way of multi-layered firewalls and 256-bit encryption.  Another security benefit of a VDR is the ability to layer.  Layers or levels allow administrators to dictate which individuals or parties have visibility to certain documents.  It’s quite possible that certain information will not be accessible until diligence milestones are met.  Layering the data room helps provide accountability, but most importantly: security.  

There are countless other benefits, but these are some of the most crucial that impact all parties involved in an M&A transaction.  Benchmark International, through its vendor, provides a tailored VDR experience and service to all of its clients to help facilitate seamless due diligence processes and successful deal closings. 

Author:
Robert West
Senior Associate
Benchmark International

T:   +1 (615) 924 8511
E: West@benchmarkcorporate.com

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Understanding EBITDA

In arriving at a valuation for their business, many managers come across the term EBITDA.  For some this term is Greek and for others it’s a term they vaguely remember being mentioned during their days in business school. For many business owners it’s a completely new term, with no context, and why it is important is a complete mystery to them.  But to buyers, EBITDA seems to be an incredibly important term.  So what is EBITDA?

To begin let’s spell out the acronym.  EBITDA stands for “Earnings before Interest, Taxes, Depreciation and Amortization,” that is, a company’s earnings before items which can be disassociated from the day to day operations of the business.  EBITDA is therefore a measure of the financial strength of the business, and presents a proxy for the total cash flow which a potential buyer could expect to garner from the purchase of your business.

Let’s break down each part of the acronym, beginning with Earnings. In the case of your business, Earnings is represented by the bottom line income, what is labeled “Ordinary Business Income,” on your tax returns.  This is the number arrived at by subtracting all expenses from Revenues and adding or subtracting any additional cost or income.  Distributions and dividends are items which occur after “Earnings” is calculated and are therefore not included in this equation.

Interest payments are associated with debt that the company currently holds.  Those interest payments whether they are on a Line of Credit to the local bank or for outstanding debt the company has taken on to purchase machinery or warehouse space, will likely be in some way included into the sales price of your business.  Meaning, that when a new owner takes over operations, or comes on board to help grow your business, the business will be starting fresh.  From the time of the sale going forward the new owners can expect all of the money previously paid to the bank, to flow through to bottom line earnings instead.  For this reason, in valuing your company it is important to add back interest payments to your bottom line earnings.

Next, we arrive at taxes. Each and every business pays taxes, but the amount is variable by state and subject to current legislation.  For that reason, we add back some, but not all taxes to your bottom line profits.  In most cases the only tax added back will be your Franchise Taxes. Franchise Taxes are those taxes charged by a state to a company, as the cost of a business in that state.  The tax varies based on the size of the business and the state in which the business is incorporated.  Because a company may be incorporated in a different state, or the size of the business may drastically change after an acquisition, these taxes are therefore variable and not a reflection on the business’ earnings.

Depreciation is a fancy accounting term for something we all know.  The amount of value your car loses the moment you drive it off the lot, is the most common form of depreciation we deal with during our lives.  Say you purchased new machinery ten years ago, and it is still running and in good condition, humming along each day spitting out all the widgets you can sell.  But your accountant may send you tax returns each year saying your machine is worth less and less.  This amount that gets deducted by your accountant isn’t an actual amount of cash leaving your business, but it decreases your bottom line earnings.  For this reason, we add depreciation back, to put back into your bottom line, an amount which was taken out on paper, but not out of your company’s checking account.  An additional note, as we are dealing with your company’s Profit and Loss statement, we ignore the total amount of accumulated depreciation which is shown on your Balance Sheet, in order to capture the expense associated only with one accounting period.

Amortization is Depreciations baby brother. If you purchased a business ten years ago, you may have paid more for that company than what it was worth at that very moment based on the amount of assets and business you were garnering by purchasing that company and its clients.  Let’s say that the business you bought was worth one million dollars, but you figured that the business’ client list and trademark was worth an additional half million dollars to you over the long run, and so you paid one point five million dollars for the business.  This additional half million dollars is sometimes referred to as “good will”. It’s a value which can be reflected on paper and then turned into cash over a period of time.  Just like your new car though, each year your accountant is going to take some part of this half million dollars and subtract it from your profits before he or she arrives at your bottom line net income.  Since this number is an adjustment made on paper, just like depreciation, adding it back gives a better picture of the amount of cash flowing through your business.

In sum, each of these components of EBITDA combine to create a clearer picture of your company’s true value to potential buyers, and is therefore something buyers are particularly interested in.  In order to understand Adjustments to EBITDA please see my coworker Austin Pakola’s piece on adjustments to EBIDA.

Author:
Patrick Seaworth
Analyst
Benchmark International

T:   +1 (512) 861 3314 
E: Seaworth@benchmarkcorporate.com

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A Seller’s Guide to a Successful Mergers & Acquisitions Process

The Mergers and Acquisitions (M&A) process is exhausting. For most sellers, it’s a one-time experience like no other and a marathon business event. When done well, the process begins far in advance of the daunting “due diligence” phase and ends well beyond deal completion. This Seller’s guide summarizes key, and often overlooked, steps in a successful M&A process.

Phase I: Preparation – Tidy Up and Create Your Dream Team.

Of course, our own kids are the best and brightest, and bring us great pride and joy. Business owners tend to be just as proud of the company they’ve built, the success of their creation, and the uniqueness of their offering. Sometimes this can cloud an objective view of opportunities for improvement that will drive incremental value in a M&A transaction.

For starters, sellers must ensure that company financial statements are in order. Few things scare off buyers or devalue a business more than sloppy financials. A buyer’s Quality of Earnings review during due diligence is the wrong time to identify common issues such as inconsistent application of the matching principle, classifying costs as capital vs. expense, improper accrual accounting, or unsubstantiated entries. In addition, the ability to quickly produce detailed reports – income statement; balance sheet; supplier, customer, product, and service line details; aging reports; certificates and licenses; and cost details – will not only drive up buyer confidence and valuations, but also streamline the overall process.

Key in accomplishing the items above as well as a successful transaction is having the right team in place. Customarily, this doesn’t involve a seller’s internal team as much as his or her outside trusted advisors and subject matter experts. These include a great CFO or accountant, a sell-side M&A broker, a M&A attorney, and a tax and wealth manager. There are countless stories of disappointed sellers who regretted consummating a less-than-favorable transaction after “doing it on their own.” The fees paid to these outside subject matter experts is generally a small part of the overall transaction value and pays for itself in transaction efficiency and improved deal economics.

Phase II: On Market – Sell It!

At this stage, sellers that have enlisted the help of a good M&A broker have few concerns. The best M&A advisors are very hands on and will manage a robust process that includes the creation of world class marketing materials, outreach breadth and depth, access to effective buyers, client preparation, and ongoing education and updates. The seller’s focus is, well, selling! With their advisor’s guidance, a ready seller has prepared in advance for calls and site visits. This includes thinking through the tough questions from buyers, rehearsing their pitch, articulating simple and clear messages regarding the company’s unique value propositions, tailoring growth ideas to suit different types of buyers, and readying the property to be “shown.”

Most importantly, sellers need to ensure their business delivers excellent financial performance during this time, another certain make-or-break criterion for a strong valuation and deal completion. In fact, many purchase price values are tied directly to the company’s trailing 12-month (TTM) performance at or near the time of close. For a seller, it can feel like having two full time jobs, simultaneously managing record company results and the M&A process, which is precisely why sellers should have a quality M&A broker by their side. During the sale process, which usually takes at least several months, valuations are directly impacted, up or down, based on the company’s TTM performance. And, given that valuations are typically based on a multiple of earnings, each dollar change in company earnings can have a 5 or 10 dollar change in valuation. At a minimum, sellers should run their business in the “normal course”, as if they weren’t contemplating a sale. The best outcomes are achieved when company performance is strong and sellers sprint through the finish line.

Phase III: Due Diligence – Time Kills Deals!

Once an offer is received, successfully negotiated with the help of an advisor, and accepted, due diligence begins. While the bulk of the cost for this phase is borne by the buyer, the effort is equally shared by both sides. It’s best to think of this phase as a series of sprints and remember the all-important M&A adage, “time kills deals!” Time kills deals because it introduces risk: business performance risk, buyer financing, budget, or portfolio risk, market risk, customer demand and supplier performance risks, litigation risk, employee retention risk, and so on. Once an offer is received and both sides wish to consummate a transaction, it especially behooves the seller to speed through this process as quickly as possible and avoid becoming a statistic in failed M&A deals.

The first sprint involves populating a virtual data room with the requested data, reports, and files that a buyer needs in order to conduct due diligence. The data request can seem daunting and may include over 100 items. Preparation in the first phase will come in handy here, as will assistance from the seller’s support team. The M&A broker is especially key in supporting, managing, and prioritizing items for the data room – based on the buyer’s due diligence sequence – and keeping all parties aligned and on track.

The second sprint requires excellent responsiveness by the seller. As the buyer reviews data and conducts analysis, questions will arise. Immediately addressing these questions keeps the process on track and avoids raising concerns. This phase likely also includes site visits by the buyer and third parties for on-site financial and environmental reviews, and property appraisals. They should be scheduled and completed without delay.

The third and final due diligence sprint involves negotiating the final purchase contract and supporting schedules, exhibits, and agreements; also known as “turning documents.” The seller’s M&A attorney is key in this phase. This is not the time for a generalist attorney or one that specializes in litigation, patent law, family law, or corporate law, or happens to be a friend of the family. Skilled M&A attorneys, like medical specialists, specialize in successfully completing M&A transactions on behalf of their clients. Their familiarity with M&A contracts and supporting documents, market norms, and skill in selecting and negotiating the right deal points, is the best insurance for a seller seeking a clean transaction with lasting success.

Phase IV: Post Sale – You’ve Got One Shot.

Whether a seller’s passion post-sale is continuing to grow the business, retire, travel, support charity, or a combination of these, once again, preparation is key. Unfortunately, many sellers don’t think about wealth management soon enough. A wealth advisor can and should provide input throughout the M&A process. Up front, they can assist in determining valuations needed to achieve the seller’s long-term goals. When negotiating offers and during due diligence, they encourage deal structures that optimize the seller’s cash flow and tax position. And post-close, sellers will greatly benefit from wealth management strategies, cash flow optimization, wealth transfer, investment strategies, and strategic philanthropy. Proper planning for post-sale success must start early and it takes time; and, it’s critical to have the right team of experienced professionals in place.

The M&A process is complex, it usually has huge implications for a seller and his or her company and family, and most sellers will only experience it once in a lifetime. Preparing in advance, building and leveraging the expertise of a dream team, and acting with a sense of urgency throughout the process will minimize risk, maximize the probability of a successful M&A transaction, and contribute to the seller’s success and satisfaction long after the
deal closes.

Author:
Leo VanderSchuur
Transaction Director
Benchmark International

T:   +1 (813) 387 6044
E: VanderSchuur@benchmarkcorporate.com

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