What is Net Working Capital?

Introduction

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

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

Benchmark International is pleased to announce the acquisition of Lloyd Lauw Collision Repair Center to Gerber Collision & Glass.

Benchmark International successfully facilitated the transaction between Metro-Tech Electrical Contractors, Inc. and Michael Bowman.

The M&A Advisor announced the winners for its 13th Annual Emerging Leaders Awards, and Benchmark International's Global Creative and Brand Strategy Director, Brittney Zoeller, is among the winners.

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

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

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

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

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

The seller, NMC Exteriors, is a Minneapolis, MN based residential and commercial roofing and siding provider with 20+ years serving homeowners and businesses in the greater Minneapolis area. NMC’s commitment to quality has propelled them to be a market leader in their community.  They have achieved an A+ accreditation from the Better Business Bureau and have been awarded the Platinum Preferred Contractor by Owens Corning.

Benchmark International has successfully facilitated a transaction between Florida-based Paramount Urgent Care, Inc. (“Paramount”) and HCA Healthcare, headquartered in Nashville, TN. Paramount operates six urgent care clinics in Central Florida, with locations in Clermont, The Villages, Oviedo, Orlando, Casselberry, and Windemere Villages. 

Benchmark International is pleased to announce that it has ranked in FactSet’s Flashwire Advisor league tables for the number of deals it has conducted in the UK, Europe and globally in Q3.

In the UK, Benchmark has placed 8th, among companies such as BDO, Grant Thornton, KPMG, and PwC.

Meanwhile, for Europe, Benchmark has placed 23^rd, and has ranked 40^th globally.

FactSet Mergers covers all deals where the buyer and seller are disclosed and the transaction involves the sale of at least 5% stake in a business, with some exceptions for impactful or high value deals.

How will running a competitive bid process help me?

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

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

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

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

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

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

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

  Author
  Kendall Stafford
  Managing Partner
  Benchmark International

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

The seller, Impact Communications, is a Cleveland, OH-based full-service production company specializing in in-person and virtual event experiences, video production, museum and exhibits, and interactive applications. With over 40 years of providing services to some of the largest brands in the country, Impact Communications has established a stellar reputation for delivering quality projects.

Benchmark International is delighted to announce the acquisition of Glasgow-based Hydrogen by London-based PA Media.

Established in 2016, award-winning Hydrogen is the largest social media agency in Scotland, specialising in social media management, B2B and B2C content creation, community management, paid advertising, research, and insights.

The company has delivered significant year-on-year growth since its formation and has worked with clients across the publishing, utilities, FMCG and hospitality sectors, including The Economist, Highland Park, SSE and Magners.

PA Media is the UK's leading provider of multimedia content and services. The group comprises a diverse portfolio of specialist media companies, spanning news and information, technology, and communications services.

PA Media Group has 20 shareholders, who are mainly UK news and media businesses. The largest shareholders include DMGT plc, Informa plc, News UK plc and Reach plc.

Benchmark International has successfully facilitated a transaction between Florida-based Central Hydraulics, Inc. (“Central”) and SBP Holdings of Houston, Texas. Founded in 1983, Central is a distributor of hoses and other products that also operates full-service hydraulic sales and repair shops. Central maintains five locations in Daytona Beach, Cocoa, Leesburg, Ocala, and Tampa. SBP Holdings, the country’s no. 2 hose and accessories distributor, maintains a footprint of approximately 85 locations and 1,000 employees.

The digital advertising sector is also often referred to as online marketing, Internet advertising, and web advertising. The market includes revenues gained by advertising activities conducted by organizations targeting consumers via Internet-enabled mobile devices and personal computers.

Benchmark International was named International Gamechanger™ Progress Champion for Race and Culture Equality in the 2022 ACQ5 Global Awards.

Benchmark International is pleased to announce the successful transaction between A Janitor's Closet and Envoy Solutions.

Global Big Data Security Market

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

Benchmark International is pleased to announce the transaction between Mellasat Wine & Fruit and a consortium of private investors.

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

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

Benchmark International is pleased to congratulate Ernst and Young Advisory Services (Pty) Ltd (“EY”) on their acquisition of Parity Software (Pty) Ltd (“Parity”).

Benchmark International has successfully facilitated a transaction between Bone Daddy’s, a Texas barbeque joint, and The Island Spot, a Jamaican restaurant with multiple locations.

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

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

Industrial robotics is now critical across many sectors for the automation and manufacturing of many tasks, including loading, packaging, labeling, and inspection. They are commonly used in the automobile and heavy engineering sectors and are becoming more common in many other sectors. In the past, robots were mostly only used in the automotive and manufacturing industries, but more sectors are adopting them today. These sectors include defense, healthcare, aerospace, food & beverage, education, and electronics. There is also an increase in demand for telesurgery and elder care, as well as bomb dispersal, monitoring, and mine detection. There are currently around 2.7 million industrial robots in use worldwide, a number that is quickly rising. 

Benchmark International successfully facilitated the transaction between Access Truck Parts with Summit Hydraulics, backed by North Branch Capital.

Benchmark International has successfully facilitated a transaction between Mills River, NC-based Dover Foods, Inc. and Translyvania Vocational Services, Inc. (TVS) of Brevard, North Carolina. Dover is a manufacturer of high-quality dry mix consumer packaged goods (CPGs), including a high-growth private label business. TVS is a mission-oriented manufacturer of dry packaged goods, selling its products largely through USDA and USAID hunger assistance, food bank, and other programs.

Benchmark International is pleased to announce the acquisition of the Fastway Couriers’ National Master (Fastway South Africa), Fastway Johannesburg, and Fastpost businesses by City Logistics (Pty) Ltd in partnership with Clearwater Capital (Pty) Ltd.

Benchmark International successfully facilitated the transaction between Lenhart Electric Company and InCharge, LLC.

Benchmark International successfully facilitated the transaction between Dallas Plumbing Company and Air Pros USA.

Iconic Media Group and The Mayo News today announce that an agreement in principle, subject to normal regulatory approvals and clearance, has been reached to purchase the Westport-based local newspaper.

The Mayo News is one of the longest established newspapers in the country, having been established in 1892. The paper has a proud history of serving the local community with its efforts being recognised by a host of awards including the prestigious European Local Newspaper of The Year prize twice, in 2007 and 2014.

The Mayo News has been in the ownership of the Berry family for a number of decades.

Iconic Media Group is Ireland's largest independently owned regional newspaper and media group. Should the sale be approved, it would increase the footprint of the company, which already owns over 15 local weekly titles. These include The Donegal Democrat, The Limerick Leader and The Leinster Express.

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

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

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