There are several changes to tax policy on the table in the United States under the Biden administration. The administration has discussed tax increases on high-income earners at some point in the future, while the timing is yet to be determined. If you are a business owner considering the sale of your company in the next few years, you may want to speed up your timeline because waiting could mean you have to pay higher taxes if laws do change.READ MORE >>
The COVID-19 pandemic disrupted normalcy in several aspects of the world as we knew it, and one of the things hit especially hard has been the global supply chain. These supply chain problems have impacted nearly every industry and business, both large and small. Because of so much continued uncertainty in supply chains—uncertainty that is expected to last for years—business owners and executive leaders are reassessing operations and seeking paths to gain more control.READ MORE >>
There are basically four possible outcomes for retirement plans in an M&A deal:
- The plans of both companies are merged.
- The plan at the acquired company is terminated.
- Both plans from both companies are maintained.
- The plan from the acquired company is frozen.
So, what do you need to know if these circumstances apply to a deal that you are involved in?READ MORE >>
At the 20th Annual M&A Advisor Awards, Benchmark International was awarded M&A Deal of the Year (100M-250M) for the acquisition of PBK Architects by DC Capital Partners.
As the 23rd largest US-based architecture firm, PBK, based in Houston, Texas, and its subsidiaries in California, Beijing, Shenzhen, and Hong Kong, employ more than 500 architects, engineers, and related professionals.
In addition to its Top 25 status, in 2019, PBK was ranked as the “#1 Education Design Firm” by Engineering News-Record (“ENR”), widely regarded as the engineering and design industry’s premier publication. Specializing in K-12 projects and, in particular, large public high schools, PBK has long been the go-to firm for sustainable design and next-gen integrations in particular. The company also focuses on two related building types—higher education and sports facilities.
This transaction followed closely on the heels of 11 other deals that Benchmark International closed in the architecture, engineering & construction (AEC) space in the first half of 2020.
Middle-market private equity (PE) dealmaking in the United States didn’t lose its record momentum in the second quarter of 2021, some of which carried over into Q3, thanks to sustained economic recovery, ample debt, and plenty of available capital, according to data from Pitchbook. U.S. GDP grew at an annualized 6.5% in Q2 but slowed to 2% in Q3, mainly due to global supply chain issues.
PE fundraising is also holding strong, with the 87 U.S. middle-market funds raised so far this year on course to set a new record. Additionally, the $68.4 billion in capital raised in 2021 is on track to be the second-highest annual total since 2010.
Most deal activities were put on hold for several months after March of 2020 and the onset of the COVID-19 pandemic, but 2021 and early 2022 may be the right time to sell. The following factors are affecting the viewpoint of sellers of privately-owned companies:
- Some owners are now more heedful of another crisis and how it could affect their businesses.
- Many owners no longer wish to sustain efforts and risks that come with their businesses.
- Owners who worked remotely during the pandemic got accustomed to more flexible schedules and free time.
- Numerous owners nearing retirement are worried about the possibility of higher corporate, personal income, capital gains, and dividend taxes.
- Because wealth built up in private companies is not easily converted to cash, some owners have focused on the fact that after-tax proceeds from a sale will last for a long period of time.
So far this year, the largest share of PE deals has taken place in the lower to middle markets, with deals of less than $1 billion making up nearly 70% of all deals. 2021 remains on pace to easily surpass the prior annual record from 2019. At the end of the year, numbers are expected to be even more impressive as investors may hurry to close deals before the year comes to a close.
According to the Golub Middle Market Index, U.S. middle-market companies registered 21% revenue growth in the third quarter of this year. In addition, direct lending funds account for most middle-market LBO financing and reached record fundraising levels in the second quarter.
Add-ons increased as a share of PE deals. Middle-market firms looked to add mid-sized aggregators and sought out M&A deals to expand platforms, diversify the value chain, and embrace ESG principles.
There was also robust exit activity in the middle market, as valuations were desirable and investor confidence was high. So far this year, the market hosted an estimated 430 exits with a combined value of $87.3 billion. Soaring valuations mean that many GPs meet their investment goals earlier than expected, driving many to cash in on investments ahead of schedule.
Smaller, strategic exits are dwindling in the hospitality and travel sectors for expected reasons after the pandemic impacts. Middle-market sponsors are holding onto investments in these pandemic-stricken sectors. In the second quarter of 2021, there were almost zero exits of hotels, in-person dining, travel providers, or other related companies.
Secondary buyouts are also following an upward trend. So far this year, SBOs account for nearly 62% of all middle-market exits. Buyout firms are taking advantage of limited partners’ healthy appetite for private market exposure as well as the record deal activity that enabled firms to fundraise at a very fast pace. While first-time funds and emerging managers put up positive numbers in 2021, some bigger LPs put less investment into large multi-strategy firms or shifted it to new products offered by those with whom they already had a relationship.
Even amid all this positive activity, middle-market firms in the U.S. are still facing other challenges. While unemployment rates have improved from 2020, there is still a record number of unfilled jobs, causing major labor shortages in sectors such as manufacturing, healthcare, and hospitality. These circumstances are causing firms to focus more on deals that acquire key talent and automated technologies that help with employee management and retention. The sector of senior care has been hit particularly hard by labor shortages, which is likely to result in increased consolidation by home care platforms. Additionally, insurance brokerages, wealth management firms, and registered investment advisors (RIAs) all witnessed record M&A activity in the first half of this year.
PE firms are also pursuing more intricate opportunities to expand lines of business, end-market exposures, and product value chains. Such game-changing add-on acquisitions can be especially effective for vertical software deals because complementary products can be woven into multi-capability platforms to create all-in-one solutions that are good for customer retention.
Deal activity is also being driven by environmental, sustainability, and governance (ESG) initiatives. ESG has moved into the forefront for businesses this year. Transactions in the renewables market represent middle-market opportunities to grow a platform into a sector leader because of the market’s highly fragmented nature. Firms in the middle market are also pursuing add-on acquisitions to better align their portfolio companies with sustainability initiatives, whether to meet changing consumer sentiment or lower capital costs by lowering carbon emissions.READ MORE >>
The recent cyberattack on the Colonial Pipeline in the U.S. is a glaring reminder of the vulnerabilities that all industries face, as well as the costly repercussions that can be a result of such a situation. Colonial Pipeline Co. paid the hacker group $5 million to have the company released from the ransomware to restore service to the critical pipeline. This actually turned out to be a wasted $5 million. For that high price, the hackers provided the company with a decrypting tool to restore its disabled computer network. But this tool was too slow, and Colonial ended up using its own backups to restore the system.READ MORE >>
The COVID-19 pandemic has had a negative impact on all classes of commercial real estate. Yet, it also created some new opportunities within the commercial real estate (CRE) market, such as affordable rental prices, improved digital communication and payment facilitation, as well as new opportunities for business owners and investors. And further recovery is well underway.
CRE prices fell 11% between March and May of 2020. Since July, prices increased 7%, erasing over half of those pandemic declines. With investors sitting on wealth, more investment in stocks and bonds took place, which pushed prices up and interest rates down. With inflation being a growing concern, more investors may look to commercial properties with leases that have built-in rent increases to keep pace with inflation.READ MORE >>
Our world continues to change, and businesses must remain adaptive in order to keep pace with their competition and consumer demands. Thanks to new technologies, changing customer priorities, societal movements, and of course, repercussions from the COVID-19 pandemic, business owners can expect certain industry shifts that began leading up to 2021 to continue into 2022.READ MORE >>
The COVID-19 pandemic revealed to the world just how unprepared entire business sectors can be when it comes to unexpected events of mass proportion, and just how delicate our global supply chains actually are. COVID has been a health crisis that impacted lives, economies, and industries. Climate-driven events and disasters occur on a more concentrated scale but have proven to be extremely costly and disruptive to multiple sectors in various geographies—a problem that appears to be growing more prevalent.READ MORE >>
In the first half of 2021, medtech M&A deals already surpassed the total number of deals from last year, and this bustle in activity is forecast to continue through the second half of the year, as medtech companies have stockpiled billions of dollars in cash. The dollar value of deals in 2021 is also expected to far outpace that of 2020. Eleven megadeals were announced in H1, with a total deal value of around $128 billion.
Medtech M&A activity kicked off 2021 right out of the gate, with at least 10 deals announced in January alone. Companies emerged from 2020 flush with cash reserves and were ready to spend on dealmaking. The medtech sector recorded a total of 33 deals in the first half of 2021. That's up from 25 total in all of 2020. In fact, the first quarter of 2021 was the busiest for medtech M&A since 2016. While the initial rapid momentum may have slowed, the second half of 2021 should be abundant with new deals.READ MORE >>
What is Cryptocurrency?
It seems like everyone is talking about it, but what exactly is cryptocurrency, or crypto? It is a digital payment method that is exchanged online to pay for goods and services. Crypto uses blockchain, which is a highly secure, ledger technology that is spread between multiple computer systems that manage and record transactions. As of now, bitcoin (BTC) is the most popular digital token network, followed by ethereum (ETH). They are both decentralized, meaning that they are not issued or regulated by a central banking authority. In 2020, Bitcoin beat the investment returns of gold and the S&P 500.READ MORE >>
Selling your business is a paramount moment in your life. It’s something you absolutely want to get right so that you can extract the most value out of the deal—and so that you are protected from being swindled by a savvy buyer. It also takes a great deal of time and energy to sell a company, which can be rather difficult to spare when you are trying to focus on running a business. Most people simply do not have this time, energy, connections, or expertise that is required to put their company on the market. This is where the importance of an experienced M&A advisor comes in. By partnering with an M&A expert, they handle all the details of a deal, including due diligence, negotiations, marketing, vetting, and ensuring that you get the most value for your business. They also know how to navigate bumps in the process, and manage the expectations of all parties involved.READ MORE >>
The last time we saw leveraged buyouts (LBOs) occur with such frenzied speed and spending, it was during the years of 2006 and 2007, right before the financial crisis of 2008. As we recover from the COVID-19 pandemic, interest rates remain low, and many business owners forced into survival mode are seeking exit opportunities. Plus, private equity firms are more than ready to spend the record levels of cash on which they have been sitting for quite some time.READ MORE >>
Growing a company once it has reached a certain plateau of success can be challenging. Mergers and acquisitions are a powerful tool for boosting the growth of an existing company—especially cross-border M&A. As a business owner, you should consider the different ways your company can benefit from an international deal.READ MORE >>
Timing the sale of a company can certainly be a tricky decision. You don’t want to sell too soon, and you don’t want to sell too late either. In both scenarios, you risk leaving money on the table if the timing isn’t right. So what is a business owner to do?READ MORE >>
A Seller’s Market Versus a Buyer’s Market
In a seller's M&A market, excess demand for assets that are in limited supply gives sellers more power when it comes to pricing. Such demand can be generated and galvanized by circumstances that include a strong economy, lower interest rates, high cash balances, and solid earnings. Other factors that can instill confidence in buyers—leading to more bidders willing to pay a higher purchase price—include strong brand equity, significant market share, innovative technology, and streamlined distributions that are difficult to emulate or recreate from scratch.READ MORE >>
As the owner of a Software as a Service (SaaS) company, there are several strategic steps you can implement in order to drive growth and maximize the value of your business.
1. Expand GeographicallyREAD MORE >>
If you are considering selling your company, you should be aware of a certain menace that could have you in its crosshairs. There are direct buyers out there who intentionally prey on business owners, attempting to acquire a company by blindsiding its owner with big promises and, more importantly, taking advantage of their lack of guidance from a seasoned M&A professional. These buyers purposely look to avoid competition for a company because competition drives valuations higher, and they want to make an acquisition on the cheap—in addition to other shady maneuvers.
Bait & Switch
Some buyers will attempt to pull “bait & switch” tactics. To initially intrigue a seller, the buyer will present a high dollar amount. As they conduct due diligence and get the target more and more committed to the deal, they begin chipping away at the value until they reach a price and terms that are far more favorable for the buyer. This is typically an exhausting process for the seller and can lead to plenty of regret. If the deal falls apart, the seller may be reluctant to restart the process with another buyer, thinking the process will just be the same. In reality, it could have been completely different for the seller if they had a reputable M&A specialist on their side from the beginning.
The Covid pandemic has placed us squarely in unprecedented times. We know this is not exactly news at this point. However, counter to the tenor of most pieces you've probably read on the topic during the past 12 months, this one aims to shine some light on one industry that has thrived: The US healthcare market, more specifically, healthcare M&A. Healthcare M&A has generally been a big winner in 2020 and into 2021 and it's happening at both ends of the market.READ MORE >>
It’s no surprise that the COVID-19 pandemic slowed M&A deal activity overall in 2020. According to data from PitchBook, more than 2,000 transactions closed for a value of $336.8 billion in Q2 of last year. That represents a 41 percent decline in the number of deals from Q1. Yet, deals did pick up in the second half of the year, which is likely to continue, as businesses are poised for improved economic conditions that leave COVID-19 in the rearview mirror.READ MORE >>
As a business owner, maybe you haven’t given much thought to selling your company. Or maybe you’ve bounced the idea around but not too seriously. It’s pretty common for business owners to think, “I have years before I plan on selling my business. Why would I worry about that now?” Well, here’s the thing. Life is unpredictable. Just look at how prepared the world was for the COVID-19 pandemic. We think it’s safe to say that no business owner was prepared for that.
But being prepared for the unexpected isn’t the only reason that it is important to have your business in “sale ready” shape at all times, even if you’re not ready to sell. If the company is not in ready condition, it could cost you financially. And it goes beyond that. Always operating your company as if you are ready to sell accomplishes several very beneficial objectives. It ensures that you are operating at peak performance with a focus on profitability at all times, and it helps you avoid being too late to the game to make the necessary changes to be ready to sell. A person’s priorities in life can change quickly or even gradually over a span of years, and you might not have the time to correct any issues that would impact the valuation of your company and, ultimately, its sale price. It’s important to remember that properly preparing a company to go to market can take years. When push comes to shove, if you end up in a situation where you need to sell, not being ready can be a costly mistake.READ MORE >>
The value of a company extends beyond the amount of revenue it generates. As a business owner, you should be monitoring the value of your company at all times, but it is especially important if you are considering exiting or retiring within the next several years, or even up to a decade from now.
Company valuations are based on far more factors than just financial statements and multiples. The process involves the forecasting of the future of the business based on several key value drivers. Sometimes these can be sector-specific, but there are many core drivers that apply to any type of business, as outlined below.READ MORE >>
Working capital, also referred to as net working capital, is the measure of a company's liquidity, operational efficiency, and short-term financial status. It is the difference between a business’s current assets, its inventory of materials and goods, and its existing liabilities. Net operating working capital is the difference between current assets and non-interest-bearing current liabilities. Typically, they are both calculated similarly, by deducting current liabilities from the current assets. So, essentially, if a business’s current assets total $500,000 and its current liabilities are $100,000, then its working capital is $400,000. But there are a few variations on the calculation formula based on what a financial analyst wants to include or exclude:READ MORE >>
Maybe you’re not sure if you are ready to sell your business, but you’re curious about what you could learn if you put it on the market. You can always put your company on the market at any time, but you should understand the right way to do it, and everything that you need to consider.READ MORE >>
One of the more complex components of an M&A transaction is a seller’s net working capital, hereinafter referred to as working capital. Working capital is a financial term used as a measurement of a business’s ability to meet its financial obligations over the coming business cycle (typically 12 months). The consideration of working capital is typically performed during the due diligence period. The calculation of working capital requires the assessment of two areas: current assets and current liabilities.
- Current assets are the assets of the business that the owner(s) anticipate using for normal operations within the next business cycle. The most significant components of current assets are typically cash, accounts receivable, and inventory.
- Current liabilities are the obligations of the business that the owner(s) anticipate satisfying within the next business cycle. The most significant components of current liabilities are typically accounts payable, accrued expenses, and the current portion of the business’s debt.
The logic of corporate finance works on the premise that current assets are used to pay off current liabilities. While working capital is not defined under the Generally Accepted Accounting Principles (GAAP), it is commonly calculated using this formula:
Working Capital = Current Assets – Current Liabilities
Why does working capital matter?
As previously mentioned, working capital is used as a measurement of a business’s ability to meet its financial obligations over the coming business cycle. Another way to consider working capital is that it is a measure of a business’s liquidity. A liquid business should not have problems meeting its short-term financial obligations if all things remain constant. It is unlikely that the owners of a liquid business will be required to invest additional capital or seek outside financing (e.g., debt) to satisfy the needs of the business in the subsequent 12 months.
How much working capital is the right amount?
If a buyer and seller agreed that $2,000,000 is an acceptable working capital level, and a seller delivers lower working capital to the buyer, then often there is a mechanism in the purchase agreement to lower the purchase price of the business. The reduction would generally be dollar-for-dollar (i.e., each dollar required to get the working capital to an acceptable level will likely lead to a dollar reduction in the amount to be paid to the seller). Conversely, if the working capital is higher than what is agreed on as the acceptable level to provide at closing, then there often would be a dollar-for-dollar increase to the purchase price to the seller.
The letter of intent typically clarifies the buyer’s expectation with regard to the required level of working capital to be left in the business, or the proposed methodology in determining working capital. Often, though, working capital is a point of negotiation up until finalization of the purchase agreement. There are a variety of options for setting the agreed upon working capital, but these are the two most common methods:
- The buyer will want some number of “months” as a cushion. If the business’s total expenses for the year are $1,200,000 and the business will be expected to spend $100,000 per month, then a buyer wanting “three months of cushion” for this business would thus require working capital to be at least $300,000 at closing.
- The buyer will want the working capital to be equal to “historical levels.” Historical levels can be calculated by averaging the working capital on each of the previous 12 months’ balance sheets.
Both methodologies provide a guideline in arriving at an acceptable level as part of negotiation between the buyer and seller. No two businesses or deals are alike, but a company’s working capital—just like the various line items from which it is drawn—are assets of the business and, as such, represent part of what is to be sold.
What can the seller do about working capital?
In the event the seller has his/her mindset on what to exclude when the sale occurs, the seller should work with its professional advisors to determine whether the specific items that could be removed from the proposed working capital terms and how that will impact the deal structure. In doing so, the seller must keep in mind that the specific item may be considered by the buyer as necessary to keep the business generating revenue—and if so, he/she might view the retention by the seller as something having a major impact on valuation. If, on the other hand, the asset is not deemed as useful to provide a reasonable buffer for “months of working capital” or a similar metric, or to be used for a specific business function, and its absence will therefore not impact operations nor require the buyer to invest additional capital into the business, the asset can typically be removed with little effect on valuation.
When addressing working capital, it’s important for the seller to always consider the total cost of the deal to the buyer and the buyer’s perception of the risk associated with the business. This is key area of negotiation, and understanding the different methods to determine working capital and what is important for both the seller and buyer is a critical element to reaching a successful close.
READ MORE >>
Strategic partnerships can be game-changers for SaaS (Software as a Service) companies. Sales revenue is clearly of vital importance, but it takes more than just those numbers to make things happen on a larger scale. Relationships are the bedrock of business. If you are looking to drive growth, a strategic partnership can be a very powerful tool to help your company increase its audience, build upon the brand, and tap into new markets. All of this, in turn, can prop up your sales team and boost your overall growth.READ MORE >>
While many founders tend to be their own CEOs, sometimes you do need a little help. If you hire too soon, you waste valuable resources, but if you hire too late, you could be missing vital opportunities to grow. Choosing when to hire a CEO is a tough decision, so if you notice any of the following signs, now may be the right time to hire a small business CEO.
1. Need for More Expertise: As a business owner or founder, you started the business and transitioned it from the planning stage to successful operations. Completing this feat does not always mean that you have strong business expertise. Many times, it means that you have strong experience exclusively in your particular offering. Hiring a CEO with business experience can help your company develop new ideas, execute decisions, and formulate new strategies that will work to drive your bottom line. In some instances, people outside the company will view your business more professionally when a CEO with a background in the industry takes the reigns.
2. Not Your Passion: Even if you possess the ability to run your company, that may not be where your passions lie. If you want to focus on areas of the company, such as client relationships or product development, it may be time for you to hire a CEO. They can handle the business aspects such as operations, marketing, or production, and you can keep your focus on the interests that you enjoy and where you benefit the most for your business.
3. Clarity of Vision: If you observe that your employees seem unclear about the company's operations and goals, it is possible that they would benefit significantly from fresh leadership. A new CEO will serve as the leader for your company, make known company-wide goals, and implement your visions as the owner. This will give your company a united voice through a seasoned executive who has the experience to retain and attract a management team that will contribute to your path of long-term success. Also, a founders’ loyalty to original employees can limit potential. A CEO will evaluate performance and make tough personnel decisions for you that will drive growth.
4. Stagnation: Say you want to expand your business but find that you have to focus too heavily on keeping the company up and running. When there isn't enough time for innovation, this can lead to inactivity and cause your company to stagnate, creating severe problems down the road. A small business CEO allows you to count on them to map out growth strategies and coordinate the vital action needed to help your business scale.
READ MORE >>
Once you have decided that you are ready to find a CEO, many organizations specialize in locating and screening the perfect candidate for you. For help in your recruitment process, consider hiring an executive search firm, networking with your professional connections, creating a CEO search committee, and making sure to plan ahead. Applicant Tracking Systems such as Greenhouse, JazzHR, Breezy HR, or Google Hire can help your recruitment process. Finally, be sure to have all of the essential materials on hand to onboard your CEO candidate. Think about including your story, your primary values, and your mission to ensure vision alignment.
How Private Equity Works
Private equity firms raise financing from institutions and individuals and then invest those funds into the buying and selling of businesses. Once a pre-specified amount is raised, the fund closes to new investors and is liquidated. All of the fund’s businesses are sold within a set timeframe that is typically less than ten years. The more successfully a PE firm’s funds perform, the better its ability to raise money in the future.
PE firms do accept some limitations on their use of investments under fund management contracts, such as the size of any single business investment. Once the money has been committed, investors have nearly zero control over its management, unlike a public company’s board of directors.
The leaders of the companies within a private equity portfolio are not members of the PE firm’s management. Private equity firms control its portfolio companies through representation on the boards of those companies. It is common for a PE firm to ask the CEO and other business leaders in their portfolios to invest personally. This offers a way to ensure their level of commitment and motivation. In return, the operating managers can get significant rewards that are linked to profits when the company is sold.
With large buyouts, PE funds usually charge investors a fee of around 1.5 to 2 percent of assets under management, plus 20 percent of all profits (subject to achieving a minimum rate of return). Fund mostly profit through capital gains on the sale of portfolio companies.
How Private Equity Improves ValueREAD MORE >>
Hearing the phrase "the new normal" has become our new normal. During COVID, we have all had to adjust to new situations. We are not standing in big crowds watching a parade go by in our community, and we are not crammed together in a convention center listening to a recap of the past quarter’s economic trends. In some places, we cannot sit too close to one another at a local restaurant and watch our favorite sports teams. Even with all these changes, there is one thing that will rebound: face to face meetings.
When I was cutting my teeth in life insurance years ago, we were trained on the importance of non-verbal forms of communication. Before 2020, we've had many forms of digital communication. Now it seems like we have endless options, but a short well-planned meeting can save an incredible amount of time. Fancy tech isn't the end-all-be-all. Just because somebody is using the latest tech, it doesn’t mean it’s better tech.
Here are 12 reasons why I believe face to face meetings are still essential:
- I can’t read non-verbal communications through my email and video calls I only see part of the picture. Non-verbal communication is endlessly more important than the words that are spoken. 7% of a conversation is actual words. 38% is inflection. 55% are facial expressions. These cannot be replicated remotely. This cannot be emphasized enough, so it is my number one entry on this list.
- Face to face meetings leave a lot more room for improvisation. Conversations tend to flow more naturally, lead in many directions, and lead to new opportunities.
- Engaging with people is just easier. We have time before and after for chit chat. While this might not seem important, how it relates to building human capital should be recognized. We never know what small items can lead to a spark igniting an excellent working relationship. It can be something as simple as taking a wrong turn, then one of the attendees tells you that they did the same thing their first time in the office. The two of you shake hands, introduce yourselves, and now you've started building a connection that can lead to opportunities in the future.
- “Sorry everyone. Larry can’t make the meeting today. His internet is down. Can we reschedule for later today or sometime next week?”. Now, here is a historical proverb to bring interest to this article:
For want of a nail the shoe was lost
For want of a shoe the horse was lost
For want of a horse the rider was lost
For want of a message the battle was lost
For want of a battle the kingdom was lost
And all for the want of a horseshoe nail.
Will that meeting get rescheduled? Will somebody else have to back out next time? By not having the meeting at the original time, we have opened the door for more potential problems to arise. All we have is now. We can't predict the future, and having to reschedule meetings at the last moment can lead to frustration and ultimately tank a deal.
- Maybe this one is just me, but I often feel that video calls can feel a bit foggy. Face to face meetings are crystal clear. Key points are clear and more easily understood.
- Meeting in person allows someone to go further than just a meeting. After a video conference, what happens? You turn off your computer, and everyone goes back to whatever it is they were doing. If you are the person traveling somewhere, what is likely to happen? Assuming that you are staying the night, more likely than not, someone you were meeting with will take you out and show you around town. Building human capital is what makes an organization's culture. Without these interactions, you have people in various offices doing their own things. When they can meet, interact, and get to know each other, things work out better.
- In my experience, agreeing on an offer is much easier if the buyer and seller meet in person. If the two parties have never met, people tend to get more animated in their responses if things don't go the way they'd like. But when the two groups have met, I see a much different reaction. Parties are less likely to get upset and more likely to listen to each other. Instead of blowing up and walking away from a deal, they take the time to remain calm and discuss items in a more relaxed manner. They've started building a bond. They aren't just trying to get better terms from Really Big Company Inc.; they're speaking with Larry. "Larry is someone that I went to dinner with, and everyone joined from the office and had a great time. I'm going to get on the phone with Larry and see if we can hash this out and find a middle ground." From a broker's perspective, it’s a night and day difference seeing groups that have met in person vs. those that have not.
- A bunch of people in a room and a clean whiteboard can lead to extraordinary breakthroughs and ideas. Ask Mark Zuckerberg.
- In-person meetings show mutual acknowledgment, respect, and action. 93% of people found negotiating with people of different languages and cultures easier. 82% believe negotiating important contracts in person is easier. Overall, 95% of people still say face to face meetings are essential. Also, this one shockingly doesn't have a generation gap.
- Millennials prefer face to face meetings in higher percentages than Gen X.
- Eventbrite ran a study and found that millennials are fueling the experience economy. This means instead of having materialistic items, people age 18-34 (who make up the largest percentage of the US population and the workforce) prefer going to things. Whether that's a vacation, concert, sporting event, younger people like doing things in person instead of remotely. Now, how does that transfer into the workplace? 80% of millennials prefer face to face communication with colleagues instead of 78% of Gen Xers. With this backlog of people choosing to be in person, the future looks bright for sitting across the table and speaking with folks.
- “Now, what about cost? I’m saving a fortune by not paying for my people to travel. Even if my people prefer in-person, the dollars don’t justify their preference.” To quote ESPN's Lee Corso: "Not so fast." Regarding ROI:
- Companies gain $12.50 for every US dollar spent on business travel
- 40% of prospects converted to new customers through face to face meeting
- 28% of current business that would be lost without face to face meetings
- 17% profit an average company would lose if it eliminated all business travel
After reading this, think back to some of your interactions. Could they be better suited for in-person? Gut feeling aside, the data backs the decision to continue face to face meetings. Both for sales, prospecting, company culture, and maintaining client relationships all seem to justify this idea, and this is something that we don't feel will go away in the future despite the tumultuous year we've just experienced.
Sources:READ MORE >>
Many business owners believe that enlisting an expert in their industry is the right way to go when selling their companies. But if you want to rake in the most value for your business, there’s a better way.
There is no question that mergers and acquisitions are complicated and subject to constantly changing market conditions and industry trends. An industry expert might know plenty about a particular industry, but they are not experts on selling and buying businesses. A mergers and acquisitions firm is.READ MORE >>
It is not uncommon for a company acquisition to be viewed as a simple transaction that means transferring the business from one owner to another. But rather than just allowing the business to simply carry on as is under new leadership, a merger or acquisition should be viewed as a solid strategy to boost the company’s overall health, productivity, and bottom line. While M&A transactions can serve as great solutions for exit strategies, they can be so much more than that. M&A should be regarded as a powerful tactical opportunity.
Often times, M&A deals are considered to be a way to get out and cash out with instant gratification. But what else might be possible when a deal is carefully crafted to deliver sustainable returns and support a powerful legacy for the business in the long-term? M&A done right can translate into great success for a company and, ultimately, its leadership.READ MORE >>
In early 2020, there was plenty of optimism for investment opportunities and growth in the sports sector prior to the COVID-19 pandemic, which has since caused disruption in nearly every sector around the world. Financial uncertainty has been a large factor in addition to issues surrounding player contracts and broadcasting rights. Mergers and acquisitions activity in the global sports world has experienced a downward trend but there is hope on the horizon.
Amidst COVID-19 delays, Italian football (calico) has had its share of off-the-field matters this year. In August, the Italian club A.S. Roma announced the completion of a takeover by Texas-based Friedkin Group: an 86.6% stake in for €591 million, a large decrease from the previously agreed upon figure of €750 million prior to the pandemic. This lower price demonstrates how lost matches, sponsorship, and broadcasting income all impact the valuation of sports clubs. In light of these decreasing valuations, PE firms could be motivated to seek out bargain M&A and financing opportunities.
Italy’s Serie A has also embraced private investment. In September, its 20 clubs agreed to create its own media company financed partially by PE funds in order to better organize the sale and promotion of the league's TV rights. The move is designed to improve governance and increase revenue, especially abroad.READ MORE >>
No one knows for sure how much longer the COVID-19 pandemic will be affecting our lives and our businesses. But we do know that mergers and acquisitions are still happening, deal activity will pick up, and the way we approach due diligence in a post-COVID world has the power to make major differences when it comes to selling a company. While there are new obstacles to consider, there are also significant opportunities to identify and create value, and help companies outperform the market.
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- Joint Venture: When two or more parent companies form an entity together with a business objective, sharing in the risks and returns, and retaining their individual legal statuses. It can be an equal joint venture, in which both parent companies own an equal portion of the entity, or it can be a majority-owned venture, in which one partner owns a larger percentage of the company. A joint venture can help to save money, combine expertise, or enter new markets. It is not a partnership, consortium, or merger.
- Equity Alliance: When one company purchases a specific percentage of equity in another company.
- Non-Equity Alliance: When two companies enter into a contractual relationship, which allocates resources, capabilities, assets, or other means to one another.
In the printing and packaging sectors, M&A activity has slowed since August of 2019 with around 14 percent fewer deals closing. Deal activity was strong at the beginning of 2020, and then the COVID-19 pandemic brought everything to a standstill in the spring, with activity starting to return to normal in late summer. In fact, there were 16 transactions in August, which happens to be the same number as August of 2019.
The pandemic has made it more challenging to complete deals because of social distancing and how it impacts personal relationships, but buyers have not lost their strategic focus. The packaging side of the business has shown a heightened level of interest in labels, corrugated cartons, and folding cartons. Private equity and large corporate investors remain in the game. There is increased interest in flexible packaging, but the number of these transactions has been limited by the availability of target businesses in this segment.
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During the first half of 2020, M&A activity in the automotive industry was down from previous years due to uncertainty stemming from the COVID-19 pandemic, with cross-border deals becoming more complex. However, the pandemic also resulted in new opportunities for consolidation within the industry.
There were $11.9 billion in M&A deals, which represented a 54.8% decrease in value compared to the first half of 2019. Most investments were in the pursuit of CASE (Connected, Autonomous, Shared, Electrified) technologies. This type of tech is predicted to drive M&A through the end of 2020. Dealmakers are expected to concentrate on securing supply chains and increasing resiliency rather than expanding globally.
Global Deal Activity
The majority of deal value in volume in the first half of 2020 took place in Asia and Oceania, followed by North America. The largest automotive transaction in the first half of the year was valued at $2.9 billion, with Traton SE, a vehicle-manufacturing subsidiary of Volkswagen AG, acquiring Navistar International Corporation. Volkswagen Group China continued to strengthen its electrification strategy by making two acquisitions valued at more than $1 billion each: Gotion High-tech Co. and JAC Volkswagen Automotive Company.READ MORE >>
The right time to retire is going to be different for everyone based on individual circumstances and goals. While finances are obviously a major factor in the decision, being emotionally and mentally ready is equally important. Here are some points you should consider if you are thinking about embarking on retirement.
Retirement hinges upon having the appropriate income to support a comfortable lifestyle in the future. This entails having an accurate and realistic picture of what your expenses will be and how much you will need in order to cover them, including income from your savings, pensions, social security, 401ks, IRAs, and any other assets. The earlier you plan to retire, the more significant your nest egg will need to be. Waiting a few years can help you build up more financial security through tax-advantage investment accounts. So if you love what you do, a later retirement means that you can continue doing it while you shore up your savings for the future. A common algorithm for retirement planning is to have savings that are 25 times the amount of your annual expenses.
When heading into retirement, it is advised that you make sure you do not have outstanding debt in the form of high-interest credit cards and outstanding loans aside from a mortgage or car financing, which can be taken into account for your needed expenses. By eliminating debt, your retirement income can be used for current expenses instead of past expenses and offer you added peace of mind.
While there is no way to be sure what the future holds, if there are signs of an economic downturn, you may want to hold off on the retirement plans for a bit. This will give the markets time to recover, which will help you recoup your invested assets and retire with a better bottom line.
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The most expensive mistake in selling a business is to undersell it. A qualified intermediary can add significant value to a transaction simply by virtue of experience.
Putting this into context, buyers are fit for transactions, they conclude deals in multiple jurisdictions and often have dedicated teams that focus exclusively on mergers and acquisitions. Business owners may typically have done a transaction or even two in their careers, but most often they have not yet sold a business and can benefit enormously by having a seasoned sell-side advisor on their team.
Whilst there are very broad categories of advisor; no two intermediaries are the same. In selecting an advisor there are some fundamental questions to ask that will help establish whether the firm will meet your specific needs and requirements.
1. Who will manage my deal?READ MORE >>
Culture Affects the Bottom Line
When a company demonstrates that it’s thriving with happy and motivated talent, it is more likely to garner a higher business valuation when going to market for a merger or acquisition.
There is a proven link between culture, employees, productivity, and profit. Research shows that:
- Businesses with satisfied employeeshave been noted to outperform competitors by 20 percent.
- Happiness leads to a 12 percent boost in productivity and companies with strong cultures see a 43 percent increasein revenue growth.
- When employees are engaged, absenteeism falls 41 percent, productivity rises by 17 percent, and turnover is cut by 24 percent.
The COVID-19 pandemic and the resulting government responses have had a significant impact on consumer spending, with retailers closed for months and shoppers staying home starting in the early part of 2020, with the timing of closures varying by country. Many consumers continue to stay home, even as most businesses have reopened. Online shopping has surged due to the pandemic. In the U.S. and Canada, e-commerce orders are up 146%.
Household consumption increased over the summer and is forecast to continue. Certain consumer behaviors that were newly formed during the earlier stages of the pandemic are expected to permanently influence spending habits. Retailers will need to clearly understand these behavioral shifts as they navigate the immediate future, and into the long term if they plan to succeed amid the new normal.
Digital as Key Driver
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