The seller, Warnock Tanner & Associates, has been operating a successful IT services/management company for over 25 years. WTA Consulting’s customers range in size from small local businesses to Fortune 500 businesses. WTA specialized in Complete Consulting, Development & Implementation Services for Oracle Primavera.READ MORE >>
Benchmark International is pleased to have advised Open Learning Holdings on the sale of their wholly-owned subsidiary, the Open Learning Group (Pty) Ltd, to Kagiso Capital (Pty) Ltd.
Open Learning Group (Pty) Ltd (OLG) is a private Higher Education institution specialising in distance learning educational programmes. Considered as the most affordable, effective , and flexible vehicle to achieve further education, distance learning opportunities are in high demand by both students and corporates wishing to upskill their staff. Higher Education and Training (HET) programmes offered by OLG range from NQF Level 2 to NQF Level 7, providing an extensive pipeline of programmes for students committed to bettering themselves and their career opportunities.
OLG and their subsidiary Business School of Excellence (Pty) Ltd also offer Technical Vocational and Educational Training (TVET) courses through learnerships, providing knowledge and skills for employment in a specific sector. These, together with Further Education and Training (FET) short learning certificate programmes, are offered in a blended approach, including distance learning, online learning, and contact sessions.
Lebogang Mosiane, the Chairman of OLG, commented on the transaction, saying, “Kagiso Trust since 1985 has invested in education, primarily being driven by its mission to eradicate poverty. Acquiring Open learning group simply provides a higher education articulation path curated for the needs of those who need the necessary skills to be active in the economy ”, while Jan Kitshoff added: “The acquisition of OLG by Kagiso Capital will provide them with a solid platform to expand their value offering within the broader education landscape.”
Kagiso Capital (Pty) Ltd is an investment holding company wholly owned by Kagiso Trust. The primary purpose of Kagiso Capital is to ensure the longevity of the Kagiso Trust and to diversify the investment asset base of the Trust beyond its current investments in FirstRand Limited, MMH Limited, Discovery Limited and Kagiso Tiso Holdings (Pty) Ltd. Kagiso Capital drives a diversification strategy through meaningful investment in innovative and growing businesses that are committed to economic transformation.
Lebogang Mosiane, speaking on behalf of Kagiso Capital, said, “We would like Open learning group to be the preeminent education platform, where future industries will come recruit talent that will add value to their businesses. We hope this will narrow inequality and transform South African industries to be competitive globally.”
Andre Bresler, representing Benchmark International’s South African office, added, “It was a genuine privilege to be selected to advise the shareholders of Open Learning Holdings (which includes institutional shareholder Old Mutual Life Assurance Company (SA) Ltd) on this transaction, the professionalism and attention to detail was outstanding throughout the process. We are delighted with the outcome for all parties and wish continued success as they embark on this exciting new chapter.”
Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkIntl.com
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkIntl.com
Europe: Michael Lawrie at +44 (0) 161 359 4400 / Lawrie@BenchmarkIntl.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $7B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 14 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.
While you may be hearing that the M&A market is currently active, numbers speak volumes. A recent article from U.S. News cited that private equity (PE) has inked more than 2,300 deals for the first five months of 2021. Year-over-year, this is just over a 21% increase in deal volume. In fact, according to Pitchbook data, in the first half of 2021, PE firms closed on 3,708 deals worth a combined $456.6 billion. That’s almost two-thirds of the $711.6 billion deal value recorded in the entire year of 2020, and the two years prior. It is estimated that there is roughly $3 trillion of dry powder—also known as available funds—on hand for investment, with even a large amount of assets under management.
Historically low-interest rates and record levels of fundraising have left private equity with dry power that they must put to use. The combination of these factors has created competitive bid scenarios for many sellers. It appears that many private equity firms believe that this trend will continue for the coming months. According to S&P Global Market Intelligence, roughly 7% of private equity firms believe that the investment landscape will deteriorate in the coming months.
You may be asking yourself, “What is private equity?” Private equity firms obtain capital to invest in private companies. They have a set period of time to make the investments with the goal of optimizing return for their investors. Their investors tend to be institutional investors such as insurance companies, pension funds, endowments, etc.
The firms typically invest in mature companies with predictable, steady cash flow and a need for operational changes or growth capital. Private equity firms will utilize their capital, connections, and expertise to help improve the managerial, financial, and operational aspects of the business. Their goal is to increase the profitability of the company as this will help drive the value of the company upon exit. The firms make investments with a ‘buy and build’ mentality.
Private equity firms realize their returns when they sell the investment. The firms tend to have a goal of roughly 20-30% return on their equity. Private equity firms will use leverage to help maximize their return. They also charge a management fee, typically a percentage of total assets under management, also known as AUM.READ MORE >>
Over the years, we’ve collected the questions acquirers most often ask about our relationships with our clients. We hope you will find working with us to be a beneficial experience and invite you to learn a bit more about our relationship with our clients by looking over these most frequently asked questions.
Do you ever represent acquirers? No, we are and always have been a 100% sell-side shop. Many of our team members have significant buy-side experience but we prefer to have a very narrow specialty and we take all our fees from the seller. We have, from time to time, been asked by serial acquirers to search for targets with specific criteria. We are happy to do this and when we do, we do not seek engagement by or fees from the acquirer. Instead, we work to sign up the seller as a client and then bring them to the inquiring potential buyer for a pre-market first look.
Is the relationship with your client exclusive? Yes, all of our contracts are executed on a sole and exclusive basis. The financial investment we make in each of our clients is far greater than the typical broker in the mid and lower-mid market. The process only works if we work on this basis. For the same reason, we do not co-broker with other sell-side brokers.
How are you compensated? We require a one-time retainer from all clients upon engagement and we have a success fee due upon (and at) closing. The one-time retainer is significant enough to ensure that our client is serious about undertaking the process but not large enough to muddy the waters as to our incentive. For us, the profit is in the success fee. Our success fee is a percentage of the total benefit our client will receive from you as a result of the transaction, subject to a smaller fixed minimum amount. Our contract states that it is to be paid at closing by the acquirer out of the purchase price (on behalf of the seller) on the funds flow memo.
What authority do you have? We never have authority to bind our clients in any manner. We have authority to release the teaser, which they will have previously approved of in writing, as we see fit. Following the execution of a NDA by an acquirer and our client’s written sign off on that NDA and acquirer, we are authorized to release the Confidential Information Memorandum and have wide latitude to discuss anything relevant to a potential transaction.
Are your clients tied to you for a fixed term? No. If one of our clients no longer desires to sell, they can terminate our contract by written notice. Termination is not valid if delivered while engaged in negotiations with an acquirer. In exchange for this right to come off market at any time and to defend the exclusive nature of our engagement, we have tails that we feel are industry standard.
What visibility do your clients have into the exact size of your fee? We will provide a pro forma invoice to our clients at any time. All they need to do is ask. This may be upon presentment of proposed letter of intent (LOI), upon execution of an LOI, upon review of the first draft of the definitive agreements, or even the day before closing. Our contract obligates us to do this and we believe it is the most productive way to handle the issue of fees. We encourage our clients to ask early and often. Our accounts department can typically prepare these within 24 hours of the request and they are, of course, subject to modification if and as the deal develops or changes.
What notification and information rights do you have? Our clients are obligated to keep us informed of their negotiations and provide copies of agreements relevant to the calculation of our success fee for any transaction for which we may be due such a fee.READ MORE >>
At Benchmark International, we work exclusively on the sell-side, so we would love to say, “The way to do a re-trade is to never do a re-trade.” However, when you have completed countless deals, there are times when we are tied so closely into those deals that we know the terms of the original offer do not stand up to the target company’s actual position following due diligence. In other words, we will admit when there is a legitimate reason to re-trade a deal term, including the price.
Our experience also tells us that these instances are rare when sellers have been through our process, and there is a right way and wrong way to do it if you want the deal to close. We encourage you to avoid blown deal costs by following these simple steps:
Step 1: Discuss it with us first. Yes, we are going to push back. Yes, we are going to support our client. But we will also be able to keep the deal on track by doing the following:
- In a best-case scenario, clarifying a misconception on your part that moots your need to re-trade
- Giving you a read on how our client will react
- Suggesting the best means of communicating the issue so that the reaction you receive best matches the severity of the actual change
- Providing our client our open and honest view of the change and the reasons for it before he or she has had a day or two to lock themselves into a position that may be based on less than the clearest picture possible
- Delving into our resources to convert what starts as a win-lose scenario to something closer to a win-not-lose-too-much scenario
Step 2: Have your data lined up. Very often we see re-trades supported by vague concepts and no numbers. These cause extra problems. If the amount of the re-trade can come over on the left side of the page with a numerical breakdown of the reasons for the re-trade on the right side of the page, and the seller can see that the two balance one another out—even if just figuratively—we are all in a much better position to get to the closing.
Step 3: Don’t wait. When you find something in diligence that looks like it is building to be the source of a re-trade, don’t save it all up and then dump it on the sell-side at the last minute. Conditioning the recipient of bad news is always the best way to get the most appropriate response to that news.
Step 4: Don’t overreach. Even in our smallest deals, we are not operating in a Turkish bazaar. There is no need to ask for $500,000 when you need $250,000. That type of negotiation works well in one-off trades but not when you are trying to build a relationship that is expected to hit additional bumps before the deal closes and likely needs some level of ongoing trust after closing.
Step 5: Be open to creative solutions. Regardless of how meaningful the problem is and how large a fix you need, your solution may not be the only acceptable one. It may not even be the best one for you. There are many ways to change a deal to address an unforeseen risk and provide the protection you need to offset that risk. The key to getting the transaction closed is often finding the amount of offset you need using the method of offset the seller can accept.
Benchmark International works hard with its client to avoid the need for re-trades. We collect extensive data on our clients prior to going to market. We run a very process-driven data room and often pre-populate it. We encourage our clients to get in front of disclosing detracting factors to avoid any surprises. We comb through every financial statement and tax return our clients can produce. In some countries, we are able to verify returns against official tax transcripts. Unlike many other brokers, we will even put known issues into our Confidential Information Memorandums. We attempt to place our clients with experienced M&A legal advisors. We understand—and make every effort to ensure our clients understand— that hiding an issue is not going to get them a better deal, may cost them a very good deal, and will never make it through due diligence.READ MORE >>
At Benchmark International, we see hundreds of letters of intent (LOI), term sheets, and heads of terms every year. And though the title of the document changes from location to location, we see acquirers making the same mistakes across the globe. These mistakes cause delays, lead to good LOIs not being signed, and lead to LOIs being signed but then resulting in nothing more than blown deal costs (and angry sellers). We would like to offer a little advice from the sell-side about how to make your offers come across in the best possible light.
1. Do not include an automatic extension to the exclusivity period.
When there are no conditions on an extension other than your sole discretion, our clients see that for exactly what it is. Unless either (a) they have some veto right over any extension or (b) it kicks in only if certain material and tangible milestones have been hit, extensions cause our clients to get a bit suspicious of the other terms in the LOI. Its one of the easiest clauses for an M&A novice to understand so if they feel weary of that clause, you can imagine the effect it has on their reading of the more complex sections.
2. Do include a sources and uses of funds table.
Missing the table is problematic for a few reasons. Our clients often have a hard time following the complexity of a structured offer and the table can clear up some things for them. In addition, when the client is rolling over an interest and you are using the target company (or newco) to undertake the acquisition debt, a clear picture of the debt is necessary to ensure the rollover is correctly valued and, more importantly, for us to best explain to our clients the magic of leverage. Our clients tend to be less comfortable with debt than you are. When they learn later in the process that the company will be taking on large amounts of debt, it serves no one's interests for them to feel they have been left out in the dark or that they are suddenly facing a riskier proposition than they thought—even when they are not going to retain any interest in the business.
3. Do not get too specific on the net working capital when the closing date is not yet known.
Our clients' business' have seasonality. Most of them don't have the same working capital in June that they have in October. With a two, three or even four-month window for the closing date, setting the target at the time of LOI is a recipe for disaster. Most acquirers have an adequate enough understanding of our client's business at the time of presenting an LOI to allow them to set the balance sheet line items to be included in the definition. But setting an amount causes extra pains both when trying to get the LOI signed and later if the closing date moves.
4. Put the total purchase price in the first paragraph.
Sellers look for the headline number. Why not put your best foot forward? Starting off with a nice sentence or short paragraph outlining the total benefit to be received by the sellers is a great way to get the momentum rolling for the offer. It is surprising how many acquirers do not put their best foot forward in this way.
5. Avoid being too specific on indemnification and other legal terms.
Sellers like our clients do not want to engage legal counsel at the time your LOI arrives. When an LOI comes in with the baskets, caps, timing limitations of indemnification and the list of the fundamental reps, our clients either (a) feel inclined to engage legal counsel—which slows everything—or (b) later hear from their counsel that they should not have agreed to such terms in the LOI, prior to engaging counsel. These extra details create a lose-lose proposition.
6. Send the offer to the broker first, not the client.
The error rate on sellers reading LOIs in the dark is astronomically high. Let us give your offer a read and come back to you with anything we think our client will misunderstand. As this is such an emotional and important process for sellers like ours, it can be difficult to get them unstuck from a misreading of your offer. It's best to do whatever is possible to get them started in the right frame of mind and we can (and are motivated to) help you ensure that happens. After we have had a chance to give it a once-over with our professional eye and provide some feedback, feel free to send it directly to the seller if that is important to you.READ MORE >>
Our seller clients know that we see quite a few offers come through every week, month, and year and they expect us to provide our input on the timeframes that are “market.” As this is a buyer-seller neutral point and a strong set of mutual expectations is productive to achieving a closing, we want to give you an idea as to what is happening on our side of the table.
Nobody is getting deals closed in less than 90 days.
Even well-funded, experienced buyers seem to require 90 to 120 days get from letter of intent (LOI) execution to close in the middle and lower-middle markets.
A request for more than 120 days is exorbitant.
A third of a year is a long time to be off the market for an owner who is committed to selling their business.When the time comes, there may well be good reason to extend exclusivity but we know that our clients more often than not regret any grant of 120 days or thereabouts. We can work with them to set up specific grounds for extending exclusivity beyond 90 days where a situation warrants it, but blanket grants of 120 days, or even 90 days with a 30-day automatic extension, are something we highly discourage our clients from accepting.
Diligence should start quickly.
We encourage acquirers to use the offer letter to inform the seller about diligence timings, especially when the initial diligence list will be sent and, if possible, when the initial diligence visit will start. All too often, we see LOIs signed followed by a long pause in activity and that drastically alters our clients’ attitudes toward the buyer and the offer. We encourage or clients to have this expectation set at the time of signing and expect that there will not be a pause but rather an aggressive start, even if that start only covers a portion of the scope of the overall diligence effort. When this happens, we see diligence lists arriving within a week of signing and the first onsite (or the next face-to-face meeting) within three weeks of signing.
First drafts do not wait until the diligence is complete.
We understand that acquirers may not want to incur the cost of engaging counsel based solely on the information in the Confidential Information Memorandum and a meeting or two. But we also understand that waiting two months to engage counsel and get first drafts out does not lead to a high close rate. We all know that drafts can be sent “pending finalization of due diligence.” Our successful deal closings have the first drafts coming out within a month of LOI signing. Our clients know that if they have not seen a draft by then, the deal is not likely to close.
The seller can really mess up the timeline.
Failure to provide prompt and complete responses to diligence requests, abnormal reservation of disclosure of “sensitive” issues until later in the process, going on vacation, or simply the lack of organized files are all things we have discussed with our clients prior to going to market (and again when the LOIs start to arrive). They know that they can be the problem when it comes to timing.
But if the seller does not mess up the timing…
Our clients know that time kills all deals. And they know that if they have been prompt and thorough, and the LOI signing date is approaching triple-digit days in the rearview mirror, things are not going well. Our statistics show that few deals die in the first 100 days after signing and few deals close more than 100 days after signing. This is something we share with our clients—both to set their expectations and to motivate them to be prompt and complete.
Questions should be responded to within three business days.
We instruct our clients that deals require momentum to close. Precisely when they are most exhausted by the process is when they must reply in an even more expedient manner. Being realistic, we feel that the seller owes the buyer responses to every question within three business days, even if the response is, “We are working on it. It’s been a bit difficult to get our hands on that data.” Similarly, we believe the acquirer should respond to the seller’s questions, and send their follow up questions, within three business days. Allowing sellers to feel that anything that has not yielded a follow up within those three days has a “soft close” around it and goes an immeasurable distance in keeping sellers motivated, focused, and responsive.READ MORE >>
Acquiring an existing business can offer great advantages over starting a new business from scratch, especially if the target business is thriving and holds more opportunities for growth. When considering the purchase of a company, you should take certain steps so that you can be confident that you are minimizing your risk and making a smart move. Use this comprehensive checklist to help you ask the right questions and guide you through the process.
☐ Is the Target Company Financially Healthy?
This is a question you must ask yourself before considering anything else about the business. You will want to carefully comb through the business's financial statements for the past five years (at least) to identify if anything appears out of the ordinary and to assess how the numbers compare with standard performance in that sector. Also, request to see the tax returns for the same years. This will help you determine whether the owner has put personal expenses through the company books and give you a more complete picture of the company's actual value. You also will want to know if you will be taking on any existing debt, and exactly how much.
☐ Will You Be Able to Generate Cash Flow?
It is crucial that you know whether you will be able to generate cash flow immediately upon purchasing the business. If not, are you in a position to carry the business until that time comes? No matter how attractive the company may seem, you must ensure that you are not getting in over your head. Take a thorough look at sales records to assess past and future performance. You must also find out if any existing clients or customers are planning to part ways and what you can do to retain their business.
☐ Does the Company Have a Good Reputation?
Doing a quick Google search can reveal quite a bit about a business. You will want to see how the company is perceived in the world. Does it have a lot of negative reviews or bad press? Are there any customer complaints, and do you know how they were handled? Get a comprehensive look at the business's reputation because you are going to need to see if you have work to do in order to turn it around. This could include a complete rebranding and marketing effort, which costs money.
☐ Have You Done Your Homework on the Staff?
When you acquire an existing business, you are also acquiring its management team and employees. You should know the skill levels and proficiencies of any staff you will be inheriting, and whether you are going to be faced with the task of replacing key staff members. Do all team members plan to stay with the company? Have they been made any promises by previous ownership that you will now be expected to fulfill? Is anyone retiring or planning to go on extended leave? Is anyone disgruntled about the sale? When you know the answers to these questions, you'll be best prepared to address any issues.
☐ What is the State of the Inventory?
If inventory is applicable to the business in question, everything should be itemized and given a carefully determined value. Will any inventory lose value with time, or only have a value at certain times of the year? Will it be adequately stocked for when you take over the company? When you are investing in a company, you're going to want to have everything you need on hand to generate revenue from its operation.
☐ What is the State of the Physical Property?
First things first: you need to know if the business owns the property on which it resides or if there is a lease agreement in place. Then seek out answers to the following questions. What are the details of the lease and the reputation of the landlord? How much is the rent, and is it due to increase? Is the property in good condition, or is it in need of repair? If the business owns the property, what are the real estate taxes? Is the property able to accommodate any planned growth? Is it legally zoned? Is the location appropriate? Are you going to need to make changes, or find a new location altogether? This is an area where you cannot be too thorough.
☐ Do You Have All the Legal Documents and Contracts?
This is another critical step in purchasing a business. You are going to need to have every last piece of paperwork that pertains to that business. This includes business licenses, copyright agreements, patents, trademarks, import and export permits, mining rights, real estate documents, etc. Basically, if something relates to the business in any way, you should have documentation of it. If the current owner has not kept good records, there is your first sign that you might want to think twice about moving forward with the acquisition.
☐ What is the Condition of the Business's Equipment?
You should assess the condition of all office equipment, furniture, machinery, and vehicles used for the business. What is owned and what is leased? What are the items' lease or purchase details, and are there maintenance agreements in place? You should assess the condition of all equipment to determine if anything will need to be replaced because this will be a factor in the purchase price of the business.
☐ Are You Familiar With the Business's Suppliers?
This is important because suppliers can have a significant impact on how reliable your business is able to run. You want to ensure that they are established and committed to providing superior quality and service. Find out if they fill orders on time and meet their obligations. Look into any contracts that are in place, so you understand the relationship. You also will want to ask if there are any expected price increases or factors that may impact the existing arrangement.
☐ Contact Benchmark International
If you are looking to buy a business, we represent highly motivated sellers in the lower-middle and middle market that may be the perfect fit for you. Contact one of our experts to discuss how we can help with target company searches.READ MORE >>
As we work exclusively in the mid and lower-mid markets, we see many deals succeed, and some wither. In an effort to have more of the former and less of the latter, we would like to share our core philosophies with the belief that helping you understand them will make working with us a more rewarding experience.
1. Time kills all deals.
Prudent and deliberate action are certainly also key aspects of getting deals closed but, in our experience, neither buyers nor sellers are inclined to be under-prudent or lacking deliberateness. Rather, unexplained and avoidable delays tend to stack up between the first meeting and the closing. Each delay shaves off a small percentage from the probability of closing. There are enough legitimate delays in the M&A process. When we see one that can be avoided, we will step in and attempt to get the ball rolling once again.
2. Transparency is the best antiseptic.
We’ve seen too many deals die because one side or the other has hidden something until it is too late. Long before you meet our clients, we will have already guided them on the value of releasing the troubling issues they might have at the earliest opportunity. Hopefully, you will already have seen some of this in our Confidential Information Memorandums. We lean forward into these issues because we believe that the sooner they are addressed, the more solutions there are, and the less likely anyone is to feel hoodwinked. We hope you’ll feel the same way with your own challenges (for example, lining up debt financing) as well as any you may see with our clients.
3. The emotional must be covered as well as the financial.
This may be somewhat unique to our clients as our process appeals to a certain owner type. As you probably know, we specialize in closely-held and owner-operated businesses. Nowhere is it more true that “every business is a family business.” Our clients have typically had 20- to 30-year relationships with their businesses and often equate the sale process to sending their son or daughter off to college. When we work with acquirers that understand the effects of this fact pattern, we see a much higher level of success. In fact, we have built our teams, our process, and our engagements around it. We will be more than happy to help you deal with this interesting aspect of our clients. Please just ask.
READ MORE >>
By Paul Hawken
In this book, Paul Hawken explains how a successful business is an expression of the individual behind it, along with practical advice, common sense, and down-to-earth ideas. Even though it was written 30 years ago, it remains an excellent and very relevant read, backed by the fact that the author’s own companies are still successful after all these years.
By Lex Sisney
The author of this book spent more than a decade leading and coaching high-growth technology companies. In his work, he discovered that companies that thrive do so in accordance with six universal principles. The book covers a blend of important business and entrepreneurial topics in a manner that stands out from other business books.
By Mike Michalowicz
In this book, the author offers principles to simplify accounting and easily manage a business through analysis of bank account balances. The theory is that a small, profitable business can be more valuable than a large business surviving on its top line, and those that achieve early and sustained profitability have a better chance of maintaining long-term growth.
By Cliff Lerner
This best seller provides step-by-step instructions, case studies and proven tactics on how to explode business growth. It reveals the detailed growth frameworks that propelled the author’s small online dating startup to grow to 100 million users while coupling humorous storytelling with concrete examples.
By Gabriel Weinberg
Traction is based on interviews with more than 40 successful business founders about their real-life successes. It covers 19 channels that can be used to gain traction for a business, and how to select the best ones for your company. The book discusses topics such as targeted media coverage, effective email marketing strategy, and online search optimization.
By Ron Price and Stacy Ennis
Growing Influence is packed with relatable human experiences and practical advice on developing the right leadership skills. It chronicles two main characters’ growth as they applied the principles in the book, mixing solid business advice with a novel that is fresh, timely and inspiring.
Ready to Grow Your Business?
Contact us for help with unique growth strategies for your company and how we can partner for your successful future.READ MORE >>
If you’ve decided to embark on an MBO, you might have asked yourself, how is this funded? Generally, members of the buyout team are required to invest a sum of personal money into Newco but it would be unusual for them to fund the whole transaction. The equity provided by the management is necessary to demonstrate their commitment to the transaction, therefore it needs to be meaningful, yet it does not have to be too vast – typically representing 6-12 months salary. So, how is the remainder of the MBO funded?
A common option to fund an MBO, seller financing is where the management team asks the seller to help fund the MBO. This is also known as deferred consideration, as the seller is deferring a proportion of their payment of the purchase price until after completion. While the seller would more than likely prefer the consideration paid in full on completion, often lenders may request that a portion of the sale is financed by the seller, as it demonstrates that the seller has confidence in the management team and the company going forward.READ MORE >>
What Is Buy and Build?
When private equity acquires a well-positioned platform company to acquire additional smaller companies, using the developed expertise in a specialized area to grow and increase returns, it is considered a buy-and-build strategy. This strategy is common with private equity firms with shorter holding periods of about three to five years.
Why It Is An Effective Growth Strategy
If a buy-and-build strategy is executed correctly, a great deal of value can be created when smaller companies are combined under the control of a new company.
- This type of acquisition saves time regarding the development of specialized skills or knowledge, allowing for growth and expansion to other markets more quickly and successfully with lower production costs.
- Creating a larger, more attractive company offers a path to exploit the market’s inclination to assign larger companies higher valuations than smaller ones.
- It provides a clear plan when deal multiples are at record levels and there is a need for less traditional strategies.
- Buy-and-build deals generate an average internal rate of return of 31.6% from entry to exit, versus 23.1% for standalone deals.
Getting It Right
The buy-and-build acquisition is not simple to execute. The process demands meticulous planning and due diligence for the strategy to work. The best deals usually employ multiple paths to create value.
- Synergy between the acquirer and the acquired is important to the outcome of the deal. Companies should target existing firms that will be a good fit as a team both tactically and culturally. The human element should always be considered.
- The management team must be an appropriate fit and have experience with these types of transitions.
- There should be a vision in place for where the company will be five years down the road.
- The platform company must be stable enough to endure the process regarding operations, cash flow, and infrastructure (IT integration in particular).
- Sector dynamics should also be considered. Avoid sectors that are dominated by low-cost rivals or mature, stable players. Focus on sectors with many active smaller suppliers and service providers. Consolidation should result in cost savings and improved service.
- While no two deals are the same, there are patterns for getting it right. Those experienced with buy-and-build strategies are more likely to lead to a successful deal.
- It can be difficult to identify private equity firms because of the nature of the way they do business. It helps to have an experienced M&A firm with extensive connections and a proven track record of negotiating successfully with buy-and-build-focused private equity firms.
These reasons are among several as to why it is a sensible decision to enlist the help of an experienced M&A firm such as Benchmark International for your vision for growth. Count on us to help you get your buy-and-build strategy done right.READ MORE >>
The Complete Guide to Buying a Business
By Fred Steingold J.D.
Written by a Michigan Attorney who has extensive experience representing small businesses in several capacities, this book is a comprehensive resource that provides a thorough overview of the buying process with concrete examples. If you are looking to acquire a huge corporation, this is probably not the book for you. However, if you are seeking to purchase a small business, this book serves as a great guide to subjects such as financing, negotiating, comparisons of entities, and standard forms. It will also inform you of when you likely need to enlist the help of a professional broker or lawyer.
Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game
By Walker Deibel
Buying and growing an existing business is considered a smarter path to success than dealing with the pitfalls of start-up companies. This book outlines the ins and outs of becoming a successful acquisition entrepreneur, written by an investor who has co-founded three startups and acquired seven companies. It delves into beneficial topics such as spending less time raising capital, using ownership to achieve financial independence, discovering the best opportunities, and finding quality business brokers.
Buying a Business That Makes You Rich
By John Martinka
The author has of this book has more than 20 years of experience as a business buyer advocate, helping executives to abandon the corporate world to enjoy the freedoms of business ownership. In this book you will read about being smart when purchasing a business, including ways to avoiding overpaying and knowing the right questions to ask throughout the process. It offers smart methodologies and practical insights without overwhelming the reader with what can be a complex undertaking.
How to Buy a Business without Being Had: Successfully Negotiating the Purchase of a Small Business
By Jack Gibson
Case studies, practical advice, and simple terminology are all part of what make this book a great read for anyone looking to purchase a business. The author offers more than 30 years of experience helping entrepreneurs learn how to talk to sellers and brokers, with a focus on avoiding missteps. The book also includes commentary from business owners who wished they had known how to avoid common mistakes, as well as a useful study and discussion guide.
HBR Guide to Buying a Small Business: Think Big, Buy Small, Own Your Own Company (HBR Guide Series)
By Richard S. Ruback and Royce Yudkoff
This book is written from the perspective of professors at Harvard Business School as a guide to entrepreneurship for small business owners. The text was previously only available to Harvard students through the authors’ courses. It is a concise yet thorough resource that will arm you with important topics you should discuss with sellers, brokers and attorneys along the way when buying a small business.
Ready to Buy?
If you feel you are ready to buy a business, while these books can be helpful, Benchmark International can help ensure you are making the right move. Our strategists will use our insider knowledge and exclusive databases to connect you with the ideal match for an acquisition or growth plan.READ MORE >>
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
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
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.READ MORE >>
If you are considering selling your business, it is important to dedicate some thought to the type of sale that best allows you achieve your goals. Do you believe a full sale where you walk away from the company after closing is best for you? Are you the type of person who would work well with a strategic partner that, together, will allow for accelerated company growth? Is there an amount of time you would like to continue working after the transaction with a plan to slowly exit over time? Determining the type of sale that appears the most attractive (I only say ‘appears’ because many owners change their mind after learning what the market has to offer and will find a more attractive sale type than what was initially assumed to be the ‘best’) will also allow you to gain an understanding for the most likely type of buyer.
When selling your business, buyers typically fall into two main categories: strategic buyers and financial buyers. The best type of buyer for your business depends on personal goals you hope to achieve from the sale.
This type of buyer is more likely to pay a premium for a business because their reason for the acquisition is to add to their already existing business. A strategic buyer can be a competitor, supplier or vendor in the same industry. A strategic buyer can also be a focused on businesses of similar model that service the same sector. These attributes are commonly referred to as vertical and horizontal markets, respectively. Using what your company has to offer can help them either expand their footprint or break into a new market.
They are looking for synergies in a prospective merger or acquisition. Synergies are characteristics of the two companies that compliment each other, so that when they are put together, the sum equals more than the two parts individually. In other words, a strategic buyer wants to have a relationship that makes the resulting business more valuable than the two businesses when they stand on their own.
Finding a strategic buyer to work with your business will give you more options in a sale. You can decide to stay on with your business for a transition period, while the new company takes over and for an integration period, eventually allowing you to exit completely, or you can negotiate your continued role in the business as a key player in its continued development.
A strategic buyer can often outbid a financial buyer because of the synergistic relationship they are looking to create in your business. Your businesses together yield increased value, sometimes exponentially, in one way or another.
A financial buyer is looking to invest capital to get a return on their investment. Basically, they want to buy your business outright, make profits from it, and then sell it again to create liquidity. For this reason, a financial buyer is not typically willing to invest the same amount of capital they can invest into your business because they are not adding your business to an already existing company of theirs. Instead, they are buying your company as a whole and working with what you have in place already.
A financial buyer doesn’t have the ability to cut on backend costs that a strategic buyer does. They will need to buy a company with a good working structure and management team in place, since they may not be bringing a team of their own to take over all areas of the business. This allows owners to stay involved with their business to help it grow until the financial buyer decides it’s time to sell again.
The benefit to using a financial buyer is knowing that there is a high growth model in place for your business, and you will most likely play a role in its realized potential before it is sold again. This is a great option for a business owner who is looking for an eventual complete exit from his business.
Choosing the Best Fit
Now, there are some exceptions and looking at different buyers from a less seasoned perspective can make it difficult to understand exactly what type of buyer you are actually facing. For example, a financial buyer may have a portfolio of business that compliments yours which can allow for a synergistic fit, thereby allowing you to enjoy some of the benefits a strategic buyer brings to the table. It could also be that a financial buyer recognizes inefficiencies or ‘areas of improvement’ that will allow them to immediately increase the company’s profitability following an acquisition. On the other hand, a strategic buyer may only want to buyer your business to eliminate a competitor and has no real intention of growing your business after the transaction takes place. Simply put, they may just want to prevent your business from continuing to eat up market share whether that be by forcing the company to remain static or by closing the doors.When it comes to selling your business, it is important to consider all your options in a sale. You need to find a buyer that will bring what you are looking for to a sale. Selling your business for a high value is important, but is it worth compromising the culture of your business or your employees? You need to decide what is most important to you and let those values be driving factors in your decisions in a sale.
It is tough to find the best fit for your business on your own. That’s why using a sell side mergers and acquisitions firm like Benchmark International is essential. You will have someone on your side who can help you find the right buyer for your needs. You can also learn more about what you can negotiate in a sale and you can discuss what’s most important to you to make sure those needs are met in a sale.
If you are thinking of selling your business, Benchmark International is dedicated to helping business owners like you achieve what they are looking for in a sale.READ MORE >>
As M&A activity increases worldwide, unfortunately so does cyber-crime. Now whilst the two are in no way related, there is no hiding the fact that there has been a number of high profile incidents in recent times, with major companies such as eBay, Target and Yahoo! all being the victims of such crimes.READ MORE >>