The 65-year old owner of a multi-location retail operation doing $30 million in annual sales decided to retire. He interviewed a highly recommended intermediary and was impressed. However, he had a nephew who had just received his MBA and who told his uncle that he could handle the sale and save him some money. He would do it for half of what the intermediary said his fee would be – so the uncle decided to use his nephew. Now, his nephew was a nice young man, educated at one of the top business schools, but he had never been involved in a middle market deal. He had read a lot of case studies and was confident that he could “do the deal.”
Inexperience # 1 – The owner and the nephew agreed not to bring the CFO into the picture, nor execute a “stay” agreement. The nephew felt he could handle the financial details. Neither one of them realized that a potential purchaser would expect to meet with the CFO when it came to the finances of the business, and certainly would expect the CFO to be involved in the due diligence process.
Inexperience # 2 – It never occurred to the owner or his nephew that revealing just the name of the company to prospective buyers would send competitors and only mildly interested prospects to the various locations. There was no mention of Confidentiality Agreements. Since the owner was not in a big hurry, there were no time limits set for offers or even term sheets. It would only be a matter of time before the word that the business was on the market would be out.
Inexperience # 3 – The owner wanted to spend some time with each prospective purchaser. Confidentiality didn’t seem to be an issue. There was no screening process, no interview by the nephew.
Inexperience # 4 – The nephew prepared what was supposed to be an Offering Memorandum. He threw some financials together that had not been audited, which included a missing $500,000 that the owner took and forgot to inform his nephew about. This obviously impacted the numbers. There were no projections, no ratios, etc. This lack of information would most likely result in lower offers or bids or just plain lack of buyer interest. In addition, the mention of a pending lawsuit that could influence the sale was hidden in the Memorandum.
Inexperience # 5 – The owner and nephew both decided that their company attorney could handle the details of a sale if it ever got that far. Unfortunately, although competent, the attorney had never been involved in a business sale transaction, especially one in the $15 million range.
Results — The seller was placing almost his entire net worth in the hands of his nephew and an attorney who had no experience in putting transactions together. The owner decided to call most of the shots without any advice from an experienced deal-maker. Any one of these “inexperiences” could not only “blow” a sale, but also create the possibility of a leak. The discovery that the company was for sale could be catastrophic, whether discovered by the competition, an employee, a major customer or a supplier .
The facts in the above story are true!
The moral of the story – Nephews are wonderful, but inexperience is fraught with danger. When considering the sale of a major asset, it is foolhardy not to employ experienced, knowledgeable professionals. A professional intermediary is a necessity, as is an experienced transaction attorney.
If you’ve never bought or sold a business before, then the factors that drive and influence business valuations likely seem a bit murky. In a recent Divestopedia article from Kevin Ramsier entitled, “A Closer Look at What Drives and Influences Business Valuations,” Ramsier takes a closer look at this important topic.
Business brokers and M&A advisors play a key role in helping business owners understand why their business receives the valuation that it does. No doubt, the final assessed value is based on a wide array of variables. But with some effort, clarity is possible.
In his article, Ramsier points out that “value means different things to different buyers” and that the “perceived value depends on the circumstances, interpretation and the role that is played in a transition.” It is important to remember that no two businesses are alike. For that reason, what goes into a given valuation will vary, often greatly.
Looking to EBITDA
Ramier points to several metrics including return on assets, return on equity and return on investment. Another important valuable for companies with positive cash flow is a multiple of EBITDA, which stands for “earnings before interest, taxes, depreciation and amortization.” EBITDA is widely used in determining value. On the flip side of the coin, if the company in question has a negative cash flow, then the liquidation value of the business will play a large role in determining its value.
Primary Drivers to Consider
Ramsier provides a guideline of Primary Drivers of Valuation, Secondary Drivers of Valuation and Other Potential Drivers of Valuation. In total there are 25 different variables listed, which underscores the overall potential complexity of accurately determining valuation.
In the Primary Drivers of Valuation list, Ramsier includes everything from the size of revenue and revenue stability to historical and projected EBITDA as well as potential growth and margin percentages. Other variables, ones that could easily be overlooked, such as the local talent pool and people training are also listed as variables that should be considered.
Support for the Business Owner
The bottom line is that determining valuation is not a one-dimensional affair, but is instead a dynamic and complex process. One of the single best moves any business owner can make is to reach out to an experienced business broker. Since business brokers are experts in determining valuation, owners working with brokers will know what to expect when the time comes to sell.
By Richard Jackim, JD, MBA, CEPA
Managing Partner, Jackim Woods & Co.
The litigation support industry and the court reporter sector, in particular, is a highly fragmented industry dominated by hundreds of small local, state and regional players. While there are several dozen national and international firms, no single firm has more than 5% of the overall market. Over the last ten years, a handful of well-financed litigation support companies have been quietly acquiring local and regional court reporting firms to build their national and international litigation support platforms. The dramatic increase in the number of court reporter acquisitions over the last few years suggests that the consolidation play is still top of mind for many financial and strategic buyers. We have included a summary of the court reporting companies that have sold recently.
We firmly expect the wave of court reporting firm acquisitions to continue and for it to remain a seller’s market for the foreseeable future. There are several reasons for this increase in M&A activity in the court reporting industry.
The first reason is that most owners of court reporting firm are in their late 50’s or older and are beginning to think about retirement. For these owners, selling the company to another entity allows them to take some money off the table, continue to work for a few years, and guarantee jobs and benefits for the trusted employees who work for them for years.
Shortage of Court Reporters
Next, the wave of consolidation is likely to continue due to the increased demand for court reporting and litigation support services combined with a decrease in the number of people entering the court reporting profession. This points to a severe shortage of court reporters for the foreseeable future. To grow, a court reporting agency needs to employ more court reporters and if you can’t recruit them fast enough, the next best option is to acquire an existing court reporting firm and add that firm’s reporters to your roster. This accomplishes two important goals: acquiring trained and productive employees and gaining a loyal local client base at the same time.
Changes in Technology
The third reason the court reporting industry consolidation makes sense is the changing nature of the demand for their services. The continued cost pressures on courts, law firms and their clients are forcing these consumers of court reporting services to change their business practices. More than 45 states now accept digital recordings (both audio and video) in the courtroom. The adoption of new technologies can assist the court reporter in producing an accurate record of proceedings, but this requires a significant investment on the part of the court reporting firms which may not be possible for many smaller firms. It’s important for a company to have invested in and maintained cutting-edge utilization of technology as a competitive advantage. Any company can buy technology. But it takes good management, skills training of employees, and a dedication to optimizing technology (machinery, automation, software, etc.) to turn an investment in hard assets into real value for the company. Technology also provides a way for companies to vertically integrate into complementary capabilities and extend their reach to new customers.
Changes in Client Requirements
In addition, consumers of litigation support services are increasingly looking to reduce the number of vendors they work with and find economies of scale in their operations. Clients are increasingly looking for one firm that can provide them with a comprehensive set of litigation support services including, court reporting services, eDiscovery services, document management and storage solutions, video conferencing, and other litigation support services. This is especially true for the large national and international law firms and insurance companies that are the biggest users of litigation support services.
The fifth reason the consolidation wave will continue is that despite advances in technology, court reporting is at its heart a service that is delivered locally. You need to have a presence in the local market, meet with clients, and provide services locally. When a court reporting company is interested in entering new markets, either in terms of geography or a new industry sector, it is usually safer and faster if it is done through an acquisition. A company that is entrenched in a local market and has a good reputation, a solid and diverse customer base in that market or that region, and has the right size, technology and management, can be attractive to a larger company that wants to become a player in that market.
The last reason the consolidation will continue is that size matters. Size tends to indicate the strength of a company. In most cases when a company has grown to a considerable size —say a firm with 200 court reporters that generates $20 million in revenue—it has done so because of good management, a good reputation in the markets it serves, and an effective use of technology. This doesn’t happen by accident, and as a result, buyers and financial investors are willing to pay a premium for these companies. So, if a regional court reporting firm can acquire 1-2 local competitors a year and pay 3-4 times cash flow for each of them over the course of five years, that regional court reporting firm could be worth 4-5 times cash flow when it comes time to sell.
Below is a summary of 38 sales of court reporting firms over the last few years. This is a partial list that reflects only the publicly announced deals. Since most transactions are private, we estimate there is an equal number of deals that were not reported.
Recent Sales of Court Reporting Firms
David Feldman Worldwide Court Reporting, 2018
Gramann Reporting, 2018
Tayloe Court Reporting, 2018
Amicus Court Reporters, 2017
Ayotte & Shackelford, 2017
Baltimore Court Reporting, 2017
Barrister Reporting Service, 2017
Carpenter Reporting, 2017
Cook & Wiley, Inc., 2017
Deitz Court Reporting, 2017
Dominion Reporting, 2017
Downtown Reporting, 2017
Everman & Everman, 2017
Friedman, Lombardi & Olson, 2017
Hoorwitz Court Reporting, 2017
Litigation Services, 2017
Wheeler & Hallford Court Reporting, 2017
Bienenstock Nationwide Court Reporting, 2016
Brunson Court Reports, 2016
Gregory Court Reporting Service, 2016
Independent Reporting Services, 2016
Lake Shore Reporting, 2016
Love Court Reporting, 2016
MJC Reporting, 2016
Sclafani Williams Court Reporters, 2016
Sperling & Barraco, 2016
Realtime & Court Reporting, Ltd, 2015
Elisa Dreier Reporting, 2015
M.A.R. Reporting Group, 2015
Shelley Plate Reporting, 2015
All Keys Reporting, 2014
Legal Ease Reporting, 2014
Electronic Legal, 2013
Tooker & Antz Reporting, 2013
American Realtime, 2012
Carol Ann Hargreaves Company, 2006
About the Author
Rich Jackim is an experienced investment banker and a former attorney who practice law with White & Case in New York and overseas. He specializes in advising business and professional services firms in mergers and acquisition transactions across the United States. If you own a court reporting or litigation support company and would like to explore your options, please contact him at email@example.com or at 224-153-5142 for a free, no-obligation consultation.Read More
Personal goodwill can have a profound impact on both small and medium-sized businesses. In fact, it can even impact the sales of larger companies. Ultimately, understanding how personal goodwill is cultivated is of great value for any company.
During the process of building a business, a founder builds one or more of the following: a positive personal reputation, a personal relationship with key players such as large customers and suppliers and the founder’s reputation associated with the creation of products, inventions, designs and more.
What Creates Personal Goodwill?
Personal goodwill can be established in many ways, for example, professionals such as doctors, dentists and lawyers can all build personal goodwill with their clients, especially over extended periods of time. One of the most interesting aspects of building personal goodwill is that it is essentially non-transferable, as it is invariably attached to and associated with, a particular key figure, such as the founder of a company. Simply stated, personal goodwill can be a powerful force, but it does have one substantial drawback. This is as the saying goes, “the goodwill goes home at night.”
How Does It Impact Buying or Selling a Business?
Buying a business where personal goodwill has been a cornerstone of a business’s success and growth presents some obvious risks. Likewise, it can be difficult to sell a business where personal goodwill plays a key role in the business, as a buyer must take this important factor into consideration. Certain businesses such as medical, accounting or legal practices, for example, depend heavily on existing clients. If those clients don’t like the new owner, they simply may go elsewhere.
Now, with all of this stated, it is, of course, possible to sell a business built partially or mostly around personal goodwill. Oftentimes, buyers will want some protection in the event that the business faces serious problems if the seller departs.
Solutions that Work for Both Parties
One approach is to require the seller to stay with the business and remain a key public face for a period of time. An effective transition period can be pivotal for businesses built around personal goodwill. A second approach is to have some form of “earn-out.” In this model, at the end of the year lost business is factored in, and a percentage is then subtracted from monies owed to the seller. Another option is that the funds from the down payment are placed in escrow and adjustments are made to those funds. It is important to note that the courts have decided that a business does not own the goodwill, the owner of the business does.
No doubt, businesses in which personal goodwill plays a major role, present their own unique challenge. Working with an experienced professional, such as a business broker, is an exceptional way to proceed in buying or selling this type of business.Read More
Thinking of selling your court reporting or litigation support firm? The first question most business owners ask is “what’s my business worth?”
Most businesses, including court reporting agencies and litigation support firms, are valued based on a multiple of the cash flow they generate. This cash flow is often referred to as earnings before interest, taxes, depreciation, and amortization or “EBITDA”.
The following multiples are used by business brokers, buyers and lenders to get a ballpark idea of the value of a business.
EBITDA SELLING PRICE MULTIPLE
$0 – $50,000 1.0-1.5 times EBITDA
$50,000 – $150,000 1.5-3.0 times EBITDA
$150,000 – $250,000 3.0 times EBITDA
$250,000 – $500,000 3.0-4.0 times EBITDA
$500,000 – $1,000,000 4.0-5.0 times EBITDA
Over $1,000,000 5.0-6.0 times EBITDA
The multiple can vary widely depending on a number of factors including size of the business, historic trends in revenues and profits, risks related to sales reps or reporters that have their own books of business, customer concentration, or other factors that might impact the future cash flow of the business.
How to Calculate the EBITDA of Your Court Reporting Firm
To calculate your court reporting company’s EBITDA, or earnings before interest, taxes, depreciation, and amortization, start with the profit shown on your P&L statement or tax return, then and add back interest, depreciation, and amortization. EBITDA is the starting point for any business valuation so it’s a good number to track on an annual basis.
In addition, it is important to calculate your EBITDA correctly. EBITDA should reflect a market-based salary for the firm’s owner. However, if you own your own firm you can pay yourself an above market salary and offer yourself perks that a buyer will not incur. These “excess” expenses can often be added back to your EBITDA resulting in a higher valuation. As a result, it is important to work with an objective third party to evaluate what adjustments can be made to your EBITDA to truly reflect the operating cash flow of your business.
Don’t Leave Money on the Table When Selling Your Court Reporting Firm
While rules of thumb and valuation multiples are easy to use, they are notoriously inaccurate because they don’t consider the unique value drivers or value detractors of your business. Using valuation rules of thumb will give you a rough idea of what your business is worth, but to get a more accurate idea, the valuation should account for things like your agency’s past trends in performance, type of clients, recurring revenue, use of technology, management depth, projected growth, and other things.
To get an accurate valuation talk with a business broker or M&A advisor who specializes in representing professional services companies, including court reporting and litigation support firms. They will work with you to make the appropriate adjustments to your EBITDA, evaluate your business and client base, and value your firm properly so you don’t leave any money on the table when you sell.
At Jackim Woods & Co. we use the discounted cash flow and comparable transactions valuation methods to provide clients with an accurate, market based, idea of what their court reporting and litigation support firms are worth.
Get a Free, No Obligation Market Assessment of your Court Reporting Firm
If you’d like to begin exploring your options, contact Rich Jackim, Managing Partner at Jackim Woods & Co. (224-513-5142 or firstname.lastname@example.org) to get a FREE Valuation and Market Assessment. There is no cost or obligation and all conversations are strictly confidential.Read More
Veritext, the national leader in court reporting and litigation support solutions, announced that it has acquired David Feldman Worldwide (DFW) Court Reporting. DFW’s experience with very complex litigation cases and exemplary customer service complements Veritext’s full breadth of technical solutions and world-class data security. Together they will offer clients of both companies premier court reporting and litigation support solutions.
“DFW’s expertise in very complex litigation fits well with the experience and advanced technology Veritext brings to the table,” said Nancy Josephs, Chief Executive Officer of Veritext. Clients of DFW will have immediate access to Veritext’s state-of-the-art deposition suites, multimedia depositions, document repositories, remote depositions, online and mobile scheduling, paperless depositions and more. In addition, they will experience the world-class, HIPAA-compliant data security Veritext offers. “Combining the services of both companies makes the perfect union,” Josephs continued.
DFW was founded by David Feldman in 2002 along with his two children, Michael and Sheril, who have owned and operated the company since 2009. DFW’s client-facing team will stay on with David Feldman Worldwide, a Veritext Company after the acquisition, ensuring that clients will receive the same stellar service they have come to expect. DFW is based in New York City and serves clients across the United States and in foreign locations.
“By joining with Veritext, we will be able to offer our clients a full breadth of technology solutions to make the deposition process more effective. They will also have access to the more than 50 Veritext offices around the country,” said Michael Feldman, President of David Feldman Worldwide, a Veritext Company. “Veritext shares our commitment to quality court reporting and impeccable service, which makes this transition the perfect fit for our clients and our employees.”
Veritext is the largest nationwide provider of deposition and litigation support solutions, providing court reporters, advanced technology and services to law firms and corporations across the United States. Veritext has been serving the legal community since 1997 and has extensive experience in all types of complex litigation. The company recently announced acquisitions in Florida and New Jersey and their expansion in the St. Louis marketplace. More information can be found at www.veritext.com.Read More
HANOVER PARK, IL – School Health Corporation announced today that it has acquired Palos Sports, Inc., based in Alsip, IL. For over 60 years Palos Sports has been a leading distributor of physical education supplies to school districts, park districts, and Special Olympics programs throughout the United States. Educators and recreational groups look to Palos Sports for innovative sports, recreation and physical fitness products and equipment, as well as for curricula and knowledge to make their programs more impactful and successful.
School Health is the leading national provider of health supplies, services and solutions, serving professionals in educational settings in the fields of Sports Medicine, Health Services, Special Education and Early Childhood. With over 20,000 physical education, recreation and athletic items in stock, Palos Sports’ products and customers complement School Health’s offerings.
“Together, School Health and Palos Sports will boast the nation’s largest offering of health and wellness products to the education market in the areas of Physical Education, Sports Medicine, Health Services, Special Education and Early Childhood,” said Rob Rogers, President, School Health Corporation. “We both seek to improve the health and well-being of students in schools across America. We are pleased that Palos Sports is now part of the School Health family.”
“Palos Sports is a perfect addition to our offerings given that physical education is playing an ever-important role in helping students maximize their learning potential,” said Scott Cormack, Executive Vice President of Business Development and Strategy, School Health Corporation.
School Health Corporation will maintain Palos Sports as a separate company which will continue to operate in Palos’ current facility, supported by Palos’ dedicated employees who will join the School Health organization. The company will operate under the name Palos Sports, a School Health company. Dan Dunne will continue as president of Palos Sports.
We are very excited to be a part of the School Health team,” said Dan Dunne, President, Palos Sports. “Our team is proud to be a part of School Health’s vison and commitment to the health, development and wellness of all students. Today we start an exciting journey together, combining our talents and knowledge with a great company.”
Rich Jackim, a managing partner at Jackim Woods & Company, advises School Health Corporation on its corporate development activities and arranged the transaction.
Since its founding in 1957, School Health has been helping school-based health professionals keep students healthy both physically and mentally. As a national, full-service provider of health supplies and services it serves health professionals in educational settings from pre-school to college; collaborating with customers and advocating for the health of those entrusted in their care. School Health’s comprehensive offering includes health supplies, sports medicine equipment, early childhood products, and special needs aids. The company goes beyond merely supplying products by also providing product support, training, advisory services and exceptional customer care.
Palos Sports was founded in 1957. With 60 years of expertise in physical education, Palos Sports provides equipment and curriculum to schools nationwide. The company’s offerings are specifically designed to meet standards set by SHAPE America. The physical education and recreation equipment provider is known for its expert knowledge and individual attention provided to each physical educator, curriculum director, and sports director it serves.
About Jackim Woods & Company
Rich Jackim, Jackim Woods & Company, advises School Health Corporation on its corporate development activities and arranged the transaction. Jackim Woods & Company provides financial advisory services on mergers and acquisitions to clients nationwide.Read More
The 2017 Business Owner Survey conducted by Jackim Woods & Co. provides some interesting insights how owners of privately held companies are thinking about ownership transition. 80% of the respondents to this year’s survey were between 45 and 70 years. The businesses they owned had reported revenues of between $500,000 to $75 million. The survey included responses from companies in the manufacturing, business and consumer services, and distribution sectors.
The survey showed that:
78% of business owners plan to exit their businesses in the next 10 years.
75% would exit today if the net proceeds were enough to ensure a comfortable retirement.
81% of business owners have no “heir apparent” or “internal successor” to take over the business.
How Prepared are Owners for an Exit?
It is interesting to note that despite the vast majority of business owners wanting to exit as soon as possible or within 10 years, very few have taken proactive steps to get prepared. This year’s study found that:
If you are beginning to think about your options, please feel free to contact us to learn more about the M&A process and how you can begin to prepare yourself and your business for a successful exit. In our 20+ years of experience working with business owners, we have learned that the most successful exits take sound planning and solid execution of that plan, so it’s never to early to begin a discussion with us.Read More
The REV Group (NYSE: REVG), a $2+ billion manufacturer of specialty vehicles, recently acquired Midwest Automotive Designs (“Midwest”), a leading converter and upfitter of luxury vans and RVs.
Midwest was formerly owned by private equity group, Pegasus Capital Group (“Pegasus”). In just three years as part of the Pegasus portfolio, Midwest’s revenue more than doubled to $45 million. Founder and President, Tim Gray, remained a major shareholder following the original investment. Gray’s leadership and the capital infusion accelerated the company’s expansion by leveraging Midwest’s superior products, reputation and brand to develop new markets and distribution channels, including those for Class B RVs.Read More
According to the Recreational Vehicle Industry Association, RV wholesale shipments are expected to reach 479,700 units by year-end 2017, an 11.4% increase from the 430,700 units shipped in 2016, and climbing an additional 2.4% to reach 491,200 units in 2018. These projections were presented by industry expert, Dr. Richard Curtin in the RVIA’s Fall issue of RV RoadSigns newsletter. This would make 2018 the ninth consecutive year of expansion for the RV market, eclipsing the previous record of five growth years between 2002-2006.
“The favorable RV outlook is based on continued modest gains in jobs, incomes and household wealth with relatively low levels of inflation, unemployment and interest rates,” said Dr. Curtin, who is the Director of the Surveys of Consumers at the University of Michigan and who has conducted RV industry market research for almost 30 years.
Towable RV shipments are project to rise to 419,500 in 2017 and to 429,300 in 2018. Motorhome shipments will also see gains, growing to 60,200 units in 2017 and 61,900 units in 208.
Dr. Curtin’s 2018 projections are based, in part, on the strong performance of the RV industry through the first half of 2017. RV wholesale shipments reached 256,430 units, up 13.3% over the first six months of 2016. Year-to-date totals for towable RVs are up 13.2% to 223,644 units with motorhome shipments up 14% to 32,786 units.
The continued growth in the RV industry confirm’s Jackim Woods & Co’s predictions that mergers and acquisitions activity in the industry will remain strong throughout 2018.
For more information on RV market data and research, visit the “Market Data and Trends” section of www.rvia.org.
Jackim Woods & Company RV Industry White Papers
For additional information on Recreational Vehicle industry mergers & acquisition or how to value an RV dealer, please download one or more of our recreational vehicle white papers.
- 2017-2018 RV Manufacturing Mergers & Acquisitions Outlook
- 2016-2017 RV Dealer Mergers & Acquisitions Report
- How to Value an RV Dealer