Selling a business isn’t always about the price. It is not like selling a house where the most important factor is finding a buyer who is willing to make the highest offer. In fact, in my 25- years of being a business broker, I’d say that in roughly 20% of the deals, the purchase price was not the most important part of the deal. In the end, sellers are focused on achieving a combination of things, and maximizing the purchase price is only one of them.
Let’s examine some of the other most common goals and objectives sellers have.
- Maintaining the seller’s legacy. For one client, this means getting the buyer to agree to keep the company’s name (which was also the seller’s name) the same after the acquisition and not roll the company into the buyer’s parent company.
- Protecting Employees. For another client, they were the biggest employer in their small town, and the seller wanted to be sure that the buyer would not close down the plant, fire all the employees, and consolidate operations into their plant about 100 miles away.
- Participating in the Upside. Many clients want to remain involved in some fashion (usually in a passive or silent role) with their business after the sale. This often means accepting a lower price at closing but sharing in the company’s future growth going forward. This can be structured in several different ways, including a minority equity interest, a royalty on sales, or an earnout.
- Timing. Several of my former clients had very specific timing goals. In one case, it was due to the owner’s declining health; in another case, the owner’s son and key employee became disabled. In both cases, the owners wanted to sell as quickly as possible before the business suffered, and its value was diminished.
The best way to ensure that you achieve your goals when selling your business is to develop a comprehensive exit strategy before you start the sales process. This assures that everyone on your team is on the same page and is rowing in the same direction.
Rich Jackim, the Managing Partner at Jackim Woods & Co, is the author of the best-selling book, “The $10 Trillion Opportunity: Designing Successful Exit Strategies for Middle Market Business Owners”. He has advised over 200 clients to create their exit plans and helped over 100 clients sell their businesses for a combined value of over $500 million. The book’s success led Rich to create the Exit Planning Institute and created the Certified Exit Planning Advisor (CEPA) program. He has trained over 300 lawyers, accountants, financial advisors, consultants, and business brokers to develop exit plans for their clients.
If you are thinking of selling your business in 2021 or beyond, contact Rich Jackim at 224-513-5142 or firstname.lastname@example.org for a FREE, confidential, no-obligation discussion about your options.Read More
M&A deal activity has recovered from its 9-month pandemic-related dip. Based on the overall strength of the stock market, we expect continued strong mergers and acquisitions activity for 2021 as well.
The total dollar value of mergers and acquisitions announced in the U.S. fell to roughly $20 billion in March as the pandemic set in, according to data from Barrons. That was a sharp drop-off—from about $180 billion in January. Yet the recovery has been equally sharp. Deal volumes reached approximately $205 billion in October according to Barron’s data.
Looking forward, Rich Jackim, managing partner at Jackim Woods & Company said, “low-interest rates, optimism about a COVID vaccine, record-breaking fundraising by Special Purpose Acquisition Companies (SPACs), and even a less contentious global trade policy will all contribute to continued strong M&A activity in 2021.”
Interest rates are currently at historic lows, reducing the cost of funding acquisitions. In addition, the good news about several COVID vaccines provides a light at the end of the tunnel and the assurance that buyers need to make a purchase.
And SPACS—special purpose acquisition corporations that raise money through an initial public offering in order to buy other companies—have raised more than $64 billion this year. SPACs raised just $13 billion in all of 2019, suggesting that SPACs will be the new driver of middle-market M&A activity in 2021.
“The M&A wave is regaining momentum and should continue for the next 12-18 months,” Jackim says. He believes the following industries will see an uptick in M&A activity in 2021.
2021 will be a year of recovery as retail and restaurant workers displaced by COVID-related closures seek other careers and gainful employment. As a result, Jackim believes the vocational/technical training and education sector will of interest to buyers and investors. The US has been suffering from a shortage of skilled workers for over a decade, so there are plenty of high paying jobs available for people with the right skills. Enrollment in vocational programs tends to rise as unemployment rises, so we expect 2021 to build on the strong results that the technical education industry saw in 2020, and to attract renewed interest from both financial and strategic buyers and investors.
The energy industry is another industry where we expect to see a lot of M&A activity in 2021. The price of crude oil has dropped to just above $40 a barrel since early summer, nowhere near the $63 a barrel price at the beginning of the year. At the same time, the rise of clean energy and potential regulation are threatening companies that focus on traditional fossil fuels. As the fossil fuel industry shifts toward a lower-growth model, exploration and production companies will be looking to generate returns through acquisitions that would yield economies of scale and other benefits, or diversify their product or service offerings away from fossil fuels.
Sellers generally desire all-cash transactions; however, oftentimes partial seller financing is necessary in typical middle market company transactions. Furthermore, sellers who demand all-cash deals typically receive a lower purchase price than they would have if the deal were structured differently.
Although buyers may be able to pay all-cash at closing, they often want to structure a deal where the seller has left some portion of the price on the table, either in the form of a note or an earnout. Deferring some of the owner’s remuneration from the transaction will provide leverage in the event that the owner has misrepresented the business. An earnout is a mechanism to provide payment based on future performance. Acquirers like to suggest that, if the business is as it is represented, there should be no problem with this type of payout. The owner’s retort is that he or she knows the business is sound under his or her management but does not know whether the buyer will be as successful in operating the business.
Moreover, the owner has taken the business risk while owning the business; why would he or she continue to be at risk with someone else at the helm? Nevertheless, there are circumstances in which an earnout can be quite useful in recognizing full value and consummating a transaction. For example, suppose that a company had spent three years and vast sums developing a new product and had just launched the product at the time of a sale. A certain value could be arrived at for the current business, and an earnout could be structured to compensate the owner for the effort and expense of developing the new product if and when the sales of the new product materialize. Under this scenario, everyone wins.
The terms of the deal are extremely important to both parties involved in the transaction. Many times the buyers and sellers, and their advisors, are in agreement with all the terms of the transaction, except for the price. Although the variance on price may seem to be a “deal killer,” the price gap can often be resolved so that both parties can move forward to complete the transaction.
Listed below are some suggestions on how to bridge the price gap:
- If the real estate was originally included in the deal, the seller may choose to rent the premise to the acquirer rather than sell it outright. This will decrease the price of the transaction by the value of the real estate. The buyer might also choose to pay higher rent in order to decrease the “goodwill” portion of the sale. The seller may choose to retain the title to certain machinery and equipment and lease it back to the buyer.
- The purchaser can acquire less than 100% of the company initially and have the option to buy the remaining interest in the future. For example, a buyer could purchase 70% of the seller’s stock with an option to acquire an additional 10% a year for three years based on a predetermined formula. The seller will enjoy 30% of the profits plus a multiple of the earnings at the end of the period. The buyer will be able to complete the transaction in a two-step process, making the purchase easier to accomplish. The seller may also have a “put” which will force the buyer to purchase the remaining 30% at some future date.
- A subsidiary can be created for the fastest growing portion of the business being acquired. The buyer and seller can then share 50/50 in the part of the business that was “spun-off” until the original transaction is paid off.
- A royalty can be structured based on revenue, gross margins, EBIT, or EBITDA. This is usually easier to structure than an earnout.
- Certain assets, such as automobiles or non-business-related real estate, can be carved out of the sale to reduce the actual purchase price.
Although the above suggestions will not solve all of the pricing gap problems, they may lead the participants in the necessary direction to resolve them. The ability to structure successful transactions that satisfy both buyer and seller requires an immense amount of time, skill, experience, and most of all – imagination.
The post Negotiating the Price Gap Between Buyers and Sellers appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
The rapidly evolving impact of the COVID-19 virus is being felt everywhere—in the healthcare system, employment, politics, and the economy. This is certainly a time of uncertainty in our lives and businesses. The closest thing I can compare it to is the tremendous uncertainty everyone felt in October 2008 as the financial crisis was unfolding.
Then, like now, business owners are seeing the values of their business plummet. Smaller businesses are naturally more vulnerable in an economic downturn, but everyone is affected in one way or another. Strategic and financial buyers, sellers, business owners, and M&A advisors are all paying attention right now and trying to understand how this will impact them, and how they can mitigate the negative consequences.
Reflecting on the financial crisis of 2008-2009, however, helped me identify a few things that are likely as we deal with the impact of COVID-19 on the M&A market and business sales.
Like in 2008 and 2009, M&A activity will most likely contract significantly in the near future as the volatility in the stock market will likely put the M&A market on hold. For deals in the early stages, there will be a lot of anxiety on the part of sellers and a lot of caution on the part of buyers. As a result, we expect that many buyers and sellers will press the pause button to wait and see how the situation unfolds over the next few months.
But there are a lot of indicators that when the COVID-19 scare is behind us, the M&A market will rebound with gusto. Right now, strategic buyers and private equity groups are flush with capital. Not only are PE firms ‘open for business’ but many of them are accelerating efforts to close in-process deals, and even to scale future investing activities.
“I’m bullish on the outlook for M&A activity in the medium and long term once the financial markets adjust to the ‘new normal’. There is an unprecedented amount of capital that needs to be deployed, interest rates are at record lows, and the federal government’s stimulus package should make borrowing even easier. At the same time, the record high valuations that we’ve seen over the last year or two are likely to decrease, which will make financing acquisitions less risky and fuel a strong increase in M&A activity.”
Richard Jackim, Managing Partner, Jackim Woods & Co.
If you are a business owner thinking about selling, what does all this mean to you? First and foremost, it’s important to remember that while the next few months may be painful, the fundamental value of your business is likely still intact. There is no doubt that if you were waiting for the market to peak before you sell you missed the window. But that doesn’t mean your business is unsaleable or that it has no value. The value is still there because buyers buy companies for the future cash flow that business will generate. That means buyers take a long-term perspective. If your business is fundamentally sound, it is very likely that its value will rebound once the economy returns to the new normal.
Many of the business owners I’ve spoken to in the last few weeks believe that the current market conditions will scare away buyers. It is true that undercapitalized buyers will sit on the sidelines and wait for the dust to settle, but stronger financial and strategic buyers will recognize the short-term nature of the crisis and see this as a good opportunity to buy a good business at a lower multiple of EBITDA than last year.
If you’re thinking of selling your business it’s important to work with someone who understands the dynamics and changing motivations of sellers and buyers to advise you during these uncertain times. Below are our recommendations for business owners to take over the next 2-3 months if you are thinking about selling in the next few years.
- Focus on Exit Planning (talk with us about our formal process that can use this time to help you and your business get prepared for sale)
- Get an evaluation of your business (so you understand how much your business is worth)
- Understand what you can do to improve the value of your business and make it more attractive to potential buyers
- Talk to your financial advisor to understand how much you need to retire
- Work with an M&A advisor or business broker to begin putting together a data room and formal marketing materials so you can hit the ground running when the market recovers.
Our team is comprised of experienced investment bankers and M&A professionals who literally wrote the book on exit planning. We helped over three dozen companies between 2008 and 2010 help get ready for sale and then sold them for top dollar when the market recovered. We will provide you with a value-focused, hands-on approach to help you and your business develop a strategic exit plan that allows you to exit your business on your terms and for its highest possible value.
If you are interested in selling in the next three years and would like to talk to a licensed business broker and M&A professional about how this crisis affects your options, please feel free to contact Rich Jackim for a FREE, confidential conversation at email@example.com or at (224) 513-5142.Read More
Thinking about whether or not you are ready to exit is an important question. It’s something that every business owner will have to address at some point. Importantly, you don’t want to wait until the 11th hour to prepare to sell your business. There are far too many pieces in this particular puzzle to wait until the last minute. You’ll want to begin the process sooner by asking yourself some key questions.
First, you’ll need to determine the actual value of your business. It is a harsh truth, but what you think your business is worth and what the market feels that it is worth may be two very different things.
This point serves to underscore the importance of working with a business broker or M&A advisor early in the process. An experienced broker knows how to go about determining a price that will generate interest and seem fair. Remember that at the end of the day, it will be the marketplace that determines the value of your business, but working with a seasoned professional is an excellent way to match your offering price with what the market will ultimately bear.
Secondly, you’ll want to consider whether or not you truly want to sell. It is not uncommon for business owners to begin the process of selling their business only to realize a few hard facts. Wanting to sell and the time being right to sell are often two different things.
Upon placing your business on the market for sale, you may learn that you’re not emotionally or financially ready. If this happens to you, consider it a learning experience that will serve you well down the line.
Get Your Ducks in a Row
If you have done a financial assessment, a little soul searching and have begun working with a business broker or M&A advisor to determine that now is a good time to sell your business, then there are several steps you’ll need to take. You can be sure that any serious prospective buyer will want a good deal of information regarding your company.
At the top of the list of items potential buyers will want to see are three years of profit and loss statements as well as federal income tax returns for the business. Other important documents ranging from lease and lease related documents, lists of loans against the business and a copy of a franchise agreement, when applicable, are all additional documents that you will need to provide. You should also have a list of fixtures and equipment, copies of equipment leases, lists of fixtures and equipment, and an approximate amount of inventory on hand. A failure to not have this information organized and ready to present at a moment’s notice could be a costly mistake.
Working with professionals, such as accountants, lawyers, and brokers, is a savvy move. Owning and operating a business can be a complex process, and the same holds true for selling a business. Investing the time to seek out experienced and professional advice is the first step in selling your business.
Business acquisitions are red hot, and all kinds of businesses are being snapped up. Some people are under the impression that only large businesses are being acquired, but this is far from the reality of the situation. It would surprise many to learn that so much of the “action” is, in fact, small businesses buying other small businesses.
In his Forbes article, “Take Advantage of the Golden Age of Business Acquisitions,” author Christopher Hurn explores the true state of the “acquisitions game.” His conclusions are quite interesting. In Hurn’s opinion, there has never been a more active time in the realm of business acquisitions.
If you own a business and are looking to grow, then you may want to consider acquiring a competitor in order to consolidate the market. As Hurn points out, there are many reasons that you might want to consider acquiring a business in addition to consolidating the market. These reasons include acquiring a new product or service, acquiring a competitor that has superior technology or even identifying a business that you believe is primed for substantial growth.
Yet, there are other forces at work that are combining to make this moment the “golden age of acquisitions.” At the top of the list of why now is a good time to investigate acquiring a business is demographics. According to a 2019 study by Guidant Financial and Lending Club, a whopping 57% of small business owners are over the age of 50. The California Association of Business Brokers has concluded that over the next 20 years about $10 trillion worth of assets will change hands. A mind-blowing 12 million businesses could come under new ownership in just the next two decades! As Hurn phrased it, “The stars are aligning for the Golden Age of business acquisitions.”
This all points to the fact that now is the time to begin understanding what kind of acquisition would best help your business grow. Hurn believes that turning to the Small Business Administration in this climate of rapid acquisition is a savvy move.
In particular, he points to the 7(a) program and a host of reasons that the SBA can benefit small businesses. Since the SBA lowered equity injection requirements, it is now possible to finance a staggering 90% of business acquisition deals with loan terms up to 25 years and lower monthly payments. Additionally, the SBA 7(a) program can be used for a variety of purposes ranging from expanding or purchasing an existing business to refinancing existing business debt.
Hurn truly does have an important insight. Baby Boomers will retire by the millions, and most of them will be looking to sell their businesses. With 12 million businesses scheduled to change hands in just the next 20 years, now is a highly unique time not only in the history of acquisitions but also in the history of business.
Business brokers understand what is involved in working with the SBA and acquisitions. A seasoned business broker can point you towards opportunities that you may have never realized existed.
Determining when it’s finally the right time to sell can be a tricky proposition. If you are thinking about selling your business, one of the best steps you can take is to contact a business broker. A good business broker will have years, or even decades, of proven experience under his or her belt. He or she will be able to guide you through the process of determining what you need to do in order to get your business ready to sell.
One major reason you should contact a business broker long before you think you might want to sell is that you never know when the right time to sell may arise. Market forces may change, unexpected events like a large competitor entering your area, or a range of other factors could all lead you to the conclusion that now, and not later, is the time to sell.
In a recent The Tokenist article, “When is the Best Time to Sell a Business?”, author Tim Fries covers a variety of factors in determining when is the best time to sell. At the top of Fries’ list is growth. If your company can demonstrate a consistent history of growth, that is a good thing. Or as Fries phrases it, “What never varies, however, is the fact that growth is a key component, buyers will look for.” Growth will be the shield by which you justify your price when you place your business on the market.
If your business is experiencing significant growth then you have a very strong indicator that now could be the time to sell. Fries points to a quote from Cerius Executives’, CEO, Pamela Wasley who states, “When your business has grown substantially, it might be time to consider selling it. Running a business is risky, and the bigger you get, the bigger the risks you have to face.” Again, growth is at the heart of determining whether or not you should sell.
Knowing the “lay of the land” is certainly a smart move. For example, have there been a variety of businesses similar to your own that have sold or were acquired recently? If the answer is “yes,” then that is another good indicator that there is substantial interest in your type of business.
Reviewing similar businesses to your own that have sold recently can help you determine how much buyers are paying for comparable businesses. This can help you spot potential trends. In short, you should be aware of market factors. As Fries points out, everything from relatively low taxes and low interest rates to strength in the overall economy and an upward trend of sales prices can impact the optimal times for a sale.
Now, as in this exact moment, might not be the right time for you to sell. Getting your business ready to sell takes time and preparation. Fries points out that smart sellers “look for a good time, not the perfect time” to sell a business. Working with a business broker is a great way to determine if now is the right time to sell your business and what steps you have to take in order to be prepared for when the time is right.
When the complicating variable of family is added to the equation of selling a business, the situation can get rather messy. Family usually complicates everything and businesses are, of course, no exception. Ken McCracken’s recent article “Family business: to sell or not to sell?” 6 questions to help you make the right decision,” seeks to decode the complexities so often associated with family businesses.
Consider the Market
The foundation of determining whether or not now is the right time to sell must begin with market forces. Determining how much your business is worth is a key variable in any decision to sell.
The best way to determine the worth of your business is to have an outside party, such as a business broker, evaluate your business. What you believe your business to be worth and what the market dictates could be very different. You may discover that your business does not have the value that you hoped for. If this is the situation, then selling simply may not be an option.
What is Next for You?
Tied to knowing your market value is understanding what you will do next after you sell your business. For example, do you have a family member who can run the business without you? What will you and any family members who work for the business do after the sale goes through? You may discover that the sale could be very disruptive for you personally. All too often, people fail to recognize the emotional and mental stress that comes along with selling a business. Many owners begin the selling process only to discover that they are not emotionally ready to do so. While everyone wants to be unemotional in making their business decisions, this is not always the case.
You will also need to deal with the issue of due diligence. Working with a business broker is an excellent way to handle the due diligence process. Business brokers usually vet prospective buyers ahead of time, which can save you a great deal of aggravation and wasted time.
McCracken believes business owners should investigate how the prospective buyer handled previous acquisitions. Specifically, McCracken believes that business owners should look to how well the prospective buyer honored previous commitments, as doing so is an indicator of how trustworthy a buyer may be.
Planning for Negotiations
Finally, McCraken believes it is essential to know who will oversee negotiations. It is key to note that many deals that could have otherwise been successful, fall apart due to poor negotiations. A business broker can be invaluable in negotiations. After all, who wouldn’t want someone with dozens, or even hundreds, of successful transactions advising them?
Selling a family business can be emotionally charged and can cause significant life changes for not just you, but for members of your family as well. Often, family businesses were built up over a lifetime or even over generations, which can make the decision to sell quite emotionally charged.
If you are like many business owners, you are primarily focusing on building your business. Yet, as we’ve covered here many times before, you should start thinking about what you’ll need to do to sell your business before you even officially launch. Many businesses can take years to sell or even fail to sell all together. For this and many other reasons, it is important to invest some time and energy into thinking about proper exit planning and strategies.
Walker Deibel’s recent Forbes article, “How Proper Exit Planning Benefits the Buyer and Seller,” Deibel discusses his interview with Exit Planning: The Definitive Guide, author John H. Brown. Brown and Deibel both agreed that, when properly handled, exit planning can help both the seller and the buyer.
Exit planning can make a business more transferable. As Deibel points out, when buyers are evaluating businesses, transferability is a key factor. A buyer must feel that he or she can walk into a business, take it over, keep it running effectively and even grow the business in the future.
A key aspect of being able to buy a business and having that business be successful is that all relationships from vendors to customers are transferable. A good management team, one that can step in and help a new owner thrive, is a must. Building that team in advance is a savvy move for any business owner looking to sell his or her business. Concerns on any of these fronts can spell doom for a seller. If a buyer doesn’t feel that they can operate a business, then they probably shouldn’t be buying it.
Great exit planning most definitely benefits the seller as well. As Deibel notes, when sellers engage in exit planning, they realize how much money they need in order to exit. In turn, this forces sellers to become very focused and goal-oriented. Sellers will take proactive steps to ensure that their business is as appealing to a potential buyer as possible.
Ultimately, proper exit planning is a win-win, one that benefits both buyer and seller. Exit planning can provide sellers with much-needed clarity while simultaneously lowering the overall risk that sellers face.
Buying or selling a business is a multifaceted, and often quite complex, process. The sooner you begin working with a professional, like a business broker, the better off you’ll be in finding the right business for you and your particular needs. For most people, buying or selling a business is the financial decision of a lifetime. Having a proven trusted partner, one that knows the lay of the land, is simply invaluable.
The Best Ways to Create an Attention-Grabbing Ad to Sell Your Business While Protecting Your Privacy
A big part of selling your business is getting the word out. The more people who know your business is for sale, the more interest you’ll receive. However, the trick is to write a great attention-grabbing ad that helps you attract buyers while protecting your privacy at the same time.
Spreading the Word
At Jackim Woods & Co, we understand the importance of creating a quality and compelling advertisement. We also understand that you need to use all the technology available today to get the word out so people view the add. As a result, we use business brokerage websites like BizBuySell, BizQuest, MergerNetwork, Axial Network, DealSteam, and about a dozen others to get the word out to potential buyers. We also send emails to the buyers in our proprietary database and to the attorneys, CPAs, financial advisors, and consultants who are part of our network.
Top Tips to Generate More Interest
Over the last 25 years, we’ve discovered that there are five key things in a listing that help attract more prospective buyers.
1. Details Sell
First, the listing should be as descriptive as possible, without revealing any information that would enable a buyer to identify your business. The sales listing should provide an excellent description of your business and its unique features, including a summary of its financial performance, the opportunities for growth, and your reason for selling. As Richard Jackim, Managing Partner at Jackim Woods & Co points out, you want to “engage the buyer early.” That means, now is not the time to be vague or secretive. You want potential buyers to have a very clear idea of what kind of business you have so they can determine if it’s the right fit for them.
2. Headlines Count
Second, every listing needs a great headline. Buyers skim the Internet looking for something that catches their eye. As a result, a good listing ad should have an engaging and descriptive headline. You want to capture a buyer’s attention. We start by determining what your business’s best features are and then emphasizing one or two of those features in the headline.
3. Incorporate High-Quality Images
Third, everyone knows a picture is worth a thousand words and this is especially true on the Internet. Interesting and compelling pictures do a much better job capturing attention than a great headline. If you don’t have high-quality professional photos of your business or its products, we have access to a wide range of high-quality stock photos that we can use to create a professional image for your business.
4. Include Your Financials
Fourth, your listing post should include a summary of key financial information. The first question any serious buyer will have is what your financial results have been. Providing as much information as possible upfront about your business’s revenue, expenses, and cash flow is a good idea since most potential buyers screen their business searches based on key financial metrics.
5. Proof-read, Proof-read, Proof-read
Finally, it is essential that you proofread anything you put on the Internet very carefully. At Jackim Woods & Co, we understand that we only get one chance to make a good first impression, so we proof-read and double proof-read every posting that we put online. We realize that clients are trusting us to present them to the world of prospective buyers and we realize that buyers are discerning and detailed focused, so a listing with simple grammar or spelling mistakes will turn potential buyers off and creates the wrong impression from the start.
Creating a great listing posting is both an art and a science. The best way to ensure that you have a great listing posting is to work with an experienced business broker who understands what issues to emphasize about your business to attract the largest number of potential buyers. At Jackim Woods & Co we know what buyers are looking for, and as experienced marketing professionals, we can help you present your business to buyers in the best light possible.Read More