The M&A Process

The Evolving Impact of COVID-19 on Business Sales and M&A Activity

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 rjackim@jackimwood.com or at (224) 513-5142.

Selecting the Right Valuation Expert for Your Case

Selecting the right valuation or damages expert can make or break your case. Knowing how to pick the right expert is key to obtaining a successful outcome.

Choosing the right expert for a litigation matter goes beyond just checking that the person has the right credentials to act as an expert on financial damages. It is equally important that the expert can connect with the judge or jury, and educate them about how the available data and other information supports your client’s position.

Know What Skills Your Expert Witness Must Have

Expert witnesses are often referred from one attorney to another, however, when you need an expert with a very specific skill set, like expertise in business valuation and mergers and acquisitions issues related to buying and selling private companies, clients and law firms do research to identify potential experts.

When picking an expert witness it is critical that you and your attorney know exactly what skills you want your expert witness to have.  Richard Jackim, the Managing Partner at Jackim Woods & co, is a former mergers & acquisitions attorney and an experienced investment banker who has been involved in over 75 mergers and acquisitions in over 20 different industries, has performed over 290 business valuations, and has represented both buyers and sellers.  Jackim earned his law degree with honors from Cornell University Law School and his Master of Business Administration with honors from the Kellogg Graduate School of Management at Northwestern University.  Rich also developed and taught the Certified Exit Planning Advisor program offered through the Booth School of Business at the University of Chicago.  A copy of his expert witness curriculum vitae is available here.

Communication Skills Are Key

In addition to the right credentials, an effective expert witness must be able to communicate in a clear, concise, and articulate manner.  He must come across as knowledgeable, accessible and self-assured, but not condescending. The ability to build rapport with the judge and jury is essential; and when both sides present a strong, technically sound case, a jury often favors the side whose expert was able to communicate the issues more clearly or convincingly. To that end, we offer clients and their attorney’s a free, one-hour initial assessment of their claims so they can determine if our approach and communication style meets their needs.

Richard Jackim is a personable and knowledgeable expert and has a unique ability to present complicated issues in a clear and concise manner that connects with judges and juries.

Credibility Is A Must

An expert must also be polished and unflappable in the face of tough, sometimes seemingly stupid questions from opposing counsel. An expert witness must be able to answer questions about his background and experience to withstand a Daubert challenge. It’s critical for the attorney to have an upfront conversation with the expert to ensure they are of good character; have worked for both plaintiff and defendant; learned of any positions they may have taken that are adverse to the position taken in this case, whether through testimony or through publications of an article; and whether they have been Dauberted.

Richard Jackim’s top-tier academic credentials, plus his 30 years of business experience including practicing mergers & acquisitions law, and leadership positions at several leading investment banking firms, provides him with unique qualifications as an expert witness.  His opinions are based on market realities and actual transactions, not just financial theories.  As a result, he can speak to industry best practices and what is “market”.

An Expert’s Experience Wins Cases

It’s also important that you select an expert witness who has experience testifying in a courtroom or providing deposition testimony.  This experience enables them to have a clear understanding of the moving parts of a case, gives them an advantage by being able to understand how litigation and depositions work, allows them to anticipate the kinds of questions opposing counsel might ask, and helps you and your attorney understand the key weaknesses in the opposing expert’s presentation.

Jackim has consulted on over thirty-two different litigation matters, testified in six depositions, and provided expert witness testimony in two trials.  His experience as an industry expert and as an expert witness helped the parties settle thirty matters without going to trial. On the two matters that did go to trial, Jackim’s clients won both matters on the merits, with the judge stating in one case that Jackim’s testimony was clear and convincing and could not be refuted by the opposing expert witness.

Areas of Expertise

• Business Valuations
• Financial Damages (lost revenues & profits)
• Purchase Price Allocation
• Valuation of Personal Goodwill
• Earnout Disputes
• Lender or Creditor Disputes
• Shareholder Disputes
• Divorce
• Buyer & Seller Disputes
• Phantom equity and other employee incentive plans
• ESOP disputes
• Business broker & investment banker fee disputes

Engage An Expert Witness as Early as Possible

For these reasons, we encourage clients and their attorneys to contact us as early as possible. Early collaboration provides us with an opportunity to help you and your attorney to discuss strategy. Ideally, we would be engaged early enough to assist in formulating requests for discovery. As a well-versed damages expert, Jackim knows what information is needed to ensure a thorough and supportable analysis. In addition, engaging us early in the process allows time to think through the issues and help you and your attorney develop the most cost-effective strategy to present your case.

In the event we find we cannot support your position based on the information provided, knowing this early on can give you time to either revise your strategy or find a different expert. Remember, unlike attorneys who are advocates for their clients, your expert witness should be a neutral, third party whose opinion is objective and unbiased.  Jackim has built an impeccable reputation by providing clients with honest, objective, advice based on the available facts and his years of industry experience.

As an experienced damages expert, Jackim is familiar with recent case law in the subject area, as well as the best business practices in mergers and acquisitions and business brokerage firms. He knows his role and can be the deciding factor in your case if you choose to use his knowledge, experience, and credentials.  For a free initial consultation, please contact Richard Jackim at rjackim@jackimwoods.com or at 224-513-5142.

Survey Shows 8 Ways Investment Bankers Create Value for Sellers

Some business owners may balk at the idea of of paying an investment banker to help them sell their companies. But a recent survey of owners who have been through the process shows that sellers believe that their investment bankers added tremendous value in the process.

Jackim Woods & Co surveyed 25 business owners who sold their businesses with the help of an investment banker for between $2 million and $50 million between 2008 and 2016. One-hundred percent of those surveyed said they did not regret hiring an investment banker and over 70% said they added “significant” value in the process.

The 8 Functions of an Investment Banker

The survey also explored what aspects of the investment banker’s role were most helpful from the seller’s point of view by asking to rank the following eight functions from most to least important.

1. Managing the M&A Process

Investment bankers are usually the quarterbacks for the sales process. They are the ones who are responsible for creating a competitive transaction process, coordinating all of the different aspects of the transaction, working with the seller’s other advisors, and keeping the transaction moving toward a closing.

2. Coaching and Educating the Owner

The vast majority of business owners have never sold a company before. Experienced investment bankers, on the other hand, have managed hundreds of transactions and can share that that experience with their clients. This is particularly important when it comes to determining the value of the client’s company, and what is market based with respect to seller financing, reps & warranties and due diligence.

3. Identifying and Contacting Buyers

Investment bankers supplement the business owners’ knowledge of their markets and potential buyers by tapping into their professional contacts and networks, buyer databases, and expertise to identify and connect with interested buyers.

4. Negotiating the Deal

Investment bankers typically advise the seller on negotiating positions and take the lead in negotiating the purchase price and terms and other major considerations in the transaction.

5. Enhancing the Seller’s Credibility

Engaging an experienced investment banker demonstrates to buyers that the seller is committed to closing a transaction and that since there is professional representation, there is a greater likelihood of a successful closing.

6. Preparing and Positioning the Company for Sale

Sellers are rarely prepared for the huge amount of information buyers will ask for when considering an acquisition. Experienced investment bankers can help business owners get prepared by helping to create detailed financial models and projections, offering materials, data rooms, and management presentations to make the information sharing as seamless and easy as possible, while maintaining confidentiality at the same time.

7. Structuring the Transaction

Transactions can involve various forms of consideration, such as cash, equity, seller notes, earnouts, and other forms of contingent consideration. Investment bankers can structure each transaction specifically to address the needs and desires of both sellers and buyers, thus providing creative solutions for potentially conflicting transaction objectives.

8. Enabling Owners to Focus on Running their Business

The M&A process typically last for 6-9 months and can be very distracting if a business owner is trying to run his or her company and sell it at the same time. By taking over the sales process, investment banks enable business owners to focus on operating the business rather than managing the transaction process.  This is essential because a dip in earnings or margins during the sales process could cost the seller hundreds of thousands of dollars in purchase price when the deal closes.

As one former Jackim Woods & Co. client noted, “Unless you have substantial M&A experience, a broad network of buyers, and a lot of free time, you should work with with a good investment banker. You may be able to get the deal done on your own, but you will probably invest a lot of time in the process, leave a lot of money on the table and end up with a higher-risk transaction in terms of seller financing, reps & warranties, and indemnifications.”

If you are thinking of selling your business or would like to explore your options, please give Rich Jackim a call at 224-513-5142.