As Investment Bankers, we are often asked, “What kills most deals?” This is an especially critical concern in uncertain economic times like those we are in now. Unequivocally, our answer, regardless of the economic situation, is always the same, “Time is not your friend in deals; it is the ultimate deal killer.”

When we reflect upon our deals that did not get done, or those that died between Letter of Intent and Closing, regardless of the specific reason, time killed all of these deals in some why or another.

Once a seller of a business makes his/her decision to sell the business, time does not move fast enough. Sellers imagine the worst: customers or employees learning of the sale; declining revenues; problems with the business; all these events happening the longer a deal takes to get done. Some of these fears are justified, others are not. Read the rest of this entry »

Popularity: 42% [?]

A lot successful business owners are reeling from the combined effects of the expanding credit crunch and economic slowdown we are currently experiencing.  Many owners who had “been thinking” about selling their companies and creating long-term financial security and more free time for themselves now feel trapped and  unable to pursue their dream.

As a middle market investment banker and exit strategy advisor, I have recently observed an overriding temptation in business owners to simply ride out the current storm and wait for the next wave of M&A activity—the next valuation peak—and then return to their thoughts to selling their business.  The problem is, if they wait until the next wave comes, it will be too late to maximize their opportunity, and they risk missing it altogether (again!).

My advice to middle market business owners is this: don’t just wait for the next wave to arrive. Expect it and Read the rest of this entry »

Popularity: 56% [?]

Recently, Fortune Small Business magazine conducted a survey of owners of privately-held, small & mid-sized businesses in the USA. Two questions were asked:

• How critical to your business’ survival is succession planning?
• Have you done anything about formalizing a succession plan?

The results were extremely interesting. More than 95% of the respondents said a succession plan was critical to the long-term survival of their business, but a staggering 85% had not done anything to formalize their succession plans.

This survey reinforces information we learned first-hand several years ago when Read the rest of this entry »

Popularity: 60% [?]

“I will sell if I receive the right offer, but I don’t want to market the business!”

Despite its obvious flaws, the above statement reflects the position taken by a surprising number of business owners. In fairness, marketing your business is time consuming and may jeopardize a hard-earned market position if “word gets out”, so the position is understandable. It just doesn’t make a lot of sense!

The “strategy” is flawed because it results in a reactive positioning, yielding all control to the buyer. It suffers from two serious deficiencies: Read the rest of this entry »

Popularity: 56% [?]

Many taxpayers have heard about or even utilized the 60-day Individual Retirement Account rollover rule at one time or another.  Did you know there is a 60-day rollover rule in connection with the sale of qualified small business stock (”QSB stock”)?  Essentially, within a 60-day period and if other requirements are met (e.g., the stock was held for at least 6 months), the taxpayer can purchase other QSB stock in order to defer all or part of the gain associated with a QSB stock sale.   

In 1997, as part of the Taxpayer Relief Act of 1997, a new section 1045 was added to the Internal Revenue Code that provides for the rollover of gain from the sale of QSB stock.  In the following year, the IRS Restructuring and Reform Act of 1998 provided some amendments to section 1045 including the expansion of the gain rollover treatment to additional taxpayers, other than corporations.

Read the rest of this entry »

Popularity: 100% [?]

A former partner (and highly successful serial entrepreneur) taught me that the two best ways to prosper in a slack period is to feed your winners and cut your losers. Year-to-date 2008 trends in global mergers and acquisitions (‘M&A’) reflect this; corporate ‘pruning’ is very much in evidence today.

How can this benefit you? Several ways, if you act aggressively:

1. Divestiture of ‘Non-Core’ Assets:
   This is a particularly good time to escape the accumulated time-wasters, by selling them at reasonable prices and terms, either in the US or abroad. This will allow your management team to focus. Cut your losses—stop wasting precious manpower and money.
2. Sale to International Acquirers:
   The weak US dollar means offshore buyers now recognize American M&A is a bargain. You can achieve a full and fair value at favorable terms if your advisor knows how to (i) access strategic buyers, (ii) capture their attention and (iii) hold it long enough to properly showcase your business.
3. Strategic Acquisitions:
   This is a great time to acquire technology, product lines, extend geographic reach, customer lists, etc., on favorable terms if you can fund the deal largely from generally available corporate funds.
4. Create Your Exit Strategy:
   With day-to-day activity softening, this is a perfect time to craft, adopt and begin to implement a carefully coordinated, value maximizing exit plan. A professional M&A advisor would be pleased to discuss this with you, begin to identify an action plan, do a preliminary valuation as your benchmark, and provide additional consultative input, all at no cost to you. The actual exit process could take several years, so it is never too early to start.

Popularity: 66% [?]

“I’d be interested in selling for the right price” seems like a very reasonable position for a business owner to take. How can we reconcile that need with a buyer who says: “I am willing to pay a price which will yield a return on my investment, commensurate with the risk I am taking.”

As a general rule, a buyer of a privately-held middle market company will look for a return of around 30% before tax. It follows, therefore, that privately-owned businesses are returning 30% IRR to the owners who “hold” those investments. At the “market” price, therefore, the seller must liquidate a 30% investment (in his business), pay taxes on any gain, and re-invest the net proceeds at a lower rate of return commensurate with the lessened risk and aggravation.

Let’s look at an example. My company is growing at 10% and currently generates (adjusted) cash flow of $5 million after paying me a market salary as President. Buyers in the market will pay $25 million for my Read the rest of this entry »

Popularity: 53% [?]

Or Is It A “Real” Business?

Many self-employed people consider themselves “business owners”, but are they really? There is an important distinction between owning a business and owning a job. Does it really matter which category your enterprise falls into? Yes, it matters a lot if the owner plans to exit the business at some point in the future by selling it.

Every closely-held business owner grossly underestimates the significance of his or her own, personal value to their business. This includes the value their contacts, their relationships, their reputation, their experience, and their personal efforts. They talk about how “great” their employees are, and say things like, “this business could run on its own without me”. Ninety-nine times out of a hundred, they are wrong! In fact, most of these businesses would be severely impaired, if not destroyed, upon the unplanned exit of the owner. Read the rest of this entry »

Popularity: 36% [?]

Business owners considering a sale of their business often ask us, “When is the best time to sell my company?” It is a fundamental and age-old question.

Sellers always want to “time” the sale of their businesses to maximize their return, either through a higher price, lower taxes, or, hopefully as we have seen in the last eight years, a combination of both.

Since President Bush lowered the Federal tax on long-term capital gains to 15%, there has never been a better time to sell a business, at least in terms of tax implications. Combine low tax rates with a very strong economy, and you know why M&A deals were so predominant from 2004 through the first part of 2007.

Will taxes go up in 2009? Mr. Obama and Mrs. Clinton have both promised, if elected, to raise taxes on long-term capital gains to 28% or 25%, respectively. However, this is a promise, not a guarantee. Read the rest of this entry »

Popularity: 40% [?]

(These aggressive buyers are shopping now)

Strategic Buyers

With financial buyers hobbled by tight credit, access to acquisition targets is easier, making this an ideal time to acquire selected technologies, proprietary relationships, facilities, management talent, geographic coverage, product lines and joint venture partners.

Well-funded Consolidators

For well-funded, financially-motivated buyers who have the strength to over-fund deals with equity today and recapitalize once bank lenders find their checkbooks again, the field is wide open.

International Buyers

The US dollar is trading at a record low relative to most leading currencies, and America remains the largest single marketplace in the world in almost every category of product and service, so the timing is better now Read the rest of this entry »

Popularity: 26% [?]