Archives for March 2015

The Devil May Be in the Details

When the sale of a business falls apart, everyone involved in the transaction is disappointed – usually. Sometimes the reasons are insurmountable, and other times they are minuscule – even personal. Some intermediaries report a closure rate of 80 percent; others say it is even lower. Still other intermediaries claim to close 80 percent or higher. When asked how, this last group responded that they require a three-year exclusive engagement period to sell the company. The theory is that the longer an intermediary has to work on selling the company, the better the chance they will sell it. No one can argue with this theory. However, most sellers would find this unacceptable. In many cases, prior to placing anything in a written document, the parties have to agree on price and some basic terms. However, once these important issues are agreed upon, the devil may be in the details. For example, the Reps and Warranties may kill the deal. Other areas such as employment contracts, non-compete … [Read more...]

Who will you Trust to Help you Buy or Sell your Business?

If you have done any research on buying or selling or a business, you already know that it’s not quite like buying or selling a house.  The process is far more confidential and complex, and it requires the expertise of someone who specializes in this field. While there are many who claim to be “experts,” the truth is, very few individuals have actually made it their life’s work.  They may have dabbled in business sales as part of a commercial investment or general real estate career. …. May have even handled a business sale on occasion here and there.  But it’s not what they do, everyday, year in and year out.  It’s not how they put food on their table, or what they count on for repeat business.  In short, it’s a sideline. Trust me, you do not want to be someone’s sideline!  Their lack of experience can cost you time, money, and often kill negotiations that otherwise would have succeeded with an experienced Broker.  That’s bad news whether you’re a buyer or a … [Read more...]

Two Similar Companies ~ Big Difference in Value

Consider two different companies in virtually the same industry. Both companies have an EBITDA of $6 million – but, they have very different valuations. One is valued at five times EBITDA, pricing it at $30 million. The other is valued at seven times EBITDA, making it $42 million. What's the difference? One can look at the usual checklist for the answer, such as: The Market Management/Employees Uniqueness/Proprietary Systems/Controls Revenue Size Profitability Regional/Global Distribution Capital Equipment Requirements Intangibles (brand/patents/etc.) Growth Rate There is the key, at the very end of the checklist – the growth rate. This value driver is a major consideration when buyers are considering value. For example, the seven times EBITDA company has a growth rate of 50 percent, while the five times EBITDA company has a growth rate of only 12 percent. In order to arrive at the real growth story, some important questions need to be answered. For example: Are the company's … [Read more...]