Trends and Topics Business

The state of the M&A and Business Brokerage business is very positive.  Several reports show the activity to be significantly higher over last year with the future looking very positive.  A recent report said Small Business Sales were up 6% over last year which was a record breaking year.  Speaking of records, this same report said the Median Cash Flow of all recent business sales hit an all time high.  With revenues and profitability up, the sales price multiples are rising also.  These increases lead one to believe the market is currently balanced, where both buyers and sellers are receiving value from the transactions.  One might conclude that the current market may be characterized as neither a seller’s or a buyer’s market but things might change in the future.  Why?

It is a well publicized fact that about 10,000 baby boomers reached age 65 every day and for the next 15 years.  Did you know that approximately 70% of all businesses are owned by people over the age of 53.  The owners of these business will probably will need to liquidate their ownership to try to fund their retirement or capture the wealth they have established over the life of the business.  If all of these business owners over age 53 want to sell their business, the amount of capital required to purchase them would be in the neighbor hood of $10 Trillion dollars.  Where is this capital going to come from?  These is quite a bit of “dry powder” with the PEG’s and of course there are investors and entrepreneurs looking for businesses but the amount will be far less than what is needed.  Less than enough money chasing too many business for sale will drive down the values significantly.

Of course this is not the scenario right now but in the coming 3-5 years, the market will be turning from the current sellers market to a neutral market to a buyers market with the influx of Baby Boomer owners wanting to exit their business.  Can an owner really wait to sell their business?  If they do not sell now, they might have to wait until the next seller’s market which might be 8-10 year from now.   But why wait?

What Businesses are generating the most interest?

Based upon information put out by a leading Business for Sale website, here are the businesses which are generating the most interest in the market.  If you were interested in buying a business in Orange County, you might be interested to see what other buyers have looked at.  To see more businesses for sale in Orange County, visit our website at www.empireoc.com

TOP CATEGORIES BY HITS

Top Ten Businesses for June 2014:

  1. E-Commerce
  2. Convenience Stores
  3. Restaurants
  4. Fast Food – Non Franchises
  5. Home & Garden
  6. Bars
  7. Gas/Petrol Service Stations
  8. Pizza Restaurants
  9. Websites
  10. Pizza Delivery

Top Ten M&A Businesses for June 2014:

  1. Manufacturing Businesses
  2. Distribution Businesses
  3. Car Wash & Valet
  4. Gas/Petrol Service Stations
  5. Mining Businesses
  6. Wholesale Businesses
  7. Road Haulage & Freight Services
  8. Fabrication Businesses
  9. Food & Drink Wholesalers
  10. Main Contractors

 

 

Business For Sale in Orange County Increased in 2013

As a leading Broker and M&A Specialist in Orange County, it is important for our clients to have a clear picture of the current market conditions.   Several reports coming out in January indicate the number of transactions in 2013 grew significantly in Orange County led by exceptional growth in the restaurant and retail sectors.  The good growth increase in businesses for sale and closed transactions can be attributed to several factors, including the improved economy, excellent supply and demand fundamentals and continued improvement in the financials of the businesses for sale.

Business Sales Activities

Recent reports from the leading business-for-sale websites indicate significant increases in sales transactions.  These seem to be primarily in Main Street businesses as other reports from M&A portals are telling us the deals are very slow.  Two very different scenarios seem to indicate the lower market is moving but Private Equity is stalled.  My personal experience in closing deals validates the activity at the Main Street level.  Also another indication of this activity is the number of sellers now considering selling whereas previously they were sitting on the sidelines waiting for their business to return to normal valuations.  If you are interested in selling your business, please contact me for a free Broker Opinion of Value (BOV).

The Process of Selling Your Business, Completing the Sale Page 5 of 5

Completing Your Sale

 

Due Diligence

The period between offer and approval and closing could be the trickiest. Contingencies need to be removed, 3rd parties must get entangled, and the final details need to get nailed down. Required research, the method in which a Buyer will perform the jobs critical to confirm the financial and operations information represented by the Seller, and a Seller will confirm the finance and business strength of a buyer, is usually the 1st action item that follows offer and acceptance.  A buyer could have his accountant aid or perform required Due Diligence.

To keep up a smooth exchange, and to reduce the potential damage in the event of a sale fail, we provide one or two tips referring to Due Diligence:

 

  • Don’t permit in depth required Due Diligence to be performed till offer and acceptance has been reached.
  • Have a clear time-frame incorporating the process. A time-frame in which mandatory info will be supplied, and a time-frame in which required Due Diligence will be finished, keeps an exchange moving in a forward motion.
  • Don’t move on to other contingencies concerning 3rd parties (lease transfer arrangements, provider transfer agreements, for example), till the Due Diligenc contingency has been removed.

 

Sale Documents

Once all the other contingencies have been removed, your lawyer will draft the sale documents important to complete the transaction and the purchaser’s lawyer will examine and approve or make changes. It is vital that both parties are represented by legal counsel. Contracts executed in a normal business sale carry major default implications for both parties.  Sale documents prepared may include a Sale Agreement, a Bill of Sale, a Non-Compete Agreement, a Security Agreement, and Private Guarantees.

 

Escrow

Escrow closing (the conclusion of the sale), frequently happens at an escrow office or other location neutral to both parties. A business escrow service will prepare closing statements, work out and break up pro-rated costs and money, perform the searches important to convey clear title to property, file liens for the vendor, and coordinate the execution of sale documents and the collection and disbursement of sale proceeds. Escrow costs are generally split between the Buyer and Seller similarly.

The Process of Selling Your Business– Offer and Acceptance Page 4 of 5

An offer may come first as a Letter of Intent (LOI).  It’ll generally include the price and terms being offered, the sale structure (asset sale versus stock purchase), a closing date, contingencies and conditions of a sale.

Terms presented in an offer may outline the payment method, scope and length of a non-compete agreement, transition terms, incentive payments, identification and condition of assets being bought, identifying of liabilities to be thought, any seller guaranties, and other exchange details. Contingencies will detail all action items needed before completion of sale.   Verification of monetary and operations information ( Due Diligence ), acceptable inspections, adequate lease transfer arrangements, adherence to licensure and regulatory bodies certifications, financing approval, lawyer review and approval of all sale documents, are all common sale conditions. Contingencies will most likely be tied to completion dates. An offer might be accepted, defied, or changed and presented back to the buyer as a counter-offer. Till agreement is reached by both parties, either party may withdraw their offer. In considering an offer, be certain to appraise the purchaser’s qualifications, financial resources, and methodology of securing any payments to be made. A great price from a risky buyer won’t be the best answer.

The Process of Selling Your Business, The Confidential Marketing Memorandum Page 3 of 5

The Confidential Marketing Memorandum

 

The Confidential Marketing Memorandum

 

The information presented to a certified buyer after execution of a non-disclosure agreement may include :

 

  • A record of your business
  •  An top level view of your business, including info about your firm’s services and goods, operations info, and staff structure
  • Information concerning your market, including client mix, rivals, and industry developments
  • A listing of the assets included in the sale
  • Information per your facilities, including lease terms, for example.
  • Fiscal info that might include : Balance Sheets, Earnings Statements, details on any liabilities to be assumed, equipment leases
  • Details on the price, terms, and sale structure of which you are providing your company

 

Private or sensitive information need only be disclosed during Due Diligence process.

 

 

 

 

 

 

The Process of Selling Your Business– Confidentiality Page 2 of 5

Marketing Your Business

Once you’ve established offering price and terms, your hunt for the right buyer starts. Customers might be found through a specific search of potential applicants in your industry, or maybe the business ventures section of local and regional papers. Pro business brokers are in communication with several qualified prospects, and aid in the circumspect search and screening of strategic consumers. The Significance of Confidentiality is the KEY in keeping up the goodwill of your company and in minimizing the interruptions of the work place during the promotion of your business. Doubtful about the way ahead for an organization that is for sale, staff and consumers could start to look somewhere else for work and services. It is generally best to delay until an exchange looks imminent before vital people are told of a sale. To help minimize exposure, categorical information pertaining to your company should be made public only to qualified shopper prospects after they have executed a non-disclosure agreement.

A certified buyer prospect is an entity which has established:

*  A need to acquire a company

*  Monetary capacity critical to complete your exchange

* The qualifications and resources critical to run your company

* The eagerness and capability to go forward in an opportune fashion.

The Process of Selling Your Business Part 1 Of 5

Valuation & Structuring a Sale Price

The value of any business is the price and terms that a consumer is content to pay, and a seller is content to accept for that company.

That said, a professional business broker will have the power to supply an opinion of worth that reflects what a consumer would expect to pay, given an arm’s length exchange. There are plenty of valuation techniques, and one must take care to include the numerous factors 100% unique to each business.

Very frequently, easy industry “rule of thumb” analysis techniques aren’t relevant to your business.

While it is normal to use an EBITDA or some multiple/ratio to establish value there are several reasons for that proportion to alter.

For Instance :

Provable revenue has a higher acknowledged worth than non-recorded revenue ;

Repeat income has a higher accepted worth than does one off sales ;

A well diverse client base has a higher acknowledged value than a customer base that includes 1 or 2 buyers accounting for the majority of all sales.

Industry developments, company trends, company history, FFE  price and condition, capital wants, entry barriers, intellectual property, worker turnover, and owner’s obligations are simply a few of the factors that may impact a firm’s value.

Building a reasonable price with terms competitive with other companies for sale will help you in achieving acceptable results. Your business broker or other pro will work with you to find that range.

Structuring a Sale Price.

Alas, establishing a price is only a bit of the puzzle! Valuation is mostly determined with the presumption the seller will be offering terms compatible with the present market.

If you’re thinking about retirement, offering longer than “market” terms could be of advantage to you alongside upping your chance of finding a professional buyer. If you’re in a scenario where a all cash sale is the sole possible alternative, your business broker can work with you to explore diverse sales structures including presumption of liabilities by a buyer as a type of payment, 3rd party financing, or discounted sales costs.

Optimizing the Valuation of Your Business

Two companies which make the same quantity of money don’t always have an equal value. Unless located in a novel market condition, eg. the present technology boom, the number one indicator of worth for a business is EBITDA or cash flow. For business-to-business services firms, which often have comparatively few assets, the impact of cash flow on total value is far more heavily articulated.

That said, two firms with the same cash flow may alter considerably in worth for a great number of reasons. Clearly demand is a big factor which will drive valuation multiples up in certain sectors and down in others.  As an example IT Services and Net Service Suppliers were in demand in 1999-2000 and, as a consequence, their multiples were comparatively high re other service industries. Even inside a business, firms with similar cash flows can change considerably in value. What are the factors responsible for deciding these fluctuations and what can business possession do to improve the value of their business before a sale? The solution to these questions is going to enable business owners to realize ideal worth in the sale of their business.

 

Run It Like a Business

The less dependent you are on any one shopper or customer or worker and the more transportable your revenues are, the more enticing you are probably going to be to an interested party.   As extreme example, if you have one customer that includes most of your revenues and that customer came to conduct business with you because you are family and you underbid the market by x% and it is a hand shake deal… Any interested party is going to find the situation terrifying and devalue the quantity of money flow you’ve been creating. Alternatively if the earnings are widely dissipated among clients who’ve contractual agreements to resume business with your firm over a period (perhaps on a subscription basis), at market rates, and the consumers understood relationship is with your company instead of you… Any interested party will feel they’ve a good possibility of maintaining the client base and will assign larger value.

Present It like a Business

For a purchase prospect to ascertain their level of interest and to make an appraisal of value they may review whatever information is provided to them applying to the business. The advantages of complete, correct and well documented information will reinforce the value of your business in many strategies:

1.  Reduced risk generally justifies a larger value. If the taking party knows in extensive detail what they are getting there should be less understood risk concerned in the purchase.

2. You increase the possibility of finding the best match – a purchaser who actually wants the business you are supplying for sale. Higher demand often equals higher value.

3.  The undeniable fact the business is well organized will most likely reinforce acknowledged value.

4.  “Time is of the essence.” Even after the parties reach first agreement, transactions run the chance of not being successfully finished. The more strenuous, time intensive and complex the Due Diligence groundwork period the less chance the deal has of making it. If your information is properly prepared the required research process will go smoother.

5. You nearly lose the component of pricey post-closing legal action due to confusion about the character of what’s being conveyed as you have correctly portrayed the business. It can pay to be nicely prepared.

And even if you do not sell, you will be more effective and worthwhile by reason of being organized and informed.