IBBA and M&A Source Market Pulse Survey Report Predicts Major Changes

The IBBA and M&A Source Market Pulse Survey Report for the fourth quarter of 2018 has a range of interesting insights.  The survey’s purpose is to provide an “accurate understanding of market conditions for businesses being sold in Main Street (values $0-$2MM) and the Lower Middle Market (values $2MM-$50MM).  This national survey was designed as a tool for business owners and their advisors and has the support of both the Pepperdine Private Capital Markets Projects and the Pepperdine Graziadio Business School.

One of the most striking facts to leap out of the report is the fact that a full one-third of advisors fully expect the strong market to end this year.  Overall, advisors are not optimistic that the current climate will continue through 2020.  In fact, advisors are encouraging sellers to consider placing their businesses on the market now, while the market is still strong.  This is according to Craig Everett, PhD and Assistant Professor of Finance and Director of the Pepperdine Private Capital Markets Project.

One fact from the report that could be overlooked is that only a mere 8% of advisors expect the current climate to last for 48 months or more.  Additionally, only 9% believe that the current climate will last between 24 to 48 months.  Perhaps most striking of all is the fact that 60% of advisors feel that the current climate will end within the next two years.

Business owners who are considering selling should be advised that almost two-thirds of advisors now feel that there will be a significant shift in the next two years.  Considering that it can take a year or more to sell a business, business owners would be wise to consider this important fact.

The report sites Neal Isaacs, Owner of VR Business Brokers of the Triangle who states, “Deals are taking longer in due diligence as buyers work hard to validate their investment and make sure that what they’re buying is worth the premium price today’s sellers are commanding.”

So, is now the time to sell?  Many experts feel that it is possible to lose a sizable amount of value if one waits too long to sell.  Even just a few months can make a huge difference in terms of perceived value and the ultimate sales price.  Working with a proven business broker is a key way to ensure that you are selling at the right time and secure the best possible price.

Copyright: Business Brokerage Press, Inc.

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5 M&A Myths and How to Deal with Them

Where your money is concerned, myths can do damage.  A recent Divestopedia article from Tammie Miller entitled, Crazy M&A Myths You Need to Stop Believing Now, Miller explores 5 big M&A myths that can get you in trouble.  Miller points out that many of these myths are believed by CEOs, but that they have zero basis in reality.

Myth 1

The first major myth Miller explores is the idea that the “negotiating is over once you sign the LOI.”  The letter of intention is, of course, important. However, this is by no means the end of the negotiations and it is potentially dangerous to think otherwise.  The negotiations are not concluded until there is a purchasing agreement in place. As Miller points out, there is a great deal that can go wrong during the due diligence process.  For this reason, it is important to not see the LOI as the “end of the road.”

Myth 2

Another myth that Miller wants you to be aware of is that you don’t have to take a company’s debt as part of the purchase price.  Many business brokers, such as Miller, recommend that buyers don’t take seller paper.

Myth 3

A third myth that Miller explorers is a particularly dangerous one.  The idea that everyone who makes an offer has the money to follow through is, unfortunately, simply not true.  Oftentimes, people will make offers without securing the money to actually buy the business.  No doubt, this wastes everyone’s time.  As the business owner, it can derail your progress.  If you are not careful, it could actually prevent you from finding a qualified buyer.

Myth 4

Another myth is built around the notion that sellers don’t need a deal team in order to sell their business.  Again, this is another myth that has no real foundation in reality.  While it may be possible to sell your business without the assistance of an experienced M&A attorney or business broker, the odds are excellent that doing so will come at a price.  According to Miller, those working with an investment banker or business broker can expect, on average, 20% more transaction value!

Additionally, there are other dangers in not having a deal team in place.  A business broker can handle many of the time-consuming aspects of selling a business, so that you can keep running your business.  It is not uncommon for business owners to get stretched too thin while trying to both run and sell a business and this can ultimately harm its value.

Myth 5

Miller’s final myth to consider is that you must sell your entire business.  It is true that most buyers will want to buy 100% of a business, but a minority ownership position is still an option.  There are many reasons to consider selling a minority stake, so don’t assume that selling your business is an “all or nothing” affair.

Ultimately, Miller lays out an exceptional case for the importance of working with business brokers when selling or buying a business.  Business brokers can help you avoid myths.  In the end, they know the lay of the land.

Copyright: Business Brokerage Press, Inc.

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10 Questions Everyone Should Ask Before Signing on the Dotted Line

Before buying any business, a seller must ask questions, lots of questions.  If there is ever a time where one should not be shy, it is when buying a business.  In a recent article from Entrepreneur magazine entitled, “10 Questions You Must Ask Before Buying a Business”, author Jan Porter explores 10 of the single most important questions prospective buyers should be asking before signing on the dotted line.   She points out to remember that “there are no stupid questions.”

The first question highlighted in this article is “What are your biggest challenges right now?”  The fact is this is one of the single most prudent questions one could ask.  If you want to reduce potential surprises, then ask this question.

“What would you have done differently?” is another question that can lead to great insights.  Every business owner should be an expert regarding his or her own business.  It only makes sense to tap into that expertise when one has the opportunity.  The answers to this question may also illuminate areas of potential growth.

How a seller arrives at his or her asking price can reveal a great deal.  Having to defend and outline why a business is worth a given price is a great way to determine whether or not the asking price is fair.  In other words, a seller should be able to clearly defend the financials.

Porter’s fourth question is, “If you can’t sell, what will you do instead?”  The answer to this question can give you insight into just how much bargaining power you may have.

A business’ financials couldn’t be any more important and will play a key role during due diligence.  The question, “How will you document the financials of the business?” is key and should be asked and answered very early in the process.  A clear paper trail is essential.

Buying a business isn’t all about the business or its owner.  At first glance, this may sound like a strange statement, but the simple fact is that a business has to be a good fit for its buyer.  That is why, Porter’s recommended question, “What skills or qualities do I need to run this business effectively?” couldn’t be any more important.  A prospective buyer must be a good fit for a business or otherwise failure could result.

Now, here is a big question: “Do you have any past, pending or potential lawsuits?”  Knowing whether or not you could be buying future headaches is clearly of enormous importance.

Porter believes that other key questions include: “How well documented are the procedures of the business?” and “How much does your business depend on a key customer or vendor?” as well as “What will employees do after the sale?”

When it comes to buying a business, questions are your friend.  The more questions you ask, the more information you’ll have.  The author quotes an experienced business owner who noted, “The more questions you ask, the less risk there will be.”

Business brokers are experts at knowing what kinds of questions to ask and when to ask them.  This will help you obtain the right information so that you can ultimately make the best possible decision.

Copyright: Business Brokerage Press, Inc.

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A Step by Step Overview of the First Time Buyer Process

A recent article on Businessbroker.net entitled, First Time Buyer Processes by business broker Pat Jones explores the process of buying a business in a precise step-by-step fashion.  Jones notes that there are many reasons that people buy businesses including the desire to be one’s own boss.  However, he is also quick to point out that buyers should refrain from buying a business that they simply don’t like.  In the quest for profits, many prospective owners may opt to do this, but it could ultimately lead to failure.

Step One – Information Gathering

For Jones, there are seven steps in the business buying process.  At the top of the list is to gather information on businesses so that one has an idea of what kind of businesses are appealing.

Step Two – Your Broker

The second key step is to begin working with a business broker.  This point makes tremendous sense; after all, those new to the business buying process will benefit greatly from working with a guide with so much experience.  Business brokers can gain access to information that prospective business owners simply cannot.

Step Three – Confidentiality and Questions

The third step in the process is to sign a confidentiality agreement so that you can learn more about a business that you find interesting.  Once you have the businesses marketing package, you’ll want to have your broker schedule an appointment with the seller. It is vitally important that you prepare a list of questions on a range of topics.  There is much more to buying a business than the final price tag.  By asking the right questions, you’ll be able to learn more about the business and its long-term potential.

Step Four – Evaluation

In the fourth step of the business buying process, you’ll want to evaluate all the information that you have received from the seller.  Once again, a business broker can be simply invaluable, thanks to years of hands-on experience, he or she will know how to evaluate a seller’s information.

Step Five – The Decision

In the fifth step, you’ll need to decide whether or not you are making an offer.  If you are making an offer, you will, of course, want it to be written and include contingencies.

If your offer is accepted, then the process of due diligence begins.  During due diligence, you and your business broker will look at everything from financial statements to tax returns.  You will evaluate the company’s assets.  Again business brokers are experts at the due diligence process.

Buying a business is an enormous commitment.  Making certain that you’ve selected the right business for you is one of the most critical decisions of your life.  Having as much competent and experienced help as possible is of paramount importance.

Copyright: Business Brokerage Press, Inc.

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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.