Running a successful business is time
consuming, leaving you little time to plan what
may seem like distant succession issues. It’s
important, however, to outline an exit plan and
make succession decisions as early as
possible. Evaluating and grooming possible
successors or preparing for an outside sale can
take years. And it’s never too early to make
retirement and estate plans.
Take stock
Before determining where you want to be when
you’re ready to retire, assess where you and your
business are financially today. Prepare a detailed
financial analysis of your business with the help of
a valuation professional. This expert will review
historical data to determine its current value.
Also examine all contracts and agreements to
make sure your business is transferable. Transfer
restrictions, such as professional license
restrictions, government contracts, franchise
agreements, lending agreements, shareholder
agreements or other types of contracts, can slow
down the process significantly.
Transfer or sell?
Next, develop a succession plan that outlines how
your business will be sold or transferred. If you
have business partners, they will most likely be
able to buy your ownership interests according to
the terms of your company’s shareholder or other
agreements.
You might choose to groom a family member to
eventually take the helm. Or consider selling the
business to a key employee or group of employees.
Employee buyers may have several financing
options, including private equity partners, bank loans and Employee Stock Ownership Plans
(ESOPs).
If none of these succession options seem viable —
or attractive — you’ll likely want to sell your
business to an outside party. Competitors or those
in related industries might view your business as a
good expansion vehicle. To protect confidentiality,
you should consider working with an M&A advisor
to identify potential strategic buyers.
At the same time, consider whether the company
would likely generate more proceeds if sold intact
or broken down by segments. Liquidating or
divesting your assets might be your best option if
you have equipment or real estate, or particularly
valuable profit centers, and it seems unlikely you’ll
be able to sell the business outright because of
weak financials or a changing marketplace.
Click "HERE" for entire article.
Tuesday, August 31, 2010
Thursday, August 26, 2010
Hard times? Now may actually be a good time to sell a business
Given the state of the financial markets and general
economy, now may seem like an unlikely time to sell a
company. But selling in the current market can actually be
less challenging than you think — and may even provide
benefits you haven’t considered.
Determining whether to sell is always a difficult and complex
decision, involving many considerations specific to your plans
and business. For example, how urgent is your exit plan and
how much do you hope to realize from the sale? Although the
current economic environment may factor into your decision,
it shouldn’t be your primary consideration.
Bad news, good news
To sell your company at a fair price, you need only one buyer
that really wants to acquire it. A global credit crunch means
that some buyers have limited financing options right now
and may not be looking for targets. That’s the bad news. The
good news is that many of the buyers shut out of the current
market are financial buyers — companies seeking
opportunistic, short-term investments — such as private
equity and hedge funds. The majority of those remaining are
strategic buyers seeking synergies and other long-term
advantages of an acquisition. These buyers may be willing
to pay more for a target that meets their specific needs.
What’s more, companies that are profitable and not highly
leveraged are regarded as attractive acquisition targets
regardless of market conditions. Stable earnings and low
risk are particularly prized in poor economies, and private companies immune to day-to-day
stock fluctuations enjoy an additional advantage.
Owners of larger companies might want to explore whether
selling their business in pieces — by division, subsidiary or
asset — rather than as a whole is a favorable option. Partial
acquisitions can be attractive to buyers who want a specific
product line, hard asset such as a production facility or
human resources such as a software development group.
Shaping up
As long as your company isn’t financially distressed and
doesn’t have significant liabilities that may necessitate
compromise, you should remain confident in its appraised
value. Several strategies, however, can help improve your
chances of selling well.
Reducing short-term debt, if at all possible, is near the top of
that list. If you have outstanding loans or upcoming loan or
bond financings, ensure that you’re current on payments.
Few buyers will be interested in assuming additional debt
from a prospective acquisition — particularly debt with
onerous rates and terms.
A current business valuation that takes into account your
company’s long-term performance is also essential. Buyers
may try to get a reduced deal price by arguing that any recent
performance declines due to a poor economy make your
business a less viable acquisition. So you need to be prepared
to show that historical earnings are solid and explain to
buyers that they provide a better forecast for future
performance.
Opportunities remain
If you put your company on the market only to encounter
unappealing bids or even deafening silence, your effort isn’t
in vain. Entertaining offers helps you understand what buyers
are looking for. What’s more, displaying your strengths can
put you on the radar of buyers that are financially
constrained now but plan to make acquisitions once
conditions improve.
With the assistance of experienced M&A advisors, you are
very likely to find a fair price for your business. Good
companies are always valuable — even in hard times.
economy, now may seem like an unlikely time to sell a
company. But selling in the current market can actually be
less challenging than you think — and may even provide
benefits you haven’t considered.
Determining whether to sell is always a difficult and complex
decision, involving many considerations specific to your plans
and business. For example, how urgent is your exit plan and
how much do you hope to realize from the sale? Although the
current economic environment may factor into your decision,
it shouldn’t be your primary consideration.
Bad news, good news
To sell your company at a fair price, you need only one buyer
that really wants to acquire it. A global credit crunch means
that some buyers have limited financing options right now
and may not be looking for targets. That’s the bad news. The
good news is that many of the buyers shut out of the current
market are financial buyers — companies seeking
opportunistic, short-term investments — such as private
equity and hedge funds. The majority of those remaining are
strategic buyers seeking synergies and other long-term
advantages of an acquisition. These buyers may be willing
to pay more for a target that meets their specific needs.
What’s more, companies that are profitable and not highly
leveraged are regarded as attractive acquisition targets
regardless of market conditions. Stable earnings and low
risk are particularly prized in poor economies, and private companies immune to day-to-day
stock fluctuations enjoy an additional advantage.
Owners of larger companies might want to explore whether
selling their business in pieces — by division, subsidiary or
asset — rather than as a whole is a favorable option. Partial
acquisitions can be attractive to buyers who want a specific
product line, hard asset such as a production facility or
human resources such as a software development group.
Shaping up
As long as your company isn’t financially distressed and
doesn’t have significant liabilities that may necessitate
compromise, you should remain confident in its appraised
value. Several strategies, however, can help improve your
chances of selling well.
Reducing short-term debt, if at all possible, is near the top of
that list. If you have outstanding loans or upcoming loan or
bond financings, ensure that you’re current on payments.
Few buyers will be interested in assuming additional debt
from a prospective acquisition — particularly debt with
onerous rates and terms.
A current business valuation that takes into account your
company’s long-term performance is also essential. Buyers
may try to get a reduced deal price by arguing that any recent
performance declines due to a poor economy make your
business a less viable acquisition. So you need to be prepared
to show that historical earnings are solid and explain to
buyers that they provide a better forecast for future
performance.
Opportunities remain
If you put your company on the market only to encounter
unappealing bids or even deafening silence, your effort isn’t
in vain. Entertaining offers helps you understand what buyers
are looking for. What’s more, displaying your strengths can
put you on the radar of buyers that are financially
constrained now but plan to make acquisitions once
conditions improve.
With the assistance of experienced M&A advisors, you are
very likely to find a fair price for your business. Good
companies are always valuable — even in hard times.
Monday, August 23, 2010
How to hold on to key employees
During a company merger, the devil is in the
details. Identifying key employees and
employment issues early on can facilitate a
smooth deal. And a communication plan can help
prevent, for example, top-producing salespeople
from defecting to competitors, decimating the
company’s customer base, and affecting its value.
It’s important to offer employees incentives to
stay, but you also need to anticipate potential legal
issues. Plan now to put in place protections to
prevent employees from disrupting your deal, both
before and after it closes.
Research to retain
As soon as you begin entertaining the idea of a
merger or acquisition, assess your current workforce.
Enlisting the help of your human resources
staff, interview managers and ask them to break
down employee responsibilities and identify the
top performers in each department. If units are to
remain productive after the company changes
hands, you must know which employees are
responsible for the most — or most important —
customer or client relationships. If your company’s
value relies heavily on research and development or
intellectual property, be sure you know who the key
brains are behind your brain trust. Without those
individuals, your business may have much less future
earnings potential and be a lot less attractive to a buyer.
And though the topic is broad and beyond this article’s scope, begin
reviewing patents and other intellectual property
to ensure you, not your employees, own them. The carrot and the stick
Once you or the buyer determines which
employees are essential, provide them with
incentives to stay put. Depending on the nature of
the business, the employee and the terms of the
deal, this could be anything from stock options in
the newly merged company to a guaranteed
executive position to extra vacation time.
Click "HERE" for entire article.
details. Identifying key employees and
employment issues early on can facilitate a
smooth deal. And a communication plan can help
prevent, for example, top-producing salespeople
from defecting to competitors, decimating the
company’s customer base, and affecting its value.
It’s important to offer employees incentives to
stay, but you also need to anticipate potential legal
issues. Plan now to put in place protections to
prevent employees from disrupting your deal, both
before and after it closes.
Research to retain
As soon as you begin entertaining the idea of a
merger or acquisition, assess your current workforce.
Enlisting the help of your human resources
staff, interview managers and ask them to break
down employee responsibilities and identify the
top performers in each department. If units are to
remain productive after the company changes
hands, you must know which employees are
responsible for the most — or most important —
customer or client relationships. If your company’s
value relies heavily on research and development or
intellectual property, be sure you know who the key
brains are behind your brain trust. Without those
individuals, your business may have much less future
earnings potential and be a lot less attractive to a buyer.
And though the topic is broad and beyond this article’s scope, begin
reviewing patents and other intellectual property
to ensure you, not your employees, own them. The carrot and the stick
Once you or the buyer determines which
employees are essential, provide them with
incentives to stay put. Depending on the nature of
the business, the employee and the terms of the
deal, this could be anything from stock options in
the newly merged company to a guaranteed
executive position to extra vacation time.
Click "HERE" for entire article.
Thursday, August 19, 2010
Scoring with Strategic Buyers - Take Advantage of a Resurging M&A Market
Following several years of stormy weather, the sun is
finally beginning to emerge, albeit slowly, on the M&A
market. Many observers expect strategic buyers to be
major players in this recovery. That’s good news for
most business sellers, because strategic buyers
typically pay more than financial buyers.
Finding and negotiating with strategic buyers isn’t
necessarily going to be easy, though. Intense
competition among businesses that have been
waiting for the M&A market to improve, and that are
now entering the market, means that sellers must be
prepared to make a compelling case.
The new dealmakers
Strategic buyers choose targets based on projected
synergies and other factors that they believe will
contribute to their company’s long-term growth. And
they aren’t only the dominant players right now —
they’re pretty much the only players.
A study conducted by the Association for
Corporate Growth and Thomson Reuters found that
through Nov. 30, 2009, strategic M&A activity totaled
$1.7 trillion. Although this number represents a 32%
decline from the comparable period in 2008, it
accounts for 94% of announced M&A deals last year
— the highest percentage of strategic deals since
2001. Private equity funds traditionally make up the
bulk of financial buyers, which choose their
acquisition targets based on economic value. But
scarce financing and poor investment returns have
kept most of these buyers out of the market in recent
years. Strategic buyers, on the other hand, tend to be
more financially stable and often have the capital
needed to make cash deals. They also don’t face the
same time pressures as financial buyers, who
typically look for temporarily undervalued targets that
can be bought relatively cheaply.
Click "HERE" for entire article
finally beginning to emerge, albeit slowly, on the M&A
market. Many observers expect strategic buyers to be
major players in this recovery. That’s good news for
most business sellers, because strategic buyers
typically pay more than financial buyers.
Finding and negotiating with strategic buyers isn’t
necessarily going to be easy, though. Intense
competition among businesses that have been
waiting for the M&A market to improve, and that are
now entering the market, means that sellers must be
prepared to make a compelling case.
The new dealmakers
Strategic buyers choose targets based on projected
synergies and other factors that they believe will
contribute to their company’s long-term growth. And
they aren’t only the dominant players right now —
they’re pretty much the only players.
A study conducted by the Association for
Corporate Growth and Thomson Reuters found that
through Nov. 30, 2009, strategic M&A activity totaled
$1.7 trillion. Although this number represents a 32%
decline from the comparable period in 2008, it
accounts for 94% of announced M&A deals last year
— the highest percentage of strategic deals since
2001. Private equity funds traditionally make up the
bulk of financial buyers, which choose their
acquisition targets based on economic value. But
scarce financing and poor investment returns have
kept most of these buyers out of the market in recent
years. Strategic buyers, on the other hand, tend to be
more financially stable and often have the capital
needed to make cash deals. They also don’t face the
same time pressures as financial buyers, who
typically look for temporarily undervalued targets that
can be bought relatively cheaply.
Click "HERE" for entire article
Tuesday, August 17, 2010
Are You Ready for the Due Diligence Challenge?
Due diligence is a necessary stage in the M&A process, but most sellers would just as soon skip this stressful step if they could. Unfortunately, due diligence is only getting more onerous. In the wake of the recent economic downturn, business buyers are focused on risk like never before. And they’re using due diligence to head off negative surprises, such as excessive debt or pending litigation. Sellers in 2010, therefore, should be prepared to provide a serious prospective buyer with
everything from extensive financial records to long-term strategic plans to detailed lists of hard assets. You also should expect the due diligence period to last longer than it might have only a few years ago — potentially delaying the deal’s close.
Inevitable development Although the collapse of the financial markets in 2008 has fueled a more cautious attitude among buyers, ramped-up due diligence is a long time coming. Implementation of the Sarbanes-Oxley Act of 2002 (SOX) was a turning point, as SOX rules required public companies to assume greater responsibility for accurate financial reporting and fraud prevention — including those of the companies they acquired.
Click "HERE" for entire article.
everything from extensive financial records to long-term strategic plans to detailed lists of hard assets. You also should expect the due diligence period to last longer than it might have only a few years ago — potentially delaying the deal’s close.
Inevitable development Although the collapse of the financial markets in 2008 has fueled a more cautious attitude among buyers, ramped-up due diligence is a long time coming. Implementation of the Sarbanes-Oxley Act of 2002 (SOX) was a turning point, as SOX rules required public companies to assume greater responsibility for accurate financial reporting and fraud prevention — including those of the companies they acquired.
Click "HERE" for entire article.
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