Author Archives: mrwolleat

Over the 25+ year history of SealedBid Marketing (“SealedBid”), we have not only built a national network of strategic and financial acquirers, M&A advisors and professionals but we have also had the pleasure to work with an impressive list of companies.  So the goal of this Spotlight Series is to display that impressive list of companies in a fun and interactive way that would demonstrate our long-term success!

Industry Experience: SealedBid’s longevity in the marketplace and core team provide a solid understanding/foundation for working with Companies across a wide variety of industries, such as; manufacturing, distribution, technology, business services, etc.  That longevity, core team and subsequent industry knowledge plus SealedBid’s limited number of actively engaged projects culminate in our ability to successfully facilitate campaigns across various industries with confidence.

Prospective Acquirers: While SealedBid is a boutique M&A firm based in Minneapolis, we pride ourselves in our ability to leverage technology and social media to gain national, and international when necessary, reach to potential acquirers.  We understand the importance of presenting SealedBids’ opportunities to the best strategic and financial prospects, regardless of location.

As the map indicates, we are successful in engaging Companies far outside our home base in Minnesota:

(The map above highlights the location of sellers and buyers from select transactions as well as category detail such as industry and buyer type.  Specific Successes and Case Studies are available for review as well.)

M&A Advisors and Industry Professionals: As with any business, relationships are key and SealedBid is no exception, we pride ourselves on established, professional relationships which include; attorneys, accountants, bankers, consultants and other advisors who have worked with SealedBid on past transactions.  This vast network allows SealedBid to recommend competent, professional advisors who fit with both our buy-side and sell-side client needs.

If you are interested in learning more about SealedBid, our services or our team, please do not hesitate to contact us at (952) 893-0232.  SealedBid will work closely with you, your financial advisor, attorney, accountant and banker from the initial stages of pre-marketing through closing and post-closing.

As a business owner, your final management decisions may be the most important business decisions you ever have to make!  Do you have a clear, well-defined succession plan in place?  If not, there are many immediate and future benefits to preparing for the ongoing future of your company…here are some elements to consider:

• Succession planning keeps your company focused: Taking a closer look at the business and its needs today as well as into the future can help keep the goals of the company clear and in the forefront of the leaders’ minds.
• Succession planning helps you take a second look at many aspects of your company: It is important to look at all the parts of your company as well as all employees when creating a succession plan.  This review could help catch problem areas that you may not have thought about before and pave the way to a smooth transition.
• The future is unknown: Opportunities (and threats) abound and it is impossible to know exactly what can happen that may directly affect your company.  To capitalize on the opportunities (while avoiding the threats), it is very important to start a succession plan sooner rather than later.

So What is a Succession Plan?

As defined by M&A Source (www.masource.org), in a succession plan for a privately held business, ownership transfers from exiting owners to active family members, managers or outside shareholders.  In a Bloomberg Business article it states that about 40% of U.S. family-owned businesses successfully get passed down to the second generation.  Good facilitators are particularly sensitive to estate planning issues, family business dynamics and the need for discretion and trust to make these transactions seamless and successful.  Succession planning has many components that include business planning, estate planning and exit planning.

Myths of Succession Planning for Small Businesses

• Succession planning can all be done at once: Succession planning does not happen overnight.  A succession plan is an ongoing effort that can always be changed as new opportunities or issues arise.  Business owners should address financial, management and estate needs unique to their specific situation on an ongoing basis
• Waiting to create a succession plan won’t hurt: When it comes to succession planning, it is better to be safe than sorry.  If you put off creating a succession plan and something unexpected arises, you may not be in a position to pursue an exit opportunity or maximize value of your company.
• Succession planning is only important for big companies: According to Forbes.com, approximately 90 percent of all companies in the U.S. are family-owned/controlled.  When a business is small and an employee leaves, it is much more noticeable than if it were a large company.  If an employee in a leadership role leaves a small company, it can have significant impact on an unprepared company.  Internal and external resource planning is important, specifically for leadership roles in small companies.

How Do You Begin Succession Planning?

• Search for future leaders: Looking at current employees, as well as potential future leaders outside of a company, is important to do in the beginning of succession planning.
• Solidify financial reporting: It is extremely important for existing and future owners to have absolute trust in the company’s managerial reports, financial statements and tax returns.  Having reviewed or audited year-end statements by an outside CPA firm can greatly assist in estate planning, appraisals and ultimately maximizing transaction value.  Create a timeline: Plan out specific steps for your succession plan. Allow time to implement new systems or to clean up the company’s accounting.  Make sure the future leaders of the company are gradually introduced into their roles so there is a smooth transition.
• Follow your succession plan: Don’t just forget about the plan you have made. Plan to revisit the succession plan every once in a while so that you can make sure that everything is on track.  To help ensure a smooth transition, all managers, employees and the company as a whole should be clear on the succession plan.

Now that I am Thinking about my Succession Plan, What Comes Next?

Part II of this Spotlight Series is now available; Spotlight: Exit Planning

SealedBid’s Role in Succession Planning

SealedBid is proud to have successfully served clients for over 25 years with M&A Advisory, Recapitalizations, Succession/Exit Planning, Family Transfers and Management/Partner Buy-outs.  As a boutique firm, SealedBid engages in a limited number of projects at any given time to ensure we deliver the highest level of senior attention, expert advice and transaction experience to each client.  Our experience, knowledge and attention to detail are crucial to successful succession planning.

• SealedBid works closely with business owners through all the steps of a successful succession plan.
• SealedBid helps guide business owners in a Family Transfer.
• SealedBid assists business owners in a Management/Partner Buy-out.
• Ultimately, SealedBid coordinates the due diligence process, secures the necessary financial statements and aids in negotiating the deal structure (adding tremendous value to business owners).

As you begin to develop your succession plan, remember that SealedBid has the experience, knowledge and expertise needed to successfully guide a transaction, family transfer or management/partner buy-out.

If you are interested in learning more about SealedBid, our services or our team, please do not hesitate to contact us at (952) 893-0232.  SealedBid will work closely with you, your financial advisor, attorney, accountant and banker from the initial stages of pre-marketing through closing and post-closing.

In closing…remember to write your succession plan long before you need it, so when the time comes to act, the terms and conditions are already defined and agreed to by all parties…

As SealedBid continues to highlight the importance of preparing for the ongoing future of your company, we would like to welcome you to part two of the SBM M&A Spotlight Series regarding succession planning!  In part two, this Spotlight will focus on “exit planning” and the important points to consider when transitioning ownership.

What is an Exit Plan and How Does it relate to a Succession Plan?

As discussed in the Spotlight: Succession Planning, an exit plan is what we consider to be the final culminating component within an overall business succession plan.  A complete succession plan includes estate planning, the transitioning of leadership and ultimately a detailed exit plan pertaining specifically to a change in ownership.

A good exit plan analyzes all factors that impact the business and the current owner(s) including the future of the company, the employees and the community.  Exit planning considers these factors and the ownership’s goals to create a strategy to maximize business value, personal and business resources and insure a successful transaction.

Where to Start an Exit Plan

Each business and ownership group will have unique challenges and priorities that dictate the first steps in creating an exit plan.  Sitting down with advisors (e.g. business intermediary, attorney, CPA, banker, etc.) that are familiar with the business and the current M&A market will expedite the process.

Elements of a Well-Designed Exit Plan

Although everyone does not start their exit plan in the same place, below we outline some general steps to assist with your exit planning strategy.

Exit Planning Steps

Common Pitfalls of Businesses that have Not Properly Planned for an Exit

• Internal Conflicts

  • Among owners

  • Among managers

  • A new owner will want to have a strong foundation that continues with the company post-closing

• Increased Costs

  • Appraisals

  • Excess inventory

  • Insufficient reporting

  • Tax planning

• Management Control & Employee Future

  • Key managers and sales staff who do not have non-competes or non-solicits can hold a deal hostage

  • The legacy of the business may be in jeopardy without a clear plan for employees

  • Loss of trust in ownership/management

Why You Need an Exit Plan

• Maximize the Value of your Company

  • When it is time to sell your company, having a well thought out exit plan will help to make your company more valuable

  • A potential acquirer will be much more willing to purchase a company that has created an exit strategy because that means there will be an easier transition for the new owner/owners

• Be in Charge of What Happens to your Company

  • If there is no exit plan in place, it is difficult to decide what exactly happens to your company, especially if you need to sell unexpectedly

• Help your Business Run Smoothly

  • Not only when it is time to sell, but also on a day-to-day basis

  • If there is an exit plan in place, there is a clearer understanding for employees with regard to their expectations and the overall goals of the company

  • An exit plan will help guide your strategic business decisions

SealedBid’s Role in Exit Planning

SealedBid is proud to have successfully served clients for over 25 years with M&A Advisory, Recapitalizations, Succession/Exit Planning, Family Transfers and Management/Partner Buy-outs.  As a boutique firm, SealedBid engages in a limited number of projects at any given time to ensure we deliver the highest level of senior attention, expert advice and transaction experience to each client.  Our experience, knowledge and attention to detail are crucial to successful succession planning.

• SealedBid works closely with business owners through all the steps of a successful succession plan.
• SealedBid helps guide business owners in a Family Transfer.
• SealedBid assists business owners in a Management/Partner Buy-out.
• Ultimately, SealedBid coordinates the due diligence process, secures the necessary financial statements and aids in negotiating the deal structure (adding tremendous value to business owners).

As you begin to develop your exit plan, remember that SealedBid has the experience, knowledge and expertise needed to successfully guide a transaction, family transfer or management/partner buy-out.

If you are interested in learning more about SealedBid, our services or our team, please do not hesitate to contact us at (952) 893-0232.  SealedBid will work closely with you, your financial advisor, attorney, accountant and banker from the initial stages of pre-marketing through closing and post-closing.

In closing…remember to write your succession and exit plan long before you need them, so when the time comes to act, the terms and conditions are already defined and agreed to by all parties.

Many business owners are seeing the benefit of Recapitalizations as opposed to a complete sale of their businesses.  Would you like to…

• Remove personal guarantees with the bank and capture partial liquidity?
• Expand geographically, increase production or acquire another company?
• Participate in future success of the Company?

If you answered yes to any of these questions…a Recapitalization or “Recap” may be the right solution for your business!

What is a Recapitalization?

A Recapitalization provides business owners a “private liquidity event” similar to an initial public offering, which provides owners with a public liquidity event.  In a Recapitalization, a Private Equity Group (PEG) or Financial Buyer acquires an interest of a company from the owners, while partnering with them to continue the development of the company through internal growth initiatives and potential acquisitions.

How does Recapitalization Work?

A Recapitalization involves exchanging the owner’s equity for a combination of cash and a piece of the capital stock of new entity.  A Recapitalization is designed to support the company as it continues, as well as future growth.  This allows the owners to receive a monetary gain while staying involved in the future potential of the company.

Are You a Good “Recap” Candidate?

Private Equity Investors (PEG) and Financial Buyers look for companies that have defined growth plans, consistent earnings or growth, significant market share or a niche position and experienced management teams.

What Should You Look for in a PEG or Financial Buyer?

When looking at potential buyers, consider the investor’s experience in your industry, their reputation among other management teams for integrity and delivering on promises and value they can add to your operations.  In addition, could you still operate independently if you decide to remain at the company, will they provide capital to support growth and will the transaction close in a timely fashion?

Example Transaction:

Terry is the owner of “OldCo” but decides that capital is needed to grow the business, so a decision to recapitalize is made.  Terry partners with SealedBid to facilitate a relationship with a financial buyer or PEG. With an exchange of ownership, “OldCo” becomes “NewCo” and Terry no longer has majority shares of the business.  But Terry still benefits from “NewCo’s” future growth in value and realizes an opportunity to benefit again at some point in the future when the decision is made to sell his/her remaining interest in the company.

Prepared by SBM.  All statements and figures presented herein are for example purposes only and are not guaranteed.

Intermediary’s Role in a Recapitalization

• SealedBid will assist in determining the business value range as well as identify and qualify prospective buyers (i.e. PEGs).
• SealedBid will create, coordinate and execute marketing plans to position the company.
• SealedBid will also negotiate on your behalf with multiple prospective buyers.
• SealedBid will oversee the due diligence process, making sure progress stays in line with the timeline that was initially established.
• Finally, SealedBid will manage the closing process until the very last signature!  Including any post-closing issues…

If you are interested in learning more about SealedBid, our services or our team, please do not hesitate to contact us at (952) 893-0232.  SealedBid will work closely with you, your financial advisor, attorney, accountant and banker from the initial stages of pre-marketing through closing and post-closing.

SealedBid is known for assisting private, lower mid-market business owners as a Sell-Side advisor/intermediary because of our expertise in Strategic Acquisitions (Roll-ups/Fold-ins), Financial Acquisitions (Private Equity), Corporate Divestitures and Recapitalizations.  But for companies looking to GROW THROUGH ACQUISITION, SealedBid also offers and has had tremendous success as a Buy-Side advisor/intermediary.

Strategic Growth Through Acquisition

Along with the traditional efforts to produce organic growth (e.g. adding products/services, increasing or improving marketing/sales and adding strong employees/management to your team), businesses often reach “the-next-level” or “cross-the-chasm” through acquisition.  Growth through acquisition can be less expensive, faster and even sometimes less risky than allowing for stagnation or slow organic growth.

When a company is looking to complete an acquisition, there are many different strategies to evaluate, including but not limited to:

Channel Expansion: Acquiring a company that has complimentary products or services is a great way to grow your company.  There are many times that a company wants to enter these new channels and has trouble figuring out how to do so.  Choosing this path of acquisition is an easier way to enter a similar, but different market.  Being able to pair your company’s current products and/or services with the new company’s products and/or services is a huge win.

Geographic Expansion: Companies looking to access new markets, obtain manufacturing and distribution efficiencies and/or better service existing clients can immediately benefit from acquiring strategic companies outside their existing geographic territory.

Market Consolidation: Acquiring a company that is very similar to your company.  Adding a similar company allows for instant market growth and impact.  Some companies may even consider acquiring more than one company similar to their company so that they have even more power in their market.

In a perfect world, a strategic acquisition creates a 1+1=3 (or sometimes a lot more!) scenario for all parties due to newly leveraged synergies and relationships (e.g. customers, distributors, channels, suppliers, etc.)

The process of identifying the right type of company to acquire, approaching like companies, engaging in negotiations and completing an acquisition takes energy and expertise.

Buy-Side M&A Process

After Confirming that your Decision to Make an Acquisition is the Best Option, Securing Buy-Side Representation is a Practical Next Step

Role of a Buy-Side Advisor/Intermediary

• To help a company identify, filter and reach out to prospective acquisition targets in a professional and confidential manner
• Assist with prospect research, initial due diligence/information collection and prospect screening
• Help the company evaluate the benefits and possible challenges of acquiring the identified prospective targets
• Set prospect expectations, assist with negotiations and provide a buffer for the client company in case of tenuous negotiations
• Assist attorneys, CPAs and leadership teams in any final due diligence items and closing the deal

Importance (VALUE) of a Buy-Side Advisor

• Not only does a Buy-Side advisor/intermediary help search for prospective targets, but they can also expand the Buy-Side search beyond what a company can do on their own.  M&A firms are well connected to a network of potential sellers and can use additional resources to work with their Buy-Side client.
• A Buy-Side advisor/intermediary can help create a more defined offer that will get the best deal for the buyer.  There are many times during a negotiation process that the buyer and seller will not see eye to eye; however, an M&A firm Buy-Side advisor/intermediary can help get through these difficult situations, leading to a quicker, smoother process.
• A Buy-Side advisor/intermediary will help a company reach the finish line.  From due diligence to coordinating meetings, having a Buy-Side advisor/intermediary takes a lot of the stress and pressure off the buyer.

Buy-Side Prospect Funnel

SealedBid’s Role in Buy-Side Advisory

SealedBid is proud to have successfully served clients for over 25 years with M&A Advisory, Recapitalizations, Succession/Exit Planning, Family Transfers and Management/Partner Buy-outs.  As a boutique firm, SealedBid engages in a limited number of projects at any given time to ensure we deliver the highest level of senior attention, expert advice and transaction experience to each client.

Our Transaction Professionals are experienced at sourcing “ideal prospects”, identifying sellers, negotiating and completing Buy-Side transactions. In closing…remember that an M&A advisor/intermediary is not only beneficial in a Sell-Side transaction, but can add huge value to a Buy-Side acquisition strategy.

If you are interested in learning more about SealedBid, our services or our team, please do not hesitate to contact us at (952) 893-0232.  SealedBid will work closely with you, your financial advisor, attorney, accountant and banker from the initial stages of pre-marketing through closing and post-closing.

Selling (or buying) a business is a full-time job!  SealedBid has provided Merger and Acquisition (”M&A”) guidance for over 25 years and has extensive experience maximizing value for our clients.  As a facilitator and intermediary, we work closely with clients, management teams and advisors from pre-engagement to engagement and from engagement to closing.  But this spotlight is not just about SealedBid, it is about the importance of having a team with strong M&A experience – – attorneys, certified public accountants (“CPAs”), wealth managers and bankers all play key roles in putting together a successful deal.

Creating a Deal Team

In the lower mid-market, companies rarely have in-house professionals with M&A expertise (unlike many larger businesses) and must rely on outside advisors when building their “Deal Team.”  In most cases, an owner or ownership group has worked with numerous attorneys, CPAs, bankers and other advisors throughout the course of starting, growing and operating their business.  However, not all professionals have experience or the expertise to properly assist in an M&A transaction.  Selecting and creating a Deal Team begins in the planning stages of Succession Planning with ownership interviewing and selecting experienced advisors.  In advance of a transaction, the Deal Team will assist ownership in positioning the Company to maximize tax benefit, meet estate planning needs, limit post-transaction exposure and more.  Coordination of the Deal Team and strategic planning pays dividends as Ownership initiates the Exit Plan resulting in maximizing enterprise value!

Role of an Attorney in a Transaction

Having an attorney that is “transaction-savvy” is extremely helpful when completing a transaction and is equally as important for the sell-side or buy-side of the deal.  In the lower mid-market, M&A attorneys bring an understanding of today’s marketplace and access to legal expertise across multiple disciplines (e.g. documentation, tax, real estate, employment, benefits, representations & warranties, etc.) to assist in negotiating a fair transaction.

Listed below are some examples of specific tasks that M&A attorneys take ownership of in a transaction:

• Reviewing and offering input as to the Letter of Intent
• Conducting legal due diligence (typically with coordination assistance from the Intermediary and amassing information)
• Reviewing and advising on all third-party (customer, supplier, etc.) relationships and agreements to ensure a smooth transition of the operation
• Drafting, reviewing and negotiating purchase agreements
• Drafting, reviewing and negotiating secondary documents including real estate leases, employment agreements, non-compete agreements, bill of sale, escrow agreement, etc.
• Once a transaction is in motion, a seasoned transaction attorney provides great value in helping to drive the deal forward to a successful closing.

Role of a CPA in a Transaction

A strong CPA with M&A experience is an important asset to the Deal Team.  In the planning stages of a transaction, CPAs play an important role in providing, among other analysis, detailed models for tax and estate planning (in coordination with wealth manager on sell-side) as well as feasibility and return-on-investment planning (buy-side).  The CPA helps ownership understand what they own, what they owe and what will be included in the transaction (material assets and liabilities).

Below are a sample of specific tasks that CPAs oversee in an M&A transaction:

• Lead the financial due diligence (typically with coordination assistance from the Intermediary)
• Prepare, review and present financial reports and transaction models during the due diligence process
• Verify the accuracy of business reports and the Company’s overall reporting methods
• Organize, document and verify the business’s tax filings, in addition to giving a sense of the other party’s tax status
• Negotiate working capital and purchase price allocation calculations specific to the transaction
• The CPA’s role continues in transition post-transaction verifying all financial detail during the true-up period as well as assisting in earn-out calculations (if applicable) and post-closing debt structures.

Role of a Banker in a Transaction

In the simplest terms, the main role of an M&A banker is to assist their client in finding money that is needed to complete a merger or acquisition.  Recently, banks and non-traditional lending sources have become ever more aggressive in the lower mid-market and there are many options to structure financing tailored to each transaction (e.g. SBA loans, senior debt, mezzanine debt, unitranche financing, etc.).

Working with an experienced business banker allows individuals or companies completing a transaction to have access to a tailored financing approach.  Tailored financing tends to result in a smooth closing process and can add tremendous value by positioning the Company for success post-closing!

SealedBid’s Role in a Transaction

An intermediary is the hub of the deal, whereby coordination, facilitation and striving for client success is the ultimate goal.  As a trusted advisor and intermediary, SealedBid is proud to have successfully served clients for over 25 years with M&A Advisory, Recapitalizations, Succession/Exit Planning, Family Transfers and Management/Partner Buy-outs.  SealedBid works as a central point of the sell-side (or buy-side) Deal Team from the planning stages to the closing – while managing/coordinating all the phases in between.

Having built relationships while working closely with attorneys, CPAs, bankers and other transaction professionals on many successful transactions in the Upper Midwest and throughout the country, SealedBid truly understands the importance of the Deal Team.

If you are interested in learning more about SealedBid, our services or our team, please do not hesitate to contact us at (952) 893-0232.  SealedBid will work closely with you, your financial advisor, attorney, accountant and banker from the initial stages of pre-marketing through closing and post-closing.

At SealedBid Marketing, we are actively entrenched in the lower mid-market M&A transaction space and we closely monitor valuation across many industries.  The SealedBid team routinely meets and consults with business owners and their Deal Team advisors regarding Succession Planning and Exit Planning as well as valuation expectations.  “How much is my business worth?” is an important, if not the first, question on every owner’s mind and through this Spotlight we explore several high-level example scenarios that will help to define valuation expectations.

There are many factors that can affect valuation.  Certified Business Appraisers use several methods (outlined below) when completing their analysis for estate and banking purposes, but determining Market Valuation, when the business is truly put up for sale, is both an art and a science.  Creating a competitive process through a Structured Marketing Campaign and targeting different prospective buyer types will bring a variety of valuations/structures and will ultimately maximize and determine the true enterprise value!

Valuation: The Textbook Definition

A valuation is the process of figuring out a fair market value of a company. In addition to selling/buying a business, there are numerous other situations where a valuation could be required, including; reorganizations, shareholder disputes, estate planning, etc.  The method of valuation can vary by each situation, however the goal is the same: determine a present value, in today’s market, for an operating business.

Market Approach: For this approach, a valuator/appraiser decides the fair market value of the company by researching actual business transactions that are similar to the company they are trying to valuate.  It is important that the valuator finds companies that are of similar size to the target company since a company’s value can change drastically depending on the revenue/EBITDA of that company.

Asset Approach: The asset approach is when the company’s current value of tangible net assets is used as the main decision maker of fair market value.  The Asset Approach is more common when a business is no longer operating as a going concern and/or the liquidation of the assets creates more value than the profitability of the business.  Additionally, reviewing the value of the assets can impact financing availability and other valuation considerations.

Income Approach: The income approach is commonly used when valuing private small to medium-sized businesses.  This approach uses a company’s revenue and profitability to determine a valuation.  There are multiple ways to model the Income Approach such as Multiple of Discretionary Earnings, Discounted Cash Flows, and a Multiple of Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”).  Regardless of the Income method used, the valuation is a result of a predetermined or desired Return on Investment of the buyer based on today’s and future cashflow of the business.  Businesses showing strong trends, stability and limited risk receive higher multiples.

Note: At SealedBid, we primarily see prospective buyers using a Multiple of recast EBITDA.  Applicable recast adjustments made to EBITDA, or the removal or normalization of extraordinary expenses, will vary depending on the buyer, making it extremely important to understand an Owner’s ultimate goals and all potential prospects.

Different Types of Buyers

Not only are there multiple different valuation approaches, but there are also numerous different types of buyers that will all approach valuation for the same company differently.

Strategic: A strategic buyer is an operating Company with existing knowledge and/or expertise in the target company’s market or industry.  This could be a competitor, vendor, customer or simply a company within the same vertical industry looking to expand offerings.  Unlike a financial buyer, a strategic buyer will focus on finding a company that adds immediate benefits to its existing business and can provide synergistic opportunities, i.e. a one plus one equals three scenario.  Because of these potential synergies, a strategic acquirer will model the valuation differently and could potentially bring a higher valuation for a company.  The tradeoff of pursuing these synergies and realizing a higher valuation means there is a potential for the Seller’s business to be moved, consolidated, renamed or changed in other ways.

Financial: A financial buyer is a buyer that invests in private or public companies on behalf of a larger shareholder/investor group.  Once acquired, a financial buyer will work to improve the company’s operational and financial performance over a certain period of time and eventually sell the business to create returns for its investors.  Financial buyers are generally private equity firms, investment funds, family offices, etc. that offer a wide variety of options for business owners from a complete exit to reinvestment.  When there is a strong owner and management team of a company, a supportive financial buyer can help the company grow by various recapitalization scenarios.

Individual or Small Group: An individual or small group buyer typically focuses on acquiring a single business with the intent of owning/operating the business going forward.  Typical individual buyers include professionals who are transitioning from the corporate space.  Although these buyers are not always the most sophisticated, they do create many benefits to a seller including maintaining the Company’s existing name, location, employees, etc.

Important Note: There are positives and negatives to each type of buyer and understanding the Ownerships’ goals is key to facilitating the ideal transaction.  Strategic, financial and individual buyers will approach each transaction with varying equity/debt resources, expertise and post-close expectations.

Transaction and Valuation Examples

Below are three real example transactions, along with their approximate valuation.  Since each transaction is so unique, it is difficult to pin point exact multiples (by industry, etc.), but these examples give an idea of different structures/valuations.  At SealedBid, we never go to market with an asking price and have closed transactions with valuations above 8x EBITDA!!!

Certified Business Appraisals and analyzing valuation techniques will provide insight into a specific business’s value, but to truly know what the Company will bring requires going to market and successfully reaching the ideal buyers!

SealedBid’s Role in Market Valuations

SealedBid is proud to have successfully served clients for over 25 years by providing Sell-Side and Buy-Side M&A Advisory, Recapitalizations, Succession/Exit Planning, Family Transfers and Management/Partner Buy-outs.  As a boutique firm, SealedBid engages in a limited number of projects at any given time to ensure we deliver the highest level of senior attention, expert advice and transaction experience to each client.

SealedBid works to understand our clients’ goals and identify, contact and engage ideal prospective acquirers, and create a go-to-market strategy that will maximize enterprise value.  Although we NEVER market a business with an asking price, we will conduct preliminary financial analysis and provide valuation guidance.

If you are interested in learning more about SealedBid, our services or our team, please do not hesitate to contact us at (952) 893-0232.  SealedBid will work closely with you, your financial advisor, attorney, accountant and banker from the initial stages of pre-marketing through closing and post-closing.

What Does Selling to a Strategic Buyer Mean?

When marketing a company for sale, one must consider all types of prospective buyers.  There are two primary categories of buyers – strategic and financial.  Our Maximizing Value Spotlight expounds upon the “Different Types of Buyers” but it is important to clearly define each category:

Strategic: A strategic buyer is an operating Company with existing knowledge and/or expertise in the target company’s market or industry.  This could be a competitor, vendor, customer or simply a company within the same vertical industry looking to expand offerings.  Unlike a financial buyer, a strategic buyer will focus on finding a company that adds immediate benefits to its existing business and can provide synergistic opportunities, i.e. a one plus one equals three scenario.

Financial: A financial buyer is a buyer that invests in private or public companies on behalf of a larger shareholder/investor group.  Once acquired, a financial buyer will work to improve the company’s operational and financial performance over a certain period of time and eventually sell the business to create returns for its investors.  Financial buyers are generally private equity firms, investment funds, family offices, etc. that offer a wide variety of options for business owners from a reinvestment to a complete exit.  When there is a strong owner and/or management team of a company, a supportive financial buyer can help the company grow by various Recapitalization scenarios.

Note: Financial buyers with existing holdings or portfolio companies can very easily become a Strategic Acquirer as they look to complete add-on transactions and grow through M&A.

Strategic Buyer Industry Snapshot

According to Pepperdine’s “2019 Private Capital Markets Report”:

• About 55% of closed business sales transactions over the last 12 months involved strategic buyers.
• About 39% of the 92 respondents to the investment banker survey indicated that there was an increasing presence of strategic buyers making deals over the last 12 months.
• About 21% of respondents did not see any premium paid by strategic buyers, while 56% saw premiums between 1% and 20%.  The remaining 23% saw premiums more than 20%.

Pros of Selling to a Strategic Buyer

Selling to a strategic buyer creates many advantages for ownership and the company as a whole.

• Possibility of a Higher Valuation: An operating company looking to grow through acquisition(s) may look beyond a seller’s profitability when preparing their valuation.  Often Strategic Buyers are quick to identify synergies that could immediately enhance the target business and/or their own existing business.  Example synergies include expanded customer reach, new vendor relationships, capability expansion, product cross-selling and improved market share among many others.  In the article “Should You Sell to a Strategic Buyer?” JP Morgan states, “buyers are often willing to pay more than the accepted ‘going rate’ for companies in whose data, products or processes they have a vested interest.”  The objective of SealedBid when marketing to Strategic Buyers is to highlight these synergies and provide accurate information to improve a respective buyers model.
• New Opportunities for the Company’s Stakeholders: In the lower mid-market, strategic acquisitions almost always create exciting opportunities for Employees, Customers and Vendors.  When an acquirer begins with the mindset of growth, existing employees, especially the key management team, are relied upon to both plan and execute the strategy for capturing/realizing the identified synergies between the businesses.  Employees also find themselves a part of a larger organization, which includes additional resources, career advancement opportunities and benefits that did not exist pre-transaction.  Customers and Vendors often experience similar benefits through increased resources and support.
• Streamlined Due Diligence & Closing: There is a higher likelihood that a transaction with a Strategic Buyer will close and that diligence efforts may be less intensive.  Due to the acquirers existing knowledge of the industry as well as their focus on specific synergistic elements, the diligence team will move quickly to verify their expectations without the hurdles that exist for a buyer who is completely new to the space.  Additionally, transaction funding or financing relationships are likely to be already in place making the closing process less complicated than other ownership-transition options.
• Reduced Ownership Transition: Often business owners and entrepreneurs culminate their professional careers with a transaction and are anxious to retire or pursue other personal or professional ventures outside of the business they’ve built.  The transition of knowledge, relationships and responsibilities is an absolutely necessary part of the Succession Planning process and this can often take years and depending on the situation, this transition may be required post-transaction.  A Strategic Buyer with intimate knowledge of the industry often has an experienced team in place that can greatly reduce or eliminate the learning curve and transition period.
• Long Term Vision / No “Flipping”: Strategic acquirers use M&A to supplement organic growth and quickly work to fold the acquired company into their operation.  This is in stark contrast to financial acquirers who typically have a 3 to 7-year investment horizon before the company/team must undergo another transaction.

Cons of Selling to a Strategic Buyer

Although there are many positive reasons for choosing a strategic buyer, there are risks and cautions that must be taken when considering a Strategic Buyer.

• Confidentiality & Trade Secrets: Despite the execution of Non-Disclosure and Confidentiality Agreements by all parties, there remains understandable concern when disclosing information to a competitor, customer or any industry player.  The challenge is to disclose enough for a prospective acquirer to make an educated, valid offer without giving away any “secret sauce.”
• Role Duplication: With the merging of two similar companies, there can be role duplication that leads to adjustments in the organizational chart.  This truly is a case by case basis for each scenario, but the most common duplication is in the finance, HR and payroll areas of the company.
• Company and Brand Legacy: In some cases, synergies that create higher valuations also come with reduced expenses such as the consolidation of operations or the roll-up of a product portfolio.  Business owners and entrepreneurs who have spent years building a connection to their community and a reputation within the industry may not feel comfortable moving forward with an acquirer who would make sweeping changes.

SealedBid’s Role in Selling to a Strategic

SealedBid uses a Structured Transaction Process to identify and directly solicit potential Strategic Buyers.  We work closely with our clients to understand the most important issues/concerns they have with competitors, customers, vendors and other industry players and then work to ensure those issues/concerns are addressed early on in the process.  SealedBid coaches prospective acquirers based on our client’s ideal transaction and scenario all while working to Maximize Value.  SealedBid is the buffer between sellers and prospective acquirers, and we help manage information disclosure, timelines and ultimately the entire transaction process.

Example “Selling to a Strategic” Successes

SealedBid is proud to have successfully served clients for over 25 years by providing Sell-Side and Buy-Side M&A Advisory, Recapitalizations, Succession/Exit Planning, Family Transfers and Management/Partner Buy-outs.  As a boutique firm, SealedBid engages in a limited number of projects at any given time to ensure we deliver the highest level of senior attention, expert advice and transaction experience to each client.

SealedBid works to understand our clients’ goals and identify, contact and engage ideal prospective acquirers, and create a go-to-market strategy that will maximize enterprise value.  Although we NEVER market a business with an asking price, we will conduct preliminary financial analysis and provide valuation guidance.

If you are interested in learning more about SealedBid, our services or our team, please do not hesitate to contact us at (952) 893-0232.  SealedBid will work closely with you, your financial advisor, attorney, accountant and banker from the initial stages of pre-marketing through closing and post-closing.

Business owners face many unique challenges both in the market place and in succession planning.  SealedBid has provided Mergers and Acquisitions (”M&A”) guidance for over 25 years and has extensive experience maximizing value for our clients.  In special situations, SealedBid offers business owners a unique Accelerated M&A process that allows business owners to exit more quickly than the norm without sacrificing value.

What is an Accelerated Transaction?

An Accelerated Transaction relates to an M&A process tailored to a specific client’s need and is designed to engage prospective acquirers, create competition and complete a transaction within an expedited timeline.

How Does the Accelerated Transaction Differ from a “Standard” Transaction Process?

Besides the obvious shortened timeline, an Accelerated Transaction would likely be viewed as being closer to a true/stringent M&A Auction.  Advisors work to create targeted marketing documents, identify likely prospects and define a strict timeline of events.  With an increased sense of urgency, both sides of the table (seller and buyers) must be responsive and engaged to meet bid deadlines and ultimately finalize negotiations.

In addition to shortening the marketing timeframe, Advisors must collect all relevant documentation and reports in advance and prepare for an expedited due diligence period.  In a standard transaction a buyer may request 90 ± days to complete their review, an Accelerated Transaction may call for the same process to be completed in 30 ± days.

The motivating factor for conducting an Accelerated Transaction is unique for each ownership group. Below are examples of the many outside forces that drive transactions:

Why Choose an Accelerated Transaction?

1. For many entrepreneurs and private business owners, their Company and its assets represent a substantial portion of their wealth and are connected with personal credit guarantees.  A transaction may be necessary to prevent a default and/or call of a delinquent note – – owners stand to receive significantly more value by selling their operating Company as opposed to liquidating assets.

2. Transactions are often motivated by changes in the shareholder group to allow exiting owners to capture “market value” for their interest.  These situations can be triggered by retirement, divorce or simply the need to part ways.

3. In the unfortunate event of an untimely death or illness, estate planning can influence a transaction to meet Estate Planning and probate needs.  In these situations, depending on the impact on the Company, it is often important to replace/install a new leader of the business and stabilize the business.

4. In all market conditions, businesses often encounter opportunities to maximize value within a defined window.  Whether it be capitalizing on specific customer/vendor contracts, leveraging economic changes or taking advantage of specific market forces.

Upside and Downside of an Accelerated Transaction Buyer’s Perspective

What are Some Common Risks of an Accelerated Transaction?

What Type of Companies Really Benefit from an Accelerated Transaction?

Companies that have a strong strategic base of potential acquirers, with either strong regional competition looking to expand, and or strong vertical companies looking to add products/service offerings can benefit from using an Accelerated Transaction.  Also, companies that are located in a desired metropolitan area with strong financial prospective acquirers (primarily individuals in small groups).  Most importantly, a company that decides to choose an Accelerated Transaction needs to have desirable assets and or have a well-known brand name.

SealedBid’s Role in Accelerated Transactions

SealedBid is proud to have successfully served clients for over 25 years with M&A Advisory, Recapitalizations, Succession/Exit Planning, Family Transfers and Management/Partner Buy-outs.  As a boutique firm, SealedBid engages in a limited number of projects at any given time to ensure we deliver the highest level of senior attention, expert advice and transaction experience to each client.

Our Transaction Professionals use a team approach and have completed many Accelerated Transactions in the past.  SealedBid uses an extremely Confidential approach in standard transactions and Accelerated Transactions that has led to great success.  Clients can be assured they are working with a strong deal team that can support Accelerated Transactions from pre-marketing to marketing to Due Diligence to closing.

If you are interested in learning more about SealedBid, our services or our team, please do not hesitate to contact us at (952) 893-0232.  SealedBid will work closely with you, your financial advisor, attorney, accountant and banker from the initial stages of pre-marketing through closing and post-closing.

In special situations, SealedBid offers business owners an Accelerated M&A process that allows a quick exit and the ability to obtain financial relief through a structured transaction process.

Distressed Situations

Negative Cash Flow: When a company is spending more money than they are making during a specific period.  In most instances, negative cash flow means that your company is losing money.  However, in other instances, negative cash flow can reflect bad timing of income, expenses or capital expenditures.  It is possible to have a net profit and have a negative cash flow.  If there is continuous, long-term negative cash flow this can be very harmful to businesses.

Creditor Pressure: When a Company receives pressure from creditors it is a clear sign that there is financial distress.  One example of why creditors may start pressuring a company is because the company is in arrears or default (they are failing to pay financial obligations in a timely manner).  Another reason is if a company breaks a loan/bank covenant (a clause in a loan agreement that requires the borrower to do/refrain from doing specific things).

Avenues of Relief for a Financially Distressed Company

Turnaround Management/Workout Consulting: A company that is having financial issues and/or failing performance can hire a turnaround management/workout consulting company to help correct these issues.  A turnaround management company will identify the root issues and then help create a long-term strategic plan.  A workout consultant will help create a strategy to negotiate with lenders and creditors in order to restructure any debt.

Asset Based Lending/Factoring/Alternative Financing: Another option for a financially troubled company is asset-based lending.  Asset-based lending is lending secured by primary current assets or fixed assets.  Companies that are asset-heavy may find this is a good option.  Choosing a factor is also an option.  A factor is an intermediary that provides cash or financing to companies by purchasing their accounts receivables.  This helps improve a company’s short-term cash needs.  It is important to note that a percentage of the receivables is typically kept by the factor.  Lastly, there are many alternative financing (non-bank financing) options such as online business loans, crowdfunding and merchant cash advances.

Chapter 11 Bankruptcy: Filing Chapter 11 bankruptcy protection is typically a last resort.  A business usually files for Chapter 11 bankruptcy protection if they require time to restructure their debts.  This type of bankruptcy gives the debtor/company immediate protection from creditors.  Chapter 11 bankruptcy is also known as “reorganization” and can subsequently result in an Accelerated Transaction* through a 363 sale.  A 363 Sale refers to the sale of a company’s assets under Section 363 of the US Bankruptcy Code.  The sale allows debtors to fulfill their obligations to creditors by selling their assets and using the funds collected to settle their debts.

*An Accelerated Transaction process: Companies in financial distress often need to move quickly.  Although an accelerated transaction process may sometimes yield a lower selling price, this is not always the case.

Unique Aspects with a Financially Distressed Transaction

When it comes to the M&A transaction process of a selling a Financially Distressed Transaction, there are many differences compared to a standard M&A process.

Reduced Timeframe: Usually the negotiation timeline will be accelerated due to the worsening financial situation of the target, creditor demands and the potential near-term loss of significant business relationships (customers, employees, suppliers, etc.).

Due Diligence Challenges: Specific pressures will adapt a normal due diligence process in a financially distressed M&A transaction.

Risk of Challenge/Litigation: A financially distressed company usually leads to a depressed valuation.  In the context of an M&A deal, lenders, other creditors and/or equity holders may not receive full value on their debts or investments.  Because of this, a buyer faces the risk that the sale process or the terms of the sale will be challenged by equity holders, creditors or trustees, either during the sale process or after closing.  Through structure and drafting, these risks can be reduced, but not eliminated.

More Parties Involved: In addition to the usual buyer/seller negotiations, there is more need to coordinate with lenders, lien holders, landlords, suppliers, customers, management teams, etc. so that the acquired business remains viable post-closing.  More parties create more complexity and communications must often be carefully managed and coordinated by the M&A intermediary.

Purchase Agreement: In order to account for the typically reduced recourse against sellers, the purchase agreement in a Financially Distressed M&A Transaction often looks quite different from a purchase agreement for a financially healthy target.

Source: https://www.natlawreview.com/article/covid-19-distressed-ma-era-pandemic

Example Transactions

SealedBid’s Role in Distressed Transactions

The best way to decide if now is the best time to sell your business, is to speak with an M&A advisor.  SealedBid is proud to have successfully served clients for over 25 years with M&A Advisory, Recapitalizations, Succession/Exit Planning, Family Transfers and Management/Partner Buy-outs.  As a boutique firm, SealedBid engages in a limited number of projects at any given time to ensure we deliver the highest level of senior attention, expert advice and transaction experience to each client.

Our Transaction Professionals use a team approach and have completed many Distressed Transactions in the past.  SealedBid uses an extremely Confidential approach in standard transactions and Accelerated Transactions that has led to great success.  Clients can be assured they are working with a strong deal team that can support a Distressed Transaction from pre-marketing to marketing to Due Diligence to closing.

If you are interested in learning more about SealedBid, our services or our team, please do not hesitate to contact us at (952) 893-0232.  SealedBid will work closely with you, your financial advisor, attorney, accountant and banker from the initial stages of pre-marketing through closing and post-closing.