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How To Handle An Acquisition Offer From A Competitor

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A direct competitor can often be the most likely buyer for your business. A competitor already knows your industry and may see your company as a way to consolidate market share and gain more pricing control. They may also be able to buy your business and eliminate redundancies in your back office, meaning your business is worth more in their hands than in those of many other potential buyers.

The challenge with negotiating the sale of your business to a competitor is, if the deal falls through, you can end up regretting all the secrets you shared with them in the process.

John Bodrozic is the co-founder of Meridian Systems, which offered project management software to the construction industry. In 2005, Bodrozic began negotiations with a direct competitor and ended up living to regret it. Listen now to hear John’s tips for negotiating with a direct competitor.

Get Your Score

If you’re keen to see how attractive your company would be to a competitor, get your Value Builder Score and we’ll rate your business according to the eight factors buyers care about most.  Go to www.colonialbb.com/vbs to get your score. 

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Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, or are personally interested in owning your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Call Colonial Business Brokerage today at (443) 982-7332.

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The Importance of Having a Dominant Position in the Market

In order to get top dollar for your business, it is necessary to prepare for the sale well in advance. In short, a tremendous amount of strategy and preparation goes into a successful sale. The amount you ultimately receive for your business is directly tied to how well you prepare.

At the top of the list of making sure that your business is attractive to potential buyers is to make certain your business is as well positioned in the market as possible. Of course, this is often easier stated than done. Here are some of the best ways to make sure your business is optimally positioned.

Tip One – Start Positioning Your Business Well in Advance

Selling your business isn’t something you should just do one day. You should start positioning your business at least one year before the closing.

Quite often, experts say business owners should always operate as though a sale is on the horizon. This makes a great deal of sense on one hand. If you ever experience an unexpected turn of events and need to sell, then you will certainly be ready. Another reason that this advice is solid is due to the fact that operating as though a sale is on the horizon helps you make certain that your business is running as effectively and efficiently as possible.

Tip Two – Always Think About Growth

Another way to ensure optimal position in the market is to always stay focused on growth. Asking yourself what steps you can take to grow your business in both the short term and the long term is a prudent move. You should always know what it takes to launch a new growth stage.

Tip Three – Customers, Lots of Customers/Clients

You don’t want a prospective buyer to see that you have only one or two key customers or clients. Understandably, this situation should make a buyer quite nervous. It comes across as extreme vulnerability. Having many varied customers or clients is a step in the right direction.

Tip Four – Be Ready for Due Diligence

Whatever you do, don’t overlook due diligence. Neglecting or waiting to prepare for the buyer’s due diligence stage until the eleventh hour is quite risky. Have all of your financial, legal and operations documents ready to go. A failure to properly handle due diligence could derail a deal or even reduce the amount you receive.

Tip Five – Understand Your Business’s Strengths and Weaknesses

Every business has strengths and weaknesses. Don’t attempt to hide your weaknesses or overplay your strengths. Be transparent!

A business broker is an expert at handling investors and even writing a business plan that you can hand to potential buyers.

Think about boosting your market position while simultaneously increasing the odds that you receive top dollar for your sale. Instead of rushing, take the time to prepare and work with a business broker to achieve the best market position and sale price possible.

Copyright: Business Brokerage Press, Inc.

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Who Would Buy Your Business?

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Part of building to sell is knowing who you are going to sell to.

If you don’t start thinking about your potential buyers list early, you may end up growing an entire appendage of your business that an acquirer will neither want nor value.

Take Northern Lights as an example: Michael Glauser started Northern Lights to offer low-fat frozen yogurt through a growing wholesale distribution network of stores selling his desserts. At the same time, he built up a network of 60 company-owned stores under the Golden Spoon brand. The company-owned stores were expensive to start and complicated to manage.

Glauser went on to sell Northern Lights to Cool Brands International for five times net income. Cool Brands turned around and immediately sold or shut down the 60 company-owned stores because they wanted Northern Lights’ wholesale distribution channel – not a bunch of expensive retail stores.

During our interview, I couldn’t help but wonder how much more Glauser and his shareholders would have gotten for their company had Glauser figured out what a buyer would value and then invested all of his limited resources into building his brand and its wholesale distribution channel from the start. Listen to his full interview here.

Get Your Score

Creating a list of potential strategic buyers for your business is something we’ll do during Module 11 of The Value Builder Engagement – get started for free by getting your Value Builder Score.

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Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, or are personally interested in owning your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Call Colonial Business Brokerage today at (443) 982-7332.

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Are You Emotionally Ready to Sell?

Quite often sellers don’t give much thought to whether or not they are ready to sell. But this can be a mistake. The emotional components of both buying and selling a business are quite significant and should never be overlooked. If you are overly emotional about selling, then this fact can have serious ramifications on your outcomes. Many sellers who are not emotionally ready, will inadvertently take steps that undermine their progress.

Selling a business, especially one that you have put a tremendous amount of effort into over a period of years, can be an emotional experience even for those who feel they are more stoic by nature. Before you jump in and put your business up for sale, take a moment and reflect on how the idea of no longer owning your business makes you feel.

Emotional Factor #1 – Employees

It is not uncommon for business owners to form friendships and bonds with employees, especially those who have been with them long-term. However, many business owners are either unaware or unwilling to face just how deep the attachments sometimes go.

While having such feeling towards your team members shows a great deal of loyalty, it could negatively impact your behavior during the sales process. Is it possible you might interfere with the sale because you’re worried about future outcomes for your staff members? Are you concerned about breaking up your team and no longer being able to spend time with certain individuals? It is necessary ultimately to separate your business from your personal relationships.

Emotional Factor #2 – Do You Have a Plan for the Future?

Typically, business owners spend a great deal of their time and energy being concerned with their businesses. It is a common experience that most owners share. Just as no longer being with your employees every day may create an emotional void, the same may also hold true for no longer running or owning your business.

Your business is a key focal point of your entire life. No longer having that source of focus can be unnerving. It is important to have a plan for the future so that you are not left feeling directionless or confused. What will you do after you sell your business and how does that make you feel? Before you sell, make sure that you have something new and positive to focus on with your time.

Emotional Factor #3 – Are You Sure?

Are you sure that you can really let your business go? At the end of the day many business owners discover that deep down they are just not ready to move on. Are you sure you are ready for a new future? If not, perhaps it makes sense to wait until you’re in a more secure position.

Addressing these three emotional factors is an investment in your future well-being and happiness. It is also potentially an investment in determining how smoothly the sale of your business will be and whether or not you receive top dollar.

Copyright: Business Brokerage Press, Inc.

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Could You Sell Your Service Business?

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If you run a service, my guess is you’ve dreamt of owning a product business instead.

Service businesses are such a mess – demanding clients, scope creep, and more often than not, slow growth.

Which leads many service company founders yearning for a product. They tinker with a product on the side, often sucking cash and other resources out of the service business to fund the development of a product, which can compromise the health of the service business.

But there is an alternative: why not sell the service side of your business to have the cash and the freedom to properly invest in your product idea?

That’s exactly what Talia Mashiach, the founder of Eved, did. Listen to hear how.

Get Your Score

If you own a service business and wonder if it’s sellable, I’d encourage you to take 12-13 minutes and complete the Value Builder questionnaire at www.colonialbb.com/vbs

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Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, or are personally interested in owning your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Call Colonial Business Brokerage today at (443) 982-7332.

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Did Microsoft Overpay For LinkedIn?

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Microsoft’s recent $26.2 billion acquisition of LinkedIn provides an illustrative example of a strategic acquisition – the type of sale that usually garners the most gain for the acquired company’s shareholders.

You may be wondering what a billion-dollar acquisition has to do with your business, but the very same reasons a strategic acquirer buys a $26 billion business holds true for the acquisition of a $2 million company.

The financial vs. strategic buyer

A financial buyer is buying the future stream of profits coming from your business, whereas the strategic buyer is buying your business for what it is worth in their hands. To simplify, a financial acquirer buys your business because they think they can sell more of your stuff, whereas a strategic buyer acquires your business because they think it will help them sell more of their stuff.

One might argue that Microsoft overpaid for LinkedIn given that LinkedIn only generated a few hundred million dollars in EBITDA last year, meaning the good folks in Redmond paid an astronomical multiple of LinkedIn’s earnings.

But earnings are not the only thing strategic acquirers care about when they go to make an acquisition.

Microsoft‘s acquisition of LinkedIn is a classic example of a strategic acquisition. The Redmond-based technology giant has been undergoing a major transformation from being a software company focused on operating systems to a business concentrating on cloud-based software applications. Microsoft enjoys a dominant market share in the basic tools white-collar business people use to get their job done, but other software packages have begun to nip at the heels of their dominance in many product lines.

Take Microsoft Office for example. Many businesses have started to use competitive offerings from Google and Apple. Even more companies cling to older versions of Microsoft Office software, even though Microsoft is keen to move everyone over to the cloud-based Office 365.

In purchasing LinkedIn, Microsoft saw an opportunity to suck data from LinkedIn into Microsoft’s cloud-based software applications, making them irresistible. Imagine you’re a sales person and you just landed a big meeting with a new prospect. You enter the appointment as a Microsoft Outlook event and suddenly the details of the event feature everything LinkedIn knows about your prospect.

Now you can make small talk about where they went to school, the previous jobs they have held and know the scope of their current role – all without ever leaving Outlook.

Microsoft is betting this kind of integration across its platforms will compel more people to upgrade to the latest software applications. While your company is likely smaller than LinkedIn, the same thing that makes a giant buy another giant holds true for smaller businesses. To get the highest possible price for your business, remember that companies make strategic acquisitions because they want to sell more of their stuff.

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Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, or are personally interested in owning your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Call Colonial Business Brokerage today at (443) 982-7332.

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Find out how you score on the eight factors that drive your company’s value by completing the Value Builder Questionnaire:

Get Your Value Builder Score Today

www.colonialbb.com/vbs

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Learn the Dynamics and Save the Deal

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Many business owners are unfamiliar with the dynamics of selling a company, because they have never done so. There are numerous possible “deal breakers.” Being aware of the following pitfalls and their remedies should help prevent the possibility of an aborted transaction.

Neglecting the Running of Your Business
A major reason companies with sales under $20 million become derailed during the selling process is that the owner becomes consumed with the pending transaction and neglects the day to day operation of the business. At some time during the selling process, which can take six to twelve months from beginning to end, the CEO/owner typically takes his or her eye off the ball. Since the CEO/owner is the key to all aspects of the business, his lack of attention to the business invariably affects sales, costs and profits. A potential buyer could become concerned if the business flattens out or falls off.

Solution: For most CEOs/owners, selling their company is one of the most dramatic and important phases in the company’s history. This is no time to be overly cost conscious. The owner should retain, within reason, the best intermediary, transaction lawyer and other advisers to alleviate the pressure so that he or she can devote the time necessary for effectively running the business.

Placing Too High a Price on the Business
Obviously, many owners want to maximize the selling price on the company that has often been their life’s work, or in fact, the life’s work of their multi-generation family. The problem with an irrational and indiscriminate pricing of the business is that the mergers and acquisition market is sophisticated; professional acquirers will not be fooled.

Solution: By retaining an expert intermediary and/or appraiser, an owner should be able to arrive at a price that is justifiable and defensible. If you set too high a price, you may end up with an undesirable buyer who fails to meet the purchase price payments and/or destroys the desirable corporate culture that the seller has created.

Breaching the Confidentiality of the Impending Sale
In many situations, the selling process involves too many parties, and due to so many participants in the information loop, confidentiality is breached. It happens, perhaps more frequently than not. The results can change the course of the transaction and in some cases; the owner—out of frustration—calls off the deal.

Solution: Using intermediaries in a transaction certainly helps reduce a confidentiality breach. Working with only a few buyers at a time can also help eliminate a breach. Involving senior management can also prevent information leaks.

Not Preparing for Sale Far Enough in Advance
Most business owners decide to sell their business somewhat impulsively. According to a survey of business sellers nationwide, the major reason for selling is boredom and burnout. Further down the list of reasons reported by survey respondents is retirement or lack of successor heirs. With these factors in mind, unless the owner takes several years of preparation, chances are the business will not be in top condition to sell.

Solution: Having well-prepared and well-documented financial statements for several years in advance of the company being sold is worth all the extra money, and then some. Buying out minority stockholders, cleaning up the balance sheet, settling outstanding lawsuits and sprucing up the housekeeping are all-important. If the business is a “one-man-band,” then building management infrastructure will give the company value and credibility.

Not Anticipating the Buyer’s Request
A buyer usually has to obtain bank financing to complete the transaction. Therefore, he needs appraisals on the property, machinery and equipment, as well as other assets. If the owner is selling real estate, an environmental study is necessary. If a seller has been properly advised, he will realize that closing costs will amount to five to seven percent of the purchase price; i.e., $250,000-$350,000 for a $5 million transaction. These costs are well worth the expense, because the seller is more apt to receive a higher price if he can provide the buyer with all the necessary information to do a deal.

Solution: The owner should have appraisals completed before he tries to sell the business, but if the appraisals are more than two years old, they may have to be updated.

Seller Desiring To Retire After Business Is Sold
It is a natural instinct for the burnt-out owner to take his cash and run. However, buyers are very concerned with the integration process after the sale is completed, as well as discovering whether or not the customer and vendor relationships are going to be easily transferable.

Solution: If the owner were to become a director for one year after the company is sold, the chances are that the buyer would feel a lot more secure that the all-important integration would be smoother and the various relationships would be successfully transferable.

Negotiating Every Item
Being boss of one’s own company for the past ten to twenty years will accustom one to having his or her own way… just about all the time. The potential buyer probably will have a similar set of expectations.

Solution: Decide ahead of the negotiation which are the very important items and which ones are not critical. In the ensuing negotiating process, the owner will have a better chance to “horse trade” knowing the negotiable and non-negotiable items.

Allocating Too Much Time for Selling Process
Owners are often told that it will take six to twelve months to sell a company from the very beginning to the very end. For the up-front phase, when the seller must strategize, set a range of values, and identify potential buyers, etc., it is all right to take one’s time. It is also acceptable for the buyer to take two or three months to close the deal after the Letter of Intent is signed by both parties. What is not acceptable is an extended delay during which the company is “put in play” (the time between identifying buyers, visiting the business and negotiating). This phase should not take more than three months. If it does, this means that the deal is dragging and is unlikely to close. The pressure on the owner becomes emotionally exhausting, and he tires of the process quickly.

Solution: Again, the seller needs to have a professional orchestrate the process to keep the potential buyers on a time schedule, and move the offers along so the momentum is not lost. The merger and acquisition adviser or intermediary plays the role of coach, and the player (seller) either wins or loses the game depending on how well those two work together.

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Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, or are personally interested in owning your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Call Colonial Business Brokerage today at (443) 982-7332.

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Copyright: Business Brokerage Press, Inc.

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Selling: What Does An Intermediary Expect From You?

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If you are seriously considering selling your company, you have no doubt considered using the services of an intermediary. You probably have wondered what you could expect from him or her. It works both ways. To do their job, which is selling your company; maximizing the selling price, terms, and net proceeds; plus handling the details effectively; there are some things intermediaries will expect from you. By understanding these expectations, you will greatly improve the chances of a successful sale. Here are just a few:

• Next to continuing to run the business, working with your intermediary in helping to sell the company is a close second. It takes this kind of partnering to get the job done. You have to return all of his or her telephone calls promptly and be available to handle any other requests. You, other key executives, and primary advisors have to be readily available to your intermediary.

• Selling a company is a group effort that will involve you, key executives, and your financial and legal advisors all working in a coordinated manner with the intermediary. Beginning with the gathering of information, through the transaction closing, you need input about all aspects of the sale. Only they can provide the necessary information.

• Keep in mind that the selling process can take anywhere from six months to a year — or even a bit longer. An intermediary needs to know what is happening — and changing — within the company, the competition, customers, etc. The lines of communication must be kept open.

• The intermediary will need key management’s cooperation in preparation for the future visits from prospective acquirers. They will need to know just what is required, and expected, from such visits.

• You will rightfully expect the intermediary to develop a list of possible acquirers. You can help in several ways. First, you could offer the names of possible candidates who might be interested in acquiring your business. Second, supplying the intermediary with industry publications, magazines and directories will help in increasing the number of possible purchasers, and will help in educating the intermediary on the nature of your business.

• Keep your intermediary in the loop. Hopefully, at some point, a letter of intent will be signed and the deal turned over to the lawyers for the drafting of the final documents. Now is not the time to assume that the intermediary’s job is done. It may just be beginning as the details of financing are completed and final deal points are resolved. The intermediary knows the buyer, the seller, and what they really agreed on. You may be keeping the deal from falling apart by keeping the intermediary involved in the negotiations.

• Be open to all suggestions. You may feel that you only want one type of buyer to look at your business. For example, you may think that only a foreign company will pay you what you want for the company. Your intermediary may have some other prospects. Sometimes you have to be willing to change directions.

The time to call a business intermediary professional is when you are considering the sale of your company. He or she is a major member of your team. Selling a company can be a long-term proposition. Make sure you are willing to be involved in the process until the job is done. Maintain open communications with the intermediary. And, most of all – listen. He or she is the expert.

 

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Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, or are personally interested in owning your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Call Colonial Business Brokerage today at (443) 982-7332.

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Copyright: Business Brokerage Press, Inc.

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Family-Owned Businesses Do Have Choices

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Family-owned businesses do have some options when it comes time to sell. Selling the entire business may not be the best choice when there are no other family members involved. Here are some choices to be considered:

Internal Transactions

  • Hire a CEO – This approach is a management exit strategy in which the owner retires, lives off the company’s dividends and possibly sells the company many years later.
  • Transition ownership within the family – Keeping the business in the family is a noble endeavor, but the parent seldom liquefies his investment in the short-term, and the son or daughter may run the company into the ground.
  • Recapitalization – By recapitalizing the company by increasing the debt to as much as 70 percent of the capitalization, the owner(s) is/are able to liquefy most of their investment now with the intent to pay down the debt and sell the company later on.
  • Employee Stock Ownership Plan (ESOP) – Many types of companies such as construction, engineering, and architectural are difficult to sell to a third party because the employees are the major asset. ESOPs are a useful vehicle in this regard but are usually sold in stages over a time period as long as ten years.

External Transactions

  • Third party sale – The process could take six months to a year to complete. This method should produce a high valuation, sometimes all cash at closing and often the ability of the owner to walk away right after the closing.
  • Complete sale over time – The owner can sell a minority interest now with the balance sold after maybe five years. Such an approach allows the owner to liquefy some of his investment now, continue to run the company and hopefully receive a higher valuation for the company years later.
  • Management buy-outs (MBOs) – Selling to the owners’ key employee(s) is an easy transaction and a way to reward them for years of hard work. Often the owner does not maximize the selling price, and usually, the owner participates in the financing.
  • Initial public offering (IPO) – In today’s marketplace, a company should have revenues of $100+ million to become a viable candidate. IPOs receive the highest valuation, but management must remain to run the company.

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Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, or are personally interested in owning your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Call Colonial Business Brokerage today at (443) 982-7332.

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Source: “Buying & Selling Companies,” a presentation by Russ Robb, Editor, M&A Today

Copyright: Business Brokerage Press, Inc.

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Have You Discovered Your Recurring Revenue Model?

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When it comes to the value of your business, what happened in the past is much less important than what is likely to happen in the future.

One of the most important ways you can shape the future of your business is to create some recurring revenue. Recurring revenue comes from those magical sales you make without really trying. Good examples of recurring revenue models include ongoing service contracts, subscriptions, and memberships – basically any sale situation the customer has to proactively opt out of, instead of into.

Recurring revenue is critical for the value of just about any small business, and it is equally import for the world’s largest businesses.

Why ICD bought Porto Montenegro

If you’re looking for a fun example of why recurring revenue matters, take a look at The Investment Corporation of Dubai  (ICD) and their acquisition of Porto Montenegro Marina and Resort. If you happen to be the heir to a European royal dynasty or are a Silicon Valley billionaire, you’ve probably parked your boat in Porto Montenegro. Along with 450 berths for the world’s largest super yachts, there’s a 5-star hotel, ultra-exclusive residential properties, and 250 high-end boutiques to indulge just about any fancy.

Porto Montenegro is the brainchild of Peter Munk, who is best known as the founder of Barrick Gold Corp. Munk fell in love with the natural beauty of the Adriatic coastline and saw an opportunity to buy an old naval shipyard and transform it into one of the world’s most exclusive travel destinations.

So why on earth would ICD, the principle investment arm of the Dubai government, be interested in buying a glorified parking lot in the middle of an old naval base?

Well, it turns out that super yachts need a lot of regular maintenance. In fact, the average super-yacht owner spends 10% of its value every year on repairs and maintenance. ICD wanted the steady flow of recurring revenue from maintenance contracts with the well-heeled owners who moored their yacht at Porto Montenegro.

Tomorrow vs. Yesterday

Porto Montenegro is a billion-dollar reminder that recurring revenue is important for large companies, but creating an annuity stream can be even more important for smaller businesses. It can be tempting to celebrate the large project wins or a big sale to a one-off customer, but when it comes to valuing your business, acquirers may discount those as aberrations and focus on the steady flow of your recurring business.

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Find out how you score on the eight factors that drive your company’s value by completing the Value Builder Questionnaire:

Get Your Value Builder Score Today

www.colonialbb.com/vbs

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Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, or are personally interested in owning your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Call Colonial Business Brokerage today at (443) 982-7332.