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Month: September 2015

Buyer Dynamics: Strategic vs. Financial
Business Brokerage Consultant, Uncategorized

Buyer Dynamics: Strategic vs. Financial

Sep 28, 2015 by The Montana Group 0 Comments , ,
 Potential buyers of an operating business fall into one of two categories: Financial or Strategic.

Financial buyers are defined as those buyers who are strictly looking into acquiring a business as a good opportunity for an investment that is likely to increase in value. Unless a financial buyer has previously or is currently invested in a similar line of business each business stands on its opportunity to deliver a favorable return on their investment. So as a consequence each investment opportunity competes with the other such opportunities.

Strategic buyers are defined as those buyers who are already in the same line of business. This could be a direct competitor; a business that wants to expand its product offering by adding new related products; or a business operating in another trade area that wants to expand geographically.  While logically it makes sense that such a buyer would be willing and justified to pay more for the acquired company because of the economies of scale, often this is not the case when comparing their price to those of financial buyers. This can be attributed to strategic buyers inexperience in valuing a business, something a financial buyer does continually.

There is also often a stark difference in the owner’s post-sale involvement. In the case of a financial buyer it is most often a requirement that the seller who manages the business continue to run the business after the sale in order for continuity and because the buyer is not well versed in this type of business. Conversely, when the buyer is a strategic buyer the newly acquired business can incorporate the efficiencies of a similar business by eliminating management duplication, thereby increasing the overall profit of the combined businesses. So, when The Montana Group (www.montanagroup.com) is the consultant for the sale of a business we need to know the owner’s preference as to their involvement after their business is sold, which affects our selection of potential buyers.

Now that private corporate earnings are trending upward, a focus on selling a business is certainly more prudent. Particularly so, when well-funded buyers are numerous, the interest rates for acquisition debt is historically very low, and the recent economic improvement makes the business’ future appear brighter. In conclusion, “If your business is performing well financially and the business is making at least $2 million in pretax this is a great time to consider selling for there is pent-up demand from the buyside and the availability of companies to invest in is still lower than normal” says consultant Emmett Barnes, President of The Montana Group (www.montanagroup.com).
Business Broker Newsletter, Business Brokerage Consultant, Uncategorized

Newsletter on Selling a Business

Sep 15, 2015 by The Montana Group 0 Comments , , , ,

The Montana Group has, since 1991, consulted with business owners on how to improve the marketability and ultimately the business’ sale proceeds. This complimentary monthly newsletter focuses on issues that we have experienced while consulting with business owners on selling their business.

Business Brokerage Consultant, Uncategorized

Selling a Business: Selecting Representative

Sep 14, 2015 by The Montana Group 0 Comments , , ,

Selling a Business: It’s Important to Answer these Questions on Who

Of course, the idea of selecting someone to sell your business is something that is extremely important and could be daunting. However, addressing these considerations should be helpful before making the selection of a representative.

The firm’s list of completed transactions is of interested but make sure to review a list of completed transactions that were the responsibility of the person assigned to sell your business. Also, determine what role this person will fill and what other people will be involved in the transaction and their individual experience for their specific responsibility.

Does the listing agreement benefit the consultant even if there is no sale? If this is the case, is this arrangement the proper motivation? If the consultant is confident in a sale, is a retainer fee necessary? Can the listing agreement be terminate at any point without penalty? It seems mutually beneficial to discontinue a relationship that is not working toward the stated mutual goal.

Get an understanding of how your business will be marketed. A shotgun blast to the masses will often get rumors started, which could be negative to employees, beneficial to competition, and often not effective. Do you want to approve all potential buyers BEFORE they receive anything on your company? Is the intermediary’s buyer database extensive and specific enough to contact less than twenty buyers whose acquisition criteria specifically make your business likely to be of interest? This selective buyer focus will help reduce the opportunity for “the company is for sale” rumor and yet often obtain the financial objective…. quietly. There are, however, times that the “wide net approach” is best.

Does the listing agreement properly motivate the consultant to exceed the business owner’s price objective? This can be accomplished by agreeing to a flat fee to the minimum acceptable price with a higher percentage on that amount that exceeds this minimum.

Check references from past clients who sold their business through this intermediary. It is particularly helpful if that business is of similar size and industry type. Make sure to check their personality as you will be working with the consultant closely for many months.

Your consultant should approach the confidential sale process from the perspective of the owner/seller. This means a genuine interest in finding the best fit for the transaction goals and also for the company post-sale.

Now that private corporate earnings are trending upward, a focus on selling a business is certainly more prudent. Particularly so, when well-funded buyers are numerous, the interest rates for acquisition debt is historically very low, and the recent economic improvement makes the business’ future appear brighter. In conclusion, “If your business is performing well financially and the business is making at least $2 million in pretax this is a great time to consider selling for there is pent-up demand from the buyside and the availability of companies to invest in is still lower than normal” says consultant Emmett Barnes, President of The Montana Group (www.montanagroup.com)

 

Business Brokerage Consultant, Uncategorized

When to Sell a Business?

Sep 8, 2015 by The Montana Group 0 Comments , , ,

When to sell a business? Here are current factors.

In an effort to explain why now (2015) is a great time to sell here is a basic understanding of the financial buyers, also known as private equity groups, their funding, and their motivation.

Private equity groups (PEG) are numerous and represent another asset class investment option, which is owning private operating established businesses. Their sources of funds include endowments, pension funds, wealthy investors, corporate funds, and their own funds. This asset class provides a semi-liquid investment that has frequently outperformed many other options such a publicly traded securities, public and corporate debt, and real estate. There is, of course, risk when investing in operating businesses and consequently the acquisition price is relative to this risk.

Private equity groups raise their money by obtaining commitments to invest when an acceptable acquisition is identified. These commitment sources often pay an annual fee to cover PEG’s overhead, a transaction fee to the PEG at the time of each acquisition, and a percentage of the ultimate resale profit once their equity investment receives a preferential return. So, the annual overhead fee paid focuses the equity sources to encourage their private equity group to actually invest their committed capital, in order to recover these fees plus have an opportunity to receive an attractive investment return. However, during the recent recession there were fewer acceptable businesses available as selling a business when its financial trends are down is not prudent and also potential buyers were understandably cautious from the economic conditions. So, overhead fees were paid by their capital commitment sources, yet investments were scarce and their overall investment returns were often less than expected.

Now that private corporate earnings are trending upward, a focus on selling a business is certainly more prudent. Particularly so, when well-funded buyers are numerous, the interest rates for acquisition debt is historically very low, and the recent economic improvement makes the business’ future appear brighter. In conclusion, “If your business is performing well financially and the business is making at least $2 million in pretax this is a great time to consider selling for there is pent-up demand from the buyside and the availability of companies to invest in is still lower than normal” says consultant Emmett Barnes, President of The Montana Group (www.montanagroup.com)