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Category: Business Brokerage Consultant

What is a Private Business Worth?
Business Broker Newsletter, Business Brokerage Consultant, Selling a Business

What is a Private Business Worth?

Sep 21, 2020 by The Montana Group 0 Comments

There are many complex formulas in expensive business valuation software that spit out reams of data on the value of a private business. This data is certainly interesting and can be helpful in determining price expectations but this is an inexact science, at best.  While this valuation approach is necessary and helpful when there are estate issues or legal issues such as buy-sell disputes the only answer is that a business is worth what a buyer is willing to pay at the time the business is for sale.
To formulate a ballpark answer to this question the following would be helpful:

  • Who is the buyer?
  • What is the buyer’s motive?
  • What is the buyer’s experience in making acquisitions?
  • What is the buyer’s financial strength?
  • What is the buyer’s concern with their competition for this purchase?
  • The Buyer’s recent acquisition activity in this type of business.
  • Are there many similar companies available to purchase?
  • What are the future growth opportunities of the company?
  • Proprietary products?
  • Barrier to entry?
  • Management post-sale?
  • Is there competition or perceived competition on this acquisition?

Does the business’ representative have a large database of potential acquirers? Of course, private businesses are not often publicizing their sale price so it’s rare that there is a comparative sale to review. Even if this information were available the question would be does this buyer want to buy another company? Is buyer more or less motivated to buy another company? How about the unsuccessful potential buyers – are they more motivated now to increase their valuation? Comparing a private business’ value to a public company in the same line of business seems a stretch as larger businesses trade at significantly higher multiple and the same can be said for publicly traded ones. So, the answer…… “you need a good representative to properly present the company to facet of the buyer market that would likely have an interest in the company and wait and see. However, this representative should be able to provide an accurate complimentary valuation range that can be used to determine if the owner is now a seller”, per Emmett Barnes, President of The Montana Group (www.montanagroup.com).

What makes The Montana Group the best option for selling a business?
Business Broker Newsletter, Business Brokerage Consultant, Selling a Business

What factors make NOW the time to sell?

Feb 9, 2019 by The Montana Group 0 Comments , ,
What factors make NOW the time to sell?

In an effort to explain why now (2019) 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, has upward increases in revenue and cash flow, and is making at least $2 million in pretax this is a great time to consider selling” says consultant Emmett Barnes, President of The Montana Group (www.montanagroup.com).

Which Business Brokerage Consultant?
Business Broker Newsletter, Business Brokerage Consultant, Selling a Business

Which Business Brokerage Consultant?

Jan 4, 2019 by The Montana Group 0 Comments
Which Business Brokerage Consultant?

Of course, the idea of selecting someone to sell a major asset, a business, is something that is extremely important and could be daunting. However, addressing these considerations should be helpful before making the selection. Make sure to check their personality as it is also important to enjoy working with the consultant. The process requires working closely together for months.
  • 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 the 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 upcoming 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 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 not be 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 up to the minimum acceptable price with a higher percentage on that amount that exceeds this minimum.
  • Check references from owners who sold their business through this intermediary. It is particularly helpful if that business is of similar size.
  • 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. There is significant 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).
10 Considerations Before Selling a Business
Business Broker Newsletter, Business Brokerage Consultant, Selling a Business

10 Considerations Before Selling Your Business

Dec 8, 2018 by The Montana Group 0 Comments

10 Considerations Before Selling Your Business

  • Are your company’s recent sales and earnings trends desirable? The ultimate purchase price is significantly increased if the sales and the earnings have been growing over the past several years.
  • If your business lost its two largest customers what percentage of its overall revenue would be lost? If there is a concentration of business with a single or a few customers and they have other options it would be advantageous to dilute this before selling your business.
  • If you, the owner, are involved in the business is there an interest in continuing in that capacity or even a reduced capacity after the normal 1-2 year post closing transition? Are there qualified management candidates within your company to take over once you, the owner, retire post-sale? If not, such a suggestion outside the company may be of importance.
  • If there is significant value in the company’s real estate it may be advantageous to distribute it to the stockholders before selling the company and have the company lease it back at market rates.
  • Understand that the purchase price takes into consideration that there will be no interest bearing debt to be assumed by the buyer.
  • What is the corporate structure and which would be preferred, selling the assets or selling the corporate stock?
  • Is the ownership willing to have their broker discuss the company with the company’s competitors? Often this is an easier sale and for more money but also there are additional risks (e.g. industry talk, customer information, product or service pricing) not found when selling within the unrelated private equity market. If a quiet sale is the goal then discussions with a competitor are usually not recommended.
  • Make sure the broker that you select is paid only when the sale is complete and with a fee structure calculated to incentivize an increased sale price. Only success is rewarded. Determine who within the brokerage company will actually be working on the marketing and the negotiations of your company. Associates are not senior partners.
  • Understand that for the time to complete a sale a reasonable target would be about 6 months. Is this a good time within your business’ seasonality or its industry cycle?
  • Is there someone within your company who can confidentially assemble the required financial data without disrupting the company’s business and without exposing the process within the company?
“Selling a business is a once-in-a-lifetime and lifestyle change that often affects multiple generations. So, use a specialist with years of experience. While this can be done by the business owner in an attempt to be frugal, our 25 years of this specific focus tells us that often the owner is reducing the sale price in multiples over the money saved from not paying a consulting fee.”, says Emmett Barnes, President and Founder of The Montana Group.