The title of the article on Businessweek.com sums up the reality of the current M&A market quite nicely. It reads, “The Economy Is Finally Strong Enough for Small Business Owners to Retire.” This is great news for many Baby Boomer business owners that delayed their exits for five years or more because of the past recession. Many of you are now reaching revenue and earnings of pre-recession levels. If so, it’s time to dust off your exit plans.
There is a common misconception among many lower middle-market business owners that private equity firms are only interested in making large “platform” acquisitions. In reality, nothing could be further from the truth.
One of the most interesting concepts that we introduce to business owners at our M&A seminars is the discounted cash flow method of business valuations. Quite a few attendees are aware of the most common method of how to value their businesses – a multiple of the most recent fiscal year earnings – because lots of industries have a “rule of thumb” that uses this method.
This is a question attendees often ask us at our exit planning conferences. Naturally we are a bit biased given what we do; however, based on our years of experience, there are several compelling reasons that you should consider hiring a professional mergers and acquisitions advisory firm. Some of these include:
This is a scenario we come across all too often: Family members, usually siblings, who often take over or inherit the family business, are not getting along, and ultimately disagreement begins to affect the daily operation of the company. Sadly, far too often we are called in when the bickering has already damaged the valuation of the company and the relationships have soured to the point where a quick sale is all that can be accomplished.
A few weeks ago one of my favorite business magazines, The Economist, published an article extolling the virtues of entrepreneurs. If you don’t regularly read this magazine, I strongly suggest adding it to your reading list. Because it is a non-U.S.-based publisher, it has a view on world events and the business community that is refreshing and enlightening.
The article, “Entrepreneurs Anonymous,” was one such article. The gist of the piece can be summarized in the subtitle: Instead of romanticising entrepreneurs, people should understand how hard their lives can be.
The term “dry powder” is in reference to the amount of capital committed to equity firms by their limited partners. In the M&A industry it is a great indicator of future demand on the part of equity firms to make acquisitions.
Since it has been quite some time since we looked at the “overhang,” or dry powder, available for use, I thought it would be good to take a look at the latest Preqin data. Preqin does a good job of tracking the private equity industry and recording the level of activity being seen by key players in this space.
This is a question far too many business owners contemplate late in the process of selling their companies. In fact, a significant portion don’t answer this question until AFTER their business has sold! In reality, you (and your spouse, friends, and family) should closely examine this question BEFORE even starting the exit process.
As Lewis Carroll once said: If you don’t know where you are going, any road will get you there…
I think this maxim has special relevance when it comes to exiting a business. All too often entrepreneurs wait until one of the seven big “D’s” hits to decide to sell:
- Distress (business and/or personal)
- Disinterest (burnout, boredom)
As we discussed in our last article, exit planning is a complex, time-consuming, emotional project for most business owners, the culmination of which is the transfer of the business to new ownership. This could be an internal transfer to employees via an employee stock ownership plan (ESOP) to children or other family members, or to an external person, group, or organization.