During the past few years a new buyer of lower middle-market businesses has emerged. Called single family offices (SFOs) or multi-family offices (MFOs), these typically are high net worth families and individuals who traditionally have given millions of dollars to equity firms as limited partners. Their funds would then be pooled with other sources like pension funds, endowments, etc., and would be invested in a wide array of businesses.
Selling a privately held business is a very complicated process. In many ways it is far more complex than selling a public company simply because of the emotions revolving around the idea of selling a family business and exiting. Generational Equity focuses its practice solely on one group: owners of privately held companies. We do this so we can specialize in this niche and develop systems and procedures that are effective in finding buyers/investors for privately held, family-owned firms.
One of the toughest challenges we have to deal with when working with our clients is helping them to begin thinking like a buyer would about their businesses. Although this sounds like it should be easy, it isn’t. As you can imagine, most entrepreneurs are so focused on simply keeping the business operating that they don’t have the luxury of stepping back and evaluating the strengths, weakness, opportunities, and threats of the company from a buyer’s point of view.
One common trait I think nearly every entrepreneur has is a hatred of red tape, rules, systems and procedure manuals. Most business owners that I have had the pleasure of working with have told me that the reason they ultimately started their companies was because they wanted to be their own boss, making all the rules on their own and not have multiple layers of bureaucracy to deal with.
I can certainly commiserate with their feelings on this topic. We all hate to waste time in meetings and certainly we all too keenly understand that rules can be binding in an entrepreneurial organization. So striking out on their own works well and running a lean, mean operation with few rules can actually perform well for a few years.
We are quite pleased to announce that our firm, Generational Equity, has been awarded multiple M&A Advisor awards for our efforts in 2014. Being recognized by this leading merger and acquisition association is quite an honor, and to have won multiple awards for our work in 2014 is humbling and thrilling. It proves to us, once again, that the efforts of our professionals are clearly successful.
Like many of you, we operate in a highly competitive industry. The M&A Advisor Awards are truly “peer group” recognitions, which mean a great deal to us.
Topics: generational equity
Business owners are often surveyed regarding their mental readiness to exit their businesses. I have seen results that indicate a fairly high percentage that are not prepared, as high as 80% in some assessments. This is not surprising since most business owners that we meet with at our exit planning conferences are so busy running their businesses that they simply don’t have time to set aside for examining their exit options.
That is why so many business owners who attend our meetings thank us afterwards because the information we share is educational AND designed to help them begin to think about the issues surrounding the entire exit process.
And exiting truly is a process NOT an event. You can’t reach a point in time and say to yourself, next month I am going to exit! Or even six months. The reality is you need to begin preparing your business, and just as importantly, yourself, well in advance of the exit event.
Many of you have begun the process of developing an exit plan for your company. Some of you even have an idea of the type of buyer you think would be the “perfect buyer” of your business. And far too many of you have already determined specifically who the buyer will be and ultimately how much you will get for the company and what type of deal structure you would accept.
Recently an article in Middle Market Growth magazine caught the attention of Tom Staszak, one of our managing directors. Entitled “CREO Capital Finds Its Mojo with Food Focus - Bet on Underperformer Leads to Budding Portfolio,” the article did a good job of highlighting how finding the right private equity firm (a.k.a. PEG, which is short for private equity group) can be a win-win scenario for the ownership of a privately held company.
One of the key items on most buyers’ due diligence checklist is this question: What strategies has the business implemented to adjust to changing market demographics? And two follow-up questions: Is the business in tune with why its customers purchase its products, and does it have a legitimate sales and marketing program?
An article was published recently in the Los Angeles Times that has remarkable implications for our economy. It caught my attention because the potential ramifications outlined regarding the growth of business startups during the past three decades were very surprising. Reporter Walter Hamilton explains: