Client #1344

Sales: $1,564,000

Seller’s Discretionary Cashflow: $260,000

List Price: Call

Overview

The Company has a unique ability to reach the regional sports enthusiast marketplace through it’s multiple channels via print, online and radio that other sports media companies in the area cannot.  The company is well known and respected for its editorial passion, voice, creativity, entertaining blogs, and on-air personalities. With its unique distribution points throughout the region, ensures strong penetration to their clients target audience.

Growth Opportunity

The Company has opportunities for additional growth by adding dedicated radio salespeople and monetizing digital content for the magazine.

They are the dominant voice and brand in the region they cover.

Deal flow has been steadily increasing in 2010, and with a projected $10 trillion dollars changing hands over the next 15 years from the sale and transfer of privately held small & medium size businesses. This makes right now the perfect time to lay the foundation for strategic acquisitions.

In this Webinar, held on November 16, 2009, we discussed the six steps to a successful acquisition:

1. Identifying the right company: There are many components you need to consider up and beyond the numbers. We’ll touch on the key elements you should focus on – customers, employees, profits.
2. Approaching: Unless you love hostile takeovers, there are more practical ways to approach your competitors. We’ll share with you the successful approach we use that actually opens the door to productive discussions.
3. Analyzing/Valuation: Here we’ll cover how to understand the numbers, how to identify potential red flags, and the items you should focus on. We will give you a free easy to use spread sheet that will save you hours of work.
4. Crafting your offer: Key elements you must include, purpose, terms and deal structure. We give you a free sample Term Sheet you can use to make your offer.
5. Due Diligence: The due diligence checklist, know what’s important
6. Closing: Keys to successfully closing your deal.

Client#: 1338

Sales: $1,962,372

Seller’s Discretionary Cashflow: $229,159

Price: $680,000

Overview

The Company is a boutique remodeling company based in Bay Area. With a dedicated staff and showroom, they provide complete “Design to Warranty” remodeling services, specializing in kitchen and bath renovations.

The business offers custom and semi-custom cabinetry. All cabinets and miscellaneous cabinetry materials (moldings, etc.) are purchased from established manufacturers.

They also offer a complete line of the best appliances, countertops, plumbing fixtures, flooring and tile that are available today.

The total number of employees is around 6.

Founded 1987

Facilities:

Customer Service hours: M-F 9:00-5:00, Sat. 9:30-2:00
Office Size: 2,900 sq.ft.
Lease Terms: Owner Occupied
Lease assumable: Yes
Facility Type: Retail Showroom

Products and Services

The Company is a “Cabinet Sales Business,” who provides all necessary products plus installation services to completely remodel any kitchen or bath. They do not, however, build the cabinets themselves, instead relying on the highest quality cabinet manufacturers in the industry.

The Company outsources most of the construction and manufacturing. They use the same subcontractors for almost all jobs and do not have the overhead of a cabinet shop. That is, they manage the process, making it easy to scale the business up or down as needed.

The average kitchen remodel is between $35,000 and $45,000. The average bath remodel is between $15,000 and $20,000. All projects are residential. The average client is married, 45 years old or older. These are homeowners who have decided to stay in their homes for 5 or more years.

Industry Overview

Although the remodeling business took the same hit in the past year as new home construction, there are indications of improvement, initially with bathrooms, and as consumer confidence returns, followed by demand for kitchen remodels.

Aging homes, a revitalized housing market, and less mobility than in previous decades will mean an increase in remodeling requests. More than ever, people are staying put and fixing up their homes instead of “upgrading” to a new home.

Growth Opportunities

The most significant growth will be tied to an improvement in the economy and consumer confidence. However, there are a number of steps that can be taken to prepare for and take advantage of economic improvements.

The strategies fall under two categories:

• Building the referral network; and
• Internet marketing, including social networking

Competitive Advantage

The Company’s primary advantage is the size of the company. By having a small, dedicated staff, they’re able to offer the attention to detail and quality that’s unavailable from the Big Box stores, and impossible for the one-man-shops to offer.

Reason for selling:

Retirement

Client #1332

Sales: $1,383,212

Seller’s Discretionary Cashflow: $215,550

List Price: Call

Overview

The Company has been covering the regional business news in this market for over 25 years and is recognized as a trusted source for business coverage. Published 12x per year the Company not only covers the regional news affecting local businesses but profiles business leaders and companies positively impacting the regional economy. The Company also has a strong web presence that is updated on a daily basis, and produces numerous events each year to honor local business people.

Growth Opportunity

The Company has a great opportunity to publish additional annual editions, industry specific special editions, electronic distribution, and additional live events and shows.

Client #1319

Sales: $7,455,753

Seller’s Discretionary Cashflow: $840K

List Price: $ Call

Overview

They manufacture capital equipment for fresh produce packers who are being forced to automate their facilities due to the shortage of labor. They have patents, growing rapidly and now the owners desire to transition to a Buyer who can manage the growth and operations.

Facilities

The Company is in a rural location and it is anticipated the Company will be moved out of the area. The Company needs about 10,000 square feet of combined office/warehouse space. The office and shop are from a previous business and are not included in the sale. The shareholders own the building personally.

Client #1331

Sales: $11,715,563

Seller’s Discretionary Cashflow: $1.1M

List Price: $ Call

Overview

The Company is a Tier 1 supplier of Printed Circuit Boards for Medical and Military applications. The Company occupies a highly defensible niche with long term customer relationships. They have enjoyed continued growth, while at the same time retaining their margins.
Growth: The Company has opportunities within their existing niche of Military and Medical applications.

Facilities

The Company leases a Shareholder owned facility with room for growth. They have all of the necessary permits in place for planned expansion. They recently extensively upgraded the facility and it shows beautifully. The owner feels that the current facilities are ample for the future growth of the Company up to revenues of about $20M per year.

Management

The Company has a deep roster of skilled managers, engineers, and technicians.

Client #1325

Sales: $1,936,341

Seller’s Discretionary Cashflow: $296,854

List Price: $1.25M

Fixed Assets: $290,000

Employees: 14

Overview

This is a great business with solid reoccurring revenues and twenty years of history. They provide products, services, and training for fire and safety in the marine industry. It is a regulated industry with oversight from the: United States Coast Guard, Foreign Vessel Class Societies, Federal OSHA, D.O.T., Fire Marshals, and many more.

Safety and fire protection regulations drive the customer to use the company’s services. They have little competition because of the barriers to entry created by International, National, State, and Local bureaucracies that require ships to use licensed, accredited, and approved vendors. The Company has eleven licenses required to operate around the globe.

Growth

The Company has opportunities within the marine industry, in the Commercial Industrial area, and in Public Agencies markets where they already have significant accounts.

Facilities

The Company leases an approximately 9,100 square foot building with a 10,000 square foot fenced yard. The lease is assignable and runs through 2012. They recently extensively remodeled and seismically upgraded the facility and it shows beautifully. The owner feels that the current facilities are ample for the future growth of the Company up to revenues of about $8M per year.

They are the dominant player in their niche market.

Please call us for more information about this business.

You call a California Business Broker or other business broker to say that you’d like to sell your middle market business ($1M to $50M in sale price). What happens next?

We’ll assume the role of a buyer. This is the safe and confidential way to “test the water” We review your financials, perform a recast, and come back to you with a valuation of what we feel the business is worth based on our experience and knowledge of your market.

We’ll also offer our professional opinion on areas on which you can focus on to increase the value of your business. We’d much rather see you sell for double the price at a later time than accept a low-ball offer today.

Taking the time to prepare for the sale of your business generally leads to a better sale, a much faster close, and a far easier selling process.

We Start With Low-Hanging Fruit

Your business must look good to your prospective buyers. Since the first thing they’ll look at is your financial data, that’s also the first place we’ll go. It’s also usually the easiest and most cost-effective way to build value in your business.

For example, you are probably not using what’s called “Twelve Trailing Month Accounting” (TTM). However, that’s how banks typically make loans today, so implementing TTM actually increases the “value” of your business for a buyer because it’s easier for them to get bank loans.

We’re going to review all your accounting issues first, including having “reviewed” versus “compiled” statements, divisional reporting, inventory reporting, and expense and revenue recognition. You can, for example, make your business more attractive overall by separating out the various divisions in your accounting, allowing buyers to see specifically where they have the most to gain or lose.

We’ll then run through the same process on your leases, IT, personnel and items that are unique to your business.

These reviews can be fairly quick and can uncover potential problems or issues that would hinder the sale or reduce the value from the perspective of the buyer.

Proceed to the “Cleanup” Phase

M&A Advisors (California Business Brokers) often refer to the preparation process as “cleaning up” your business. This cleanup process can be quite extensive, and if you do everything that’s sometimes recommended, it can take you years.

Rather than give you a laundry list of cleanup chores, we’ll provide a recommended list, starting with the low-hanging fruit, combined with a cost-benefit analysis so that you can determine which tasks, if any, you’ll take on.

Here are a few of the other areas which you may be asked to consider:

• Assets. There may be assets which you wish to retain, or which your buyer may find objectionable, such as a vacation home, car, or other company-owned items. In fact, this is a good time to create a comprehensive list of all the company’s assets.
• Clear, clean records. You’ll want to ensure that your financial and corporate records are in good order. Make any year-end accounting adjustments prior to the sale, and make sure that you have up-to-date minutes of all meetings.
• Trademarks, patents, and copyrights. Along with cleaning your financial records, make a list of all your trademarks, patents and copyrights.
• Spic and span legally. Be sure to settle any lawsuits and terminate any unfavorable contracts before going on the market. You don’t want to give anyone an opportunity to devalue your business.
• Clean the premises. While it should be obvious that you’d want to clean and organize your premises, you’d be surprised at how many owners don’t bother.
• Close agreements. If you’ve got any verbal agreements in place, this is a good time to terminate or honor those agreements. The buyer will see these as a red flag.
• Issue all stock shares. Again, it’s a matter of making things neat and tidy for a potential buyer.
• Document all loans. Document all outstanding loans that have been made to or from shareholders and employees.
• Warranties. Gather information about any service warranties or warranty claims.

And Don’t Forget About Technology

IT (Information Technology) is often an overlooked area when preparing a business for sale. The buyers will want to know that your hardware and software are up-to-date, and able to handle their expected growth.

You may also want to update your website and Internet capabilities. Today, more than ever, companies are using the Internet as an effective marketing and sales tool.

Your goal (and ours) in preparing your business for sale is to place your business in the best possible light in the eyes and minds of the buyers. We look at your business from their perspective, and outline the most effective ways to make your business look better to the buyer.

The result is a significantly increased chance that your business will sell, sell to the best possible buyer, and with agreeable terms for you. A good California business broker can help you with all your preparation work for selling your business.

Selling a business in which you’ve poured much of your life’s energy over the past dozen or more years can be both a rewarding and an emotionally challenging experience.

If you’re getting ready to sell your privately-owned middle-market business, then you’ll want to consider more than the selling price. Three out of every four middle-market business sales fail to close because those businesses shouldn’t be on the market. They’re simply not prepared for a sale, or were given poor advise about selling (a middle-market business is one which sells for between $1M and $50M)

The Two Parts of Preparation for Selling Your Business

1 Psychological

The psychological or emotional conditions surrounding the sale for the owner and other stakeholders…

2 Tactical

And, the practical or tactical side of cleaning up a business, which includes accounting, IT, records, contracts, etc.

Selling a business that you’ve owned and managed for years is not easy, and being “of retirement age” is not a reason to sell. It is a reason to prepare for an eventual sale. I’ve helped people in their 70′s who decided to keep their businesses, and 72-year-olds whom I’ve helped to buy new businesses. We find age an often cited reason for wanting to sell, but not a very accurate reason to sell. Knowing when to transition from your business is as important as knowing how.

This article focuses on the psychological and emotional aspects of selling a business, and on the questions we’ll ask you when we first meet.

[Note: Please read "Strategies and Tactics to Prepare Your Business For Sale" for more suggestions on preparing to sell a business.]

Questions to Answer Before Selling a Business

Your answers to these questions will help us, as your M&A Advisors (business brokers), to better understand which buyers will be the best fit, as well as establishing the optimum timeline for selling. More importantly, the answers to these questions will enable you to see your own readiness to sell.

First, answer these questions from your own personal perspective.

1. Why do you want to sell? It’s the most obvious, yet often most difficult question to answer. There’s no perfect answer, only the answer that’s true for you.
2. What will you do when you sell the business? Having a plan for what you’ll do after the sale will help the sales process and keep you motivated.
3. What is the biggest reason you would NOT sell? We’ll ask you this question to ensure that we’re not marketing to buyers who aren’t a good fit.
4. What concerns do you have about the future of the business? For example, you might want to see it continue to grow, or you’re concerned that it will evolve into obscurity.
5. What do you like most about the business? Sometimes, answering this question leads the business owner to conclude that he or she would rather keep the business.
6. What do you like least about the business? This gives us clues into other reasons you might want to sell your business.

Now, answer these questions after discussions with the other owners and your key management team:

1. What do suppliers and/or customers have to gain or lose from the sale? For example, you may have been giving certain suppliers preference or giving customers below market pricing, which might cause them to oppose the sale.
2. What do current employees stand to gain or lose from the sale? I have seen deals fail because one or more non-owners saw more personal gain in the failure than in the sale, and consequently sabotaged the deal for their benefit
3. What do people close to you think about the sale? This includes your spouse, family, and friends.
4. Are there other groups, such as lawyers, bankers, accountants, and other professionals who might be affected by the sale? Quite often, your stakeholder group extends well beyond the owners, and their input and influence can help or hinder a sale.

Finally, once you’ve got a good handle on your reasons for selling and the concerns of other stakeholders, you’ll want to create a list of all concerns you have about selling the business. This list might include:

• The selling price…
• Selling terms…
• Ongoing success of the business…
• Continued employment of current staff…
• Your continuing role in the business…
• And the ongoing relationship of the business with your customers and suppliers.

By considering these questions up front, you’ll know the best time to sell your business, as well as the conditions under which you will most likely accept an offer. You’ll also give us, your M&A Advisors, valuable information for pursuing buyers who are a fit for your criteria. You’ll do the same with any California business broker, simply because it helps in the long run.

How Ward Wildanger sold to his largest competitor…

It may seem like it would be easy to sell your business to a competitor, and sometimes it is. But, if your competitor is smart, he’s going to do everything he can to make sure that the integration and transition of your business into his is a smooth one.

In the case of Ward Wildanger, owner of Eurodesign, a manufacturer of wall bed and custom closets, selling to his biggest competitor was no simple feat.

In October of 2004, CPA Gary Strutz referred Ward to us to help him sell his company. Ward was nervous about the process and was happy that we were willing to become active participants, and in fact preferred that option.

We found that Ward’s major competitor was interested in buying Ward’s company. The biggest risk of negotiating with a competitor is that if they back out from the deal, they now have considerable insight into your organization.

Prove You’re a Real Buyer

So, we told the owner of Ward’s competitor that they’d need to prove to us they had the money to buy Ward’s company, and that they’d have to agree to strict confidentiality rules before we’d give them any detailed information, including the name of Ward’s company.

Once they “showed us the money” and signed the confidentiality agreement, we didn’t stop searching for buyers. We brought in a few other potential buyers to keep Ward’s competitor honest and interested.

Then the fun started.

The due diligence process was an exhaustive one, taking about six full months to complete. Ward greatly appreciated that we not only attended every single weekly breakfast meeting, but that we also handled every piece of paper, email and phone call personally.

The buyer spent considerable time getting ready to integrate Ward’s business into his before writing a check. We had numerous issues to deal with, including patents, warranties, customer deposits, and multiple types of WIP and a Finished Good accounting issue.

There were multiple leases, employee issues, and a number of “post merger” concerns that we dealt with pre-merger. The complexity of such a deal requires considerable groundwork and patience.

For Ward’s part, he was glad that we were so involved. “This is something I’d never try to do alone,” he says, “and I’m very pleased that Kris never left me to deal with the buyer alone.”

The end result was favorable for everyone concerned. The transition went smoothly, and Ward ended up working for the new owner for four years before retiring.

Ward has become a lifetime friend, and the buyer continues to talk with us frequently about his business.

It was hard work, but it was definitely a win for everyone.