23 Oct Around the Web: A Week in Summary
A recent article from Forbes entitled “Don’t Be Delusional About Growth When Buying A Business” explains the dangers of focusing on a business’s growth potential too much during the due diligence process.
From an outside perspective it is easy to look at any business and find a plethora of growth opportunities. To an inexperienced buyer this can make a business look more valuable than it is because they can see the potential it has. However, this can be a big mistake since buyers are often inexperienced in the direct industry and lack details on what the current business owner has or has not tried previously. A more effective route to making a sound purchase would mean focusing on two main factors when evaluating a business:
- Stability – Before any business can grow it has to have a solid foundation. Take a deep look at the foundations of the business before getting excited about growth opportunities.
- Reality of No Growth – Use your due diligence to determine what would happen if this business did not grow at all. Will you still make a reasonable profit? Does the current price and terms make sense?
A recent article from BusinessBroker.net entitled “Keep It Confidential” discusses the importance of maintaining the confidentiality in a business sale.
Selling a business and selling a house may seem like a similar process from a distance. However, there are a few major differences between the two processes. One such difference is the importance of being discrete during the business sale process. News of the business being sold could cause valuable employees and clients leaving the business and therefore damaging its bottom line. Similarly, proprietary information regarding business operations could have detrimental effects on the business if it were to land in the hands of a competitor. For these purposes, a business for sale listing will refrain from revealing any information that could identify the exact company that is for sale, and once a buyer shows interest they will be asked to sign a non-disclosure agreement before any further information is released to them.
Given the sensitivity of a business sale, it is very important that potential buyers adhere to the non-disclosure agreement. The only individuals with whom they may share confidential information regarding the company in question are those who are on their advisory board. Regarding the sale of a running business, discretion is extremely valuable because the process is a delicate one from start to finish in order to ensure that things continue to run as smoothly as possible during and after a transition of ownership.
A recent article from Axial entitled “Middle-Market Dealmaking Continues to Outperform” details the current state of market conditions for 2019 and provides comparisons to previous years as well as projections for years to come.
Comprising 82.4 percent of all U.S. buyouts for the past five years, the middle market continues to dominate the private equity sector. In comparison to last year, 2019 is on target to outperform 2018’s record breaking sales with an increase of 12.9 percent. Still, funds that were once abundant in the middle market are increasingly being eaten up with the swelling sizes of mega firms in the arena.