13 Mar Around the Web: A Week in Summary
The following information has been sourced by Business Brokerage Press for the benefit of the business brokerage community. The views of these articles do not necessarily represent the views of Business Brokerage Press. We hope you find this information helpful.
A recent article from Axial entitled “12 Things Not to Do In M&A: A Business Owner’s Guide on How to Approach the M&A Process” provides guidance on avoiding common mistakes during an M&A process based on insights from investment bankers, investors, and business owners. Here’s a summary of the 12 key tips:
- Don’t overlook exit planning: Create a well-developed succession plan to ensure success.
- Don’t underestimate the importance of the right advisor: Choose an advisor to position the company, provide negotiation advice, and increase the likelihood of closing.
- Don’t neglect your employees: Focus on employee engagement to maximize valuation.
- Don’t fail to diversify your personal assets: Reduce dependence on the business by diversifying investments.
- Don’t forget to get your financial house in order: Understand key value drivers, reduce financial risk, and prepare for due diligence.
- Don’t go overboard on EBITDA adjustments: Ensure EBITDA adjustments are appropriate and supported.
- Don’t let preconceived notions rule your deal process: Keep an open mind about potential buyers.
- Don’t neglect to disclose important elements of your history: Disclose everything to avoid surprises during diligence.
- Don’t overlook chemistry: Consider compatibility between the founder and buyer.
- Don’t neglect terms and obsess over price: Evaluate deal terms, including consideration, stock protections, and earnouts.
- Don’t fail to do your own diligence: Fully understand deal terms, such as earnouts, before committing.
- Don’t underestimate the complexity of integration: Focus on communication and transparency to ease the integration process.
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A recent article from BizBuySell entitled “Bridging the Price Gap: Negotiation Tactics for Small Business Transactions” discusses creative solutions for addressing discrepancies between the seller’s desired price, the buyer’s offer, and the actual market value of a business. Here are the key points:
- Bump the Lease Rate on Seller-Owned Real Estate: If the seller owns the real estate, increasing the rent above market rate for a specific period can bridge the price gap.
- Hire the Seller as a Consultant: Offering the seller a payout over time through a consulting agreement can be an alternative to adjusting the purchase price.
- Seller Note: Seller financing through a seller note can offer a decent return on investment and advantageous tax structuring for the seller.
- Offer an Earnout: This involves setting specific, simple, and gross revenue-based metrics to determine additional payments based on future performance.
- Seller Note with the Right to Offset: If certain requirements, such as revenue targets, are not met, the seller note can be offset by a predetermined amount.
- Offer a Premium Interest Rate Above Market on a Seller Note: This method can bridge the price gap, but it’s important to stay within financing guidelines and ensure the business can afford the payments.
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A recent article from Viking Mergers and Acquisitions entitled “Why Valuing and Selling Your Small Business Fast Could Be a Game-Changer” article outlines six compelling reasons why small business owners should consider selling their businesses within the next 12 months:
- Capitalizing on Market Dynamics: With a recovering global economy and increased investor confidence, the current market presents an ideal opportunity to maximize the value of your business.
- Strategic Timing: Being proactive in initiating the valuation and sale process allows for thorough market assessment and strategic positioning.
- Record-Breaking M&A Activity: High levels of merger and acquisition activity mean there’s significant interest from investors and buyers in acquiring small businesses.
- Tax Benefits and Planning: Selling within the next year can provide substantial tax benefits if favorable tax laws are utilized effectively.
- Pursue New Ventures: Selling opens up opportunities for entrepreneurs to pursue new ventures, explore different industries, or take a break.
- Value and Mitigate Risks: Acting promptly ensures capturing the highest value of the business while minimizing potential risks associated with market fluctuations.
It’s crucial to seek guidance from experts like business brokers, M&A advisors, and legal experts to navigate the complexities of the selling process effectively. Small business owners should seize the opportunity within the next year to unlock the value they’ve built and transition successfully to their next entrepreneurial endeavor.
