After prospective buyers have been pre-screened and have expressed sufficient interest in pursuing an acquisition of the company, preliminary due diligence begins. Preliminary due diligence is a basic analysis of the company, its financial position, etc. to whatever extent permitted by time and the willingness of the owners to divulge information at this stage. Typically, the transaction advisor is able to answer many general questions that may arise. For those questions needing more detailed or technical answers, the transaction advisor conveys the questions to the owners and delivers their responses to the prospective buyer. Continue reading
Once the owners of a business have made the commitment to pursue a sale or merger of their company, a great deal of time must be spent on those parts of the process that lead to the closing—free flow of information, coordinating site visits with prospective buyers, due diligence, etc. Whilst the transaction advisor will work with other advisors so that the business owners do not spend time on marketing the business and negotiating to the detriment of running the business, the process does require the owners to cooperate as needed to ensure a timely flow of information. Owners who drag their heels or do not fully cooperate in getting the required documentation put together for either the business appraiser or the transaction advisor jeopardize the successful consummation of a potential transaction. Continue reading
Lack of financial information from both the seller and the buyer of a business has the ability to quickly kill a deal. Nothing is more embarassing for the transaction advisor than to get to close the closing table only to find out that the buyer does not have the money to successfully close the deal. Professional transaction advisors typically have extensive experience pre-screening prospective buyers, which may include income verification, disclosures relating to assets, liabilities, and capital available to put into the deal, and/or letters of credit from a lending institution, etc. Continue reading
Most small business owners are skilled at running their business but do not have the background that is conducive to successfully negotiating a transaction involving their business. Lacking negotiating skills may result in leaving money on the table in the transaction. As this is not an optimal outcome for the business owner, it is wise to have an experienced, professional business broker/transaction advisor to negotiate for them to maximize the transaction terms. Retaining professional transaction advisors can help business owners achieve maximum return on the transaction as compared to the “for sale by owner approach.” Negotiating transaction value and terms is no easy task, particularly when the emotions of the owners may be involved directly in the negotiating process. Continue reading
The process of selling a business is, in many cases, a life changing event for the owners. Many consider the business their “baby.” As such, there is a great deal of emotion involved in the process of selling a business. It is not unusual for the owners to become very emotionally charged in attempting to decide how best to achieve an exit strategy and again once an offer is received. Given that the decision to sell the business has already been very emotional for the owners, adding an offer that the owners may feel is insulting only compounds the emotional aspect of the deal-making process. Therefore, a seasoned transaction advisor or business broker will help the business owner understand the price and terms relative to the negotiating strategy of the acquirer. Continue reading
The key to successfully marketing and selling a business is confidentiality. Business owners do not want customers, suppliers, and the competition to know that their business is available for acquisition. Unlike real estate brokers who hang a “For Sale” sign in front of the property, professional transaction advisors or business brokers maintain a high degree of confidentiality. Whilst the professional business broker may advertise the type of business available on websites or in trade journals, no information regarding the company is distributed until the prospective buyer has executed a confidentiality agreement and passed a pre-screening process which may include financial qualifications. Continue reading
Most business owners believe they know what their company is worth. As they may have worked to build the business, often from the ground up, they feel that their intuitive value conclusions accurately reflect the fair market value of the firm. In many cases, they are biased in their views towards the firm, and therefore, have an inflated sense of value associated with the business. Their value may differ substantially from the value that could be realized in an arms length transaction between a willing buyer and a willing seller. Continue reading
Many business owners are individuals who have started or acquired a business. Most of these business owners have considered or will consider at some point an exit strategy in order to retire, achieve liquidity to pursue other business ventures, etc. Exit planning may be part of the business owner’s overall strategy of acquiring, growing the business, increasing its value, and then exiting the business through a merger or acquisition. Throughout the process of buying, owning, and selling a business, the owner will generally rely on the experience and advice provided by professionals such as legal counsel, accountants, financial advisors, and management advisors. Continue reading
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA earnings are used by many valuation professionals and financial analysts as a method to compare the cash earnings of a subject company with cash earnings of comparable companies. This method of earnings comparison is useful because it equalizes differences between or among companies in their capital structures, their depreciation methods and tax rates. This “equalization” allows the analyst to make informed judgments about earning capabilities of each company.
Sometimes people use the two terms interchangeably. However, for valuation purposes there may be a significant difference in the two terms. Enterprise value is often referred to as the value of the invested capital which includes the value of the equity and the value of the firm’s liabilities. This could represent the asset side of the balance sheet and would likely include the hard business assets (property, equipment, etc.), cash, receivables, inventory, and the goodwill of the business. Equity Value is the enterprise value LESS all liabilities of the business. As various professionals may define these levels of value differently, it is important to understand exactly what a definition of a level of value includes or excludes under specific circumstances delineated in the valuation report.