Targeting the Right Kind of Buyer

Q: I am thinking of selling my business, but I would like to stay on as a consultant. What type of buyer is most desirable for this kind of set-up? Is it more advisable to go with a private equity group, an individual investor, or strategic buyer?

A: Most buyers of middle-market companies find it advantageous to keep the current owner involved in the company for at least a transition period, if not longer, after the acquisition. This is true of all the buyer types you mention. The length of time can vary widely, however, and is dependent on the buyer’s needs and the seller’s time frame for exit.  We vigorously negotiate on behalf of our clients during the sales process to obtain the best deal structure possible based on your needs.  Deal structures can vary from short term consulting agreements to longer-term earn-outs.  Or in the case of many equity firms, the sellers may be retained with a minority position in the new entity and then remain to run the company for a 3-5 year period until a second liquidity event.  Because of all the structure possibilities, it is vital that you remain open minded to any and all deal structures.  If you assume going in that you ONLY want a deal where you remain on as a consultant, you potentially will be closing the door on all the other deal structures out there, many of which could be more financially lucrative to you depending on the buyer.  So stay open minded at the outset and find the best buyer with the best structure you can!

Minimizing After-Sale Tax

Q: I am worried that the taxes I will incur after selling my business will be very significant, and therefore, lower the over-all sale amount. Can The March Group help minimize the tax deductions? Do you provide in-house tax advisers who can help about this?

A: We’re not tax accountants or tax attorneys and we recommend to each client that he/she retain such services.  However, there are very definitely a number of ways in which the costs of taxes can be substantially reduced upon the sale of a business.  Long-term capital gains rates are at only 15% and it appears that this will apply for the next two years at least.  There’s never been a lower tax rate for over 50 years.  There are traps to avoid as well.  The March Group prides itself in suggesting means by which the overall after-tax net to our clients may be maximized subject to review by a certified tax specialist.

Taxes are a critical component of transaction structuring, and yes we offer alternatives for our clients to consider, but again it is subject for review.

Factors to Consider in Business Valuation

This week, we give way to a question that business owners might have at the back of their minds, yet is not asked articulately enough.

Q: What factors do you take into consideration when you value a business?  What is the difference between an “economic value” and “market value” when valuing a business?

A number of steps are critical when valuing a business.  First, you need to “recast” your financials.  If you are like most middle-market business owners you use a variety of means by which  to  suppress profits (and pay less in taxes) and maximize your personal returns.   Although this practice is more typical than not, it does have the effect of reducing profits as illustrated by the company’s books.

Recasting allows your financials to be “restated” so that buyers will see the true profitability of your company.   Obviously this is critical.   Assuming that your books show your company making $500K in pretax profits but you have $300K in re-castable items, suddenly your true pretax operating profits are $800K.  This is vital to show buyers.   Keep in mind that recasting takes experience and knowledge.  If you don’t have any experience in recasting financials, hiring an experienced M&A advisory firm may be critical to this important step.

Once your books have been recast, it is vital to create projected pro forma revenue and earnings growth that is realistic, achievable, and defensible.   Buyers will closely scrutinize historic revenue growth and margins.   If you are showing dramatic improvements in either area over your five year projections, you will need to explain them.   Getting this part right is critical.   Too many deals fall apart at the 11th hour because of faulty or erroneous documentation.   Here too, having the services of an experienced M&A firm will help dramatically improve your ability to explain the past and sell the future of your company’s performance.

The topic of “economic value” vs. “market value” is critical in the evaluation process as well.  Simply put, an evaluation looks at the recast financials and places a “value” to buyers based purely on the “economics” of the company.   In other words, the value placed on your company during the evaluation phase is the base-line value or “economic value”.   It does not assume who the buyer may ultimately be (how could it?).  Therefore it does not factor in synergies that some buyers may pay a premium for above and beyond the “economic value” of your company.

The “market” value of any company is literally determined by the market.   Because of this, when you do take your company to market, never mention your “economic value” to any buyers.   Let them tell you what the company is worth because they will factor in synergies that are impossible to capture in the “economic” valuation.   Some synergies could be your competitive advantages, your employees, your location, or your customer list.   These are just a few.  There are more and they vary from company to company.

In summary, if you are going to take your company to market be sure to recast your financials to reflect its true profitability.   Be sure to develop defensible pro forma projections.  And be sure to clearly know the difference between your “economic value” and your “market value”.   Ultimately, the best way to ensure that this very complex process is done right is to obtain the services of an experienced M&A advisory firm.  You can do all of this on your own.   But we recommend that if you want it done right, hire an expert!

Candidates for Buyer of Business

Dear The March Group,

As I sell my business, will I get to see all interested companies that want to buy my business? Or are you going to sift through the companies before presenting an edited list to me?

– Issa, Gary, Indiana

Hi Issa, thank you for writing to The March Group.

Yes, our research specialists thoroughly read and review all the information regarding your company.  And then using several of the best available buyer databases sort for the best prospects by industry, by revenue, by region and other criteria including vertical and horizontal synergies.  This draft prospect list is then available for your review and comments.  Typical client feedback includes the deletion of certain prospects for a variety of reasons and the addition of others not captured by our sort.

In addition, many clients specifically request to review all prospects who have signed a Confidentiality Agreement prior to release of the Memorandum describing their company as one more check regarding those who will receive the disclosure information.  This last check assures our clients that only those qualified and intended receive the book.

Should you need further clarification, you may contact The March Group at 1-866-663-5806 or email us at support@marchgroup.com.

Thanks for writing to us. The March Group Complaints is always ready to answer your concerns, questions, inquiries and overall, your complaints about The March Group.

What is the Business Owner’s Involvement During the Sale Process?

Dear March Group Complaints, Since I will be working with The March Group team during the process of selling my company, how am I going to be involved? Will I be a passive presence throughout transaction?

– Carla, Arlington, WA
Hi Carla, thank you for writing. The March Group has clients who wish to be very involved in the process and those who wish to be less involved.  It is our responsibility to accommodate the wishes of our clients as to the extent of their involvement and we do exactly that on a consistent basis.

Once you have made the decision to go to market, you will review and approve buyer lists as well as a blind profile of your company, to be used for marketing.

You will also review the more comprehensive “Confidential Business Review” document that will be sent to screened and qualified buyers.

No one size fits all.   No business is quite like any other business.  We’re quick studies.  We provide valuable insight as to opportunities for maximizing value and for maximizing our clients’ after-tax net.  After all, it’s what you keep that’s critical…

Should you need further clarification, you may contact The March Group at 1-866-663-5806 or email us at support@marchgroup.com.

Thanks for writing to us. The March Group Complaints is always ready to answer your concerns, questions, inquiries and overall, your complaints about The March Group.

Who Will Manage Selling the Business?

Dear March Group Complaints, When I decide to sell my business through your company, who will I work with? Are you going to assign someone who will be on top of selling my business?

– David, Wichita, KS

Hi David, thank you for writing in. Throughout the process, from preparing your company up to its eventual sale, The March Group’s team of experienced professionals will be working with you at every step.

Two people are responsible for seeing your company through to sale after you become a client.  First a Client Services Vice President ushers you through the Comprehensive Business Assessment process.  Then, when you decide to go to market, a Managing Director assumes full responsibility for your account.  Throughout all phases of your relationship with The March Group, teams of individuals will work behind the scenes to properly assess and market your firm.

Should you need further clarification, you may contact The March Group at 1-866-663-5806 or email us at support@marchgroup.com.

Thanks for writing to us. The March Group Complaints is always ready to answer your concerns, questions, inquiries and overall, your complaints about The March Group.

Company’s After-Tax Value

Dear March Group Complaints, When I sell my company, I am concerned that the after-tax value might be very low compared to the price initially set for it. How does The March Group make sure this can be prevented?

– Michelle L., Salina, Utah,

Hi Michelle, thank you for writing to us.  During both the valuation and deal structuring processes, The March Group suggests tax strategies that sellers can use to minimize the costs involved in the sale of a business.

These suggestions can be reviewed and analyzed by your own tax specialists, who can incorporate them into your overall financial picture.

If you need further clarification, you may contact The March Group at 1-866-663-5806 or email us at support@marchgroup.com.

Thanks for writing to us. The March Group Complaints is always ready to answer your concerns, questions and inquiries related to The March Group or the sale of your business.

Preparing for the Sale of Your Business

Dear March Group Complaints, What should I do in preparation for the sale of my company? I would like to be ready when that time comes, so as early as now I want to be prepared.

– John Paul, Scottsdale, AZ

Hi John Paul, thank you for writing to us. In preparing for the sale of a company, The March Group will do a “Corporate Valuation Analysis” on your business. If later on you determine that it is not yet the right time to sell your business, we can provide a “Strategic Growth Analysis” of your company to help you face the challenges in growing your company.

The “Strategic Growth Analysis” is developed from a Mergers & Acquisitions perspective. It will help determine courses of action for your business that should help increase its value when you eventually go to market.

If you need further clarification, you may contact The March Group at 1-866-663-5806 or email us at support@marchgroup.com.

Thanks for writing to us. The March Group Complaints is always ready to answer your concerns, questions, inquiries and overall, your complaints about The March Group.

Alerts for New Opportunities

Dear March Group Complaints, Do you offer a service where I can get updates about the newest companies available for acquisition? I don’t always remember to check your website so this feature would definitely be very handy.

– Vanessa C., Tulsa, Oklahoma

A: Hi Vanessa! Thank you for writing in. The March Group has a free Market Alerts service that we encourage all of our buyers to enroll in. This is available to all of our registered buyers. Every time a new opportunity matching your specified criteria is added, we would send out an e-mail notification. To add, modify or delete your personal Market Alerts, log in to your Corporations4Sale account and visit the “My Profile” tab under “My Account.

Our registered buyers also get Transactions, The March Group’s monthly newsletter. It includes the following:

• details on new and featured listings;
• invitations to special March Group events;
• details on new buyer tools;
• and much more.

The newsletter e-mail comes out every month under the subject line “The March Group Acquisition Opportunities.” Watch out for it! (Please note that you can always opt out of the newsletter distribution by following the link at the bottom of the newsletter e-mail.)

If you need further clarification, you may contact The March Group at 1-866-663-5806 or email us at support@marchgroup.com.

Thanks for writing to us. The March Group Complaints is always ready to answer your concerns, questions, inquiries and overall, your complaints about The March Group. 

Importance of the Buyer Registration Form

Dear March Group Complaints, I am interested to see the businesses you have up for sale, but I noticed that the information available is very limited unless I complete a “Buyer Registration Form.” Why do I need to sign up as a buyer immediately?

– Willy P., Lafayette, IN

Hi Willy, thank you for writing to us. By completing a “Buyer Registration Form,” The March Group can better match your requirements to our inventory of acquisition candidates. We constantly update our roster of available companies based on new ones that enter the market, and those that have completed transactions. The selections you make based on the form’s questionnaire will help The March Group understand the characteristics, size and location of the business you seek in the current and future companies in our inventory. It will also outline your profile as a buyer that can help us understand your investment criteria and financial capability when we present you as a potential acquirer to our clients.

The March Group guarantees you that all information disclosed in the Buyer Registration Form will be kept confidential.

If you need further clarification, you may contact The March Group at 1-866-663-5806 or email us at support@marchgroup.com.

Thanks for writing to us. The March Group Complaints is always ready to answer your concerns, questions, inquiries and overall, your complaints about The March Group.