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Small Business Transactions Up 18%, Sellers Earn Higher Sale Prices – According to Industry Report
October 16, 2014 / in Acquire a Business, Sell a Business / by Al Statz
It’s a very good time to be a seller. According to a report released on October 16, 2014, U.S. small business sale transaction levels are on pace for a record-breaking year. And while the post-recession market has generally favored buyers, a shift appears underway, with sellers now receiving higher selling prices, higher percentage of asking prices and improved cash flow multiples. The full results are included in BizBuySell’s Q3 2014 Insight Report, which aggregates statistics from …
A Sample Acquisition Due Diligence Checklist
October 8, 2014 / in Acquire a Business, Sell a Business / by Al Statz
In privately-held business acquisition transactions, as soon as a letter of intent or contingent purchase agreement has been negotiated, the buyer’s in-depth due diligence begins. To kick-start this phase of the transaction, the buyer requests from the seller all of the information that they need to conduct their investigations. Once the buyer is satisfied, the transaction proceeds to the closing phase. Due diligence document requests vary greatly in length and content, depending on the type …
Escrows in California Business Sale Transactions
August 22, 2014 / in Acquire a Business, Sell a Business / by Al Statz
Business “Transaction Escrows” protect the interests of buyers and sellers, and are used extensively by transaction attorneys and brokers in California. Then there is what’s called a “Holdback Escrow” which secures post-closing obligations and adjustments. This blog introduces you to both types of escrows and how they facilitate business deals. What is a Business Transaction Escrow? In California, for business sale-purchase transactions of all sizes and shapes, it is common to have an escrow agent serve …
What is an Earn-out?
June 26, 2014 / in Acquire a Business, Sell a Business / by Al Statz
An earn-out is when part of the consideration received for a business is based on future sales or earnings. Earn-outs usually come in to play in business acquisitions when a business has high risk factors, or when non-linear growth is reasonably expected, or when there is a significant gap in the price expectations between the buyer and seller. In all cases the parties share the risk and reward of future performance. Bridging a Price Gap An …
Why do business owners hire an M&A broker?
April 12, 2014 / in Acquire a Business, Business Strategy, Sell a Business / by Jim Leonhard
Recent clients “Jane and John Doe” were satisfied with the market value estimate of their manufacturing business, as determined by the independent valuation we prepared. Armed with this essential piece of information, they were ready to sell the business they had founded and grown with much effort over many years. John thought they should try to sell the business themselves. After all, weren’t they the best salespeople for their business? And why should they share …
What Sells Businesses? Quality Information.
January 8, 2014 / in Acquire a Business, Sell a Business / by Bob Altieri
I recently took on an acquisition client to help them locate and purchase a business here in Northern California. Over several months we looked at a dozen or so businesses offered by business brokers. What an eye-opener it was seeing how other brokers present information to prospective buyers! I certainly knew that prior to signing a non-disclosure agreement (NDA); one should only expect to see a 1-2 page blind executive summary with general information about …
Reducing Cost of Capital in a Small Business Acquisition
August 27, 2013 / in Acquire a Business / by Bob Altieri
Small Business Administration (SBA) guaranteed loans are widely recognized as one of the only reliable sources of third-party funding for small privately-held business acquisitions (up to $5 million), but do you know how this benefits the borrower’s cost of capital? Very few small business transactions are completed in which the buyer pays all cash. This is not just because most people don’t have a big pile of cash lying around; it’s also because financial leverage …
Do Strategic Buyers Share Synergies with Sellers?
August 1, 2013 / in Acquire a Business, Exit Planning, Sell a Business / by Al Statz
In successful M&A deals involving substantial synergies, the deal price usually falls in the range between the standalone fair market value of the target business and that value plus the full value of potential synergies. Value of potential synergies? Increased value (over and above fair market value) to a strategic buyer, involves synergies between the acquired and acquiring firm and the additional financial returns and therefore value created by those synergies . There is a “1+1=3” …
Goodwill Part II: Goodwill vs. Goodwill Value
March 22, 2013 / in Acquire a Business, Business Valuation, Sell a Business / by Bob Altieri
All businesses have goodwill; however, not all businesses have goodwill value! Goodwill, which is usually the largest portion of the purchase price of a business, is the sum of intangibles such as having a good location and trade dress, a negotiated lease in place, trained employees, a website, customers, etc. Not all businesses have goodwill value, which is measured by the amount of earnings the business produces adjusted for the risk of earnings continuing to …
Personal versus Enterprise Goodwill in a Business Sale
February 22, 2013 / in Acquire a Business, Business Valuation, Sell a Business / by Bob Altieri
Goodwill can exist in two different forms: Personal Goodwill, which is defined as an intangible asset that is attached to a person; and Enterprise Goodwill, also an intangible asset that is attached to a business enterprise. If goodwill is attached to an individual, it is non-severable since the person to which it is attached is not being sold. This also implies that the asset is non-transferable. Of course we often establish contractual arrangements between the …
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