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M&A Advisor Tip: Stay Bonuses Add Value
September 10, 2021 / in Exit Planning, Sell a Business / by Al Statz
Confidentiality is important in a sale. But what do you do when critical employees must be informed? We recommend stay bonuses. A stay bonus provides an incentive for key employees to cooperate and assist with a sale. We see stay bonuses ranging from 20% to 100% or more of an employee’s salary. It’s common to allocate around 50% percent at closing and 50% six months or a year later. Buyers want assurances the management team will stick …
Can I retire if I sell my business?
September 7, 2021 / in Business Valuation, Exit Planning, Sell a Business / by Al Statz
Not every business owner wants to retire, but most do, someday. And in my experience as an M&A advisor, when an owner is ready, they want to move quickly. However, for business owners who have most of their net worth tied up in an enterprise that they personally manage, retirement planning is more complicated. If you are a business owner, obtaining answers to these two simple but powerful questions will bring clarity to your retirement …
How three private equity firms valued the same company
August 4, 2021 / in Business Valuation, Exit Planning / by Al Statz
As part of our annual State of the Market M&A conference, held virtually this winter, we invited three private equity (PE) firms to review and submit an offer on a hypothetical company. They revealed their offers at the conference, and we held a panel discussion on why they valued the company the way they did. We keep the invited PE firms confidential. They don’t know who else will be submitting “offers,” so there’s no collusion or comparing notes ahead of time. Because …
M&A Advisor Tip: Fix Gas Guzzler Before a Sale
August 4, 2021 / in Exit Planning, Sell a Business / by Al Statz
Working capital is like gas in a car—it makes your business go. So when buyers acquire a company, they expect some “fuel” to be included in the tank. But when business owners get successful and comfortable, they get lax about working capital. They establish a habit of fast payment, slow collections, and excess inventory, and they turn their well-oiled machine into a gas guzzler. Go into a sale in this condition and you’re basically giving away money. …
Burnout drives business owners to sell their companies
July 22, 2021 / in Sell a Business / by Al Statz
Business owners are burned out, worn out, and getting out. More than 1 in 4 business owners who put their business on the market this spring did so because of burnout. That’s according to a first quarter survey of business brokers and M&A advisors conducted by IBBA and M&A Source. Retirement still leads as the number one reason sellers go to market. That hasn’t changed in the Market Pulse survey’s nine year history. But this …
M&A Advisor Tip: Be ready when you are ready
July 22, 2021 / in Exit Planning, Sell a Business / by Al Statz
When a business owner says it’s time to sell, I ask, “How fast do you want to be out?” The answer I hear most is, “Yesterday.” But sellers underestimate how long the process takes. Once we sign our engagement agreement with the business owner, it takes about 9 to 12 months to sell. After that, expect a six-month to one-year transition. In an ideal world, you’d be working with an advisor 2-3 years before you …
Know the 3 types of business buyers and what motivates them
July 16, 2021 / in Sell a Business / by Al Statz
When selling your business, you may receive offers from three kinds of buyers: Individual, financial, and strategic. Here’s a look at the most common buyers and where their motivations lie. Individual buyer: A first time buyer looks at the business to get out of corporate America and control their own destiny. Some of these buyers are passive searchers and others have very specific targets and timelines in mind. The more motivated an individual buyer is, …
Understanding Discount Rates The Company Specific Risk Premium – Part 4 of 5
July 12, 2021 / in Business Valuation / by Joe Orlando
Up until now, our discussion of the discount rate as “one of the most important inputs surrounding the valuation of the business” has focused on overall market data that arrives at the basis of risk associated with the cost of equity for a privately held company. We’ve begun with a risk-free rate and added risk for equity and size. Now, we need to look at the subject company to determine if we should any additional …
Seller’s Market Sentiment Back to Pre-Covid Levels
July 6, 2021 / in Exit Planning, Sell a Business / by Al Statz
What a difference a year makes! Sellers of $1M+ enterprise value businesses have an advantage, with roughly 2/3 of M&A advisors and business brokers calling it a seller’s market for these larger businesses. Confidence is rising across all sectors. Market Pulse Survey – Quarter 1, 2021 Presented by IBBA & M&A Source Al Statz is the CEO of Exit Strategies Group. For more information on exit planning or to discuss a potential M&A or business …
M&A Advisor Tip: Expand the moat, reshape the hourglass
July 6, 2021 / in Acquire a Business / by Al Statz
Acquisitions work best when they accomplish one of two goals: expand the moat or reshape the hourglass. Expanding the moat means leveraging your core advantage. The more you can strengthen that advantage, the wider the moat around your company, protecting it from competitive forces. As for the hourglass, its narrowest point is your company’s primary weakness or limiting factor. If you can find a company that does that thing well, and acquire and integrate it …
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