Will appear on Seller pages – RECENT SELLER ARTICLES

Exit Strategies Group Advises Clayton Controls in Sale

/in , , /by Al Statz

Exit Strategies Group recently served as financial advisor to the owners of industrial automation solutions provider Clayton Controls, on their sale to KKR portfolio company Flow Control Group. Effective February 3, 2025, this acquisition adds market coverage, talent and technical services to FCG’s growing industrial automation group. Transaction terms will not be disclosed.

Founded in 1967, Clayton Controls is an automation solutions provider serving California, Nevada and Arizona manufacturing clients in several industries. ISO-9001 registered Clayton Controls designs and builds UL 508A custom control panels and other engineered solutions and offers a range of other engineering and logistics services to address clients’ unique industrial automation needs. Technologies offered include machine control, robotics, motion controls, machine vision, sensors, safety, pneumatics, vacuum and others, from leading global manufacturers.

Chris Brown, President and owner of Clayton Controls said, “The automation industry knowledge and M&A experience of Exit Strategies Group’s team was invaluable to us. First, they advised us on preparing and positioning our company for an acquisition. Then they generated interest and produced attractive offers from multiple qualified candidates, and their counsel during the LOI negotiation, due diligence and closing phases helped us navigate complications and resolve challenges that arose along the way.  We could not be happier with their advice and services and the results that they helped us achieve.”

Exit Strategies Group initiated this transaction and served as M&A advisor to Clayton Controls. “Clayton Controls is a quality organization with unique control system design and production capabilities. We were pleased to achieve a win-win deal with the right partner to help them continue to grow and prosper in the West Coast industrial automation market,” said Al Statz, President of Exit Strategies Group.

“This transaction highlights our abiding commitment to serving closely-held North American industrial technology companies.  Our automation industry experience includes technology suppliers, value-added distributors, control system integrators, custom machine builders, and repair service providers. Since our founding in 2002, we have advised on well over 100 M&A transactions.”

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For questions or information about Exit Strategies Group’s sell-side M&A, business valuation or strategic exit planning services, contact Al Statz at 707-781-8580 or alstatz@exitstrategiesgroup.com.

What is the purpose of a letter of intent (LOI) in a business sale?

/in , /by Al Statz

A Letter of Intent (LOI) in a business acquisition serves as a blueprint for the deal by establishing key terms, as well as process and timeline, before moving into due diligence and final agreements. It signals serious intent, based on what is known today, without final commitment. It helps both parties align their expectations and minimize wasted time and costs.

Key Purposes of an LOI in Business Acquisitions

1. Establishes Key Deal Terms

  • Defines the purchase price and deal structure (e.g., asset vs. stock sale, earnouts, seller financing).
  • Clarifies terms around payment, contingencies, and liabilities.
  • Helps both parties determine if they are aligned before investing in full due diligence and legal work.

2. Creates a Framework for Due Diligence

  • Allows the buyer to dig deeper into financials, operations, and risks before committing.
  • Gives the seller an idea of what information will be required and what potential hurdles may arise.

3. Includes Exclusivity to Prevent Shopping the Deal

  • Most LOIs include a “no-shop” clause, preventing the seller from negotiating with other buyers for a set period.
  • This protects the buyer from wasting time and money only for the seller to accept a better offer elsewhere.

4. Signals Serious Intent Without Full Commitment

  • While mostly non-binding, an LOI shows that both parties are serious about making a deal.
  • Some provisions, such as confidentiality, exclusivity, and break-up fees, may be binding.

5. Reduces the Risk of Late-Stage Surprises

  • A well-structured LOI helps avoid major renegotiations when drafting the final purchase agreement.
  • The clearer the LOI, the less room for misunderstandings later.

Why LOIs Matter

The LOI may be the most important document in a business sale process. A well written LOI reduces misunderstandings and renegotiations, and increases the probability of a successful closing. A weak or vague LOI often leads to delays, disputes, cost overruns, and failed deals.

Are you working on an LOI right now or planning to sell a lower middle market business? Contact Al Statz with any questions, or for information on our highly successful structured sale process.

Beyond price: What matters most when selling your company

/in , /by Al Statz

Most of our seller clients go into a sale thinking their highest priority is getting top dollar. And sure, price matters—it’s your financial reward for years of hard work. But many clients learn along the way, that other factors often carry just as much weight—sometimes more. If you want a successful and satisfying sale, look beyond the headline sale price.

Strategic Fit: Will the Buyer Honor Your Legacy?

The right buyer isn’t just the one offering the most money—it’s the one who sees value in what you’ve built. Many owners care deeply about their company’s culture, employees, and future direction. A buyer who shares your vision and wants to grow what you started may be worth more than a higher offer from someone looking to wring maximum profit out of your business.

Deal Structure: Terms Matter More Than Price

A higher price isn’t always the best deal. The structure—earn-outs, seller financing, holdbacks, rep and warranty insurance—can make a big difference. A slightly lower offer with favorable terms can often put more money in your pocket in the long run than a big number with strings attached.

Taxes: It’s Not What You Make, It’s What You Keep

How a deal is structured—stock sale vs. asset sale, purchase price allocation, installment payments vs. lump sum—can dramatically impact your tax bill. A “higher” price can shrink fast after taxes if the deal isn’t structured wisely. Smart sellers work with advisors to maximize after-tax proceeds, not just the headline number.

Legacy and Employees: What Happens After You Leave?

Many owners care deeply about their employees and the legacy they’re leaving behind. If keeping your team or family employed, maintaining company values, or ensuring community involvement matters to you, it may be better to select a buyer who aligns with that vision. It’s not just about money—it’s also about what happens when you’re gone.

Your Role Post-Sale: Are You In or Out?

Do you want a clean break, or are you open to staying involved? Some buyers need sellers to stick around for a transition—or retain partial ownership. Others can offer a full and quick exit. Know what you want and make sure the deal matches your expectations.

Speed and Certainty: A Fast Close Can Be Worth More

A higher offer isn’t worth much if it drags out for months or falls apart at the last minute. Buyers with secure financing and a smooth path to closing can be more attractive than those offering more money but bringing uncertainty. Time kills deals—certainty has value.

The Bottom Line

Yes, price matters, and we’re all about helping our seller clients maximize value. But a successful and satisfying sale is about more than that. Strategic and cultural fit, deal terms, taxes, legacy, and closing certainty all play a role in selecting a buyer and optimizing sale outcomes. Sellers learn that the best deal isn’t always the highest price—it’s the one that checks the most boxes for achieving their financial and personal goals.

For further information on this topic or to discuss a potential M&A advisory or exit planning need, please contact Al Statz.

U.S. Private Equity M&A Activity and 2025 Outlook

/in , /by Al Statz

Exit Strategies Group sees 2024 as a turning point for U.S. acquisitions by private equity groups, for both new platform and strategic add-on acquisitions, and we’re optimistic that market conditions will continue to improve in 2025.

U.S. M&A activity, particularly in private equity (PE), rebounded strongly in 2024, with deal value rising 19.3% and deal count up 12.8%; fueled by stabilizing inflation, improved credit access, and a more favorable interest rate environment.

The hottest sectors were IT—especially software, where deal value surged 32.4%—and healthcare, which saw renewed interest despite ongoing regulatory hurdles. Software M&A thrived as PE firms chased high-margin, cash-flow-rich assets, while healthcare rebounded after years of regulatory stagnation.

Leveraged buyout (LBO) financing improved as banks re-entered the market, though loan volumes remain below pre-pandemic levels. PE dealmaking remains highly financing-driven, as it always has been!

For further information on M&A market conditions or to discuss a current need, contact Al Statz.

 

How important is the management team when selling a business?

/in , /by Al Statz

Selling a lower middle-market business involves various factors that can impact the price buyers are willing to pay, the cash amount they offer, and the likelihood of a successful sale. One of the most crucial elements is the strength and stability of the management team and key contributors within the organization.

Continuity and Stability

A strong management team is essential for ensuring continuity and stability, which are highly attractive to buyers. Investors are more inclined to purchase a business when they see a competent team in place, capable of maintaining smooth operations after the sale. This continuity mitigates instills confidence that the business will remain stable and profitable.

Operational Expertise

Experienced managers contribute invaluable operational expertise that is vital for the business’s success. Their in-depth understanding of company processes, customer relationships, and market dynamics equips them to maintain and continue to enhance performance during and after the sale. This institutional knowledge reassures buyers that the business can sustain its success independently of the current owner(s).

Strategic Vision

Buyers are drawn to companies with leadership that not only manages operations effectively but also has a plan for the future. Strong teams have a clear strategic vision. They can articulate growth opportunities and strategic initiatives that will propel the business forward. The strongest teams have a written strategic plan and are in the process of implanting that plan.

Enhanced Valuation

The presence of a skilled and dedicated management team can significantly increase a company’s market value. Buyers are often willing to pay a premium price for businesses backed by a proven and committed leadership team and offer more favorable terms to the seller.

Lower Risk

A seasoned management team helps mitigate various risks associated with a sale. Their ability to navigate operational challenges, market changes and internal dynamics reduces business risk and makes your company more appealing to risk-averse buyers, increasing the chances of a successful sale.

Smoother Transition

No one would argue that continuity of leadership results in more seamless ownership transitions. Changes of ownership without capable and committed leadership are often challenging. The management team plays a crucial role in minimizing disruptions and maintaining employee morale and customer satisfaction at a vulnerable time.

Better Quality Buyers

Quality buyers usually have many investment alternatives. They want assurance that an acquired company will thrive without the seller’s involvement. A seasoned and committed management team signals that the business is well-managed and positioned for continued success, making it more attractive to higher-quality buyers.

Companies with proven and committed management teams usually attract better quality buyers and result in more successful acquisitions. Exit Strategies Group helps sellers highlight their team’s strengths, ensuring that prospective buyers appreciate that value and make offers that are more favorable to our clients. During the Assessment phase we help clients understand the strength of their team from an investor perspective and recommend adjustments that are likely to enhance its attractiveness and value.

For information about Exit Strategies Group’s M&A advisory or business valuation services, please contact Al Statz at alstatz@exitstrategiesgroup.com.

M&A Glossary: No-Shop Clause

/in , /by Al Statz

Many M&A negotiations include a no-shop clause. This is a period of exclusivity when the seller cannot solicit offers from other parties. The due diligence process is expensive for buyers, so sellers sign these agreements as an act of good faith.

Typically, a no-shop clause has a near-term expiration date and is only in effect for a couple of months (45—90 days). Buyers with a lot of leverage, and those working with inexperienced sellers trying to represent themselves, will work hard to tie you up in exclusivity for as long as possible.

 

If they can get away with it, the no-shop clause won’t have any expiration date at all, allowing the buyer to drag their feet indefinitely. Don’t get caught in that kind of dirty play. 

Scaling for Sale: Growth Strategies that Double as Exit Plans

/in , , /by Al Statz

As a business owner, you’re likely consumed with the daily challenges of building and growing your business. The question of selling might seem like a distant concern—something to worry about years down the road. But the reality is that planning your exit and growing your business are two sides of the same coin.

We’ve been conditioned to think about entrepreneurship in distinct phases: First, you build; then, you grow; finally, you sell or pass it on. It seems logical, doesn’t it? But this linear thinking misses a crucial point: Building scalable value and preparing for an exit are not separate processes—they’re intrinsically linked.

By viewing them as separate endeavors, we put ourselves at a disadvantage. We might inadvertently grow a business that provides a decent income in the here and now but has little value to future buyers. Instead, adopting a seller’s mindset from the outset can transform how you approach your business, driving growth and creating lasting value.

Most Entrepreneurs Exit Empty Handed
Estimates suggest only about 25% of businesses on the M&A market will successfully transition to new owners. Even certified and well-networked M&A advisors report that 50% of their engagements terminate without closing, according to the IBBA and M&A Source Market Pulse Report.

The reasons are myriad from valuation discrepancies, conflicting expectations, and due diligence challenges, to underlying operational issues such as customer concentration, overreliance on key personnel, and static business models.

So while starting a business is challenging, successfully exiting one can be just as difficult. This is where the wisdom of maintaining a “seller’s mindset” comes into play. Business owners who adopt a seller’s mindset aren’t just building for today or tomorrow; they’re crafting a legacy designed for eventual transition.

This approach doesn’t mean these leaders are any less passionate or committed to their ventures. On the contrary, it adds a layer of strategy and foresight that can significantly enhance a business’s long-term value and success.

The Entrepreneur’s Paradox: Less Doing, More Growing
One of the key principles of building a business with a seller’s mindset is focusing on working “on” the business rather than “in” it. This shift in perspective is part of creating a company that can operate independently of its owner.

When you work “in” the business, you’re caught up in day-to-day operations, fighting fires, and personally handling key client relationships. While this hands-on approach is often necessary in the early stages, it can create a business that’s overly dependent on you as the owner.

Working “on” the business, however, involves:

  1. Developing systems and processes that can run without your constant oversight
  2. Building a strong management team that can operate the business in your absence
  3. Creating a strategic plan for long-term growth and sustainability
  4. Investing in technology and infrastructure to improve efficiency and scalability
  5. Focusing on strategic partnerships and market positioning

By adopting this approach, you’re not only creating a more valuable business in the eyes of potential buyers, but you’re also giving yourself more freedom to focus on high-level strategy and personal goals.

From Owner’s Pride to Buyer’s Prize
As you shift from working in your business to working on it, your perspective naturally begins to align more closely to that of a potential buyer. And ultimately, your business is only worth what someone else is willing to pay for it.

So, what exactly makes a business valuable to buyers? The answer might surprise you. While profitability matters, it’s not always the primary driver of value in M&A transactions. Buyers are looking for businesses that offer more than just a healthy bottom line—they want potential for growth, strategic advantages, and operations that can thrive under new ownership.

For example, we sometimes see businesses with 40% or more customer concentration, particularly in the manufacturing space. It happens easily enough—the business has a great relationship with its biggest customer, and the work is steady and profitable. It’s great income now, but it makes this business a risky proposition for a future buyer.

As mentioned above, over-reliance on an owner can also diminish business value. A business that depends heavily on the owner’s personal relationships, expertise, or daily involvement may struggle to maintain performance under new leadership.

Other factors that can negatively impact value include:

  • Failure to innovate or keep up with industry trends
  • Delayed investments in technology or equipment
  • An unstable workforce or high turnover rates
  • Lack of documented processes and procedures
  • Inconsistent financial performance or unclear financial records

Building your business with a seller’s mindset means identifying and developing value drivers while simultaneously driving out risk factors that could reduce buyer confidence or limit their ability to succeed.

The Valuation Report Card
Now that you know a little bit about what buyers value, it’s time to take an honest look at your own business. But how can you objectively assess your company’s worth and identify areas for improvement? Consider getting a regular estimate of value.

Imagine sending your child through 12 years of school, only to discover in their senior year that they’re woefully unprepared for graduation. It would be a shocking and potentially devastating revelation, wouldn’t it? Yet, many business owners unknowingly put themselves in a similar position.

Just like a report card provides feedback on a student’s progress, a business valuation can offer vital insights into your company’s health and market position. A valuation can serve as a comprehensive scorecard, highlighting your business’s strengths and pinpointing areas that need improvement. It provides a clear picture of how the market perceives your company and what factors are driving or diminishing its value.

Without this periodic assessment, you might be operating under false assumptions about your business’s worth. Perhaps you’re overestimating its value, setting yourself up for disappointment when it comes time to sell. Or maybe you’re undervaluing your company, putting your financial security and legacy at risk.

Calculating Your Exit Equation
But knowing your business’s value is only half the equation. The other half? Understanding what that value means for your personal goals. After all, the ultimate purpose of building a valuable business isn’t just to create an attractive asset—it’s to create the financial foundation for the life you want to lead.

Many business owners fall into the trap of waiting for a predetermined age or milestone to sell their company. However, this approach can lead to missed opportunities or, worse, financial shortfalls. Instead, consider aligning your exit strategy with your personal financial goals by understanding your “lifestyle number.”

Your lifestyle number is the amount of capital you need to receive from your business exit to achieve financial freedom and realize your goals or live your ideal lifestyle. When you get clear about your goals—and have an objective opinion on how much your business is worth—you can make better informed decisions about growing (and exiting) your business.

The Exit Roadmap
Finally, it’s time to think about the actual nuts and bolts of preparing for a sale. Many business owners make the mistake of treating their exit as an event rather than a process. For some owners, this means they’re leaving significant money on the table when it’s time to sell.

Depending on the nature of your business, a comprehensive exit plan might address areas like these:

  1. Transferrable contracts: Ensure key contracts can be transferred to a new owner without dispute or disruption.
  2. Management team retention: Consider tying up your management team with stay bonuses or equity to ensure continuity.
  3. Clean financials: Maintain clear, organized accounting records. Consider audits to boost buyer confidence or a sell-side quality of earnings report prior to going to market.
  4. Working capital optimization: Understand how working capital impacts your take-home money after a sale and optimize it in the years leading up to a sale.
  5. Tax planning: Understand the tax implications of different deal scenarios to maximize your after-tax proceeds.
  6. Buyer options: Explore different exit options and the pros and cons of each. Understand how each option might impact your key managers, family members, or real estate strategy.

Some of these strategies can take two or three years to put in place. Plus, some sellers can’t walk away immediately after a transaction. Depending on deal terms, you may need to provide a certain amount of seller financing or stay involved in a consulting role.

Don’t wait to find out you have to trade value for time. Plus, the sooner you plan, the more options you will have and the better prepared you’ll be to exit with leverage, on your own terms.

Seller Strategy = Growth Strategy
At the end of the day, growing your business with a seller’s mindset isn’t about looking for a quick cash-out; it’s about creating something of lasting value that can thrive even as ownership changes hands. By adopting a seller’s mindset, you’re committing to:

  1. Creating systems and processes that allow your business to thrive without your constant involvement
  2. Building a strong, capable team that can drive the business forward
  3. Focusing on sustainable growth and diversification
  4. Maintaining clean, transparent financials
  5. Continually assessing and improving your business’s value

This approach not only prepares you for a successful exit but also creates a stronger, more resilient business in the present. It pushes you to think strategically, to focus on what truly adds value, and to build something that can stand the test of time.

Whether you plan to sell your business next year, pass it on to the next generation, or continue growing it for decades to come, building your business with a seller’s mindset will serve you well. It’s not about whether you’re ready to sell right now; it’s about maximizing the value of what you’ve been building and creating options for your future.

Goodwill hunting: How to build and finance this intangible asset

/in , , /by Al Statz

When it comes to selling a business, the term “goodwill” often arises. But what exactly is goodwill, and how does it impact the mergers and acquisitions (M&A) process?

Goodwill is the value of a business that exceeds its tangible assets. It arises when a company is sold for more than the worth of its physical assets such as equipment, vehicles and inventory.

Most successful companies have some level of goodwill, which is tied to cash flow. For example, consider a company with $2 million in EBITDA (earnings before interest, taxes, depreciation, and amortization) that sells for a 6 multiple, resulting in a $12 million valuation. If the company only has $5 million in physical assets, the remaining $7 million is considered goodwill.

Building goodwill. Goodwill is typically derived from the company’s ability to generate strong and consistent cash flows. Factors such as a loyal customer base, effective management team, a solid market position, and a unique value proposition all contribute to a company’s ability to generate cash flows above and beyond the value of its physical assets.

Goodwill can also be attributed to factors that de-risk the company. A strong brand, a large and diversified customer base, recurring revenue, a reliable supply chain—these are just some of the factors that give a buyer confidence they will be able to replicate performance and drive growth in the future. The more growth opportunities and less risk perceived by the buyer, the higher the multiple, and consequently, the more goodwill.

Financing goodwill. However, goodwill presents challenges when it comes to financing a deal. Goodwill is an intangible asset, which means it lacks the physical substance and clear valuation of tangible assets (again, such as equipment, vehicles, or inventory). Most traditional lenders, such as banks, often prefer to secure their loans with tangible assets that can be easily liquidated in case of default.

Moreover, the value of goodwill can fluctuate based on market conditions, industry trends, and the overall financial health of the company. If a business experiences a downturn or fails to meet its projected cash flows, the value of its goodwill may be impaired, leading to potential write-downs and negative impacts on the company’s balance sheet.

To overcome these challenges, businesses often need to explore alternative financing options or structures when dealing with significant amounts of goodwill. Seller financing or equity rollovers can help provide funding for goodwill, when traditional lenders won’t support it.

For smaller deals under $5 million, the Small Business Administration (SBA) offers loan programs that provide banks with a 75% guarantee, allowing them to take on more goodwill. For larger deals, strategic buyers with strong balance sheets, private equity groups, or family offices are generally better positioned to acquire a business with significant goodwill. These buyers can bring more

equity to the table or may already have alternative acquisition lending in place, such as mezzanine lenders

In the current deal market, most acquisitions above $10 million have a capital stack of 50% equity and 50% debt. Using the example above, that means the buyer would bring $6 million to the table and the senior lender (e.g., the bank) would only have about $1 million in exposure above and beyond the company’s tangible assets. That’s fairly palatable on a $12 million deal.

Allocating goodwill. When a business is sold, the purchase price is typically allocated among the various assets being acquired, including both tangible and intangible assets. However, the allocation of goodwill can have significant (and opposing) tax implications for the buyer and the seller.

In an asset sale, the buyer and seller will typically negotiate the allocation of the purchase price, considering the tax consequences for each party. The buyer generally prefers to allocate more of the purchase price to assets that can be depreciated quickly such as equipment, vehicles or other tangible assets, in order to maximize their tax deductions. The seller typically prefers to allocate more of the purchase price to goodwill, as it is generally taxed at a lower capital gains rate.

An indicator of success. At the end of the day, goodwill is a powerful sign of success. However, this intangible asset can also present challenges when financing an M&A deal. Business owners looking to sell their companies should be prepared to explore creative financing solutions and navigate negotiations around asset allocation. Experienced M&A advisors and tax professionals can help.

Exit Strategies Group Advises Afineol in Sale to ITS

/in , /by Roy Martinez

Exit Strategies Group recently served as financial advisor to the owners of Afineol IT Consulting, a Sacramento area-based managed IT service provider (MSP), on their sale to Intelligent Technical Solutions (ITS), a Tower Arch Capital portfolio company. The acquisition strengthens ITS’ geographic footprint and technical leadership position in the Sacramento region. Terms of the transaction were not disclosed.

Afineol’s founder, Michael Strong, said, “We were looking for a strategic partner to build on Afineol’s decades of technical services leadership, help us capitalize on significant growth opportunities in our market, and allow us to continue to deliver exceptional value to our customers. At the same time, the acquisition by ITS makes Afineol an even better place for our employees to work and develop their careers. “

Margaret Strong, President of Afineol, added, “Exit Strategies Group’s structured sale process attracted the attention of multiple buyer prospects and helped us achieve a win-win deal with a great partner. We couldn’t have made this happen without Exit Strategies.”

Exit Strategies Group acted as exclusive financial advisor to Afineol. This transaction demonstrates Exit Strategies Group’s strong commitment to providing sell-side M&A advisory and business valuation services to North American IT services companies. Since being founded in 2002, Exit Strategies has advised on well over 100 M&A transactions.

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For information about Exit Strategies Group’s M&A advisory or business valuation services, please contact Roy Martinez at 707-781-8583 or jroymartinez@exitstrategiesgroup.com.

From the M&A Glossary: Search Fund 

/in , /by Exit Strategies

A search fund is an investment vehicle through which an entrepreneur raises capital from investors to fund the search for and eventually the acquisition of a privately-held company. 

The search fund model allows the entrepreneur to collect a salary while they search for a suitable target company and negotiate a letter of intent and perform due diligence. Once a target company is acquired, the entrepreneur usually takes an active role in managing and growing the business, with the goal of creating value for all stakeholders involved.  Investors provide the necessary capital and often offer guidance and expertise.  Another term for search fund is “independent sponsor”.

Search funds aren’t our favorite type of buyer, but occasionally they are the right type of buyer for one of our seller clients. Search funders are most likely to prevail in a sale process when all of the following are true:

  1. the seller manages the business and doesn’t have an internal successor,
  2. the business is smaller, say less than $2M EBITDA, and
  3. there are no strategic buyers present, or the seller wants to retain some equity and the strategic buyers can’t accommodate that, or the seller doesn’t like what the strategic buyers plan to do with the company (e.g. relocate, rebrand, or dismantle it).

For further information on this subject or to discuss a potential business sale, merger or acquisition need, confidentially, contact Al Statz at 707-781-8580 or alstatz@exitstrategiesgroup.com.