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Exit Strategies Group Advises on Successful Sale of Walker Industrial

/in , /by Al Statz

Exit Strategies Group, Inc. is pleased to announce that it recently served as exclusive M&A advisor to the owners of Walker Industrial in their successful sale to Graybar. Deal terms were not disclosed.

Founded in Newtown, Connecticut in 1977, Walker Industrial is a value-added distributor of industrial automation products in New England and online. Founder Jack Ryan says this of his experience working with Exit Strategies Group, “Their understanding of our industry and our business was second to none. Their process attracted the best strategic buyers for our company. … This led to multiple rounds of bidding and resulted in having three finalists to choose from at very attractive valuations.”

Al Statz, President of Exit Strategies Group said, “I feel honored to play a part in every client’s story but working with Jack was extra gratifying because we’ve known each other since early in my career when I was running an automation manufacturing company. Jack’s exceptional life and legacy is an inspiration, and I look forward to seeing what he does in full retirement mode. Getting to watch clients explore new passions after a successful sale or recapitalization of their life’s work is one of the reasons I love the M&A profession.”

Graybar is a leading distributor of electrical, communications and data networking products and provider of related supply chain management and logistics services.

About Exit Strategies Group

Exit Strategies is a leading provider of strategic merger and acquisition advice/execution and business valuation services. Founded in 2002, with offices in San Francisco CA and Portland OR, the firm has advised on well over 100 M&A transactions. Exit Strategies represents closely-held and family-owned companies and helps them optimize results in a strategic sale or recapitalization. Its industry expertise spans all areas of industrial automation products and services and advanced manufacturing. For more information visit www.exitstrategiesgroup.com.

Al Statz is the founder and president of Exit Strategies Group. To discuss a potential business sale, merger or acquisition, confidentially, Al can be reached at 707-781-8580 or alstatz@exitstrategiesgroup.com.

Why boomer business owners should watch M&A cycles

/in , , /by Al Statz

Approximately 20% of private business owners are over the age of 65. Another 30% are between the ages of 55 and 64, according to estimates from the Census Bureau Annual Business Survey.

If we’re going by age trends alone, that suggests roughly half of America’s businesses will transition ownership in the next five to 10 years. This will be the largest transfer of wealth the nation has ever seen in such a short period of time.

Right now we’re in a strong seller’s market. Despite the economic uncertainty, rising interest rates and world turmoil, mergers and acquisitions has not cooled down much. It’s economics 101, supply and demand, and there are just more buyers than sellers on the market.

Between private equity and corporate balance sheets, there is more than $8.5 trillion in “dry powder” waiting to be invested in corporate growth and acquisitions. That’s at least $6.84 trillion in cash and short-term investments on corporate balance sheets, and $1.8 trillion in uncommitted capital in private equity funds, according to reports from S&P Global.

Corporations have added 20% to their balance sheets since 2019, and private equity continues to up the ante with record fundraising year over year. All that cash drives up demand and increases value for business sellers.

At some point, though, supply and demand could flip. Right now, experts estimate 10,000 baby boomers are retiring daily. By some estimates, roughly 15% of them own businesses. That’s 1500 additional businesses looking for new ownership every day – and only a small fraction of those will get passed along to a second generation.

By the tail end of this cycle, we could end up in a buyers’ market with more boomers selling their businesses than buying.  Business owners who get ahead of the trend will be in the best position to take advantage of positive market conditions.

Take these steps to increase your chances of a successful sale:

Plan:

It’s tough to maximize value when you’re burned out, so aim to sell while you’re still energized by the business. The average sale takes nine months to a year, not including post-sale transition time.

Instead of planning your retirement around a certain age, you can often reap greater rewards by timing a sale around your business value. Get a regular valuation so you know what your business is worth in the current market.

If age is still your primary deciding factor, begin planning several years in advance. With enough time, your advisors can provide leadership, cash flow and tax positioning strategies that will help you net the most out of a sale.

Prepare emotionally:

Don’t underestimate the emotional impact of selling your business. Leaving an ownership role is hard, especially if you’ve built your business from the ground up.

Many baby boomers struggle to step away when the time comes. Decide how you will define the next chapter in your life. It’s important to have something you’re “retiring to” instead of just something you are “retiring from.”

Seek advice from mentors and peers who have made a similar transition. Talk through what it means to give up your identity as a business owner. For many, it’s easier to make that transition if they already have other strong plans and commitments.

Make selling part of your succession plan:

Don’t have next generation leaders ready to take over the business? Leadership team not prepared to buy you out? Consider how selling your business can play a role in your succession plan.

When selling to private equity, for example, you can often arrange for family members or other key managers to receive an ownership stake in the business. This can be a great way to set your next generation leadership up for success, with strong connections and financial backing behind them.

These arrangements can protect you both financially and emotionally – without the specter of money and debt hanging between you and your family.

Consider staying on after a sale:

Sellers can often negotiate a full-time or part-time advisory role and phase into retirement. Employment contracts can make your business more attractive (and more valuable) to private equity buyers who need experienced leaders in place to maintain operations while they fuel new growth.

The long-predicted seller tsunami is coming. Business was strong before the pandemic, but the crisis put everyone in a short-term holding pattern. With recession fears ahead, people are taking this opportunity to go out on a high note – while they still can.

For advice on exit planning or selling a business, contact Al Statz, CEO of Exit Strategies Group, Inc., at alstatz@exitstrategiesgroup.com. Exit Strategies Group is a partner in the Cornerstone International Alliance.

M&A Advisor Tip: Niche companies can bring top dollar

/in , /by Al Statz

It’s often better to be #1 or #2 in a smaller/narrower market than a minor player in a larger/broader market.

By targeting and dominating a distinct segment of a market, you help ensure that potential customers think of you first (brand recognition) and continually choose you, again and again. Dominant players usually have lower cost of customer acquisition, first call/last look with customers, and other advantages that drive profit margins up and accelerate growth.

Niche businesses with high profit margins are generally more valuable than businesses with lower profit margins – even if they have same total profit. Higher margins means more cash flow to pay debt service or reinvest in future growth. Low margins, on the other hand, can mean less operational wiggle room and increased risk. 

For advice on exit planning or selling a business, contact Al Statz, CEO of Exit Strategies Group, Inc., at alstatz@exitstrategiesgroup.com. Exit Strategies Group is a partner in the Cornerstone International Alliance.

Exit Strategies Group Initiates the Acquisition of Ibex Engineering by Motion Solutions

/in , /by Al Statz

Exit Strategies Group has advised Motion Solutions, a leading provider of custom engineered positioning systems and a portfolio company of Frontenac, on the recent acquisition of Ibex Engineering.

Based in Newbury Park, CA, Ibex Engineering is a manufacturer of precision linear and rotary positioning systems for original equipment manufacturers.  The partnership will give Motion Solutions even greater access to the ultra-precision end of the market and bring advanced automated manufacturing capabilities, and give Ibex more resources to serve higher volume clients.

“It was a pleasure working with the leadership of Motion Solutions and Frontenac on this transaction. We are excited to see the combined team’s future success unfold and are thankful to have played a part in bringing them together!”, said Al Statz, President & CEO of Exit Strategies Group.

Motion Solutions, based in Aliso Viejo, CA, provides custom, application-specific engineered systems to OEMs and industrial customers in the medical, life sciences, semiconductor, robotics, and industrial automation sectors. They provide a complete selection of services, including electro-mechanical design, prototype and volume manufacturing, and engineering expertise.

Frontenac is a Chicago-based private equity firm focused on investing in lower middle market buyout transactions in the consumer, industrial, and services industries. Frontenac works in partnership with established operating leaders, through an executive-centric approach called CEO1ST, which seeks to identify, acquire, and build market-leading companies through transformational acquisitions and operational excellence. Over the last 50+ years, Frontenac has worked with over 275 owners of mid-sized businesses as they address complex transition issues of liquidity, management enhancement, and growth planning.

Al Statz is the founder and president of Exit Strategies Group. To discuss a potential business sale, merger or acquisition, confidentially, Al can be reached at 707-781-8580 or alstatz@exitstrategiesgroup.com.

M&A Advisor Tip: F-reorganization

/in , /by Al Statz

Deal structure can have a big impact on your after-tax proceeds. The right structure can help you retain more of the sale price. For example, an F-reorg is a tax efficient method that allows you (the seller) to rollover equity into the buyer’s new entity without paying taxes on the rollover amount.

Without using an F-reorg, you might sell 100% of the company and get taxed on that full amount (ouch!) before reinvesting some of your proceeds in the buyer’s new business.

For advice on exit planning or selling a business, contact Al Statz, CEO of Exit Strategies Group, Inc., at alstatz@exitstrategiesgroup.com. Exit Strategies Group is a partner in the Cornerstone International Alliance.

Market Pulse – Q4 2021

/in , /by Al Statz

Financing Deals in 2021

Presented by IBBA & M&A Source

Deal financing has not changed significantly since before the pandemic. On average, sellers continue to receive 80% or more of total consideration as cash at close. (Cash at close includes senior debt and buyer equity.) Seller financing accounts for 15% or less of most deals.

For advice on exit planning or selling a business, contact Al Statz, CEO of Exit Strategies Group, Inc., at alstatz@exitstrategiesgroup.com. Exit Strategies Group is a partner in the Cornerstone International Alliance.

M&A Advisor Tip: Employee retention adds business value

/in , /by Al Statz

“To win in the marketplace, you must first win in the workplace.” Those words of Doug Conant, former CEO of Campbell Soup Company, ring particularly true today.

The talent market was tight before the pandemic, but now we’re in a critical state. Finding employees is a challenge for every company. And if you’re selling your business, it might be the buyer’s top concern.

Employee issues buyers care about right now: turnover, training, cross-coverage, salary/wage increases, age/retirement plans, employment agreements, location (working from home, not local?), and leadership potential.

Talk to us about how key employees can impact market value. We can share what we’re seeing in your industry and help you evaluate the ROI of certain retention strategies – such as providing critical staff with minority equity shares or retention bonuses.

For advice on exit planning or selling a business, contact Al Statz, CEO of Exit Strategies Group, Inc., at alstatz@exitstrategiesgroup.com. Exit Strategies Group is a partner in the Cornerstone International Alliance.

Is it the right time to sell your business?

/in , /by Adam Wiskind

Business owners often ask, “When is the right time to sell my business?” The answer is some version of “A good time to sell is when there is a seller’s market, and the owner and the business are prepared”. Simple enough, but there is a lot to unpack in this response.

Don’t Try to Time the Market

A seller’s market exists when, because of economic conditions, demand for viable businesses is higher than the supply of businesses on the market. There are some universal economic metrics that drive demand for businesses like low interest, tax rates and high corporate cash reserves and earnings rates. When investors are confident about the business environment, they are more likely to pay premiums for their investment targets.

However, local and industry specific factors are often more important to the creation of a seller’s market. A mature industry that begins to consolidate may create an industry-specific seller’s market that doesn’t exist in other industries. The rise of private equity has driven consolidation in many industries. Also, when a regional competitor embarks on an acquisition growth strategy it may create a localized opportunity for owners in the same industry to sell.

It is wise for a business owner to pay close attention to these market signals. However, owners can’t control supply and demand in the marketplace and are generally better off not trying to time the market. In the second quarter of 2020, the market for small businesses came to an abrupt halt, dashing the hopes of many owners that were ready to retire. But by the fourth quarter of the same year the market returned stronger than before. No amount of prognosticating could have anticipated those market changes.

Business Preparation is Key

The preparation of the business is more important to the success of the business sale than the state of the marketplace, and it’s something that the business owner can control. A well-prepared business is more likely to sell in a soft market, than a poorly prepared business in a strong market.

It’s been estimated that 80% of US small business owners don’t have a written transition plan and 50% have no plan at all. A key component of the transition plan is preparing the business for succession. Many books have been written and teams of professionals deployed to help business owners prepare their businesses for sale. Conceptually, the buyer of a business is investing with the confidence that the future earnings and growth potential enjoyed by the seller can be transferred to the buyer. To make the business attractive, the owner must then mitigate the risks in the business and to fortify its opportunities for growth.  The specific measures necessary to prepare the business vary widely.  Some critical areas for consideration are:

-What are the growth prospects of the business? Is there a viable pathway to achieve growth?
-What constitutes the goodwill of the business? Is the goodwill persistent and can it be transferred to a buyer?
-Is the business’ intellectual property sufficiently protected?
-What is the owner’s role in the business? How easily can the owner be replaced?
-Does the remaining management team have the experience and resources necessary to operate the business efficiently?
-Is the business properly staffed for its size and to recognize its growth potential?
-What supplier and customer risks exist? How can they be addressed?
-Do the business assets have deferred maintenance or unfunded capital expenditures?

There are times when a business is clearly not ready to be placed on the market. The business may not be performing because of loss of an important client, vendor, or key employee or because of an acute business issue that the business is facing like a lawsuit or a loss of facility lease. These red flag issues should be resolved by the owner, before trying to sell their business.

The process to identify and address the specific issues faced by a company may take 3-5 years, so it’s important to plan ahead. But the owner of a company that has been properly prepared for sale, may be rewarded with a price premium, while an unprepared business may sell for a discount, or not at all.

The Owner is Motivated, but not Compelled to Sell

Lastly and most importantly, the owner needs to be psychologically ready and financially prepared to exit their business. Most owner’s only own one business in their life and selling it is momentous. For some, the business is tightly intertwined with their personal life and identity. However, there inevitably comes a day when the owner no longer wants to or no longer can be involved in the business.

Owner’s end up selling for a variety of reasons, for some it’s poor health, for some its divorce from their life or business partner. These personal challenges can make the process of selling the business more difficult and may put the owner at a disadvantage during negotiations with a buyer. The best reasons are because the owner realizes that there is something that they would rather be doing with their time or assets like retirement or another venture. Ideally, they are personally motivated, but not compelled to exit.

Even if the owner is determined to sell, they may hesitate to do so if they haven’t determined that the proceeds from the sale are sufficient to support their retirement or pursue other ventures. Professionals can help with this analysis. Business appraisers can help to anticipate the proceeds from selling the business. While a financial planner can help an owner estimate the amount needed to support their retirement.

Ultimately, determining the right time to sell their business requires the owner to plan ahead and prepare the business for the time when market conditions are adequate, and the owner is personally motivated. Exit Strategies Group helps owners to plan for and execute their business exits. If you’d like help in this regard or have any related questions, you can reach Adam Wiskind, Certified Business Intermediary at (707) 781-8744 or awiskind@exitstrategiesgroup.com.

Market Pulse – Quarter 4, 2021

/in , , /by Al Statz

Seller’s Market

Presented by IBBA & M&A Source

A seller’s market occurs when demand exceeds supply. There are more interested, active buyers than there are quality deals on the market. In a seller’s market, buyer’s compete in order to win deals. This typically translates to increased values and more favorable deal terms for the seller.

In Q4 2021, seller market sentiment rebounded, setting a new peak in all but the $5M-$50M sector.

“Business confidence, and competition, is high. It’s amazing how fast we rebounded to record levels,” said Anthony Citrolo, managing partner of The NYBB Group. “This is the strongest upwarad swing we’ve seen in any 12-month period.”

For advice on exit planning or selling a business, contact Al Statz, CEO of Exit Strategies Group, Inc., at alstatz@exitstrategiesgroup.com. Exit Strategies Group is a partner in the Cornerstone International Alliance.

Small business values up in 2021

/in , /by Al Statz

Business values increased in 2021, despite ongoing challenges from the pandemic, talent shortages, and supply chain disruption. Deal activity continued at an intense pace, with advisors across the country reporting increases in both incoming deal flow and completed engagements.

More advisors characterized this as a seller’s market than nearly any other time in the last decade, according to the year-end Market Pulse report from IBBA and the M&A Source. Buyer confidence is high, as is competition for quality deals.

Businesses with enterprise value of $5 million to $50 million earned an average multiple of 6.0x EBITDA (a survey peak), realizing an average final sale price at 113% of the internal target benchmark. Multiples remained at or near market peak throughout the Main Street and lower middle market.

Meanwhile, time to close shrank in nearly all market segments. Time to close was likely facilitated by the high rate of buyer competition as well as a push to get deals closed before year-end.

The year end is always a hot time to get deals done as buyers and sellers push to meet self-imposed deadlines. We also know a number of sellers entered the market in early 2021, planning to get ahead of potential increases in capital gains taxes. Many of those deals would have had accepted offers and been in due diligence by the time it became clear tax changes were not yet coming.

Main Street activity

In the Main Street market last year, individual buyers accounted for 71% of business transitions. Of those, 40% were first time buyers and 31% were repeat business owners or what we call “serial entrepreneurs.”

Another 26% of Main Street buyers were existing companies. These are the strategic buyers acquiring other businesses as a way to expand or eliminate competition. A small percentage, just 3%, were private equity acquisitions.

While market definitions vary, businesses are generally considered “Main Street” if they have an enterprise value of less than $2 million. The majority of the transactions that happen in this sector are small, less than $500,000.

In 2021, the most active industries trading hands in the Main Street market were personal services (15%), construction (12%), business services (12%), consumer goods/retail (12%), and restaurants (11%). This represents a small drop-in restaurant activity, likely due to ongoing fallout from the pandemic.

Of those Main Street sellers who went to market in 2021, 53% were preparing for retirement. Another 11% were selling as part of a recapitalization. In a recap, the seller (or sometimes their management team) keeps some level of equity stake in the business while a buyer infuses new capital for growth. Other reasons Main Street sellers went to market included burnout, health issues, relocation, and family issues.

Lower middle market activity

In the lower middle market, where businesses are valued between $2 million and $50 million, the buyer pool shifts. Here individuals accounted for a third (34%) of buyers in 2021, relatively on trend with past years.

The number of individuals buying businesses in 2021 is notable given the highly competitive talent market. It’s likely these buyers (and Main Street buyers, too) could have their choice of employment opportunities. And yet there remains a definite draw to being a business owner. People still want to build something of their own and control their own destiny, even in a job seeker’s market.

Existing companies accounted for 40% of lower middle market transitions in 2021. Generally, these companies have strong balance sheets and are looking to acquisition as a way to grow at a time when organic growth is difficult due to talent shortages.

Private equity continues to remain active in the lower middle market, accounting for 24% of all business transitions. Private equity buyers generate financial returns by acquiring businesses. They typically plan to hold a business for 5 to 7 years, often acquiring similar types of businesses to bolt on, before reselling a larger, more lucrative operation.

These financial buyers tend to focus their efforts on middle market opportunities of $50 million or more. But with competition for those larger deals running hot, we see many firms ticking their attention down to the lower middle market. Here it’s possible to find deals that are large enough to make a difference in their portfolio and yet small enough to go unnoticed by some of their competitors.

For advice on exit planning or selling a business, contact Al Statz, CEO of Exit Strategies Group, Inc., at alstatz@exitstrategiesgroup.com. Exit Strategies Group is a partner in the Cornerstone International Alliance.