Buying a business is one of the most important decisions that an individual will make during their entire life.

And most likely, the purchase of a business would be larger than a purchase of a home, which most people view as the biggest investment they will need to make.

Buying a business can be as easy as providing the financing needed to procure the business.  Unfortunately, many unqualified, not ready, inexperienced buyers go into the buyer pool and buy businesses without really knowing what they are buying or really looking at.

Fortunately, there are many M&A firms that can assist buyers.  Businesses can range anywhere from a million-dollar business, that a corporate executive type buyer might purchase all the way up to a $100 million manufacturing company that may prefer to grow through acquisition.

Both individuals and corporations would have the opportunity to have an M&A advisor be on their side Unlike, buying a home, buying a business has no true comparables.

Example of this would be when shopping for a home, you have similar houses in the neighborhood that you can compare square footage, how many bedrooms and bathrooms etc. However, when buying a business there could be over a thousand different decisions point needed to determine the value or to determine viability or continued viability of that business.

Most Important, make sure you understand what the living breathing organism is of that business.

Smaller businesses can be more tied to the seller.   These entrepreneurs can wear several hats, such as CFO, HR, Sales, Marketing etc.   These people can never be replaced by an inexperienced buyer. Imperative that buyers know what the infrastructure is and continuity is included in the business.

The Vant Group is here to help guide you through the steps of buying or selling a business.

Here’s a great article on buying a business we would love to share.


Challenge: Reporting Financials / Partner Disputes

Due to partnership conflicts, our client went from being a passive minority investor to a majority active owner in an industry with limited knowledge in a short period of time.

To make matters worse, late paying customers and a non-traditional accounting approach made year-end financials appear drastically different from the health of the business which caused great pause for lenders. Given a majority of deals are financed through some type of third-party financing and the financial limitations of the company, we knew the buyer pool could be limited which could increase the time to close. The seller was anxious to sell quickly so we had to balance the seller, the business hurdles, and marketplace.

Approach: Expanded Deal Structure / Demonstrated Value

  • Established Expectations. Because of the late-paying customer and non-traditional accounting methods, we understood the lending climate would be limited at best if not non-existence.
  • For this reason, we educated the seller a significant amount of seller financing would be involved. We provided an estimate of value as well as expected deal structure before engagement ensuring the sellers would be open to all types of offers and the lay foundation a full-price all-cash offer would be the exception and not the norm.
  • Told the story. While every buyer could see the financials were on a decline, the company still have some great assets. The company has some great accounts, focused on a very niche industry within the IT sector and had multiple channels of revenue. The core of the company was still intact and with a focused growth strategy, a new buyer could easily return the company to its glory days.
  •  Focus marketing search. Given the issues of the company, we understood a generic buyer probably won’t be the best buyer to target. We either need a strategic partner who understood the assets of the company and could create synergies or an IT professional who wanted to run his own operation.

Result:

  • Received 3 competing offers | Closed in 4 ½ months | Seller received 94% of asking price.
  • An IT professional purchased the company using a ROBS (Rollover for Business Startups).
  • The purchase price consists of equity from the buyer and a seller note.
  • Since no outside banks were used, we will able to have a quick close and save time.

There are key steps involved in a business transfer. Each step will vary in its complexity and size; having knowledge of the complete process will help to keep you on a path to closing successfully.

Step 1: Business owner deciding to sell his or her business

Sounds simple, doesn’t it? However, unless a business owner is truly deciding to sell, the process should not begin. Scenarios can occur daily for many business owners to cause them to ponder the idea of selling. Often, a more cataclysmic event needs to occur to push an owner over the edge into a selling mode. A business owner must come to a definitive decision before he begins this process. If not, it could be a waste of time and money.

Step 2: Determining the market value of a business

Before placing a business on the market, a value or range of value must be established so that you have a basis for what and how to negotiate. This is one of the most critical steps and should be handled with special attention. There are many different people that you can turn to in determining a business’s market value, which includes but is not limited to CPA, attorney, valuation company, self, and a business broker. Depending on who sets a value on a company, the pricing range can be wide.

Step 3: Gather pertinent information into a marketing package

The resulting marketing package created is the first interaction a prospective buyer will have with a business; therefore, the old adage, “You can only make a first impression once” could not be more appropriate. The marketing package should include at a minimum, information about financials, employees, assets, and the operation of the business. A business analysis must be performed to explain the strategic plan, financial statements, strengths, and opportunities.

Step 4: Marketing the business

Potential buyers need to be approached in order to be made aware of your business. There are two basic avenues of marketing a business: hiring a business broker or selling it yourself. In general, there are many methods that either party can use to reach the market: The Internet, newspaper, trade associations, and others. The most important factor is that a game plan is absolutely necessary to ensure that the greatest numbers of qualified buyers are contacted regarding the sale.

Step 5: Identify potential buyers

The key is determining who they are if they have the necessary funding and if they are a good fit. A brief list of potential buyers includes corporate executives, customers, suppliers, competitors, investment groups, and employees. It is imperative not only to identify the potential buyers but also to ensure they are financially capable of purchasing your business.
There are a number of pre-qualification methods that can be used to ensure a prospective buyer is financially secure. All potential buyers should sign a confidentiality agreement and provide verification of their financial ability to complete the transaction.

Step 6: Arrange meetings with buyer and seller

The first meeting between a buyer and seller is similar to a first date. Each side is wondering if the other likes them. The meetings with a seller are of paramount importance in a buyer’s final decision. You should always be forthright in your answers and give quick responses to inquiries on updated information.

Step 7: Offer to purchase/letter of Intent

The two most utilized legal vehicles used for formal contracts are a Letter of Intent and an Offer to Purchase. The main difference between the two documents is the level of commitment.
A Letter of Intent is a document stating intent by a buyer to buy a business. An Offer to Purchase is more detailed and binding. A Letter of Intent is usually followed by an Offer to Purchase. In some instances, a further step is taken with the preparation of a Definitive Agreement, which is a more formal version of an Offer to Purchase. Be advised that the documents are merely tools to ultimately get to the closing though they should include as many detailed “deal points” as possible.

Step 8: Negotiating and deal structure

There are three primary decisions: accept, decline, or negotiate. The sale price is only one of several negotiation points on a contract. Variables such as payment terms, the length of training, consulting agreement, and allocation of sale price are just a few items that can be leveraged to make a deal more favorable. The most important aspect of a business transfer is what a seller ultimately receives after the transaction has been completed.

Step 9: Due diligence

The beginning is mainly taking the time to learn more about the other person, the business, and to determine if both sides are compatible. Due diligence is performed by the buyer to ensure that the books, records, and operation of a business are as they have been portrayed. If it is a solid company, then the due diligence should be effortless, but if there are problems with the business, then due diligence could take longer and be more complicated. Due diligence can last between 7 and 45 days with the average length being around 21 days. The size, type, and complexity of a business, as well as the style of the buyer all, affect the amount of time due diligence will take.

Step 10: Closing

Closing a deal is the finest part of the whole process! It’s time to get paid. Prior to closing, the Offer to Purchase or Definitive Agreement is submitted to an escrow company or closing attorney, so that due diligence can be performed. The closing agent’s responsibilities vary from agent to agent, but at a minimum should include: lien and title search, real estate and personal tax pro-rations on the business, preparation of closing documents, and disbursement of funds to the seller.

To learn more or to get the “Exit” book please visit vantgroup.wpengine.com.

 

 


You have work to do now – Seven steps to getting the price that you want.

The required steps to be ready to sell a business outlined in this article was excellent! Great attributes are put into place during the growth stage of a company, however, some of those things may have a negative effect on the actual the sale price.  For example, overspending on hiring, advertising in anticipation of growth and then hitting a good a projection but missing the overall projection, causing the net income to be lower which would cause the value to be to lower.

General preparation for selling a company is something that must be done many years in advance, as the key is nailing down those numbers.  Ensuring that those figures are as high as possible will maximize your sale price.  At the end of the day, a business is sold at a multiple of how much profit it makes.  Read more

The Vant Group is here to help guide you through the steps of selling a company and make it a successful transaction!


The prices for small businesses changing hands in the Dallas-Fort Worth area have soared in recent months as older owners are finally being enticed to sell, according to industry data provided to the Dallas Business Journal.

The sale of 59 local small businesses tracked by online marketplace BizBuySell in the second quarter went for a median value of $220,000.

That’s up from $160,000 during the same period one year ago.

“There has been an imbalance between supply and demand for a few years,” said Dirk Armbrust, managing director, and investment banker at Dallas-based The Vant Group. “There are more buyers than sellers in the small-to-medium business or “Main Street” space. But this hasn’t manifested into higher prices until recently.” Armbrust said bank financing has played a part in keeping these prices in check.

Many times, sellers rely on the Small Business Administration backing to finance an acquisition. The process keeps loan amounts from soaring above the amount of revenue a target business brings in.

But recently, Armbrust said more stable, revenue-rich small businesses have been coming to market finally pushing prices higher to reflect the glut of buyers. BizBuySell doesn’t track all small businesses sold in the market. The data is self-reported, and sometimes the terms are kept confidential. But the numbers give a glimpse into the space. The median revenue for small businesses sold in the second quarter was nearly 5 percent higher than one year ago, according to the data. Most of the activity has remained among companies that provide services to other businesses. But the median asking price for small manufacturing firms has ballooned to $550,000 from under $440,000 one year ago.

The highest sale price during the second quarter was a liquor store in Dallas that went for $2.1 million.

A combination of rising prices and low-interest rates, which affect the return sellers receive, has pushed older owners from the Baby Boomer generation overdue for retirement to sell off the businesses they’ve been running their whole lives.


The Vant Group recently served as an exclusive transaction intermediary to InterCool, Inc., which was acquired by InterCool USA, LLC. Feb2017

InterCool is an Industrial and Commercial Refrigeration Design-Build Contractor with a comprehensive range of services including engineering, design, installation, construction, service, and system analysis.  Intercool is headquartered in Carrollton, Texas.


Deal-making among private equity firms in the U.S. declined in the third quarter as prices for middle-market companies remains well above their value, according to a report from PitchBook Thursday.

Learn more…

 

 

 


Vant Capital Partners (VCP), a division of The Vant Group, recently acquired Thornhill Catering, a 32-year-old Corporate catering company specializing in business breakfast, lunch and company events.

“VCP is thrilled to add Thornhill Catering to its portfolio of companies,” said Alex Vantarakis, Founder of The Vant Group. “Though there are many catering companies to choose from, Thornhill sets itself apart in four differentiating areas; Flexibility, Quality of Food, Price and 10% of all profits are allocated for charitable purposes.” Please visit thornhillcatering.com for more information about this unique catering company. VCP is a Private Equity Firm that acquires small businesses for investment purposes.


When You Start Or Buy A New Business

A career as a business owner has a beginning and an end. If you are giving birth to the business of your own or adopting one that is already operating, it is important to spare a moment’s thought for how you plan to end this chapter of your life. You need an exit strategy. Take the time to review this information before your busy career as an owner gets too far along.

Even though the range of different businesses in the world is virtually endless, the number of potential exit strategies available to their owners is surprisingly small.

Close Up Shop

This is the end that might be forced on you by unforeseen circumstances, like economic downturns, disasters, or health issues. However, it is also a perfectly viable strategy to plan for. Closure is most appropriate for small business or independent one-person ventures where your responsibilities are relatively simple. All you will need to do is attend to your outstanding debts, settle affairs properly with any employees and convert the remaining assets of the business to cash and move on.

Pass The Business On

Another option is to find a worthy successor and pass along your stake in the business to him or her. This is often a family member but it may also be an employee. In many mid-sized businesses, the upper tiers of the management team can pool their resources to purchase the business from you. This is known as a management buy-out and it allows you to step out of the business without interrupting its operations too severely.

Take The Business Public

This is the dream option for many business founders, especially optimistic entrepreneurs in the technology industries. Making a name for yourself and your business and attracting the right kind of investor attention can multiply the potential value of your company many times over. Making an initial public offering (known as floating your business in the UK) is often the exit strategy that delivers the greatest financial rewards. Be aware that it is a long, expensive and demanding process, though. It may also take time to fully extricate yourself from the business’s operations and realize the full value of your share in it.

Sell Outright

As long as you build a profitable business with good long-term growth potential, selling it entirely is always an option. The most common buyer to turn to in such a situation is a much larger player in your industry to merge with the company or acquire it outright. Accepting a merger offer will immediately deliver an enormous financial windfall to you. Your departure from the company is usually swift, making this option ideal for quickly-planned exits. Of course, mergers are not always available close at hand. You may have to work to set one up.

Why Your Exit Strategy Matters Sooner Than You Think

Your planned exit strategy will play a key role in how you organize your business right from the very beginning. Certain financial arrangements are poorly suited to certain strategies. Partnerships and sole proprietorships, for instance, are difficult to sell or take public. The cost and difficulty of altering your business’s structure to accommodate a specific exit strategy can often reduce its overall value and have a negative impact on how much money you end up taking with you. Isn’t it more practical to let your preferred exit strategy dictate the initial form of your business?

Over time the practicality of your different options is going to change. For instance, you may have planned from the beginning to leave your company by accepting a management buy-out when the time was right. If the time comes and your management team does not have the financial resources to buy your share, though, you will need to modify your plans. In this situation combining a buy-out with another exit type, like an IPO or a merger is often the solution.

Every entrepreneur who starts up a brand-new business is dreaming big. Before your new company starts growing, just take the time you need to think about your eventual endgame. By mapping out an exit strategy or two for yourself, you can lay down a cohesive long-term plan for the company and secure your own future after your time with the business is done.

Thomas Gunner is a successful entrepreneur and business owner. He operates ReviewFilter.com, which is a cloud-based tool for Hotel And Restaurant operators that engages with recent customers via email or SMS and invites them to give feedback on their recent experience of your business.


PitchBook Dealmakers Column

The current private equity deal-making environment is dynamic, marked by several key factors that may seem at odds with the economic landscape.

It is counter-intuitive to think that there is a liquidity surplus of both debt and equity capital. Not only are there plenty of funds available, interest is strong from all lender/investor constituencies. Companies with solid operational profiles and sound financial reporting are being well received by all funding sources.

The senior debt market has eased, with aggressive competition from banks and non-bank lenders, according to Hilco Global thought leaders. Traditional limited partner funds, credit opportunity funds, captive bank funds, hedge funds, commercial finance companies and insurance companies have all created pricing pressure on traditional lenders. This significant cross-section of investors is competing for a limited number of quality transactions whose credit standards remain basically unchanged. Risk aversion has relaxed, opening the market to non-sponsor private equity companies, challenged credits and traditionally avoided industries.

There is also excess capital in the PE market as the window appears to be closing for various general partners to invest a significant portion of their “dry powder” that accounts for the approximate $543 billion capital overhang in the U.S., according to PitchBook. In short, if you are an active buyer (strategic or financial) looking for an attractive, well-performing company in today’s marketplace, it is likely to be an extremely competitive process as sellers are in the driver’s seat.

To learn more about the PE dealmaking environment, read PitchBook’s latest Deal Multiples & Trends Report, which features a full Q&A from Hilco Global thought leaders.

This article represents the views of the author only and does not necessarily represent the views of PitchBook.