This issue of Capital Ideas, our quarterly newsletter dedicated to business selling, business buying and financial resources for mid-market companies.
10 Tips For Sellers to Add Value
By Craig Allsopp, Managing Director, Portland Office
Baby boomer business owners may be overwhelmed with information covering the do’s and don’ts of preparing a company for sale. So to help start the process, here are 10 actions for you to add value today so that you can impress potential buyers when you are ready to go to market:
- Audit your financials. Sloppy numbers sap value like a poorly tuned engine saps horsepower. You may find a buyer who will overlook holes in your financial reporting, but you won’t get top dollar. An audit shows a prospective buyer that you are serious about doing the little things right – which can be a powerful signal to send when you are in a negotiating process.
- Fill gaps in your team. No one can do everything well – including you. If you can’t be away for a week without checking in on routine problems you need a stronger team. This is especially true if the buyers for your business include private equity groups who almost always are looking for a deep bench when they are recapitalizing a company... Read more
How do Private Equity Groups Assess Potential Investments?
By David Sinyard, Managing Director, Atlanta Office
Before private equity groups (PEGs) invest, they review a significant number of proposals hoping to find that diamond in the rough, that perfect addition to their investment portfolio. Three a day is not unheard of, so annual volume can easily be 700–1000 proposals. Of these, the majority of PEGs typically close on 2–4 deals per year. There is a great deal of time and work involved in reviewing and ultimately deciding which deals to pursue. Their due diligence costs often exceed $100,000 per transaction. Before they commit the time and money, they have to be convinced that this is a company that they want to own. How do PEGs decide which deals to pursue?
The review procedures utilized by PEGs differ significantly and range on a continuum from a very formal process to an informal review practice. When PEGs follow a formal process, they may have evaluation criteria and will use a checklist for each submission they review. It is scored and a company would need a minimum score to advance to the next step. The majority of PEGs use an informal review process - based on time and experience, the business development officers will “know” whether it’s something of interest.
Evaluations of specific criteria appear to exist for every deal and most PEGs tend to look for strong, stable cash-flow, low debt levels, leading market positions, and niche products or services. But one variable stands out to separate the proposals into “yes” and “no” piles – the management team… Read more
Situation: Burlington Automation Corp. (BAC), located in Hamilton, ON, manufactures a single machine, the PythonX. This machine is the market leader in automated cutting of structural steel and tubes. While the company has sold machines on every continent, it needed 3 things – a global distribution network, a global in-field support network and a marquee brand to take the business to the next level. The absolute best partner for the company was clearly Lincoln Electric Holdings (NASDQ: LECO). With $3 billion in revenue, Lincoln is the world leader in welding equipment and related automation technology.
Solution: CFA Toronto West was hired by BAC in May 2013 to assist in negotiating a major investment from Lincoln. BAC’s 50% increase in sales and profits in the previous 12 months complicated negotiations as it was unknown if this was a maintainable trend or just a blip. After several months of negotiations, an LOI was signed late-September 2013. The transaction was completed on November 15, 2013, when Lincoln executed the agreements to make a significant investment in Burlington Automation Corp.
Corporate Finance Associates (CFA) is a founding member of ICFG, the 14th largest mid-market M&A firm in the world with over 40 offices in North and South America, Europe, and Asia. Since 1956, CFA has completed more than 5,000 transactions. CFA is ranked among the top ten of mid-market investment banks in North America and top eight in Canada by Thomson Reuters.
For additional information contact:
Douglas Nix, CA | Vice Chairman
Corporate Finance Associates | Toronto West | 905-845-4340 x211 | firstname.lastname@example.org