Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
UPSIZE STAGES: EXIT STRATEGIES
05 :: Maximizing your price
Audited financials,
solid management
lead to higher price
There are many steps you can take to maximize the price you will receive for your company. Anything you can do to make a potential buyer more comfortable with the future of the company gives you a chance to increase the eventual purchase price.
One of the most important factors is the uniqueness of the company. An undifferentiated product is going to bring a lower-end return, but if you stand out in some way, you?ll be able to command a greater price.
Business experts suggest small-business owners focus on finding ways to maximize their profit potential instead of increasing revenue. High revenue with low margins is less attractive to potential buyers than a company with bottom line growth and stability. They also note that a well-prepared seller that has plenty of time to make a deal can monitor the market and sell when there is more cash chasing fewer companies. When the market is good, a seller can get as much as two-times more above EBITDA (earnings before interest, taxes, depreciation and amortization) than one who sells during a down economy.
If sellers have given themselves three to five years of leeway before they plan to sell, that leaves plenty of time for them to get their books in order. Financial statements are the best indicator of a company?s recent past and having them audited adds to a seller?s credibility.
A strong business will have assets in excess of liabilities. Try to reduce the liabilities as much as possible. The buyer is going to be practicing risk management and having good records that show past success and indicate that greater future success is attainable will increase your sale price.
Other records and documents, such as minutes from business meetings and an up-to-date business plan, also can be important. Keep in mind the buyer also will be checking into customer satisfaction, employee productivity and market competition to determine its worth.
It also helps convince buyers they are making a good deal if the business has top-notch management in place. And make sure those executives and managers are actually involved in the company?s day-to-day dealings. You want to make yourself expendable. If the seller is the only person keeping the business alive it will be less attractive to buyers because it will have less chance of succeeding once the owner leaves.
Make sure the business is focused around a core competency and not going in many different directions and make sure the management team is on board. Also expand your company?s customer concentration. Buyers will prefer to buy firms with a large number of clients each contributing a small amount to the top and bottom lines rather than having a small cluster of customers that could adversely affect sales if they take their business elsewhere.
Also, be flexible on terms. If you take an all-cash deal upfront, there is going to be a discount, possibly as much as 30 percent. But if you are willing to carry some buyer financing it might not only increase the deal in the long run, you might also put yourself in position to benefit from any success the company has under new ownership.
Keep the business running while it?s for sale. Maybe you pass on constructing a new building or some other capital expenditures that buyers might not be interested in, but if you need a new carpet, buy a new carpet and if you need a new salesperson, hire a new salesperson. You don?t want the value of the business to be diminished during negotiations.
Finally, experts say it?s important to use a strong team of lawyers, accountants and brokers to put buyers on notice that you won?t be undersold. However, they also suggest that there are few cases where someone says they need to get every last dollar possible out of a deal.
Sellers usually have certain goals they are trying to achieve and while it is important to get fair market value it?s also important to keep in mind the best fit for employees that will remain with the business and maintaining leadership roles for certain individuals as well.
As the name suggests, Owatonna-based Kamp Automation looks for customers with a process they’d like to automate. It could be a small, inconvenient, tiny part that people can’t assemble. It could be a high-volume product so needed that the customer can’t find enough labor to produce it in the necessary quantities. “We’ll work anywhere from medical device companies to the seed industry for corn and soybeans,” says Kent Patterson, co-founder, president and CEO. “We just jump all over wherever there is custom automation.” The company started in his garage. Patterson and his partners built a machine. The company started to grow to the point where now it has 48 employees — and had a bunch of people and stuff in different locations. “We went from a garage to a shop to a shop and just kept moving to new places and signing leases,” he says. “We got to a point where it’s like, OK, this is getting big enough and sustainable — we felt that we wanted to look for our own space.’”
