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Through the Fresnel Lense

Sharks, Lookers & Creatives

Posted by Jeff Muir on 18 May 2020 | Comments

I was part of Zoom call with private equity buyers from around the country last week.  Part of the discussion evolved to how buyers will look at opportunities as the economy opens up.  One private equity buyer suggested three types of post-COVID buyers, Sharks, Lookers & Creatives.

comment(s) | Read the full post

Muir Musings on What Did We Learn?

Posted by Jeff Muir on 4 May 2020 | Comments

What Did We Learn?

comment(s) | Read the full post

Muir Musings on Existing Contracts

Posted by on 28 April 2020 | Comments

Contracts are an important part of any business.  During due diligence for a business sale, the buyer’s review of existing contracts can uncover unexpected issues.  We advise clients in the years leading up to sale to be careful not to automatically renew long standing contracts.  A contract signed in the early stages of a business may contain limitations or provisions that are no longer necessary as the business matures.  The careful review of a contract renewal may take time and some expense in the short term but may prevent an unintended consequence during a sale.

comment(s) | Read the full post

Muir Musings on Confidentiality

Posted by on 13 April 2020 | Comments

When someone asks at a networking event what I do, I often say I sell companies I can’t tell anyone I’m selling.  Confidentiality is an integral part of what we do.  If customers or employees find out about a potential sale at the wrong stage, it can have a negative effect on the company and the transaction.  Confidentiality has to be balanced with providing buyers with the information they need to understand the business and make an educated offer.  Serious buyers are not interested in gossip about which company is for sale but it is important to carefully present information particularly to industry competitors to avoid compromising a competitive advantage if a deal doesn't come together. 

comment(s) | Read the full post

Muir Musings on Strategic Business Decisions

Posted by on 6 April 2020 | Comments

Recently we met with a potential client who, after telling us his company has earnings of $1.5 million, said “I don’t know what (expletive deleted) I’m doing.”  It was said to get a laugh and it did.  What he really meant as the conversation went on was, I am making a lot of money but I don’t really have a plan for building value.  Part of the reason we were referred to him by his corporate attorney was to help him better understand what buyers value in a company.  His current dilemma was whether to stay in his current location, which was at 80% production capacity, or move to a larger space where he would have room to grow by 70%…hopefully.  The rent increase would eat into earnings by $1 million but the upside was huge over the next 4-5 years when he felt earnings could grow to $5-6 million.  What would buyers prefer, earnings today or potential growth tomorrow?

comment(s) | Read the full post

Muir Musings on When Opportunity Knocks

Posted by on 30 March 2020 | Comments

Sometimes opportunity knocks and we aren’t sure what to make of it. Business owners are used to unsolicited buyers asking if they are interested in selling. We close a few deals each year that started with an unsolicited conversation.  We suggest that owners not be too quick to dismiss these overtures. Buyers looking to acquire closely held businesses have become increasingly sophisticated in identifying target companies. Gone are the days of the form letter or blast fax to hundreds of businesses to see if anyone will bite.  Buyers are using available data to narrow down their targets and reach out personally to gauge owner’s interest in selling.  There are several steps we go through to vet a buyer before spending too much time in conversation or sending any information about a company.  If you or your client gets a knock on the door and needs help determining what to do next, we would be happy to speak with them.

comment(s) | Read the full post

Muir Musings on Deal Structure

Posted by on 23 March 2020 | Comments

Not surprisingly much of the focus in an M&A deal is on the deal price in the transaction.  We are quick to remind everyone involved that the structure of the deal is as important as the price.  We are also quick to point out that the dream of being paid 100% cash at closing is seldom realized.  In many cases, 10-25% of the purchase price is paid after the closing.  The buyer and their financing sources want to mitigate some of their risk and often want a seller to remain somehow engaged in the business.  While the seller can refuse to accept anything other than cash at closing, they severely limit their options and perhaps miss out on additional upside dollars.  We believe a very important part of any transaction is balancing the risk and reward of the post closing payment for both sides.  Deals can be properly priced but poorly structured, increasing the possibility for one side to walk away before closing.  If you think you or your clients might benefit from our experience in structuring deals that will close, please give us a call.

comment(s) | Read the full post

Muir Musings on Multiples

Posted by on 16 March 2020 | Comments

We are often asked about what multiples should be used for a company in a particular industry to determine value.  The reality is that the sale price in a transaction has more to do with the characteristics of the individual company than what industry it is in.  If I told you a company published a magazine and operated a website for parent/teacher organizations, your first thought might be it’s a “nice business” but the multiple can’t be that high.  But if I told you they have relationships with nearly 40,000 schools and 1,000,000 teachers, it gets more interesting.  Next I tell you they generate revenue from major consumer product manufacturers interested in connecting with parents and teachers.  The additional facts make a nice business into an exciting business with multiple growth opportunities for a range of buyers.  The details of the opportunity change the multiple.  No one multiple fits every business in an industry, you have to know the story of the individual business to understand value.

comment(s) | Read the full post

Muir Musings on Divisional Accounting

Posted by on 9 March 2020 | Comments

We are currently working on a project for a company that has two distinct divisions contained within one set of financial statements.  One division is doing well and growing steadily, while the other division is perfecting a concept that may be truly revolutionary in their space.  The second division may have exponentially greater market value than the first and ownership has been approached by some large national companies interested in potentially buying the division.  Ownership has never formally separated the shared costs for the two divisions.  We are working with the company’s finance group to do the separation in order to make a meaningful presentation to buyers.  As one might imagine, it will be far easier to divide the current year and more challenging (and require more resources) to go back in time.  We would recommend instituting divisional accounting to any business at the earliest possible stage.  Divisional accounting is an excellent way to monitor the profitability of new initiatives and down the road can help the company demonstrate to buyers which divisions are most valuable.   

comment(s) | Read the full post

Muir Musings on Family Owned Businesses

Posted by on 2 March 2020 | Comments

Family owned businesses bring a special set of issues not found with businesses owned by non-related stakeholders.  We recently met an owner (100% shareholder) whose husband and son in law worked in the business and has two children that are not involved.  The owner would like to sell, whether to the family members or to an outside buyer in approximately five years.  The son in law is integral to the growth and success of the business.  The owner was concerned about how she could be fair to him as well as her children.  If he helps the business become more valuable then is asked to pay a market price to purchase it, it hardly seems fair since his work caused him to pay a higher value.  If the business is sold to a third party, the son in law could feel slighted if he and his spouse receive the same amount as the child not involved in the business.

comment(s) | Read the full post

Sharks, Lookers & Creatives

Posted by Jeff Muir on 18 May 2020 | Comments

I was part of Zoom call with private equity buyers from around the country last week.  Part of the discussion evolved to how buyers will look at opportunities as the economy opens up.  One private equity buyer suggested three types of post-COVID buyers, Sharks, Lookers & Creatives.

comment(s) | Read the full post

Muir Musings on What Did We Learn?

Posted by Jeff Muir on 4 May 2020 | Comments

What Did We Learn?

comment(s) | Read the full post

Muir Musings on Existing Contracts

Posted by on 28 April 2020 | Comments

Contracts are an important part of any business.  During due diligence for a business sale, the buyer’s review of existing contracts can uncover unexpected issues.  We advise clients in the years leading up to sale to be careful not to automatically renew long standing contracts.  A contract signed in the early stages of a business may contain limitations or provisions that are no longer necessary as the business matures.  The careful review of a contract renewal may take time and some expense in the short term but may prevent an unintended consequence during a sale.

comment(s) | Read the full post

Muir Musings on Confidentiality

Posted by on 13 April 2020 | Comments

When someone asks at a networking event what I do, I often say I sell companies I can’t tell anyone I’m selling.  Confidentiality is an integral part of what we do.  If customers or employees find out about a potential sale at the wrong stage, it can have a negative effect on the company and the transaction.  Confidentiality has to be balanced with providing buyers with the information they need to understand the business and make an educated offer.  Serious buyers are not interested in gossip about which company is for sale but it is important to carefully present information particularly to industry competitors to avoid compromising a competitive advantage if a deal doesn't come together. 

comment(s) | Read the full post

Muir Musings on Strategic Business Decisions

Posted by on 6 April 2020 | Comments

Recently we met with a potential client who, after telling us his company has earnings of $1.5 million, said “I don’t know what (expletive deleted) I’m doing.”  It was said to get a laugh and it did.  What he really meant as the conversation went on was, I am making a lot of money but I don’t really have a plan for building value.  Part of the reason we were referred to him by his corporate attorney was to help him better understand what buyers value in a company.  His current dilemma was whether to stay in his current location, which was at 80% production capacity, or move to a larger space where he would have room to grow by 70%…hopefully.  The rent increase would eat into earnings by $1 million but the upside was huge over the next 4-5 years when he felt earnings could grow to $5-6 million.  What would buyers prefer, earnings today or potential growth tomorrow?

comment(s) | Read the full post

Muir Musings on When Opportunity Knocks

Posted by on 30 March 2020 | Comments

Sometimes opportunity knocks and we aren’t sure what to make of it. Business owners are used to unsolicited buyers asking if they are interested in selling. We close a few deals each year that started with an unsolicited conversation.  We suggest that owners not be too quick to dismiss these overtures. Buyers looking to acquire closely held businesses have become increasingly sophisticated in identifying target companies. Gone are the days of the form letter or blast fax to hundreds of businesses to see if anyone will bite.  Buyers are using available data to narrow down their targets and reach out personally to gauge owner’s interest in selling.  There are several steps we go through to vet a buyer before spending too much time in conversation or sending any information about a company.  If you or your client gets a knock on the door and needs help determining what to do next, we would be happy to speak with them.

comment(s) | Read the full post

Muir Musings on Deal Structure

Posted by on 23 March 2020 | Comments

Not surprisingly much of the focus in an M&A deal is on the deal price in the transaction.  We are quick to remind everyone involved that the structure of the deal is as important as the price.  We are also quick to point out that the dream of being paid 100% cash at closing is seldom realized.  In many cases, 10-25% of the purchase price is paid after the closing.  The buyer and their financing sources want to mitigate some of their risk and often want a seller to remain somehow engaged in the business.  While the seller can refuse to accept anything other than cash at closing, they severely limit their options and perhaps miss out on additional upside dollars.  We believe a very important part of any transaction is balancing the risk and reward of the post closing payment for both sides.  Deals can be properly priced but poorly structured, increasing the possibility for one side to walk away before closing.  If you think you or your clients might benefit from our experience in structuring deals that will close, please give us a call.

comment(s) | Read the full post

Muir Musings on Multiples

Posted by on 16 March 2020 | Comments

We are often asked about what multiples should be used for a company in a particular industry to determine value.  The reality is that the sale price in a transaction has more to do with the characteristics of the individual company than what industry it is in.  If I told you a company published a magazine and operated a website for parent/teacher organizations, your first thought might be it’s a “nice business” but the multiple can’t be that high.  But if I told you they have relationships with nearly 40,000 schools and 1,000,000 teachers, it gets more interesting.  Next I tell you they generate revenue from major consumer product manufacturers interested in connecting with parents and teachers.  The additional facts make a nice business into an exciting business with multiple growth opportunities for a range of buyers.  The details of the opportunity change the multiple.  No one multiple fits every business in an industry, you have to know the story of the individual business to understand value.

comment(s) | Read the full post

Muir Musings on Divisional Accounting

Posted by on 9 March 2020 | Comments

We are currently working on a project for a company that has two distinct divisions contained within one set of financial statements.  One division is doing well and growing steadily, while the other division is perfecting a concept that may be truly revolutionary in their space.  The second division may have exponentially greater market value than the first and ownership has been approached by some large national companies interested in potentially buying the division.  Ownership has never formally separated the shared costs for the two divisions.  We are working with the company’s finance group to do the separation in order to make a meaningful presentation to buyers.  As one might imagine, it will be far easier to divide the current year and more challenging (and require more resources) to go back in time.  We would recommend instituting divisional accounting to any business at the earliest possible stage.  Divisional accounting is an excellent way to monitor the profitability of new initiatives and down the road can help the company demonstrate to buyers which divisions are most valuable.   

comment(s) | Read the full post

Muir Musings on Family Owned Businesses

Posted by on 2 March 2020 | Comments

Family owned businesses bring a special set of issues not found with businesses owned by non-related stakeholders.  We recently met an owner (100% shareholder) whose husband and son in law worked in the business and has two children that are not involved.  The owner would like to sell, whether to the family members or to an outside buyer in approximately five years.  The son in law is integral to the growth and success of the business.  The owner was concerned about how she could be fair to him as well as her children.  If he helps the business become more valuable then is asked to pay a market price to purchase it, it hardly seems fair since his work caused him to pay a higher value.  If the business is sold to a third party, the son in law could feel slighted if he and his spouse receive the same amount as the child not involved in the business.

comment(s) | Read the full post