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Muir Musings on Right Time to Sell

Posted by on 24 February 2020 | Comments

We engage in a lot of conversations about when is the right time to sell a particular business.  The dreaded phrase “it depends” is always part of the discussion.  I had two conversations around the topic last week.  One with an old friend who works with distressed companies to try to help them turnaround or ultimately liquidate.  He described a couple of situations involving niche companies that peaked five years or ten years ago, took no action as their markets evolved and couldn’t regain their momentum after the change. Try as he might to turn them around, they were ultimately liquidated.  The other conversation was with a vibrant sixty one year old owner whose company is growing and highly profitable.  He still wants to run the company for a period of time but in his own words, he doesn’t “want to be doing this when I am eighty.”  We discussed selling his ownership interest and remaining involved in product development which is his passion within the business.  

comment(s) | Read the full post

Muir Musings on Premium Value

Posted by on 18 February 2020 | Comments

We have several new engagements on the market right now.  I was speaking with one of the owners whose company is on track for its best year ever. The performance is the result of a well thought out market repositioning last year. His question was, “Will buyers assume the good year was the result of positioning the business for sale and think it won’t be repeated?” 

comment(s) | Read the full post

Muir Musings on Private Equity

Posted by on 10 February 2020 | Comments

I’d like to spend some time this week on an often misunderstood concept, Private Equity.  In its simplest form it is one or more individuals investing money to buy full or partial ownership in a company.  This can take the form of three or four friends putting together a pool of money to buy a company based on their mutual interest in some aspect of the firm to be acquired.  We refer to these investors as “three people and a checkbook”.  We have done many successful transactions with these investors.  

comment(s) | Read the full post

Muir Musings on Business Owner's Flawed Calculations

Posted by on 3 February 2020 | Comments

We believe our team at Beacon has a very good understanding of what a business will sell for in the open market once we have an in depth understanding of the business.  Owners often look at business value based on the amount they need to comfortably exit the business.  The Beacon team are not experts at determining the “need” amount.  Unfortunately, business owners may use flawed methods to determine their “need” amount.

comment(s) | Read the full post

Muir Musings on Multiple Shareholder Agreements

Posted by on 27 January 2020 | Comments

We recently met a company with four shareholders, each with 25% ownership.  There is no family relationship though they function well together, each responsible for a vital department within the firm.  When they purchased the company, a shareholder agreement included a provision calling for a shareholder wishing to retire to alert the others eighteen months before his planned retirement.  Upon receipt of the notice, the other three shareholders had to commit to stay with the business for another five years or make their retirement intentions known, if they wished to retire in less than five years. The agreement included other details for reaching resolution that I won’t get into here.

comment(s) | Read the full post

Muir Musings on Add Backs

Posted by on 21 January 2020 | Comments

An important part of determining the expected value for a company in a sale is the normalization of earnings or “add backs”.  When we make presentations to buyers we include a page that makes adjustments for extraordinary expenses and expenses that were at the sole discretion of the business owner but not integral to the ongoing operations of the business.  This exercise is often misunderstood by business owners who see the process as an opportunity to add back everything they can think of to increase earnings.

comment(s) | Read the full post

Muir Musings on Family Welfare

Posted by on 13 January 2020 | Comments

If you are watching Succession on HBO (if you aren’t, YOU SHOULD BE), you know how dysfunctional the Roy family is.  Everyone is dependent on dad for money and affirmation.  Not good.  We sometimes see the real-life version in family owned businesses but without the cold calculation of Logan Roy.  

comment(s) | Read the full post

Muir Musing on "Why?"

Posted by on 6 January 2020 | Comments

At Beacon, we spend a substantial amount of time determining and discussing the value of a company.  Valuation can be a complex process involving multiple calculations and interpretations. Despite the formulas and calculations, often there is a simple question in need of an answer in an acquisition transaction which is “Why?” As in, Why Would a Buyer Want to Buy the Company? 

comment(s) | Read the full post

Grow Your Revenues

Posted by David Humphrey on 7 September 2017 | Comments

All profit starts as revenue. In real estate the key to value is Location, Location, Location. In business, the chant is Sales, Sales, Sales. Increasing revenues in the years leading up to sale is probably the greatest value enhancement technique. A business with growing revenues conveys so many positive aspects, including: 

comment(s) | Read the full post

One plus One can equal Three

Posted by David Humphrey on 17 August 2017 | Comments

Buying a competitor is a significant step, but can also be lucrative. Consider this simple example: Frank has a distribution business which, based on his profitability, would normally be worth $10,000,000. However he is only receiving offers in the $8,000,000 range due to customer concentration. One customer accounts for 30 percent of revenues making buyers nervous. His competitor, who is of similar size and profitability, also has a significant customer. One way to both lessen the customer concentration, and create value, is for Frank to buy the competitor for $8,000,000. A year later, Frank goes to sell his company once again. Now, since his revenues are twice as high, his largest customer is only 15 percent of revenues. The competitor’s largest customer, now part of Frank’s business, is only 15 percent as well. If the buyer perceives these customers as less risky since they are a “smaller” part of the business, Frank has immediately increased the value of his original business by $2,000,000 (25 percent) and the competitor’s business by $2,000,000 (another 25 percent) by reducing both customer concentration risks. The $8,000,000 purchase of the competitor increased Frank’s net worth by an additional $4,000,000, a 50 percent ROI (Return on Investment) with the acquisition.

comment(s) | Read the full post

Muir Musings on Right Time to Sell

Posted by on 24 February 2020 | Comments

We engage in a lot of conversations about when is the right time to sell a particular business.  The dreaded phrase “it depends” is always part of the discussion.  I had two conversations around the topic last week.  One with an old friend who works with distressed companies to try to help them turnaround or ultimately liquidate.  He described a couple of situations involving niche companies that peaked five years or ten years ago, took no action as their markets evolved and couldn’t regain their momentum after the change. Try as he might to turn them around, they were ultimately liquidated.  The other conversation was with a vibrant sixty one year old owner whose company is growing and highly profitable.  He still wants to run the company for a period of time but in his own words, he doesn’t “want to be doing this when I am eighty.”  We discussed selling his ownership interest and remaining involved in product development which is his passion within the business.  

comment(s) | Read the full post

Muir Musings on Premium Value

Posted by on 18 February 2020 | Comments

We have several new engagements on the market right now.  I was speaking with one of the owners whose company is on track for its best year ever. The performance is the result of a well thought out market repositioning last year. His question was, “Will buyers assume the good year was the result of positioning the business for sale and think it won’t be repeated?” 

comment(s) | Read the full post

Muir Musings on Private Equity

Posted by on 10 February 2020 | Comments

I’d like to spend some time this week on an often misunderstood concept, Private Equity.  In its simplest form it is one or more individuals investing money to buy full or partial ownership in a company.  This can take the form of three or four friends putting together a pool of money to buy a company based on their mutual interest in some aspect of the firm to be acquired.  We refer to these investors as “three people and a checkbook”.  We have done many successful transactions with these investors.  

comment(s) | Read the full post

Muir Musings on Business Owner's Flawed Calculations

Posted by on 3 February 2020 | Comments

We believe our team at Beacon has a very good understanding of what a business will sell for in the open market once we have an in depth understanding of the business.  Owners often look at business value based on the amount they need to comfortably exit the business.  The Beacon team are not experts at determining the “need” amount.  Unfortunately, business owners may use flawed methods to determine their “need” amount.

comment(s) | Read the full post

Muir Musings on Multiple Shareholder Agreements

Posted by on 27 January 2020 | Comments

We recently met a company with four shareholders, each with 25% ownership.  There is no family relationship though they function well together, each responsible for a vital department within the firm.  When they purchased the company, a shareholder agreement included a provision calling for a shareholder wishing to retire to alert the others eighteen months before his planned retirement.  Upon receipt of the notice, the other three shareholders had to commit to stay with the business for another five years or make their retirement intentions known, if they wished to retire in less than five years. The agreement included other details for reaching resolution that I won’t get into here.

comment(s) | Read the full post

Muir Musings on Add Backs

Posted by on 21 January 2020 | Comments

An important part of determining the expected value for a company in a sale is the normalization of earnings or “add backs”.  When we make presentations to buyers we include a page that makes adjustments for extraordinary expenses and expenses that were at the sole discretion of the business owner but not integral to the ongoing operations of the business.  This exercise is often misunderstood by business owners who see the process as an opportunity to add back everything they can think of to increase earnings.

comment(s) | Read the full post

Muir Musings on Family Welfare

Posted by on 13 January 2020 | Comments

If you are watching Succession on HBO (if you aren’t, YOU SHOULD BE), you know how dysfunctional the Roy family is.  Everyone is dependent on dad for money and affirmation.  Not good.  We sometimes see the real-life version in family owned businesses but without the cold calculation of Logan Roy.  

comment(s) | Read the full post

Muir Musing on "Why?"

Posted by on 6 January 2020 | Comments

At Beacon, we spend a substantial amount of time determining and discussing the value of a company.  Valuation can be a complex process involving multiple calculations and interpretations. Despite the formulas and calculations, often there is a simple question in need of an answer in an acquisition transaction which is “Why?” As in, Why Would a Buyer Want to Buy the Company? 

comment(s) | Read the full post

Grow Your Revenues

Posted by David Humphrey on 7 September 2017 | Comments

All profit starts as revenue. In real estate the key to value is Location, Location, Location. In business, the chant is Sales, Sales, Sales. Increasing revenues in the years leading up to sale is probably the greatest value enhancement technique. A business with growing revenues conveys so many positive aspects, including: 

comment(s) | Read the full post

One plus One can equal Three

Posted by David Humphrey on 17 August 2017 | Comments

Buying a competitor is a significant step, but can also be lucrative. Consider this simple example: Frank has a distribution business which, based on his profitability, would normally be worth $10,000,000. However he is only receiving offers in the $8,000,000 range due to customer concentration. One customer accounts for 30 percent of revenues making buyers nervous. His competitor, who is of similar size and profitability, also has a significant customer. One way to both lessen the customer concentration, and create value, is for Frank to buy the competitor for $8,000,000. A year later, Frank goes to sell his company once again. Now, since his revenues are twice as high, his largest customer is only 15 percent of revenues. The competitor’s largest customer, now part of Frank’s business, is only 15 percent as well. If the buyer perceives these customers as less risky since they are a “smaller” part of the business, Frank has immediately increased the value of his original business by $2,000,000 (25 percent) and the competitor’s business by $2,000,000 (another 25 percent) by reducing both customer concentration risks. The $8,000,000 purchase of the competitor increased Frank’s net worth by an additional $4,000,000, a 50 percent ROI (Return on Investment) with the acquisition.

comment(s) | Read the full post