The Rule of Five holds that the Enterprise Value (the cash free, debt-free value of a business) of a Business is approximately five times its earnings before interest, taxes, depreciation and amortization (EBITDA), until demonstrated otherwise. The more informing M&A transactions are those closing at much greater multiples than five times EBITDA. There are several […]
The Babson College Survey (http://www.babson.edu/executive-education/thought-leadership/premium/Pages/six-key-trends.aspx), directed by Babson College Professor Kevin J. Mulvaney, assesses and defines current trends that impact Buyers and Sellers of businesses. Among the survey’s key findings: It is still a Seller’s market for quality companies; Seller’s must develop a knowledgeable game plan to evaluate options and potential deal partners. Underperforming companies […]
Almost all M&A transactions consist of a three-party event: the seller, the buyer and the tax collector. A myriad of tax issues must be considered and understood as part of the valuing, pricing, negotiating and structuring of a deal. Proper planning will minimize the tax collector’s share of the deal and maximize the remaining value […]
It is most appropriate to have targeted buyers sign a Non-Disclosure Agreement (NDA) or a Confidentiality Agreement (CA) before exchanging sensitive information regarding a seller’s potential acquisition target. Will the potential buyers sign? It depends, most times it will be signed; sometimes only after negotiating various details; potentially slowing down the sale process. A carefully […]
Although both methods use the same reference data and terminology, there is a difference between a formal valuation and the M&A transaction value of a Company. These variations can most simply be thought of as: formal valuations value entities that own businesses and M&A bankers value businesses. The formal valuation tends to be the approach used by the […]
Earn-out agreements are useful but contentious tools in M&A transactions to bridge disagreements. In an earn-out, the seller agrees that a portion of the deal consideration will be contingent upon the future performance of the company. Sellers must participate in estimating their earn-out expectations and in due diligence of the likelihood of collection. The possibility […]
It is important for the Seller to address Company weaknesses up front in the Offering Memorandum (OM) as opposed to later in the sales process. If not disclosed early, Buyer discovered weaknesses will certainly have price implications and challenge the Buyer’s confidence in the Seller’s management ability and honesty. A simple list of common weaknesses […]
The mergers and acquisitions (M&A) sales process begins with the preparation of a thorough Offering Memorandum (OM). This critical document provides the framework for profiling a company and positioning it for sale. An effective OM requires collaboration between the Sellers and the M&A advisor to capture the essence of the business. These conversations will include: […]
“Having only one buyer is the same as having no buyers,” is a statement often quoted by professionals in the M&A marketplace. After exhausting every qualified financial and strategic buyer, private equity firms, and the like, and to no avail; what is a Seller to do about the lone prospective buyer? Seller rest assured, if […]
There are four types of valuations used to understand middle market transactions and helpful with succession planning: Fair market value, hypothetical concepts, most commonly used in estate, income and gift tax planning or litigation support. Preliminary estimate of value in the market-place; will include strategic values recently paid in an industry. Investment value, value particular […]
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