Few buyers make all cash offers in middle market M&A transactions; preferring to offer any number of alternative forms of consideration. In order to meaningfully compare multiple offers to one another, all consideration must be weighted to its equivalent value in cash. Consideration may include: Cash – “cash is always king” Promissory Notes – interest […]
“Normalizing Adjustments” are essential to value a Company and to make meaningful comparisons between a Company’s past and future performances. The normalization of the financial statements should reflect a willing buyer’s expectations for operating results and assist in determining the appropriate future cash flow stream. In order to minimize confusion and disagreements between Buyer and […]
Confirmatory (final) due diligence in M&A transactions begins following the execution of the Letter of Intent (LOI) and should be completed when the Definitive Agreement is signed; normally, 60 days. The buyer’s purpose in due diligence is to ensure that the Target Company meets the expectations created in the selling memorandum. This process examines the […]
Negotiating an Acquisition Agreement involves a complex legal process intertwined with critical business decisions. This set of documents and its terms and conditions are surprisingly unique to each deal. Agreements are a tool for allocating risk; the key components include: Consideration: structure scope of purchase, price, how/when paid, deferred consideration, earn-outs, contingent payments, employment/consulting agreements and […]
What should matter most to a seller of a business are the after-tax proceeds. One of the roadblocks that arise in structuring a business sale has to do with the competing tax consequences of the buyer and seller. If structured properly, the seller of personal goodwill receives significant benefits with no adverse tax consequences to […]
Sell transactions require open communication between the seller and M&A advisor to navigate challenges along the way and produce a “close”. Even good “deals” may be derailed by “surprises”. In order to survive the process and move to closing, seller’s goals must be aligned with realistic expectations. Maximizing the sale price may be the underlying […]
In M&A deals, the buyer is purchasing the future earnings of the business, along with the assets that will produce them. Although valuations are initially derived from earnings considerations, the resulting valuation includes the buyer’s right to receive the ordinary and necessary balance sheet of the business; the Company’s Enterprise Value. The Company’s Enterprise Value […]
Rewarding key personnel is an important element of many Middle Market M&A transactions. A Stock Appreciation Rights (SAR) Plan is a method for Companies to give their key employees a bonus if the Company performs well financially. Participants do not own stock nor are they required to purchase anything; however, their benefit from the SAR […]
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 […]
(502) 742-2933
[email protected]
P.O. Box 21266, Louisville, KY 40221