Tag Archive for: BusinessValuation

The Doomsday Ratio

/in /by

Is your company prepared to survive a doomsday scenario? Economic uncertainty can emerge quickly and challenge even well-managed businesses. Without meaningful financial measurements, business owners may struggle to understand how their companies are truly performing.

Financial ratios provide objective benchmarks for evaluating a company’s financial health. They convert information from the income statement and balance sheet into standardized measurements. Owners can compare those measurements over time, against competitors, or across the broader industry. These comparisons often reveal strengths, weaknesses, and trends that traditional financial statements may not immediately identify.

Liquidity ratios deserve special attention during periods of economic uncertainty. These ratios measure a company’s ability to satisfy short-term obligations without raising additional capital. Strong liquidity provides flexibility, supports daily operations, and helps businesses withstand unexpected disruptions.

Common liquidity ratios include the current ratio, quick ratio, days sales outstanding, and the Doomsday Ratio. Each ratio measures liquidity from a different perspective and provides valuable insight into financial stability.

The Doomsday Ratio offers the most conservative measure of liquidity. It assumes the worst possible operating environment and ignores every current asset except cash and cash equivalents. The ratio is calculated by dividing cash and cash equivalents by current liabilities. The result indicates whether available cash can satisfy short-term obligations without relying on receivables, inventory, or external financing.

The Doomsday Ratio becomes even more valuable when tracked over time. A declining ratio may signal increasing financial pressure before more serious problems develop. An improving ratio may indicate stronger cash management and greater financial resilience.

No single financial ratio tells the entire story. Business owners should evaluate multiple ratios together and consider industry benchmarks when assessing financial performance. An experienced M&A advisory team can help interpret these measurements, identify potential risks, and recommend strategies that strengthen financial performance before a crisis occurs.

Delta Services, LLC has been acquired by The State Group, Inc.

Delta Services, LLC has been acquired by The State Group, Inc.

/in /by

ABOUT THE TRANSACTION:

Delta Services, LLC (the “Company” or “Delta”) has been acquired by The State Group Inc.

DELTA SERVICES, LLC:

The Company launched in 2004 and operates from Louisville, Kentucky. Delta Services functions as a privately owned, bonded, and fully insured electrical contractor. The team delivers electrical construction, communication systems, fire and security systems, safety services, utility distribution, and PLC controls. Delta operates across Kentucky, Southern Indiana and surrounding states. The Company employs over 230 union electricians and 35 additional staff members.

THE STATE GROUP, INC.:

The State Group launched in 1961 and operates from Toronto, Canada. The company provides comprehensive electrical and mechanical trade services to Fortune 100 clients. It serves the power generation, automotive, oil and gas, communications, metals and transportation industries. The State Group is backed by New York-based private equity firm, Blue Wolf Capital Partners LLC, and Vancouver-based private equity firm, Yellow Point Equity Partners. The company operates 18 offices throughout the United States and Canada. Additionally, it employs over 800 professionals and skilled trades people across eleven crafts. These teams complete nearly 2,000 projects each year. They repair, maintain and construct critical infrastructure. The team prioritizes safety and delivers consistent, high-quality execution.

“Our successful sale to State Group is a testament to our team’s collective effort to be the best in providing high quality, value added electrical solutions for our customers and to our commitment to the local communities we serve,” said Kevin Waldron, President of Delta Services. “We’re excited to join State Group as we begin the next chapter of Delta Services’ growth and success.”

“The addition of Delta Services provides an exciting opportunity to partner with a company aligned with our own values in prioritizing quality of service, not price,” said Thomas Santoni, President and CEO of The State Group. “Delta Services has a strong brand built on a foundation of nearly 40 years of high quality service. We are proud to welcome Kevin and the entire Delta team into the State Group family as we grow our existing business in Louisville and expand our footprint into greater Kentucky and Southern Indiana.

Allston Advisory Group served as the exclusive financial advisor to Delta Services, LLC, and conducted a confidential, competitive sale process that included both strategic and financial buyers.

ABOUT ALLSTON ADVISORY GROUP:

Allston Advisory Group is an experienced M&A advisory firm providing mergers & acquisitions, business valuations, and exit strategies, to lower middle market companies. The firm has an established track record of serving corporate clients across a broad spectrum of industries throughout the United States. Allston Advisory Group has the experience, professional fortitude, and quality of work that enable the firm to consistently deliver high-level results to its clients.

For additional information on this transaction, please contact one of our advisors.

NEWS SOURCES: 

Business Wire

EC&M

Crunchbase

Bloomberg

Comstock Brothers Electric Company, LLC has been acquired by The State Group, Inc.

/in /by

ABOUT THE TRANSACTION:

Comstock Brothers Electric Company, LLC (the “Company” or “Comstock”) has been acquired by The State Group Inc.

COMSTOCK BROTHERS ELECTRIC COMPANY, LLC:

The Company launched in 1999 and operates from Louisville, Kentucky. Comstock functions as a privately owned, bonded, and fully licensed electrical contractor. The team delivers power distribution, electrical construction, process controls, conveyors, and package handling solutions. Additionally, Comstock serves automotive clients and provides design-build and electrical testing services. Comstock Brothers Electric Company creates value through responsive service, strong diagnostic capabilities, and reliable execution. The team meets critical deadlines and consistently “Exceeds Energy Expectations.”

THE STATE GROUP, INC.:

The State Group launched in 1961 and operates from Toronto, Canada. The company provides comprehensive electrical and mechanical trade services to Fortune 100 clients. It serves the power generation, automotive, oil and gas, communications, metals and transportation industries. The State Group is backed by New York-based private equity firm, Blue Wolf Capital Partners LLC, and Vancouver-based private equity firm, Yellow Point Equity Partners. The company operates 18 offices throughout the United States and Canada. Additionally, it employs over 800 professionals and skilled trades people across eleven crafts. These teams complete nearly 2,000 projects each year. They repair, maintain and construct critical infrastructure. The team prioritizes safety and delivers consistent, high-quality execution.

Allston Advisory Group served as the exclusive financial advisor to the Comstock Brothers Electric Company, LLC, and conducted a confidential, competitive sale process that included both strategic and private equity buyers.

ABOUT ALLSTON ADVISORY GROUP:

Allston Advisory Group is an experienced M&A advisory firm providing mergers & acquisitions, business valuations, and exit strategies, to lower middle market companies. The firm has an established track record of serving corporate clients across a broad spectrum of industries throughout the United States. Allston Advisory Group has the experience, professional fortitude, and quality of work that enable the firm to consistently deliver high-level results to its clients.

For additional information on this deal, please contact one of our advisors.

NACVA’S 2015 40 UNDER 40 HONOREES!

/in /by

Allston Advisory Group is pleased to announce that Senior Managing Director Nolan K. Kapp has received national professional recognition. Specifically, the National Association of Certified Valuators and Analysts, (“NACVA”) has selected Kapp as a 2015 NACVA 40 Under 40 Honoree.

NACVA recognizes emerging leaders throughout the business valuation and financial consulting professions. The program identifies professionals who demonstrate achievement, leadership, professional expertise, and a commitment to advancing their respective fields.

In particular, the NACVA 40 Under 40 program highlights professionals who have established themselves as emerging leaders before the age of 40. Honorees represent different areas within valuation, financial consulting, litigation support, accounting, mergers and acquisitions, and related advisory services.

ABOUT NOLAN K. KAPP

Kapp serves as Senior Managing Director of Allston Advisory Group, an independent mergers and acquisitions advisory firm. In this capacity, he advises privately held companies on mergers and acquisitions, business valuations, and exit strategies. At Allston, Kapp works closely with business owners preparing for significant financial and ownership transitions. His responsibilities include financial analysis, business valuation, transaction preparation, buyer identification, negotiations, due diligence, and transaction execution. Beyond technical expertise, successful advisory work requires an understanding of each business owner’s individual objectives. Accordingly, Kapp focuses on developing transaction strategies that reflect both financial considerations and the owner’s broader goals.

ABOUT ALLSTON ADVISORY GROUP:

At the same time, the recognition reflects Allston Advisory Group’s commitment to providing disciplined financial and transaction advisory services. The firm serves privately held, lower middle market companies across numerous industries throughout the United States.

Notably, NACVA and the Consultants’ Training Institute emphasize professional excellence, technical quality, leadership, and innovation within the financial consulting profession. Through these efforts, the organizations bring together professionals from across the valuation and advisory communities. Throughout 2015, NACVA will recognize the honorees through several of its professional publications and communications. Among them, featured outlets will include The Value Examiner, QuickReadBuzz, Association News, and other NACVA distributions.

Taken together, NACVA 40 Under 40 recognition represents a significant professional achievement for Kapp and Allston Advisory Group. Moreover, it reinforces the firm’s continued commitment to serving business owners through complex valuation and M&A decisions.

A. ARNOLD WORLD CLASS RELOCATION HAS BEEN ACQUIRED BY THE MANAGEMENT TEAM

/in /by

ABOUT THE TRANSACTION:

A. Arnold World Class Relocation (“A. Arnold” or the “Company”) has been acquired by members of the Company’s management team (“Buyers”).

Established in 1905 and headquartered in Louisville, Kentucky, A. Arnold has developed into a leading independent moving and relocation company. The Company serves individuals, families, corporations, and organizations throughout the United States and internationally. Through the A. Arnold Group, the Company provides a broad range of relocation, transportation, logistics, and commercial services. Its integrated capabilities allow customers to coordinate complex moves through an experienced organization.

A. Arnold World Class Relocation specializes in full-service domestic relocation for individual households and multinational corporations. The division manages relocations throughout the United States. Additionally, Sterling International, Inc. provides international relocation services for households and commercial customers. Its capabilities support clients moving employees, operations, and personal belongings across international markets. A. Arnold’s Commercial Services division provides business solutions for companies of various sizes. These services include logistics, transportation, and supply chain management.

MANAGEMENT BUYOUT AND OWNERSHIP TRANSITION:

The transaction transfers ownership to members of A. Arnold’s existing management team. As a result, the Company gains new ownership while maintaining experienced leadership already familiar with its operations. A management buyout may provide several advantages when an established leadership team is prepared to assume ownership. In this case, the transaction creates continuity for customers, employees, and other stakeholders. Moreover, the Buyers already understand the Company’s operations, customers, employees, and competitive position. Their existing knowledge helps reduce disruption during the ownership transition. The transaction also provides the sellers with a path to liquidity while preserving the Company’s established organization. At the same time, management gains the opportunity to participate directly in A. Arnold’s future ownership and growth.

ALLSTON ADVISORY GROUP’S ROLE:

Allston Advisory Group advised both parties in connection with the management buyout. First, Allston analyzed the Company’s financial performance and established a mutually-acceptable transaction value. Next, the firm helped structure a transaction that addressed the objectives of both the sellers and management team. Financing represented a critical component of making the transaction executable. Because the buyers had modest collateral available, conventional acquisition financing presented challenges. Allston therefore assisted management in obtaining financing through an SBA-guaranteed 7(a) loan. In doing so, Allston worked with the parties and financing sources to support the proposed transaction structure. The financing allowed management to complete the acquisition despite the limited collateral available.

The transaction demonstrates how thoughtful structuring may facilitate ownership succession when capable managers lack substantial personal capital or collateral. More broadly, the management buyout provided a practical succession solution for an established company with more than a century of operating history. It also positioned experienced management to lead A. Arnold through its next chapter of ownership.

ABOUT ALLSTON ADVISORY GROUP:

Allston Advisory Group is an independent mergers and acquisition advisory firm serving privately held, lower middle market companies. The firm provides mergers and acquisitions, business valuations, and exit strategies. Allston works closely with business owners to understand their objectives and prepare their companies for the transaction process. The firm then manages a disciplined and confidential sale process from initial preparation through closing.

For additional information on this transaction, please contact one of our advisors.

NEWS SOURCES:

Using Rules of Thumb as a Business Valuation Starting Point

/in /by

Business owners frequently use industry rules of thumb to estimate what their companies might be worth. These formulas offer a quick and convenient reference point. However, business valuation rules of thumb should serve as a starting point rather than a valuation conclusion. Most rules rely on a multiple applied to either revenue or earnings. Earnings measures may include EBITDA, SDE, cash flow, or another industry-specific measure.

Understanding What the Multiple Represents

A rule of thumb reflects observed relationships within a particular industry or market segment. For example, an industry might commonly reference a percentage of annual revenue. Another industry might focus primarily on a multiple of earnings.

At first glance, these formulas appear straightforward. Two companies with identical revenue, however, may have substantially different values. Profitability, growth, customer concentration, management depth, recurring revenue, and competitive position can distinguish one company from another. Company size, geography, capital requirements, and industry conditions may also affect value.

Historical Industry Benchmarks

In the prior year 2010, Business Valuation Resources (BVR) provided revenue-based rules of thumb for several major industry groups. The reported multiples for the period 2008 through 2010 included:

Industry                         2008             2009            2010

Construction                0.39x              0.40x             0.35x

Manufacturing            0.53x               0.61x             0.52x

Transportation            0.69x               0.43x            0.55x

Wholesale Trade         0.46x               0.45x            0.52x

Retail Trade                 0.36x               0.33x            0.34x

Services                         0.56x               0.53x            0.56x

These historical figures illustrate how broad industry benchmarks can change as market conditions change. The variation also reinforces the limitations of relying on a single rule of thumb. Across this period, transaction activity and overall private company valuations were affected by the financial crisis and constrained credit markets. BVR reported fewer private company transactions during 2009 than 2008. Its broader transaction data also showed declining net sales multiples during that period.

However, industry averages cannot account for meaningful differences between individual businesses. Profitability, growth, customer concentration, management depth, and other characteristics may produce substantially different values.

Understand the Transaction Assumptions

Owners must also understand exactly what a particular rule of thumb measures. A multiple does not automatically determine which assets and liabilities transfer to a buyer. Cash, debt, working capital, real estate, and other items depend on the transaction structure. Accordingly, applying a multiple without understanding its underlying assumptions may produce a misleading estimate.

Move Beyond the Rule of Thumb

An experienced valuation professional can analyze the company’s specific financial performance, risks, assets, and market characteristics. An M&A advisor may then evaluate how prospective buyers may view those characteristics during a sale process. Business valuation rules of thumb may provide a useful perspective. However, they cannot replace company-specific analysis or determine what qualified buyers may actually pay.

Rules of thumb provide a reference point. A properly developed valuation provides context, and the marketplace determines the transaction price.

Allston Advisory Group is an experienced boutique M&A advisory firm providing a variety of services to lower middle market companies. See our footer for contact information.

(502) 742-2933
[email protected]
P.O. Box 21266, Louisville, KY 40221

Our Newsletter

Follow us: