Tag Archive for: ExitPlanning

TRAFFIC BUILDERS HAS BEEN ACQUIRED BY GS MARKETING

/in /by

ABOUT THE TRANSACTION:

GS Marketing, Inc. (“GSM” or the “Buyer”) has acquired Traffic Builders, Inc. (“Traffic Builders” or the “Company”).

Headquartered in Louisville, Kentucky, Traffic Builders is a multichannel direct marketing agency serving more than 300 automobile dealerships nationwide. The Company works with dealerships representing a broad range of automobile manufacturers. With approximately 20 full-time employees, Traffic Builders specializes in results-driven automotive marketing programs. Its programs help dealerships attract new customers, increase existing customer activity, and reengage customers who have stopped doing business. For nearly two decades, Traffic Builders has developed integrated marketing solutions across multiple delivery platforms. The Company combines automotive industry knowledge with targeted marketing strategies designed to generate measurable customer activity.

STRATEGIC FIT WITH GS MARKETING:

Headquartered in Houston, Texas, GS Marketing is a full-service direct marketing company serving the automotive industry. GSM has nearly three decades of experience working with automobile dealerships, dealer groups, and manufacturers. The company employs approximately 85 associates and operates as part of The Friedkin Goup. GSM provides marketing products and services designed specifically for automotive retailers and manufacturers.

The acquisition combines two companies with extensive experience serving automobile dealerships. In particular, Traffic Builders adds established customer relationships, integrated products, and additional marketing capabilities to GSM’s existing platform. GSM President Shelley Washburn highlighted Traffic Builders’ experience and integrated marketing products as significant benefits of the combination. She also noted the companies’ shared commitment to customer satisfaction and engaging workplace cultures.

Following the acquisition, GS Marketing continues operations in both Houston and Louisville. The two locations provide complementary capabilities within the combined organization. Specifically, the Houston offices focus on technology and digital marketing. Meanwhile, the Louisville facility concentrates on expanded print production and related marketing capabilities. The combination allows GSM to broaden its automotive marketing platform while maintaining Traffic Builders’ established Louisville presence. Furthermore, GSM expects the acquisition to strengthen its position within the automotive marketing industry.

ALLSTON ADVISORY GROUP’S ROLE:

Allston Advisory Group served as the exclusive financial advisor to Traffic Builders, Inc. and its owners. Allston performed an Analysis of Value and prepared the Company for the sale process. Additionally, Allston developed a comprehensive Confidential Information Memorandum presenting Traffic Builders’ operations, financial performance, capabilities, and growth opportunities. The firm also identified qualified strategic and financial buyers capable of completing the transaction.

Thereafter, Allston conducted a confidential and competitive sale process involving both strategic buyers and private equity groups. The process created competition while allowing the sellers to evaluate multiple potential transaction alternatives. Allston managed buyer communications, coordinated management discussions, and assisted the sellers throughout negotiations. The firm also worked alongside the sellers’ other professional advisors during due diligence and closing. As a result, Traffic Builders has transitioned to an established strategic buyer with complementary capabilities and substantial automotive industry experience. The transaction also provides GSM with additional resources, customers, and capabilities to support its continued growth.

ABOUT ALLSTON ADVISORY GROUP:

Allston Advisory Group is an independent mergers and acquisitions 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.

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.

Choosing the Right Process to Sell a Business

/in /by

Preparing a company for sale may significantly improve its financial performance, reduce risk, and strengthen its value drivers. For many businesses, this preparation has the greatest influence on transaction value. Once the company is ready for market, the business sale process becomes another significant factor in the outcome. The process determines how prospective buyers encounter the opportunity, compete for it, and negotiate transaction terms.

A well-designed process may create competitive tension while protecting confidentiality and preserving negotiating leverage. It may also help the seller identify which buyers place the greatest value on the business. The appropriate approach depends on the company, buyer universe, market conditions, and seller’s objectives. Most lower middle market transactions generally follow one of three approaches.

Broad Auction

A broad auction introduces the company to a relatively large group of qualified prospective buyers. These buyers may include strategic acquirers, private equity firms, family offices, and other financial buyers. This approach works particularly well when many credible buyers could have an interest in the company.

With a wider field, the seller may compare multiple offers and allow competition to influence price and transaction terms. However, broader outreach also requires careful confidentiality controls. The M&A advisor must qualify buyers and manage information throughout the process.

Targeted Auction

A targeted auction focuses on a smaller group of buyers with compelling reasons to pursue the company. The advisor identifies prospective buyers based on strategic fit, acquisition criteria, financial capacity, and likely interest. Through this narrower approach, the seller may preserve many benefits of competition while limiting unnecessary market exposure. A targeted auction may work especially well when the likely buyer universe is identifiable or confidentiality requires greater control.

Negotiated Sale

A negotiated sale involves discussions with one buyer or a very limited group of buyers. This approach sometimes begins with an unsolicited offer from a strategic acquirer. The process may offer greater confidentiality and potentially move faster. However, limited competition may reduce the seller’s negotiating leverage. In this situation, the seller must understand the company’s value and establish acceptable transaction terms before granting exclusivity.

Matching the Process to the Seller

No single business sale process works for every company. The appropriate strategy depends on buyer demand, confidentiality, market conditions, and seller objectives. An experienced M&A advisor should evaluate the likely buyer universe before recommending an approach. The advisor may then structure the process around the company’s specific circumstances.

A strong company creates value. The right sale process gives the marketplace an opportunity to recognize and compete for that value.

Using KPIs to Build a Stronger and More Valuable Business

/in /by

Business owners cannot manage their companies effectively without understanding what drives financial and operational performance. Financial statements provide essential information, but they primarily explain what has already happened. Business performance indicators help management anticipate what may happen next. Key Performance Indicators, or KPIs, measure the activities and results that matter most to a company’s success.

Start With Financial Performance

Every owner should regularly review the income statement, balance sheet, and cash flow. However, reviewing individual months provides only part of the picture. Management should compare current results with budgets, prior periods, and historical trends. Industry benchmarks may also provide useful context when reliable comparisons exist.

Financial KPIs may include revenue growth, gross margin, EBITDA margin, days sales outstanding (DSO), and working capital. Alongside these measures, owners should identify the operational factors that produce financial results.

Identify Leading Indicators

Some of the most valuable KPIs appear before changes reach the financial statements. A contractor might monitor backlog, bids submitted, win rates, and project margins. A service company might track recurring revenue, customer retention, utilization, and new customer acquisition. A manufacturer could monitor capacity utilization, scrap rates, throughput, order volume, and on-time delivery. Earlier in the performance cycle, these indicators can provide warning signs or identify emerging opportunities.

Owners should ask a simple question: What would change first if our business started getting better or worse? The answer often identifies the company’s most useful leading indicators.

Turn Information Into Action

Tracking KPIs creates little value unless management acts on the information. Companies should establish targets, assign accountability, and review results consistently. Management may then investigate meaningful variances and determine appropriate responses.

When patterns emerge, leaders may adjust pricing, staffing, inventory, marketing, capital spending, or other operating decisions. A concise dashboard may keep management focused on the measures that matter most. Too many KPIs may obscure meaningful information rather than improve decision-making.

KPIs Support Business Value

Buyers want to understand more than historical earnings. They also want evidence explaining how the company generates those earnings. Well-developed business performance indicators demonstrate operating discipline, management depth, predictable performance, and visibility into future results.

For an owner preparing for a sale, KPIs can also strengthen the company’s investment story. They provide measurable evidence supporting growth trends, competitive advantages, and future opportunities. An experienced M&A advisor should identify the KPIs that prospective buyers will find most relevant. The advisor may then analyze historical trends and connect operating performance to the company’s financial results.

As sale preparations advance, the advisor may incorporate these measures into the Confidential Information Memorandum and other buyer materials. This analysis helps buyers understand what drives revenue, margins, and future earnings. KPIs also support management projections by connecting forecasted results to measurable operating assumptions. During due diligence, consistent KPI reporting help validate those assumptions and explain changes in performance.

An M&A advisor may also identify unfavorable trends before buyers discover them. Management then has time to investigate the causes, address problems, and prepared credible explanations. Strong businesses do not simply report financial results. They understand the operating factors behind those results. An experienced M&A advisor uses KPIs to help buyers understand those drivers and recognize the value they create.

Creating Buyer Competition in a Business Sale

/in /by

A business owner negotiating with one buyer has limited information about what the broader marketplace may offer. The buyer knows this as well. A competitive buyer process changes that dynamic by creating alternatives for the seller. Multiple qualified buyers strengthen negotiating leverage and provide meaningful comparisons among offers. However, generating a long buyer list does not create competition by itself. The M&A advisor must identify buyers with the interest, resources, and strategic rationale to complete the transaction.

Build the Right Buyer Universe

The process begins by understanding the company and identifying potential sources of buyer demand. Strategic buyers may seek new customers, geographic markets, products, employees, technology, or operating capabilities. Private equity firms evaluate opportunities based on their investment criteria, portfolio strategies, expected returns, and available capital. Well-funded individual buyers and family offices may also represent credible candidates for certain companies.

At the buyer-development stage, the advisor should look beyond obvious industry participants. Buyers from adjacent markets may identify opportunities that direct competitors overlook.

Qualify Buyers Before Sharing Information

More buyers do not necessarily create a better process. Qualified buyers do. An experienced M&A advisor should evaluate financial capacity, acquisition criteria, transaction experience, strategic rationale, and decision-making authority. This qualification helps separate serious prospects from tire kickers.

After establishing credibility, qualified buyers receive the Confidential Information Memorandum (CIM) following execution of a confidentiality agreement. The CIM should present the company’s financial performance, operations, competitive position, and growth opportunities clearly.

Create Competition Through Process

Competition requires more than contacting buyers. The advisor must manage those buyers through a coordinated process. Deadlines for indications of interest encourage buyers to make decisions within a defined timeframe. Comparable offers also allow the seller to evaluate price, structure, certainty, and post-closing terms.

As buyer interest develops, the advisor negotiates from a position supported by credible alternatives. One buyer may offer the highest price. Another may provide more cash, fewer contingencies, or better terms for the seller.

Preserve Competition Until the LOI

The seller’s leverage generally reaches a critical point before granting exclusivity to one buyer. An experienced M&A advisor should use the competitive buyer process to resolve significant economic terms before that occurs. The objective is not simply to generate multiple buyers. It is to create a marketplace where qualified buyers compete for the opportunity.

Competition gives the seller alternatives, and alternatives create negotiating leverage.

2014 M&A Market: What Deal Multiples Reveal About Business Value

/in /by

The 2014 M&A market continued to provide favorable conditions for many middle market business owners considering a transaction. Transaction activity remained strong, while reported valuation multiples increased during the second half of the year.

The Alliance of Merger & Acquisition Advisors (“AM&AA”) represents professionals serving the middle market mergers and acquisitions industry. Each year, AM&AA surveys its membership regarding completed transactions and prevailing market conditions. Through its Deal Stats Transaction Survey, AM&AA gathered information about sell-side transactions completed during the second half of 2014. The survey examined transaction volume and multiples of earnings before interest, taxes, depreciation, and amortization (“EBITDA”).

Encouragingly, both average and median EBITDA multiples increased during the survey period. The average multiple increased from 5.52 times EBITDA to 5.64 times EBITDA. Similarly, the median transaction multiple increased from 5.12 times EBITDA to 5.37 times EBITDA. Deal activity also increased, while overall transaction dollar volume remained above historical levels.

The survey reported the following average EBITDA multiples by industry:

  • Construction – 4.87x
  • Manufacturing – 5.68x
  • Wholesale Trade – 6.54x
  • Retail Trade – 6.02x
  • Professional Services – 5.32x

Of note, these industry averages provide useful market observations rather than predetermined valuation benchmarks. Individual companies may transact above or below these multiples based on their specific characteristics. The survey also identified a positive relationship between transaction size and EBITDA multiples. Generally, larger companies attracted higher valuation multiples than smaller companies.

Furthermore, company revenue showed a similar relationship with transaction multiples. These findings reflect the advantages that buyers may associate with greater scale, market position, and organizational depth. More revealingly, AM&AA members identified growth opportunities and buyer synergies as principal reasons for higher EBITDA multiples. Those findings demonstrate why buyers evaluate much more than historical earnings when determining value. A strategic buyer may identify opportunities to expand products, eliminate overlapping costs, or enter new markets through an acquisition. Correspondingly, those opportunities may allow the buyer to justify a higher valuation than another prospective purchaser.

For business owners, the 2014 M&A market reinforces a fundamental principle of preparing for a sale. Strong EBITDA matters, but the quality and future potential of those earnings also influence buyer interest. Owners should focus on sustainable growth, scalable operations, strong management, and defensible competitive advantages. An experienced M&A advisor will then position those attributes effectively within a competitive sale process.

How Working Capital Affects Proceeds at Closing

/in /by

Many business sales occur on a cash-free, debt-free basis. However, the buyer still expects sufficient working capital to operate the business after closing. This expectation creates one of the most frequently negotiated components of a transaction: the working capital target.

The target establishes the amount of working capital the seller must effectively deliver at closing. Any difference between actual working capital and the target generally creates a purchase price adjustment.

Defining Working Capital

For transaction purposes, working capital usually includes selected operating current assets and current liabilities. Accounts receivable, inventory, accounts payable, and accrued expenses commonly enter the calculation. Cash and funded debt are typically excluded because the transaction addresses those items separately. Other accounts require careful consideration. Customer deposits, prepaid expenses, deferred revenue, accrued payroll, and related-party balances may create disagreements.

At the negotiating table, the parties should clearly define which accounts belong in the calculation. They should also establish consistent accounting policies for measuring those accounts.

Establishing the Target

The working capital target should reflect the amount reasonably necessary to operate the business under normal conditions. Historical averages often provide a useful starting point. However, the selected measurement period should reflect seasonality, growth, unusual events, and recent operating changes.

A trailing twelve month average may work for one company but distort another company’s requirements. Depending on the business cycle, monthly or quarterly analysis may provide a clearer picture. Sellers should also examine working capital relative to revenue when growth materially affects operating needs. Industry benchmarks may provide context, but company-specific history usually deserves greater weight.

Avoiding Surprises at Closing

Working capital often changes significantly between the LOI and closing. Receivables get collected, inventory moves, vendors receive payments, and new liabilities arise. Accordingly, sellers should model the expected closing balance well before the transaction closes. The LOI should address the working capital methodology whenever possible. Waiting until the purchase agreement may create unnecessary disputes after the seller has granted exclusivity.

An experienced M&A advisor should coordinate the analysis with the seller’s accounting and legal advisors. The team should define accounts, identify unusual balances, and establish a defensible target. A properly structured working capital target helps ensure the buyer receives a normally operating business. It also protects the seller from an unexpected reduction in proceeds at closing.

Why the Purpose of a Business Valuation Matters

/in /by

Business owners often ask what their companies are worth. However, that question does not have one answer for every circumstance. The purpose of a business valuation helps determine the appropriate engagement, standard of value, assumptions, and level of analysis. A valuation prepared for estate planning may differ significantly from an analysis supporting a potential business sale. Likewise, litigation or shareholder matters may require different assumptions and standards.

Different Decisions Require Different Valuations

Business valuations serve many financial, legal, tax, and transaction purposes. Common applications include estate and gift planning, shareholder transactions, buy-sell agreements, litigation, and employee ownership plans. Valuations may also support charitable contributions, purchase price allocations, and other financial decisions.

Given these different purposes, owners should define the valuation question before beginning the analysis. The applicable standard of value may include fair market value, fair value, or investment value. Each addresses a different question and may produce a different conclusion.

Valuation Before a Business Sale

A preliminary business valuation establishes a reference point for current value. It may also reveal a gap between estimated proceeds and the owner’s financial objectives. When a gap appears, the owner may decide that additional preparation is necessary before pursuing a transaction.

At that point, an Exit Readiness Assessment may provide a broader evaluation of the company from a prospective buyer’s perspective. The assessment may examine earnings quality, growth, customer concentration, management depth, operations, and other significant value drivers.

Together, the valuation and Exit Readiness Assessment serve different but complementary purposes. The valuation establishes where the business stands financially. The Exit Readiness Assessment helps identify what the owner should address before going to market.

Buyers May See Different Values

Prospective buyers do not necessarily value the same company equally. A financial buyer may focus heavily on expected returns and financing capacity. A strategic buyer may identify synergies, capabilities, customers, or geographic opportunities unavailable to other buyers. Because buyer economics differ, a valuation should not establish an artificial ceiling on transaction value. A competitive sale process allows multiple buyers to evaluate the company from their own perspectives.

Selecting the Appropriate Engagement

Qualified valuation professionals may perform different types of engagements depending on the assignment. A valuation engagement develops a conclusion of value after applying appropriate valuation approaches and methods. A calculation engagement uses agreed approaches, methods, and procedures to develop a calculated value.

An experienced M&A advisor uses valuation analysis to help owners establish expectations and prepare for a potential transaction. Understanding the purpose of a business valuation comes first. The appropriate analysis should answer the owner’s specific question rather than produce a number without context.

Setting the Deal Framework in the Letter of Intent

/in /by

A Letter of Intent marks a significant transition in the sale of a business. It moves the parties from preliminary discussions toward a defined transaction. The LOI should establish the principal business terms before the parties commit substantial resources to completing the deal. Most provisions remain nonbinding. However, certain provisions, including confidentiality and exclusivity, may create binding obligations.

Define the Transaction Economics

The purchase price represents only one component of an offer. Sellers should understand how and when they will receive the consideration. Accordingly, LOI deal terms should address purchase price, transaction structure, and the form of consideration. The LOI may also address seller financing, earnouts, rollover equity, escrows, and other holdbacks.

Working capital deserves particular attention. The parties should establish the methodology for determining the working capital target and any resulting adjustment. At this point in the negotiations, the parties should also identify whether the transaction involves an asset or equity purchase.

Address the Seller’s Continuing Involvement

Many transactions require the seller to remain involved after closing. The LOI should address significant expectations concerning employment, consulting, transition assistance, or continuing ownership. Compensation and responsibilities may also require discussion when the seller remains employed. Similarly, the parties should identify material noncompetition or non-solicitation expectations before proceeding.

Establish the Path to Closing

The LOI should provide a framework for moving from agreement to closing. This framework may address due diligence, financing, regulatory approvals, closing conditions, and the anticipated closing date. Before the process narrows, the seller should also understand the exclusivity period. During exclusivity, the seller generally stops discussions with competing buyers. The buyer then conducts confirmatory due diligence and negotiates the definitive purchase agreement.

Resolve Major Issues Early

The LOI cannot anticipate every provision contained in the final purchase agreement. Trying to negotiate every legal detail at this stage would also defeat its purpose. However, leaving significant economic issues unresolved may create problems later.

An experienced M&A advisor should negotiate the LOI deal terms with the entire transaction in mind. The advisor can identify economic issues that deserve resolution before exclusivity begins. Legal counsel should review the LOI before execution and address its binding and nonbinding provisions. A well-structured LOI does more than summarize an offer. It establishes the economic framework and provides a clear path toward the definitive purchase agreement.

Preparing Your Business for Sale

Strengthening Your Business Before the Sale Process Begins

/in /by

The months and years before a sale may significantly influence how buyers evaluate a business. Strong financial performance matters, but buyers also consider risk, transferability, management, and future growth opportunities. Effective pre-sale business preparation addresses these factors before prospective buyers begin evaluating the company.

Strengthen the Financial Foundation

Owners should begin with accurate and timely financial reporting. Balance sheets should accurately reflect receivables, inventory, liabilities, debt, and other accounts. Management should resolve shareholder loans, obsolete inventory, and uncollectible receivables when appropriate.

Before buyer outreach begins, owners should also understand normal working capital requirements and historical capital expenditures. Financial statements should clearly support reported earnings. Owners should also document legitimate normalizing adjustments to develop a representative earnings base.

Reduce Dependence on the Owner

A business that depends heavily on its owner may create additional risk for a buyer. Owners should develop management responsibilities, decision-making authority, and accountability throughout the organization. Key employee retention also deserves attention. Appropriate compensation, incentives, or change-of-control arrangements may help retain employees through a transaction. As responsibilities become distributed, the company becomes less dependent on one individual for continued performance.

Address Operational Risks

Owners should review significant contracts, leases, licenses, intellectual property, and supplier relationships before going to market. Change-of-control provisions or nontransferable agreements may create complications during a transaction. Customer concentration, deferred maintenance, outdated systems, and undocumented processes may also attract buyer scrutiny. An Exit Readiness Assessment can help identify these issues from a prospective buyer’s perspective.

Demonstrate Future Opportunity

Buyers generally evaluate both historical performance and future potential. A credible growth strategy should identify realistic opportunities supported by management capabilities and financial resources. As evidence accumulates, successful initiatives become more compelling than projections alone. Management should track KPIs supporting growth assumptions and prepare reasonable financial projections.

Prepare Before the Marketplace Sets the Narrative

An experienced M&A advisor should begin pre-sale business preparation before the company enters the market. The advisor can work with the owner to identify potential transaction issues and prioritize improvements. An Exit Readiness Assessment may provide the framework for that process. Once marketing begins, buyers will form their own conclusions about the company’s strengths and weaknesses. Preparing early gives the seller an opportunity to address those weaknesses before buyers use them to evaluate risk, value, and transaction terms.

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: