Tag Archive for: SellSideAdvisory

What Business Owners Should Know About Private Equity Buyers

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Since Allston Advisory Group’s founding in 2010, the private equity landscape has changed considerably. Around 2010, the United States had approximately 2,300 private equity firms. By 2024, that number had increased to approximately 6,000 firms. The number of private equity backed companies has also grown substantially. PitchBook data indicates approximately 6,400 U.S. companies had private equity backing in 2010. That figure approached 12,000 by 2024. For business owners considering selling to private equity, this growth has created a larger and more diverse universe of potential buyers.

Over the intervening years, private equity also expanded further into the lower middle market. Firms developed increasingly specialized strategies based on industry, geography, company size, and transaction type. For business owners, this expansion has created a much larger and more diverse universe of potential financial buyers.

However, more private equity firms do not necessarily mean more qualified buyers for every company. Each firm has a specific investment criteria, capital requirements, and return expectations. An experienced M&A advisor must therefore identify firms whose strategies align with the company and seller’s objectives.

Platform and Add-On Acquisitions

Private equity firms generally pursue acquisitions as either platform investments or add-on acquisitions. Understanding the distinction may help sellers evaluate the buyer’s strategy and potential transaction structure. A platform acquisition establishes or expands the private equity firm’s primary investment within a particular industry. The platform typically has sufficient scale, management, infrastructure, and market position to support future growth.

After acquiring a platform, the private equity firm may invest additional capital to expand the business. Growth may occur organically or through subsequent acquisitions. As the platform develops, management may pursue geographic expansion, new services, additional customers, or complementary capabilities. The private equity firm may also provide strategic resources and acquisition expertise.

An add-on acquisition involves purchasing a company that complements an existing platform investment. The platform company often participates directly in evaluating and completing the acquisition. Add-ons may provide new customers, geographic markets, employees, services, technology, or specialized capabilities. They may also create purchasing efficiencies or other operating benefits.

For the seller, the distinction may materially affect the transaction. A platform buyer may expect the existing management team to continue operating and growing the company. An add-on buyer may have different plans. It could integrate accounting, technology, purchasing, human resources, sales, or other functions into the existing platform.

The seller should therefore understand the buyer’s integration strategy and expected post-closing role before accepting an offer. The distinction may also affect value. A platform or add-on buyer may identify synergies unavailable to other financial buyers. Those benefits may influence how much a particular buyer is willing to pay.

Where rollover equity is involved, the buyer’s strategy becomes even more relevant. Sellers may retain an ownership interest in the platform rather than only their former company. If the platform grows and later sells successfully, the seller may participate in that additional value creation. This potential outcome is sometimes called the “second bite of the apple.” However, rollover equity also carries investment risk and reduced control. Sellers should evaluate both the initial transaction and their continuing investment before committing capital.

Transaction Structures May Vary

Selling to private equity does not necessarily require an owner to exit completely. Private equity can support several transaction structures and seller objectives. An owner may pursue an outright sale and transition toward retirement. Another may complete a recapitalization while retaining meaningful equity ownership.

Likewise, private equity can provide capital for growth, acquisitions, or ownership transitions. It can also support management teams purchasing businesses from existing owners. Rollover equity can give sellers another opportunity to participate in future growth. However, sellers exchange immediate liquidity for continued investment risk.

Evaluating More Than Purchase Price

Private equity firms may differ substantially in structure, risk, and post-closing expectations. Sellers should therefore evaluate more than headline purchase price. Beyond the economics, owners should understand the firm’s investment philosophy and expected holding period. They should also evaluate governance, management expectations, and plans for the business. The portfolio company’s role may also matter when an add-on buyer leads the transaction.

An experienced M&A advisor will identify firms whose investment criteria match the company and seller’s objectives. The advisor may also create competition among qualified financial and strategic buyers. For the right owner, selling to private equity may provide liquidity while creating opportunities for continued growth and participation. The right structure depends on what the seller wants the transaction to accomplish.

Preparing Yourself for the Sale, Not Just the Business

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Owners often spend years preparing their companies for a future sale. They strengthen management, improve financial reporting, reduce customer concentration, document processes, and address other business risks. Those efforts matter. However, the business represents only one side of exit readiness. Owner readiness for a business sale requires a different examination.

Is the owner financially prepared to sell? Is the owner professionally ready to stop leading the company? Has the owner discussed the transition with family? Most importantly, is the owner personally prepared to let go? A business may be ready for a transaction while its owner remains years away from one. Recognizing that difference early creates time to prepare both.

Business Readiness and Owner Readiness Are Different

An Exit Readiness Assessment evaluates the company from a transaction perspective. It identifies risks, opportunities, and value drivers that may affect the business before a sale. Owner readiness asks a different set of questions. The answers may influence when the owner sells, which buyer fits best, and how the transaction gets structured. These questions also reach beyond the closing date. They address whether the owner is prepared for the financial, professional, personal, and emotional consequences of selling. That preparation should begin well before buyers enter the conversation.

Start With Financial Independence

The first question is not simply what the business is worth. The owner needs to understand what the sale must accomplish financially. A preliminary valuation establishes the company’s current value. The owner should then consider expected taxes, transaction expenses, debt, and other adjustments affecting net proceeds. Those proceeds need context.

What lifestyle does the owner expect after closing? What financial commitments will continue? How much capital should remain available for family, estate planning, philanthropy, or future investments? A wealth advisor and tax advisor may help translate transaction value into long-term financial implications. This work gives the owner something more useful than a desired sale price. It provides clearer understanding of what financial independence actually requires.

Prepare to Give Up the Job Along With the Company

Owners also need to consider what they are leaving professionally. For decades, the business may have provided responsibility, authority, relationships, intellectual challenge, and daily structure. A sale changes all of them. Some owners remain through an employment or consulting agreement. Other retain rollover equity and become minority investors. These arrangements preserve involvement, but they change the owner’s authority.

Someone else may control hiring, strategy, compensation, capital spending, and other major decisions. An owner who enjoys operating the company may find that transition harder than expected. Therefore, professional readiness requires more than deciding when to retire. The owner should decide what role, if any, feels appropriate after control changes hands.

Bring Your Family Into the Conversation

A business sale rarely affects only the shareholder. Spouses may have expectations about retirement, travel, relocation, investments, or family time. Children may work in the company or expect future involvement. Other family members may associate the business with identity, security, or legacy. These expectations deserve discussion before the transaction creates deadlines. The owner does not need family approval for every decision. Still, understanding those perspectives may reveal issues that deserve attention before a sale begins. It also gives the family time to prepare for a significant change in wealth and lifestyle.

Personal Preparation Happens Before Closing

The personal side of readiness often receives the least attention. An owner may know exactly how to prepare a company for due diligence. The same owner may have no idea what Tuesday morning after closing will look like. That question deserves a serious answer.

The owner may want more time with family, golf, travel, investing, philanthropy, mentoring, consulting, or another business. The answer does not need to involve another career. It should, however, provide some direction for the time and energy that ownership once consumed. Developing those interests before a sale makes the transition feel less abrupt. It also helps the owner distinguish between wanting to sell and simply wanting relief from current pressures.

Emotional Readiness Does Not Appear on a Checklist

The final dimension is harder to measure. An owner may understand the economics and still struggle to sign the closing documents. That hesitation may involve identity, employees, customers, family history, or fear of losing purpose. It may also involve something simple: the owner is not ready.

Ignoring that possibility does not make it disappear. Instead, owners should consider how they feel about another person controlling the company they built. Would seeing the buyer change the culture create resentment? Would watching longtime employees report to someone else feel difficult? Would the owner struggle to stop intervening after closing? These questions may feel less concrete than valuation or taxes. They still affect whether a transaction feels successful years later.

Readiness Creates Better Choices

Preparing the owner does not mean deciding to sell immediately. In fact, early preparation may lead an owner to wait. That decision may be entirely appropriate. Time allows the company to strengthen while the owner prepares financially and personally. It also allows an M&A advisor to understand the owner’s objectives before designing a sale process. When the owner is ready, those objectives help shape buyer selection, transaction structure, timing, and post-closing involvement. That alignment matters because the highest offer may not produce the best outcome for every owner.

Prepare Both Sides of the Exit

Owner readiness for a business sale belongs beside business readiness, not behind it. The company needs transferable value, strong financial performance, capable management, and defensible operations. The owner needs financial clarity, professional direction, family alignment, and personal readiness for life after ownership.

Neither side should wait until a buyer appears. Preparing the business creates more options for the transaction. Preparing the owner creates more confidence in choosing among them. The business may be ready to sell. The more important question is whether the owner is ready to sell it.

Building Business Value Before Going to Market

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Owners often begin thinking about business value when they start considering a sale. By that point, some improvements may require significant time. Preparing a business for maximum value should begin well before the company enters the market. The objective is not simply to increase earnings. Owners should strengthen the characteristics that make those earnings sustainable, transferable, and attractive to buyers.

Understand What Buyers Value

Buyers evaluate both financial performance and the risks surrounding that performance. Strong profitability and growth may attract interest. However, buyers also examine customer concentration, management depth, recurring revenue, competitive advantages, and financial reporting. Operating systems, intellectual property, supplier relationships, equipment, and capital requirements may also affect their assessment.

As the analysis broadens, industry-specific factors become equally relevant. Backlog, certifications, referral networks, seasonality, and specialized capabilities may influence particular businesses. These characteristics represent value drivers because they can affect expected returns and perceived risk.

Determine Where to Focus

Not every value driver deserves equal attention. The greatest opportunity may differ substantially from one company to another. An Exit Readiness Assessment will evaluate the company from a prospective buyer’s perspective. It will identify strengths, weaknesses, risks, and opportunities before the sale process begins.

The assessment may also help owners prioritize improvements based on potential impact and implementation time. Some issues may require relatively straightforward changes. Improving financial reporting or documenting operating procedures may produce benefits within months. Other initiatives require longer development. Building management depth, reducing customer concentration, or implementing a growth strategy can take several years. With priorities established, management may focus resources on improvements most likely to strengthen the company.

Allow Time for Results

Buyers generally place greater confidence in demonstrated results than planned improvements. An owner who reduces customer concentration should have financial results supporting that progress. Likewise, a new management structure becomes more credible after operating successfully without constant owner involvement. This makes early preparation particularly valuable.

Take Value to the Marketplace

An experienced M&A advisor will use the Exit Readiness Assessment to help prepare the company before a sale. When the company enters the market, the advisor may position its strongest value drivers within a compelling investment story. The advisor can then identify buyers that place different values on those characteristics. A competitive process allows those buyers to demonstrate their interest through actual offers.

Preparing a business for maximum value requires more than improving financial performance shortly before a sale. It requires identifying value drivers (risk), prioritizing improvements, demonstrating results, and presenting those strengths to the right buyers.

Inland Pools & Construction

INLAND POOLS & CONSTRUCTION HAS BEEN RECAPITALIZED BY A PRIVATE INVESTOR

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ABOUT THE TRANSACTION:

Inland Pools & Construction (also referred to as the “Company”) has been recapitalized by a Private Investor.

For more than 25 years, Inland Pools has provided swimming pool construction and renovation services throughout Louisville, Lexington, and Southern Indiana. The Company combines thoughtful design, quality materials, and dependable equipment to create pools that meet each client’s needs, preferences, and budget. Inland Pools specializes in new gunite and vinyl liner pool construction, working closely with clients from initial design through completion. The Company uses products from established brands, including Pentair, Jandy, and Hayward, to deliver lasting value without compromising quality.

Renovation services include gunite pool plaster repair and resurfacing, retiling, and vinyl liner repair and replacement. To complete the surrounding outdoor space, Inland Pools also provides excavation, sidewalks, stone patios, decks, and garden structures, along with general contracting services for swimming pool projects.

Allston Advisory Group served as the exclusive financial advisor to Inland Pools & Construction throughout the transaction. The firm advised the Company on transaction planning, valuation, deal structure, and closing.

ABOUT ALLSTON ADVISORY GROUP:

Allston Advisory Group is an independent mergers and acquisitions advisory firm serving lower middle market companies throughout the United States. The firm provides sell-side advisory, business valuations, and exit strategies, to privately held companies across diverse industries. Allston works closely with business owners to understand their financial, strategic, and personal objectives before entering the market. The firm then manages a confidential and disciplined transaction process from initial preparation through closing.

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

Build the Business With Your Exit in Mind

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Business owners naturally focus on serving customers, growing revenue, managing employees, and solving immediate problems. However, every owner will eventually leave their business. The decisions made throughout ownership can significantly influence what happens when that time arrives. Long-term exit planning connects today’s business decisions with the owner’s eventual financial, professional, and personal objectives.

Start With the Desired Outcome

An effective exit strategy begins with understanding what the owner wants to accomplish. Financial objectives usually receive the most attention. However, timing, family, employees, legacy, and continuing involvement may also influence the desired outcome. Once the destination becomes clearer, the owner may begin building the company to support it.

An owner pursuing a third-party sale may prioritize transferability and management independence. A family transition may require developing the next generation of leadership. Likewise, a management buyout may require preparing managers for both operational leadership and ownership.

Build Value Throughout Ownership

Exit planning should not begin shortly before the owner wants to leave. Many characteristics that increase business value require years to develop. Strong management, diversified customers, sustainable earnings, recurring revenue, and reliable financial reporting make a company more attractive.

Documented processes, competitive advantages, growth opportunities, and reduced owner dependence may further strengthen value. As these capabilities mature, the company becomes both stronger today and more transferable tomorrow. A well-managed company may also give the owner more flexibility when unexpected opportunities or circumstances arise.

Measure Value and Identify the Path Forward

Owners should periodically evaluate whether the company remains aligned with their exit objectives. A preliminary business valuation establishes a current benchmark for value. It may also identify gaps between expected proceeds and the owner’s financial objectives. An Exit Readiness Assessment should accompany the preliminary valuation. Together, they provide a more complete picture of the company’s current position.

The business valuation answers one fundamental question: What is the business worth today? 

The Exit Readiness Assessment addresses another: What can the owner do to increase that value? 

The assessment evaluates the company from a prospective buyer’s perspective. It examines the factors buyers consider when assessing value, risk, and transferability. These factors may include earnings, growth, customer concentration, management depth, financial reporting, operations, and competitive advantages.

With both analysis in hand, the owner can prioritize improvements based on their potential effect on value. Some issues may require relatively straightforward changes. Others, such as management development or customer diversification, may require several years. Addressing these issues strengthens the company’s value drivers and increases business value before an eventual transaction.

Keep the Exit Strategy Flexible

The appropriate exit path may change as the business and owner’s circumstances evolve. Options may include a third-party sale, management buyout, family transfer, recapitalization, merger, or orderly liquidation. Regular planning allows the owner to evaluate these alternatives without committing prematurely to any one path.

An experienced M&A advisor will help connect long-term exit planning with valuation, exit readiness, and transaction alternatives. Building with the exit in mind does not mean preparing to leave today. It means building a more valuable business and preserving the freedom to choose when the time comes.

Controlling the Flow of Information During a Business Sale

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Selling a privately held business requires sharing sensitive information with prospective buyers. However, premature disclosure may create unnecessary risk for the seller. Employees may become concerned about their jobs or begin exploring other opportunities. Customers may question future services, while suppliers may reconsider credit terms or existing relationships. Competitors may also use knowledge of a potential sale to create uncertainty in the marketplace. A disciplined transaction disclosure strategy helps the seller balance confidentiality with the information buyers need to evaluate the opportunity.

Limit Knowledge at the Beginning

Most employees do not need to know about a potential sale during the early stages. The owner should initially involve only those employees necessary to prepare the company or support the transaction. This group may include senior management, the controller, or other employees responsible for providing requested information.

Within this limited group, everyone should understand the confidential nature of the process. The seller and M&A advisor should also establish procedures for transaction communications and document requests. Prospective buyers should not contact employees, customers, suppliers, or other business relationships without written authorization from the seller. Limiting early disclosure reduces unnecessary disruption while allowing the business to continue operating normally.

Control Buyer Communications

The M&A advisor should initially approach prospective buyers without identifying the seller. A blind teaser can describe the industry, size, geography, financial characteristics, and investment highlights without revealing the company’s identity. Interested buyers should then undergo qualification before receiving additional information. After qualification, the advisor will require a signed confidentiality agreement before identifying the company. The buyer may then receive the Confidential Information Memorandum and other appropriate materials.

As buyer commitment strengthens, the seller may gradually provide more detailed information. Highly sensitive information, including customer names, pricing, proprietary processes, employee compensation, and other sensitive information may remain restricted until later stages of the transaction. This approach becomes particularly relevant when prospective buyers compete directly with the seller.

Plan Employee Disclosure Carefully

Employees may become one of the most sensitive aspects of transaction confidentiality. Early disclosure may create uncertainty about compensation, responsibilities, benefits, or continued employment. Key employees may eventually need to participate in management meetings, due diligence or transition planning. The seller should determine when their involvement becomes necessary and prepare the communication before that point. Retention arrangements may also become appropriate for employees considered essential to completing the transaction. When disclosure becomes necessary, management should provide employees with clear information rather than allowing rumors to define the situation.

Prepare for Customers and Suppliers

Customers and suppliers generally should not learn about the transaction from rumors or unauthorized buyer contact. Premature disclosure may cause customers to consider competitors or suppliers to reconsider credit terms. Accordingly, buyers should contact these relationships only when necessary and with the seller’s written approval.

Customer calls sometimes become appropriate during confirmatory due diligence. However, sellers should carefully control their timing and scope. The seller and buyer should agree on who participates, what questions may be asked, and how the transaction is presented. A coordinated communication plan can emphasize continuity, service, relationships, and expectations after closing.

Prepare for an Unexpected Disclosure

Even a carefully controlled process may experience a confidentiality breach. An employee may notice unusual meetings. A customer may receive an unintended communication. Market participants may also recognize buyer activity. The seller should therefore prepare a response before a leak occurs. Should information surface unexpectedly, management should avoid speculation and communicate consistently with affected parties. Having an agreed response allows the seller to address concerns quickly without revealing unnecessary transaction details.

Maintain Control Through Closing

Perfect secrecy may not always be possible. The objective is controlled disclosure rather than an unrealistic guarantee of complete confidentiality. An experienced M&A advisor should manage the transaction disclosure strategy from initial buyer outreach through closing. The advisor can coordinate communications among buyers, employees, customers, suppliers, and the seller’s professional team.

A Virtual Data Room may further control document access and maintain an organized record of information shared with buyers. As the transaction advances, disclosure will naturally expand. However, each recipient should receive information appropriate for that stage of the process. Confidentiality works best when information reaches the right people, for the right reason, at the right stage of the transaction.

Negotiating the LOI Before Granting Exclusivity

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The Letter of Intent represents a major turning point in the sale of a business. Until this stage, multiple prospective buyers may still compete for the opportunity. Once the seller signs an LOI, the dynamics change significantly. The selected buyer typically receives exclusivity and begins confirmatory due diligence. For this reason, sellers should use their LOI negotiating leverage before committing to a single buyer.

Establish the Major Economic Terms

Although most LOI provisions remain nonbinding, the document establishes the framework for the transaction. Reopening major business terms later may erode trust and create unnecessary tension between the parties. It may also cause either party to question whether previously negotiated terms remain settled.

Therefore, the LOI should clearly address the purchase price, transaction structure, and form of consideration. It should also define other significant economic terms. These terms may include working capital, seller financing, earnouts, rollover equity, escrows, and other holdbacks. Before exclusivity begins, sellers should resolve as many significant economics issues as reasonably possible.

Address the Seller’s Post-Closing Role

Many sellers remain involved after closing through employment, consulting, or transition agreements. Others may retain an economic interest through an earnout or rollover equity. The LOI should address these arrangements when they represent a meaningful part of the transaction. At this point, the seller still has meaningful negotiating leverage. Postponing difficult issues or conversations may shift that leverage toward the buyer.

Provide Accurate Information Early

Sellers should provide accurate financial and operational information before accepting an LOI. Material inconsistencies discovered later may give the buyer grounds to renegotiate. Sellers should also disclose known weaknesses that could materially affect the transaction. Surprises during the confirmatory due diligence may damage credibility and threaten the deal.

Understand What Changes After Signing

Signing an LOI does not complete the transaction. However, it usually removes the seller from the competitive marketplace for a defined period. From that moment forward, the buyer will devote substantial resources to diligence and definitive agreements. Meanwhile, the seller’s alternatives become temporarily limited.

An experienced M&A advisor should negotiate the LOI with the definitive transaction already in mind. The advisor should identify unresolved issues before the seller grants exclusivity. Effective LOI negotiating leverage comes from addressing significant terms while buyers still compete. Sellers should use that leverage before choosing the buyer who moves forward.

Selecting the Right Approach to Sell a Business

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Preparing a company for sale establishes the foundation for a successful transaction. The next decision involves determining how to approach prospective buyers. The appropriate business sale strategy depends on the company, buyer universe, confidentiality concerns, market conditions, and seller objectives.

Some businesses benefit from broad exposure to prospective buyers. Others require a more selective approach because only certain buyers represent credible acquisition candidates. The M&A advisor should design the process around these circumstances rather than automatically following one approach.

Broad Auction

A broad auction introduces the company to a relatively large group of qualified prospective buyers. The M&A advisor typically distributes standardized information and establishes a coordinated transaction schedule. Interested buyers receive the Confidential Information Memorandum after signing a confidentiality agreement. The advisor then establishes deadlines for indications of interest, management meetings, and Letters of Intent.

Across the buyer universe, this structure creates a consistent process for evaluating interest and comparing proposals. A broad auction works particularly well when numerous strategic and financial buyers have credible reasons to pursue the company. The wider exposure may generate significant competition. However, it also requires careful management of confidentiality and buyer communications.

Targeted Auction

A targeted auction focuses on a smaller group of buyers with compelling strategic or financial reasons for pursuing the company. The advisor develops the buyer list through industry research, transaction experience, and discussions with the seller. Rather than emphasizing reach, this approach emphasizes buyer quality and strategic fit.

The advisor may still establish deadlines for indications of interest, management meetings, and final proposals. Qualified buyers therefore compete within a controlled process despite the smaller buyer universe. A targeted auction often balances meaningful competition with greater confidentiality.

Limited or Negotiated Process

A limited or negotiated process involves discussions with one buyer or a very small group of prospective buyers. The seller or advisor may pursue this approach when a small number of buyers have a clear strategic interest in the business. This approach offers greater flexibility because the parties do not need to follow a formal auction schedule.

With fewer participants involved, the seller may also maintain tighter control over confidential information. However, reduced competition provides less market evidence about value and transaction terms. The advisor must therefore evaluate each proposal carefully and preserve negotiating leverage throughout the discussions.

Preemptive Sale

A preemptive sale usually begins when a buyer approaches the owner before the company formally enters the market. The buyer may present an attractive proposal designed to persuade the seller to avoid a competitive process. Such an offer may provide advantages, including speed, confidentiality, and reduced transaction disruption. The proposal may also include favorable price, structure, or closing terms.

Before accepting exclusivity, the seller should consider what they give up by foregoing broader market exposure. Without competing buyers, the seller has limited information about whether another buyer would offer greater value or better terms. An M&A advisor should evaluate the proposal against the company’s value, likely buyer universe, and seller objectives. The seller may accept the offer, negotiate improved terms, or decide to pursue a competitive process.

Match the Process to the Opportunity

No single business sale strategy works for every company. A broad auction provides extensive market exposure. A targeted auction creates competition among a carefully selected group of buyers. A limited process provides greater flexibility and discretion. A preemptive sale offers an opportunity to negotiate directly with an interested buyer.

An experienced M&A advisor should evaluate the buyer universe before recommending an approach. The advisor should consider confidentiality, buyer interest, transaction timing, negotiating leverage, and the seller’s objectives.

The objective is not to contact the most buyers. It is to create the right marketplace for the seller’s business.

Understanding the Different Perspectives on Business Value

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Business value is not a single number that applies equally in every situation. The purpose of the analysis may significantly influence the conclusion. Understanding business value in a sale begins with recognizing that owners, valuation professionals, and prospective buyers may view the same company differently.

An owner planning an estate may need a different measure of value than an owner preparing for a sale. Likewise, individual buyers may place different values on the same company. These differences do not make one conclusion right and another wrong. Instead, each reflects a particular purpose, perspective, and set of assumptions.

For business owners, understanding these distinctions may support better decisions throughout the ownership cycle. Valuation may assist with planning, identify value drivers, establish expectations, and prepare the company for an eventual transaction. As a sale approaches, the analysis becomes increasingly connected to actual buyer behavior and market conditions. The process may eventually establish a transaction value through negotiations between a specific buyer and seller.

Four perspectives on value may help owners understand this progression: fair market value, preliminary transaction value, investment value, and final transaction value.

Fair Market Value

Fair market value represents a defined standard of value. It generally assumes a hypothetical willing buyer and willing seller under specified conditions. Valuation professionals frequently apply this standard for estate and gift tax planning, litigation, and other valuation purposes. However, fair market value does not necessarily predict the price available in an actual M&A transaction.

Preliminary Transaction Value

When contemplating a sale, an owner may need a preliminary indication of potential transaction value. This analysis focuses more directly on the M&A marketplace. The M&A advisor considers normalized earnings, company characteristics, industry transactions, valuation multiples, and current buyer activity. At this point, the analysis may help establish reasonable expectations before the owner begins a sale process.

Investment Value

Investment value considers the business from the perspective of a specific buyer. Different buyers may therefore assign different values to the same company. A strategic acquirer may identify synergies, cost savings, new customers, or geographic expansion opportunities. A financial buyer may emphasize growth and expected investment returns. Viewed through this lens, buyer motivations may materially influence business value in a sale.

Final Transaction Value

Final transaction value represents the price established between an actual buyer and seller. It reflects negotiations, due diligence, financing, transaction structure, and market competition. At the final stage, transaction terms also matter. Cash, seller financing, earnouts, rollover equity, and working capital adjustments may affect the seller’s proceeds.

Using Value as a Planning Tool

Owners should not wait for a sale to understand business value. Periodic valuation and Exit Readiness Assessments may identify factors that increase or reduce buyer interest. Over the course of ownership, management may strengthen earnings, reduce customer concentration, develop leadership, improve reporting, and create scalable operations.

An experienced M&A advisor will help identify these positive and negative value drivers. The advisor can also evaluate how prospective buyers may view the company. Understanding business value in a sale begins well before entering the market. Early analysis gives owners time to improve the business and prepare for future opportunities.

The Value of Intangible Assets in M&A Transactions

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Intellectual capital and intangible assets often represent the most valuable components of a successful business. Yet many business owners underestimate their importance during a merger and acquisition (“M&A”) transaction. Consequently, sellers often fail to identify, protect, and maximize the value of these assets before beginning the sale process.

Unlike machinery, equipment, or real estate, intangible assets derive their value from the economic benefits they generate. Their value depends on the buyer, the transaction structure, the competitive environment, and the intended use after closing. Therefore, these assets cannot be valued in isolation. Instead, they must be evaluated within the context of a specific transaction and a particular buyer.

For many lower middle market companies, intangible assets drive a business’s competitive advantage and often represent its greatest source of enterprise value. These assets may include proprietary processes, technical expertise, trademarks, patents, copyrights, trade secrets, customer relationships, supplier agreements, distribution networks, software, databases, and recognized brand names. In addition, an experienced workforce, effective training programs, and strong management systems often contribute significant value. Together, these assets frequently distinguish one business from another in a competitive sale process.

Not every buyer values intangible assets equally. Strategic buyers may place greater value on intellectual property, customer relationships, or complementary technologies that create operational synergies. Conversely, private equity groups often emphasize recurring cash flow, management depth, and scalable operating systems. Accordingly, sellers should understand which value drivers matter most to their targeted buyers before entering the market.

Early preparation plays a critical role in maximizing value of intangible assets. Business owners should identify, organize, document, and protect those assets well before beginning the sale process. Formal intellectual property registrations, documented operating procedures, transferable customer contracts, and well-developed management systems all strengthen buyer confidence during due diligence.

An experienced M&A advisory team can help identify the intangible assets that create the greatest shareholder value. More importantly, advisors may position those assets effectively throughout the sale process to attract qualified buyers, increase competition, and maximize transaction value.

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

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