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The Blog of The M&A Marketplace by cHc

Would you allow someone to steal 30 percent of your company?

Huxley Nixon - Wednesday, June 20, 2012

Victimized by the Proprietary Deal

By John Warrillow

Excellent article by John Warrillow highlighting the BIGGEST mistake a business owner can make when selling their company.  The owner frequently knows the victimizer, and they willingly allow themselves to be the victim by only negotiating with a SINGLE buyer. Why?  Read more……

DISCLAIMER:  Opinions and conclusions in this post are solely those of the author unless otherwise indicated.  This article is for general information purposes and is not intended to be and should not be taken as advice on any particular matter nor is it intended to be a solicitation regarding any securities transaction and or investment relationship.  For those desiring additional information please visit our website www.mamarketplace.com.

WHO Pays the highest Purchase Price - Strategic or Financial BUYER?

Huxley Nixon - Tuesday, May 29, 2012

By Huxley Nixon

Conventional wisdom has always been the Strategic buyer could pay more because of the potential to "rationalize" the less efficient or duplicate functions of the target company.   Frequently this meant firing most of the employees and selling or closing most of the target's facilities.  A strategic buyer usually desires 80% to 100% of the equity and it is definitely not interested in less than a control equity position unless it is to acquire access to intellectual property or expansion into additional markets.  It virtually never is interested in the personal wealth creation of the Seller other than appreciation of any stock of the acquirer they may have taken as part of the purchase price.

On the-other-hand, Financial buyers such as private equity groups ("PEG") usually are seeking strong "platform" companies to buy and grow and exit in three to five years.  They desire and need strong management teams to remain post closing and execute a growth strategy with the PEG's money, contacts and deep resources not available to seller.  Through a structure called a Leveraged Equity Recapitalization, the owner/founder can convert up to 80% of their illiquid company stock into CASH and invest on the same terms (and price) as their new financial sponsor allowing the seller to own a meaningful equity stake in NEWCO going forward. 

Thus the seller can retain operational control, remove themselves from personal guarantees securing the company's debt, and have an opportunity for another pay day three to seven years in the future when the PEG exits. Equally as important, it provides the seller an EXIT RAMP of three to seven years to plan for their ultimate exit from the company.  Click here to see how this structure worked in an actual transaction involving the author (the names have been changed).

Now, to discuss WHO has paid a HIGHER PURCHASE PRICE for the past five out of six years.  A recently released study sponsored by Grant Thornton and performed by PitchBook analyzed 2,370 exits by PEG's for the period from 2006 through 2011 by type and purchase price.  PEG's are "sophisticated" sellers desiring to maximize their return for their investors and they select the best alternative between the following EXIT types:

  1. Corporate Buyer
  2. IPO
  3. Secondary Buyout

 

You WIN if you said "Secondary Buyouts"  (Financial Buyers) PAID more than Corporate (Strategic) buyers FIVE of the last SIX years!  Due to the expense associated with being a public company, an IPO is only an option for larger private companies (those with a TEV in excess of $500 MM).

 

 

Author: Huxley Nixon has been involved in M&A (mergers and acquisitions) for 35 years as a buyer, seller and intermediary.  He is founder of the M&A MARKETPLACE by CHC (www.mamarketplace.com) where the buyer pays all success fees and the process is only 120 days.  For owners of private companies considering a sale of part or all of their company – it provides a very quick, confidential and competitive alternative to current options less transparent and more disruptive for the owner.

DISCLAIMER:  Opinions and conclusions in this post are solely those of the author unless otherwise indicated.  This article is for general information purposes and is not intended to be and should not be taken as advice on any particular matter nor is it intended to be a solicitation regarding any securities transaction and or investment relationship.  For those desiring additional information please visit our website www.mamarketplace.com.

WHAT destroys your EXIT Value but you CANNOT control it?

Huxley Nixon - Thursday, May 24, 2012

“It” universally affects a buyer’s willingness to invest, a lender’s willingness to lend and a seller’s to sell. Unfortunately, NONE of these constituencies have the power to change its momentum! It is a cancer no form of government or geographic region is immune from and it paralyses our financial markets.  WHAT IS IT?

 

Huxley Nixon, founder of the M&A MARKETPLACE by CHC, explores the THREE key forces that drive VALUE to help owners prepare for the inevitable day they exit their company – most work on internal issues they can influence but do not focus on the Sale PROCESS or educate themselves on external VALUE destroyers……Read more

Obama Signs JOBS Act! What does it mean for Entrepreneurs?

Huxley Nixon - Thursday, April 12, 2012

Habif, Arogetti and Wynne, CPA’s Mitchell Kopelmann and Kurt Huntzinger review this welcome and fresh approach to allow an “Average Joe” to invest in early stage opportunities not available to them previously as a non-accredited investor. Mr. Kopelman has coined the term “FAN FUNDING” (a refined version of the Crowd Funding moniker commonly used).  Jumpstart Our Business Startups Act (JOBS) eases many of the governance and reporting requirements of IPO’s and allow start-up firms seeking up to $2 million easier access to capital without having to do an IPO.  Read more….

DISCLAIMER:  Opinions and conclusions in this post are solely those of the author unless otherwise indicated.  This article is for general information purposes and is not intended to be and should not be taken as advice on any particular matter nor is it intended to be a solicitation regarding any securities transaction and or investment relationship.  For those desiring additional information please visit our website www.mamarketplace.com.

Private Equity EXITS - Pricing Trends & Why 2012 is a MUST year to put Un-invested funds to work!

Huxley Nixon - Friday, March 23, 2012

Grant Thornton sponsored PitchBook report on Private Equity Exits is an excellent analysis on the current state of the Private Equity market and why 2012 will be so important for them to deploy the largest overhang of un-invested funds ever and to exit their aging portfolio companies before the tax rates change at the end of 2012. Overview of Private Equity Exits by Year, Holding Periods, Industry Focus and Type of Exit analysis (including Pricing metrics).  Download report now...

DISCLAIMER:  Opinions and conclusions in this post are solely those of the author unless otherwise indicated.  This article is for general information purposes and is not intended to be and should not be taken as advice on any particular matter nor is it intended to be a solicitation regarding any securities transaction and or investment relationship.  For those desiring additional information please visit our website www.mamarketplace.com.

Why DEAL- MAKING will make a comeback in 2012!

Huxley Nixon - Wednesday, March 21, 2012

A new study by Bain & Company shows Global Private Equity Overhang exceeds $2 Trillion!  Due to the recession, General Partners have been slow to exit their portfolio companies, so there is a motivation to exit many of these aging holdings.  Adding to this pressure is 48% of this overhang is created by funds closed in 2007-2008 and the investment window to deploy these fund starts closing in 2013.   “The clock is ticking loudly for these funds,” said MacArthur.....read more.

DISCLAIMER:  Opinions and conclusions in this post are solely those of the author unless otherwise indicated.  This article is for general information purposes and is not intended to be and should not be taken as advice on any particular matter nor is it intended to be a solicitation regarding any securities transaction and or investment relationship.  For those desiring additional information please visit our website www.mamarketplace.com.

 

 

What Motivates Entreprenuers to Start their Companies?

Huxley Nixon - Friday, March 02, 2012

See Huxley's blog based on Leigh Buchanan’s article in the March 2012 issue of INC. magazine, The Motivation Matrix.  Ms. Buchanan provides a peek into a fascinating study by two Harvard Business School faculty members who surveyed 2,000 founders and approximately the same number of non entrepreneurs about their motivations to identify the ones driving founders to start businesses, identify what they want out of life and how these change over time.  Read more….

DISCLAIMER:  Opinions and conclusions in this post are solely those of the author unless otherwise indicated.  This article is for general information purposes and is not intended to be and should not be taken as advice on any particular matter nor is it intended to be a solicitation regarding any securities transaction and or investment relationship.  For those desiring additional information please visit our website www.mamarketplace.com.

How will the failed transfer of Boomer Owner businesses Impact the U.S. Economy?

Huxley Nixon - Thursday, February 16, 2012

Charles Green, small business financing expert and author,  posted this very timely article by Barbara Taylor in the NY Times about the devastating economic impact to wealth creation and jobs the failure of small businesses to transfer to others in the coming decade will create.

Boomers are tuning 65 at the rate of 14,000/day (and will continue to do so for the next 13+ years) and approximately 6 million own businesses that generate $6 trillion in revenues.  This represents more than one half of the U.S.Gross National Product and U.S. Job Base.  The author points out that unless business owners address the problem of creating a sustainable business that will continue to grow after their departure, approximately 3/4 of these transactions will fail and the impact will be the loss of $3 trillion of wealth and millions of jobs. Read more....

DISCLAIMER:  Opinions and conclusions in this post are solely those of the author unless otherwise indicated.  This article is for general information purposes and is not intended to be and should not be taken as advice on any particular matter nor is it intended to be a solicitation regarding any securities transaction and or investment relationship.  For those desiring additional information please visit our website www.mamarketplace.com.

What Sellers are NOT told by Buyers

Huxley Nixon - Monday, February 13, 2012

With the uncertainty of the economic outlook, lenders to smaller middle market buyers/sponsors have yet to relax lending standards (coverage ratios) and be more aggressive in the amount of debt they are willing to lend in a transaction.  Thus, sellers are being asked to bridge the gap by way of much larger “earn-outs” over a longer period.

John Warrillow’s Blog addresses the dilemma many sellers are facing and provides some sound advice for them.  Read more….

DISCLAIMER:  Opinions and conclusions in this post are solely those of the author unless otherwise indicated.  This article is for general information purposes and is not intended to be and should not be taken as advice on any particular matter nor is it intended to be a solicitation regarding any securities transaction and or investment relationship.  For those desiring additional information please visit our website www.mamarketplace.com.

TAXES - 10 BEST States for Business

Huxley Nixon - Monday, February 13, 2012

The just published 2012 State Business Tax Climate Index by the Tax Foundation provides the reader an easy to understand index to see where their state ranks.  It is a comprehensive study of a very complex topic that examines all of the tools in each state’s Tax toolbox.  The 10 BEST for 2012 are …. Read more.

DISCLAIMER:  Opinions and conclusions in this post are solely those of the author unless otherwise indicated.  This article is for general information purposes and is not intended to be and should not be taken as advice on any particular matter nor is it intended to be a solicitation regarding any securities transaction and or investment relationship.  For those desiring additional information please visit our website www.mamarketplace.com.

 


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