One of the toughest challenges we have to deal with when working with our clients is helping them to begin thinking like a buyer would about their businesses. Although this sounds like it should be easy, it isn’t. As you can imagine, most entrepreneurs are so focused on simply keeping the business operating that they don’t have the luxury of stepping back and evaluating the strengths, weakness, opportunities, and threats of the company from a buyer’s point of view.
That is why we are hired. The key first step in the Generational Equity M&A process is a thorough and complete analysis and valuation of the client’s business. This is where we begin to ask the tough questions that a buyer will eventually pose as well.
I recently came across an article that looks at the acquisition of a privately held, family-owned business from the perspective of a buyer and offers advice on the challenges of making these types of acquisitions. Since it was written with the goal of giving advice to a buyer, I thought I would share it with our readers who predominately are owners of closely held companies.
The piece is written by Kenny Gunderman and Marshall McKissack, who are respectively executive vice president and managing director at Little Rock, Arkansas-based investment bank Stephens Inc. Their article on TheMiddleMarket.com is full of great insight into buyer challenges/issues when looking at an investment opportunity in this niche. They identify five critical areas of focus when buying a privately held company:
Having built our M&A advisory practice around helping business owners successfully transition from their companies, we have significant experience in the areas outlined above. Each of these is critical, we have found, in ensuring that a deal will close. If you are going to be approaching buyers without merger and acquisition counsel, you should look at each of these carefully.
First, recognize that buyers of all businesses abhor risk. This is especially true for buyers of small private companies. For this reason, you need to expect (and budget your time accordingly) to meet as often and as long as you need so that you truly develop a relationship with the buyer. This is also important if you are going to be retained post-sale for any length of time. Make sure you can work with your buyer after the acquisition!
Secondly, family dynamics, the family legacy, and having all constituents involved are all key, interrelated issues that buyers are keenly aware of. You need to be too. First, make sure that if there are multiple family members who are owners (even if they are not active in the business) that they are in agreement with the sale. It is amazing to us to come across family businesses where the primary shareholder thinks he has agreement from everyone about selling when in fact he does not. This is why before we take any company to market we obtain signed agreements from all owners, not just the majority holder.
In addition, as you approach the sale of your family-owned business, be prepared for a tremendous amount of emotions to bubble up. This is especially the case if the business has been in the family for a few generations. Not only you but also many of your family members will begin to have seller’s remorse as they consider that their family identity will no longer be one with the company’s. In fact, we often have clients accept offers that are lower than others simply because the buyer convinced the family that he/she would retain and maintain the legacy of the family. In many deals this becomes the most important reality.
And finally, you need to be professional and have all your documentation on point and accurate in every meeting with your buyers. Keep in mind that professional buyers look at dozens and dozens of companies annually. The ones they buy are those that impress them beyond just the financials. What they are really buying into is the viability of the business post-transaction. You can make great strides in convincing them of its possibilities and future potential by doing your homework in advance and helping them not under estimate you and your company.
So thanks to the gentlemen from Stephens for giving us keen insight into how buyers approach a family-owned business. Of course these five hurdles can get quite complicated and detailed, especially if multiple family members are involved.
If you would like to learn more, you are welcome to attend one of our complimentary, no-obligation M&A workshops. We hold these throughout North America because we are dedicated to the notion that most business sellers are woefully unprepared to deal with a professional buyer(s). To find out when we will next be in your region give us a call at 877-213-1792.
No matter what you end up doing with your business, if you do approach buyers, be sure to analyze your company as a buyer would in advance of any discussions so that you are able to see it from their perspective. Often a change in viewpoint can make a world of difference.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2014 Generational Equity, LLC All Rights Reserve
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
By submitting my name electronically and clicking the “submit” button, I understand that I am providing Generational Group, Inc., Generational Equity, LLC, Generational Capital Markets, LLC, DealForce LLC, their affiliates, representatives, contractors, etc. (“Generational Group”) my telephone number, which may include a number that is wireless and/or a number that is on a national, state, or other Do Not Call registry or list. I hereby consent and agree to receive telephone calls including any autodialed and/or pre-recorded telemarketing calls and/or text messages (telemarketing) from or on behalf of Generational Group at the telephone number provided. I further consent and agree that telephone calls may be made using automated technology such as an automatic telephone dialing system, artificial or prerecorded voice, or SMS text messaging. Consent is not a condition of purchase. I further warrant and represent that any telephone number provided is not on any state or national Do Not Call Registry and that by agreeing to these terms and conditions that if any number provided is on any such registry, I hereby consent and agree to receive telemarking calls and/or communications including any phone calls, text messages, URLs, links, emails, etc. to the telephone number(s) and/or any e-mail addresses provided. I understand that by entering my name in the electronic form provided, that I am signing my name as equally as if it was my handwritten signature and that it is my intent to provide an “electronic signature” as that term is defined in state and federal law, as well as industry practices for e-commerce.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Group.
Honored to win Investment Banking Firm of the Year 2 years running.
Over 50 awards and counting.
Sign up to receive regular email updates, industry-leading insights and details on complimentary M&A executive conferences in your area from our award-winning team
Success, you have been added to our list.