I was speaking with a colleague of mine recently about deals he is working on right now and how our current turbulence has changed the deal making environment. He made a very interesting point to me about some of the keys that business owners in today’s market need to focus on:
Although he pointed out that each of these is vital in any environment, right now they are critical given our current unknowns and ever-changing rules regarding COVID and their impact on businesses across the board.
Recasting is a critical tool, one that you absolutely need to be aware of before you show your financials to any buyers. The process is an accepted GAAP system where you remove any items from your financials that are one time, non-ongoing, business-related issues. These can range from perks for you and your family members, one-time expenses related to fire or theft, and a full range of other items that you can read about in an article we published on the topic recently.
However, you need to consider a new term relating to your financials, a twist on the old earnings model, now commonly referred to as EBITDAC (Earnings Before Interest, Taxes, Depreciation, Amortization, and COVID). Eventually, our economy will recover from this pandemic and most likely your business will return to pre-COVID revenue and earnings.
Because of this, you will need to show how the business was performing before this occurred and how it will look post-pandemic. Recasting will allow you to do this IF you document it carefully AND accurately.
Historically, buyers always look very closely at the management of any company they are acquiring. Is there a middle-management team in place? Does the current owner make most of the decisions? If so, can anyone take over that role? How tenured are the key employees and will they stay post-acquisition?
To these topics, we can now add how did the organization evolve and adapt to the changing business conditions due to COVID? What strategic changes were implemented and how did the team react and overcome the myriad of challenges facing them?
If you can document the steps you took to survive, and even thrive, during this time via your collaboration with your team you will help alleviate buyer concerns about the longevity of the business.
Now more than ever before, as you present your company to professional buyers, be sure to focus on those areas of your business that make it unique. The list of intangible assets that buyers find of interest is very long. Your goal should be to spend some self-analysis on what makes your company successful and then document them in your teaser letter and in greater detail in your offering memorandum.
The real challenge is twofold: You are so close to your business that you may not even see the value of your intangibles AND each buyer’s view of your intangibles will vary from buyer to buyer. So, having professional exit planning advice becomes critical when presenting your opportunity to buyers.
To see more about the topic of intangible assets, please review a previous article we published on this topic.
Finally, your ability to be flexible as you speak with buyers is paramount to any transaction at any time, but never more than now. However, this is a double-edged sword, and it is why you really will need to have experienced M&A advisors by your side.
Based on our research, we believe that buyers will become ever more aggressive in looking for good deals as we come out of the economic turbulence later this year and going into 2021. However, if you are too flexible, if you give in to all their demands, you may “leave chips on the table” and ultimately NOT close an optimal deal for you.
Generational Equity deal teams are well-versed in the skill it takes to obtain satisfactory deals for our clients; transactions that protect and defend the substantial equity business owners have built into their companies. And we have done this in all economic circumstances, having closed over 900 deals over the years, creating scores of satisfied clients in the process.
We have even been closing deals since the pandemic began and doing so quite successfully. See a sampling of our recently closed transactions here:
Even during these turbulent times, buyers are very active. Due diligence may be taking much longer than before, but business owners that are ready, and that have created opportunities that are documented, are far better positioned than those that are not. Focus on these four areas as you discuss your opportunity with buyers.
If you are interested in learning more about how to exit your company for maximum value, I would suggest that you attend a Generational Equity conference in your area. These complimentary meetings are designed to help business owners navigate the exit planning process and come out on the other side in an optimal fashion.
To learn more, please use the following links:
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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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 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.
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
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
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
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
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
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
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
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
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.
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
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
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
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
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
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
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
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
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.
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