Professional Advice & Insights
At The Nery Corporation, we know that selling a business, accurately valuing a company, and completing a merger or acquisition, is complicated. These articles are useful for understanding the steps that go into a successful transaction and will familiarize you with many aspects of the process. If you would like to discuss any of these resources further, please don't hesitate to contact us.
- It's Time To Embrace CSR (Corporate Social Responsibility)
- You Know the Old Saying About Loose Lips? How Does It Impact You?
- Top Four Statistics You Need to Know About Ownership Transition
- Reasons for Sale
- Benefits of Working with a Business Broker
- 5 Simple Strategies for Lowering Risk Before Technical Due Diligence
- Prepare Early for Due Diligence
- What Makes Your Company Unique?
- What Does Your M&A Advisor Expect From You?
- Do you really need a business broker or M&A advisor to sell your Rhode Island Or Massachusetts based business?
- Do Not Poke The Giant
- Do You Have A Billion Dollar Business Hiding Inside Your Company?
- Do You Know Your CUF CAC Ratio?
- Four Traps To Avoid When An Acquirer Comes Calling
- Growth Vs. Value
- How To Thrive As A Middleman
- Justification For Your Next Vacation
- M&A Advisors Proven to Improve Valuations
- Prevention Is Better Than Cure
- Protect Your Turf
- The Danger Of Market Timing The Sale Of Your Business
- What Your Birth Certificate Says About Your Exit Plan
- Where To Start When Your Growth Stops
- Will Your Business Be More Valuable This Time Next Year?
It's Time To Embrace CSR (Corporate Social Responsibility)
November 8, 2017
Kevin A. Nery, CBB, CBI, M&AMI
If you are unfamiliar with CSR or corporate social responsibility, you are certainly not alone. In the coming years, you'll be hearing a lot about CSR. In this article, we'll look at CSR and how, when implemented with sincerity, it can positively impact your company and its operation.
Building Your CSR Locally
One of the key ways that you can build your CSR is to think about ways to help your community. Contributing to local community programs, for example, is a great place to start. Everything from personal involvement to direct financial support can help build your company's reputation within your community.
Your Connection to the Environment
A second way to build your CSR is to show that your company is thinking about its impact on the environment. Recycling is important but so is using eco-friendly packaging and containers. Additionally, embracing low-emission and high mileage vehicles is another good step as this lowers your company's carbon footprint.
Advertising and Good PR
A third area to consider is how your company interacts with the marketplace. Using responsible advertising, business conduct and public relations is a savvy move. Likewise, providing fair treatment of your shareholders, suppliers and vendors and contractors will all help to improve your CSR.
Yet, one of the single most important areas of corporate social responsibility occurs in the workplace. The advent of social media has helped fuel the dispersal of information. If your business isn't treating its employees in a fair manner and/or has unsafe work conditions or unfair employment practices, the word will eventually get out. There has never been a more important time to treat your employees well.
Embracing CSR serves to increase shareholder and investor interest. In short, it is expected. Socially-conscious companies are considered smart and stable investments. A company that has fully embraced CSR will find greater buyer interest and even a higher selling price when the time comes to sell. Most buyers want excellent customer loyalty with no skeletons hiding in a company's closet. They also are seeking happy and loyal employees, low employee turnover and for a company to have a good reputation within a community. CSR helps achieve all of these goals and more.
Ultimately, corporate social responsibility works to create additional value. When you invest in CSR, you are investing in achieving a higher selling price and making your business more attractive to sellers. Summed up another way, you can't afford not to think about this topic.
Copyright: Business Brokerage Press, Inc.
You Know the Old Saying About Loose Lips? How Does It Impact You?
November 2, 2017
Kevin A. Nery, CBB, CBI, M&AMI
The saying "loose lips sink ships," doesn't have ancient origins. While it sounds like one of those sayings that has been around forever, the saying was actually invented during World War II. It was taken quite literally. The idea was that a lack of secrecy could lead to the loses of actual ships or other wartime deaths. So in other words, this saying was serious business. It should come as no surprise that this saying is alive and well in the business world.
Few things are more important than safeguarding your business from leaks. Leaks can, simply stated, spell disaster for your business. Leaks can be particularly damaging if you are looking to or are in the process of selling business. A leak that you are planning on selling your business can have a range of consequences. Everyone from employees to customers, suppliers and, of course, prospective buyers and competitors could all take notice and this could have ramifications.
Yet, confidentiality stands as a bit of a Catch-22 situation. Sellers want to get to the best price possible for their business and that means letting prospective buyers know that the business is for sale. The greater the number of potential buyers contacted, the greater the chances of receiving top dollar. However, the more potential buyers that know you are interested in selling, the greater the risk of a leak. Clearly, this situation represents a considerable dilemma.
As a buyer, you may discover that owners can be overly, perhaps even irrationally concerned, about leaks. It is important to remember that for most owners, the business represents their largest asset and often their greatest professional accomplishment in life. In other words, they have a lot riding on their business. It is important to remind sellers that the less time a business is on the market the lower the risk of a leak. Also, the longer the negotiations go on, the greater the risk of a leak.
Sellers should always remember to keep all important documents related to the potential sale or sale literally under lock and key. Everything should be considered confidential and only transferred to buyers in a highly secure fashion. Confidential information shouldn't be emailed or faxed, as this makes a leak much easier. Sellers and buyers alike should remember that they shouldn't discuss the sale or potential sale with anyone. Confidentiality should be stressed at all times.
Working with a business broker is one way to dramatically reduce the risk of a leak occurring. For business brokers, confidentiality is a cornerstone of their operations. Business intermediaries require buyers to sign very strict non-disclosure agreements. While loose lips may sink "ships," there is no reason that your business, or the one you are interested in buying, has to be one of those ships.
Copyright: Business Brokerage Press, Inc.
Top Four Statistics You Need to Know About Ownership Transition
November 1, 2017
Kevin A. Nery, CBB, CBI, M&AMI
If you own a business, then ownership transition should definitely be a central topic in your planning. A few years ago, MassMutual Life Insurance Company conducted a very interesting and thought-provoking survey of family-owned businesses. Obviously, family-owned businesses have their own unique needs and challenges. The MassMutual Life Insurance Company survey certainly underscored this fact. While the survey was conducted a few years ago, the information it contained is more relevant and actionable than ever. Let's take a closer look at some of the key conclusions and discoveries.
One of the most important findings of the survey was that a full 80% of family-owned businesses are still controlled by the founders. The survey also discovered that 90% of family-run businesses intend to stay family-owned in the future.
Lack of Leadership Plans
Leadership is another area of great interest. Strikingly, approximately 30% of family-owned businesses will in fact change leadership within just the next five years. Moreover, 55% of CEOs are 61 or older and have not chosen a successor. When a successor has been chosen that successor is a family member 85% of the time. Succession is often a murky area for family-owned businesses. A whopping 13% of CEOs stated that they will never retire.
Failure of Proper Valuations
According to the survey, valuation is another surprise area. 55% of companies fail to conduct regular evaluations, meaning that they are essentially flying blind in regards to the true value of their company. Adding to the potential confusion is the fact that 20% of family owned businesses have not completed any estate planning and 55% of family-owned businesses currently have no formal company valuation for estate tax estimates.
Lack of Proper Strategic Plans
The financials for family-owned businesses are often just murky as their succession issues. The MassMutual Life Insurance Company survey also discovered that 60% of family-owned businesses failed to have a written strategic plan and a whopping 48% of family-owned businesses were planning on using life insurance to cover estate taxes.
Simply stated, many family-owned businesses are not organized properly and are, in the process, not fully taking advantage of their opportunities. In short, family-owned businesses are frequently insular in their approach to a wide range of vital topics ranging from succession and leadership to valuation, planning and more. In the long term, these vulnerabilities may serve to undermine the business making it harder to sell when the time comes or opening it up to other problems and issues. Family-owned businesses are strongly advised to work with professionals, such as experienced accountants and business brokers, to ensure the long term profitability and continuity of their businesses.
Copyright: Business Brokerage Press, Inc.
Reasons for Sale
October 11, 2017
Kevin A. Nery, CBB, CBI, M&AMI
The reasons for selling a business can be divided into two main categories. The first is a sale that is planned almost from the beginning or by an owner who knows that selling is or should be a planned event. The second is exactly the opposite - unplanned; the sale is motivated by a specific event such as health, divorce, business crises, etc. However, in between the two major reasons, are a host of unpredictable ones.
A seller may not even be thinking of selling when he or she is approached by an individual, group or another company, and an attractive offer is made. The owner of a business may die, and the heirs have no interest in operating it. A company may bring in new management who decides to sell off a division or two; or maybe even decides that selling the entire business is in the best interests of everyone.
A major competitor may enter the market, forcing an owner to elect to sell. And the competition may not just be another company. The owner of a business may realize that an external threat is such that the company will lose a competitive advantage. New technology by a competitor may outdate the way a company produces its products. Two competitors may merge, placing new pressures on a company. The growth of franchising and big box stores can promote themselves on a much larger scale than a single business, no matter how good it is. National advertising can create the perception that a large business's pricing, inventory or service is better than the smaller competitor, even if it isn't.
Although these issues may not push a business owner or company management to consider selling, they are certainly causes for consideration. Unfortunately, most sellers fail to create an exit strategy until they are forced to. Professional athletes want to go out on top of their game, and business owners should do the same.
Copyright: Business Brokerage Press, Inc.
Benefits of Working with a Business Broker
May 3, 2017
No matter what type of business you're selling, you want to do it right. Working with a business broker ensures you receive top-dollar for your business, as well as close the sale more quickly and with less stress.
Learn more about the benefits of working with a business broker!
5 Simple Strategies for Lowering Risk Before Technical Due Diligence
May 1, 2017
Preparation for a business sale demands many considerations. In addition to cleaning up the books, managing expenses, and getting operations under control, contemporary owners must also consider the role of technology in the business. Technology plays an increasingly prevalent role in virtually all businesses, so technical due diligence is a key part of a business sale. A few simple risk reduction strategies can reduce the risk that technological due diligence will negatively impact the sale.
Take an Inventory of Hardware and Software
Buyers want to know what they’re getting when they acquire a business. Technological acquisitions are not exceptions. Owners should create detailed inventories of hardware and software, including networks, software packages, servers, third-party software, hardware such as computers, and cloud vendors currently in use by the business. Note whether any hardware on the list is leased or owned, the costs of ownership or the lease, and whether there is a warranty or on-site service agreement.
A comprehensive IT system inventory prepared for due diligence expedites the process. It can also make a favorable impression on the acquirer, since businesses with organized inventories look more impressive on paper.
Audit Software Licenses
List licenses alongside the relevant software for each software item listed in your inventory. Software that has been purchased outright usually comes with a licensed key. Leased software from another vendor may have an access key. ERP software is frequently sold this way. Software as a service (SaaS), as well as some other software, may be charged on a monthly user agreement fee.
Some vendors, such as Microsoft, offer online portals that list software you have purchased. Your tech team should be able to create this list of software and licenses. This license audit can save time, as well as embarrassment. If you have pirated software, this looks bad to the acquirer, and can even land you in legal trouble.
Verify the Rights to Custom Code
Business often purchase customized software for internal management, services, or products. When you’re ready to sell, you must prove that you legally own these custom software products.
When the software is created by a contractor, verifying that you own the product may not be simple. You’ll need the work-for-hire or licensing agreement to prove your ownership, and this agreement should clearly state that you own the work product. You may also need to demonstrate that you paid the final amount owed.
With custom code, it can also be helpful to format source code files with a standard header that clearly shows ownership, copyright, and other purchasing details. Explicit proof that you own your custom software expedites the process of due diligence and bolsters the confidence of the purchaser.
Gather this documentation in anticipation of the sale.
Document Data Flow and Storage
Internal, consumer, and product data play key roles in due diligence for a sale. You must know which technologies your company uses, and where its most important data is housed. Make a list of any and all relevant data flows and stores, since this information can affect integration after the merger. Remember to list customer databases, finished good databases, accounting systems, manufacturing systems, and other relevant data.
Systems that integrate by conveying key data back and forth are useless without the flow diagram. Prepare this information in anticipation of due diligence.
Providing the acquirer with a complete and accurate list of vital data flows and stores the first time, without being nagged to do it, establishes trust. It also shows an attention to detail.
Review and Strengthen Security Practices and Policies
With millions of hack attempts each year, network and data security should be key considerations for all businesses. Hacking incidents can cost businesses millions, destroy reputations, and trigger legal difficulties. According to the National Cyber Security alliance, data breaches are so costly that 60% of small businesses are unable to remain afloat in the six months following a cybercrime attack. Buyers know this.
Your security policies and procedures directly impact the value of your business and the outcome of the sale. Verizon recently revised a purchase offer from $4.83 billion to $4.48 billion due to large data breaches at Yahoo.
Security training that is a regular part of corporate discussions can demonstrate your commitment to security. Make sure clear protocols are in place, and that your staff actually follows these protocols to protect your intellectual property and information technology assets.
Owners weighing a possible sale should perform a comprehensive information security audit. Use a reputable third-party firm who will offer unbiased information and provide the owner with a clear, detailed report. This allows management to take proactive steps that address any concerns in the report, potentially raising the value of the business to a would-be acquirer, and preparing for the process of technological due diligence.
Prepare Early for Due Diligence
November 26, 2016
Once you’ve agreed to the price and terms of a transaction with a potential acquirer or investor, the next step is typically the arduous process known as due diligence.
Due diligence is the confirmatory period where the party investing or acquiring your business seeks to understand every nook and cranny of the company. This entails pouring over financial statements to understand revenue and profitability trends as well as deeper details like cash flow, inventory turn and normalized working capital requirements. Due diligence also happens to be where most transactions fall apart. Buyers will also want copies of all contracts relating to the business including leases, employee agreements, software licenses, bonus plans, health coverage, royalty agreements, distribution agreements, supplier agreements and more.
If your head is not spinning yet, on top of that they will often want to see financial projections, defined growth opportunities and may even want to visit with members of the senior management team, major suppliers and key customers. While business owners in smaller, niche or local markets like Massachusetts, Rhode Island and Connecticut are often very protective of critical business information, once diligence starts, the business owner will need to comply in order to secure or defend the agreed upon value of the business.
This may seem like like a lot, but put yourself in the buyer’s shoes.
M&A is not like the stock market. What buyers are purchasing is non-liquid and they need to understand the business as clearly as possible so that they can mitigate risk and hopefully ensure their return is up to their standards or the standards of their investors. The result of this intense period of business scrutiny is that issues are often discovered that can limit value or, worse, derail the entire transaction.
The benefit of hiring a business intermediary to help you through the sale is that you can discover these issues early on by doing an extensive amount of pre-diligence. Properly executed pre-diligence can lead to fast close times and reduced cost of post LOI due diligence.
Prior to marketing your business to potential investors or acquirers, your business intermediary will essentially take you through the complete due diligence process as they learn about all aspects of your company through developing the Confidential Information Memorandum (CIM). This may seem tedious and gathering all of the data will take time, but catching any potential issues early on and strategizing with your investment banker or business intermediary on the best way to diffuse them will be invaluable later on.
Disclosing any issues and avoiding value-lessening surprises is a huge credibility booster in the eyes of buyer and investors, which is paramount to maximizing value.
Legal diligence is also something that handled on the front end of the transactions process. Ensuring that all contracts that need to be transferable or assignable are indeed transferable or assignable and that any litigation clouding the company is resolved can save a deal.
Environmental diligence can also be important, especially for businesses that involve chemicals, speciality materials or fossil fuels. Making sure the facility and process are all up to regulation is important. A major environmental issue that shuts down one or more facilities can certainly be a deal killer.
Employment issues can be tricky to head off early on, because in most cases you do not want your employees to know the company will possibly be sold. However, making sure all employee agreements are solid and ensuring there are no potential grievances will only make your transaction all the more smooth.
Pre-diligence, the process of preparing yourself for due diligence, will help mitigate the risk of deal failure and will better prepare you and your company for the involved process that closely follows accepting an offer.
What Makes Your Company Unique?
October 20, 2016
When it comes to selling your New England based business, one of the most important aspects to convey to any buyer is what separates your company from all the others in the same sector – the “magic,” of your particular company, if you will.
Sure your products or services may be similar to that of your competitors, but what specifically differentiates your company? Do you have proprietary processes, is your customer service far superior to anyone in the space, are your internal systems so finely honed that your business is virtually automated?
Of course, revenue, profitability, customer concentration, etc., are important to potential buyers, but intangibles can make your company highly valuable. Below are some important intangible aspects that can significantly add to the perceived value of your business:
- Uniqueness – Almost all businesses in Rhode Island, Massachusetts and the greater New England area have competitors, whether they are completely similar or just mildly tangential. However, even if you are selling or distributing the same product there is something that sets your company apart from the pack. This could be anything from a long-term well negotiated and easily transferrable lease, to a broad well-researched customer list that would be virtually impossible to duplicate.
- Identity – Your brand name may be worth far more than you actually believe it is. This is especially the case if you are in a niche segment of the market with relatively few competitors. Your brand may actually be worth more in the hands of a potential buyer than it is in yours. In smaller or localized markets like many in New England, buyers with the resources to fully exploit your brand will pay for the rights to own it.
- Positioning – Whether or not you are the dominant entity in your space or region there is most certainly another company, or group of companies, that would like to have access to your customer base. If you are the market leader, this makes you all the more valuable as buyers look for assets that have a large, diversified and loyal customer base. This holds true particularly for buyers looking to enter our local markets in Rhode Island, Massachusetts and the greater New England area.
- Buying/Pricing Power – If your business has been established for a long period of time and you have strong long-term relationships with your suppliers that enable to buy cheaply, sell your product at value prices, and still make a healthy margin you are all the more attractive to buyers. These types of relationships are very difficult to establish and cannot be duplicated easily. If you can charge less than your competitors, you already have a pretty significant advantage.
- Tax Advantages – Maybe you had a couple years in the past that were not particularly fruitful enabling you to mitigate taxes by carrying over net operating losses for a number of years down the road. These types of assets can be highly valuable, especially for buyers seeking ways to limit their tax burdens.
- Tribal Knowledge – If your staff and management team has deep industry knowledge and relationships that are key to revenue and profitability, a buyer will certain have to pay for that. Knowledge that cannot be easily transferred is a key competitive differentiator.
- Proprietary Systems – If your business has developed proprietary technology to make the business more efficient and streamlined this can positively affect sales and profit margins. A buyer will usually pay more for companies that have invested significant dollars to make their company run smoothly while lowering costs.
While buyers certainly look at historical financials as the primary indicator to determine value, the intangibles can be almost as important to achieving the true value that your company deserves. If you are considering selling your business in the in Rhode Island, Massachusetts and greater New England area you can maximize value by working with a business broker/intermediary that can maximize your intangible value by distilling ‘your magic’ into something saleable.
What Does Your M&A Advisor Expect From You
September 19, 2016
Starting the business sale process can be daunting. With new advisors, expectations and the hope of a fruitful exit, the process can start to get complex quickly. To this point, you’ve done everything correctly in preparing to sell your business:
- Consulted your advisor network (Accountants, Lawyers etc.)
- Interviewed multiple business sale intermediaries to facilitate the process
- Selected the right firm to represent you based on track record, sector expertise, and geography served
- Insured you have transferable management in place capable of running the business after you exit your business
Once your business broker/intermediary has actively prepared to confidentially market the sale of your business what are you supposed to? What is your role in the business sale process?
The answer is a lot simpler than you might imagine – do you job, like nothing has or will change.
That’s right, you may be mentally preparing for a significant change in your personal and professional life, but the best thing to do is to keep running your business. The business sale process may take longer than expected and buyers can be influenced by the current performance of the business, rather than exclusively focusing on historical performance. A potential buyer will want to see the business continuing to perform optimally throughout the entire process.
As your business broker/intermediary gets further along in the process of marketing the sale of your business, your responsibilities in the process will change as you participate in vetting potential buyers.
A few components of the business sale process may take you away from the day to day periodically as follows:
- Introductory management calls – After your broker/intermediary has executed a nondisclosure agreement with a potential buyer, qualified them financially, and provided the needed marketing materials and documentation, parties interested in learning more will want to set up an introductory management call with the current owner(s). During these calls the potential buyers will want to confirm much of the information in the marketing materials and learn a bit more about your company, operations, financials and future business prospects. Do not expect to discuss transaction value on these calls. Additionally these calls are a good opportunity for sellers to learn about the potential buyer, their culture, industry experience etc.
- Face time – After initial vetting on management calls, expect a long round of phone calls to narrow the pool of interested parties down to a group of serious potential buyers. At this time, these parties want to meet in person. To maintain confidentially, you may want to schedule these meetings off-site or after normal business hours.
- After all the meetings are complete and you’ve signed an exclusive Letter of Intent with a well fitting buyer, the best thing you can is to continue running your business as efficiently and productively as possible. This stage of the process will involve generating documentation for due diligence and insuring the attorneys are preparing the documents correctly. During this time you can lean heavily on your business broker/intermediary to insulate you from the often overwhelming data requests which are common.
- Post-closing – After the transaction closes most buyers will want previous ownership to stay on for a pre-determined period of time that can range anywhere from three months to years. This integration period will be very important for the new owner as they transition the business under their ownership. This period will entail introducing the new owners to current customers, suppliers and ingratiating them with the workforce.
A qualified business broker/intermediary like Nery Corporation can mitigate much of the demand put on a business owner during the sale process, you should enter the transaction with a goal above all others - continue running your business as if you were to continue to own the business indefinitely.
Do you really need a business broker or M&A advisor to sell your Rhode Island Or Massachusetts based business?
August 24, 2016
Middle market business owners in the competitive Rhode Island and Massachusetts markets who are looking to sell their businesses will likely find plenty of suitors from both the strategic and private equity sectors. After all, Rhode Island and Massachusetts are hubs for innovation, technology and healthcare industries making the area's businesses ripe targets for acquirers looking to deploy capital in good, profitable companies.
So what happens if you, a Rhode Island or Massachusetts business owner, get approached directly by a potential buyer with what seems to be a compelling offer to buy your business? You need to start by securing proper representation. Without a right team advocating on your behalf you invite a number of risks, including:
- Under valuation of your business.
- Sharing confidential information with competitors and tire kickers.
- Increased legal and financial exposure
1. Positioning – An M&A advisor or business broker will develop a Confidential Information Memorandum (CIM), which is a detailed technical document explaining the ins and outs of your business from operations to growth opportunities to financial performance. The key here is financial performance. An M&A advisor or business broker can help significantly improve the valuation of your business by recasting your financials (adding back one-time expenses and other anomalies to your EBITDA) to drive substantially higher multiples and values as well as packaging your business offering in a way that professional buyers are used. Without the positioning support of your advisor you may not truly understand your businesses value or how to market it to other potential buyers.
2. Process – That original buyer that approached you may still be the best buyer, but the only way to know for sure is to shop your business to multiple buyers, both strategic and financial. An M&A advisor or business broker will create a competitive environment with multiple buyers, which will, in turn, drive higher valuations as the interested present their best offers. The advisor manages the process including information controls, offers and communication. Until you have an in depth view of what the market thinks your business is worth you may not have the needed information to make the best decision.
3. Structure – Even if the overall value of your business sale is satisfactory, the structure of the deal may not be. The bulk of the payouts may be contingent, you may be asked to carry a percentage of the purchase price, there could be numerous parts of the deal structure that benefit the buyer more than you. An M&A advisor or business broker is there to advocate for you to ensure you get the highest value and the best structure possible.
Clearly, we encourage every business owner considering the sale of his or her business to work with a deal professional. With many firms working largely on fees generated by the successful sale of your business, the advisor wins when they have produced a quality final result. In short, the benefits far outweigh the costs.
If you have questions on how to sell your business and are located in the greater Rhode Island or Massachusetts area please contact us. We pride ourselves in our ability to help you navigate the complex transactional process and focus primarily on serving small and mid sized business owners in our hometown markets.
Please contact us for a confidential, complimentary consultation to further explore how The Nery Corporation will work together with you to successfully achieve your goals.