Are you in our strike zone?
Hiring the right advisory firm is critical to your exit strategy.
There are many firms that would like the opportunity of selling your business. But a firm that is capable of valuing, packaging, marketing and financing a manufacturing company with $200,000,000 in revenue wouldn’t have much interest in doing the same for a company doing $200,000.
Which of these categories do you fit into?
Publicly Traded & Large Businesses
There are over thirteen million corporations in the United States, and less than one percent of them are publicly owned. These companies are traded on stock exchanges like the NYSE or NASDAQ. The rules that apply to the sale of public companies like General Motors, Google, or McDonald’s are nothing like the rules that control the sale of privately held enterprises. Stock in publicly traded companies can be sold at any time, because each listed stock has a specialist that acts as a buyer to all seller and a seller to all buyers. At any given moment he quotes a bid and ask price, and he usually makes a small profit on every transaction. The rules that govern stock exchanges in the US are monitored by the Securities and Exchange Commission.
Raising capital by means of an Initial Public Offering is the domain of Investment Banking firms. We once approached our friends at Morgan Stanley with an opportunity that had the potential to dominate a large market in the health care sector, with a future potential exit we estimated at $100,000,000. We were politely told “Morgan Stanley doesn’t even get out of bed for a hundred million ”.
We are happy to leave deals of this size to the wolves of Wall Street.
Middle Market Companies
Unlike the stock of publicly traded companies, there is far less liquidity in the ownership of privately held companies, and little to no transparency in their financial dealings. Privately held companies have nowhere near the reporting requirements of their public counterparts. Dealmaking in this arena depends upon the seller’s ability to prove the value of what he is selling.
With revenues in the millions of dollars. most of these companies are valued by a multiple of EBITDA. The biggest multiples usually go to companies that have high barriers to entry, a long history of profitability, or a demonstrably disruptive technology.
Most of the middle market is made up of businesses built around a narrowly defined model. If you sold $75,000,000 of concrete last year, you probably didn’t sell any toasters or football cleats. Owners of a successful closely held middle market company usually have invested their entire lives in the business, so for them to sell and walk away is emotionally tough. We rarely meet a client who is only interested in his financial settlement and not the ongoing quality of the service his customers receive, or the job security of his loyal employees. We have a lot of experience creating strategies that give employees a chance to keep their jobs, yet give the new owner the right to run his company the way he sees fit.
The owners of these businesses are folks who have worked hard and smart to build their empires. Invariably, they are straight shooters who understood that their success depended upon delivering value and doing honest business. This is our strike zone. These are the people we love to represent.
Small businesses are the backbone of the American economy and the marketplace for their sale is active. Of the 13,000,000 or so American corporations, around 12,100,000 fit the definition of a small business, either due to the relatively small revenues generated, or the fact that a single person or small group of managers can run the operation. There are literally thousands of small business categories selling products and services from A to Z.
If this describes you, there are a half dozen or so nationally franchised business brokerages you could hire to help you sell your business. Their competence levels run from expert to novice. Their upsides are usually their downside. Since they are nationally franchised, the playbooks for these half dozen franchisers are being written by a half dozen guys who keep copying each other and getting more and more like each other every year. They have a very process oriented approach that works well if there is an active market for what you have. Gas stations and restaurants lead this parade. But if you have a very specialized business such as a gift shop or a nail studio, you might have a better chance being your own broker, using Craigslist in combination with your own business and networking skills.
© Players Capital Group 2016
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