How M&A Can Drive Inorganic Growth

Sixty percent of Middle Market companies report that inorganic growth is a key part of their growth strategy, according to research by the National Center for the Middle Market. Each year, approximately 20 percent of Middle Market firms acquire a company and roughly five percent sell or divest part of their organization. The executives of the companies surveyed expect merger and acquisition activity to drive more than a quarter of their growth. Despite this reliance on inorganic growth, most Middle Market companies reported minimal M&A experience and multiple struggles with the process.

Inexperience makes M&A process seem more difficult

Of the companies surveyed that had completed a purchase in the last three years, almost one third (29 percent) were completely new to the process and an additional 40 percent had limited previous experience. For companies on the selling side, only one in ten companies reported any significant previous sales experience. With so many leadership teams being completely new to the M&A process, it is no wonder that more than 40 percent of buyers and 50 percent of sellers considered business valuation and assessment to be extremely difficult. Similarly, 44 percent of both buyers and sellers reported that post-transaction integration was a major challenge (i.e. integrating technology systems, administrative processes, staff, and culture).

Experienced advisors increase the likelihood of a successful deal

Fortunately, there is one clear cut way for Middle Market companies to increase the likelihood of M&A success. Ask for help! According to the same research, Middle Market organizations tend to turn to internal executives or top managers to begin the M&A process. Only one-third of buyers looked for targets with help from an external law firm and fewer worked with consultants or investment bankers. Sellers were even less likely to work with external experts when looking for buyers.

Turning only to internal leadership when beginning an M&A journey is very limiting. External experts have access to experience, expertise, and resources that dramatically increase the likelihood of a successful and profitable transaction for all involved. They also introduce the very necessary quality of objectivity into the process, which is absent when deals are kept entirely in-house.

Symmetrical helps Middle Market companies to strategically assess their needs and prepare for big transitions. If you are considering buying or selling a business, please contact us for a confidential discussion about how we can help.

Sometimes, owners who are thinking about selling their middle market business will consider managing the sale on their own, relying their internal team and existing attorney and accountant relationships. At first glance, this may seem doable… but most discover that they need the expertise, support, and extra staff power that a partner who specializes in the Merger & Acquisition process can provide. Choosing an intermediary to work with is a uniquely personal decision. No two firms are exactly alike and there are many different approaches to the business of selling a business.

Symmetrical’s Approach

Our goal in selling a business is to provide our clients with options, allowing them to achieve all of their goals – financial and otherwise. We understand that while selling a business may be predominantly a financial issue for the shareholders, a lot of other factors are involved in the ultimate value of the transaction: the timing of the close, the terms of your exit, the treatment of your employees, and the continuation of your legacy.

Our clients should expect to approve a customized sales and marketing plan that capitalizes on the competitive market that has been created. Our team then executes this plan on your behalf. This approach requires a variety of different skills. Symmetrical Advisory leverages the collective strengths of its M&A advisors by assigning a team of professionals to each client based upon industry and situational factors.

A Long-Term Partnership

We serve as the sounding board to several hundred business owners across the United States. In the early stages of these discussions, Symmetrical strategizes with owners to determine the right time to sell along with the appropriate steps to take to achieve the greatest value for the business. It is not uncommon for us to begin our relationships 10-15 years before any sale takes place, and for us to continue supporting our clients for many years after a completed transaction.

Finding the Right Team For You

Like any hiring decision, hiring the right intermediary should take time. We encourage you to evaluate multiple candidates and chat with their references. Compare approaches and processes, and consider each firm’s experience in your industry, geographic region, and preferred target buyer type. The M&A process is often intense. The team you are most comfortable with and is the most qualified for your unique situation will ultimately get you the best outcome.

Symmetrical assists middle market companies strategically assess their options and prepare for big transitions. If you are curious whether we may be a good fit for you, contact us for a confidential discussion about how we can help.

One of the first and most critical steps in selling or acquiring a company is the Letter of Intent. It is one of the first opportunities for mistakes to be made. Let’s take a look at why LOIs are so critical to your success in completing a transaction.

What is an LOI?

Almost exclusively used as the first step in the process of major business transactions, a letter of intent (LOI) is a document declaring the preliminary commitment of one party to do business with another. Presented in a letter format, it outlines the chief terms of a prospective deal. LOIs can be iterative in nature, where one party may present an LOI to buy a business, and then the seller may counter with a tweaked version of that LOI or they may draft a new document altogether. Ideally this process saves negotiation time in the long run, so that when both parties come together to formalize a deal, the broad strokes of the deal will already be hammered out.

What may be included in an LOI?

While not an exhaustive list, here are some elements that are often addressed in an LOI:

– Type of transaction — asset deal or stock deal?

– A list of the assets to be sold in the transaction

– The purchase price for the business and all its stated assets

– Exclusivity period parameters

– Expected length of time for due-diligence to occur

– Definitions of important terms that might be used during the transaction

– A target date for the execution of the purchase agreement

– Identification of transactions jurisdiction and governing entities

– “No-solicitation” provisions, which forbid one party from poaching the other party’s employees

 

It is important to reiterate that an LOI signals the beginning of a formal business transaction. As such, it is critical that sellers understand what they are signing and consult with their professional advisors before executing a LOI. Yes, even before sending a “quick text” to confirm receipt – any and all written communication can affect the terms of your future agreement.

Is an LOI legally binding?

It depends, which is why it is critically important to seek legal advice as soon as an LOI is received. Some LOIs are not binding at all. Others may only create limited obligations like maintaining confidentiality and ensuring each party bears their own expenses. In contrast, some LOIs may qualify as an enforceable contract with or without additional negotiation, possibly even serving as the contract if you don’t sign the final agreement.

Letters of Intent are an exciting part of the M&A process. They also herald a significant event, the sale of a business, so seeking experienced advice is critical. We work with privately held business owners across the United States who are interested in selling or recapitalizing their companies. Our team has over 100 years of combined experience in these transactions. Please contact us for a confidential discussion about how we can help you.

Some entrepreneurs start their businesses with dreams of eventually selling to a larger company, enjoying the payout as part of their retirement or using it to fund their next venture. Other business leaders dream of something longer lasting – a business that will live beyond them and last for generations to come. Seeing that dream come to fruition requires a different mindset and skillset than a “sell and move on” exit strategy. If you envision your middle market business lasting for generations, here are some things to consider in today’s business environment.

Embrace transparency

First generation business owners, particularly leading family businesses, have a tendency to keep some information close to their vest. Unfortunately, that is one of the biggest mistakes you can make when passing a company on to the next generation. Focusing on transparency early, well before a major transition is imminent, is one of the wisest things a business leader can do. The organization as a whole benefits from improved knowledge transfer and the ability to catch challenges before they become problems.

Prepare for the generational shift

We are about to witness one of the most powerful shifts in business ownership to occur in recent history. Baby Boomers (those born between 1946 and 1964) represent close to 75 million people in the United States today. About 4 million Baby Boomers leave the workforce each year. This is a major concern for business leaders, considering Boomers make up a quarter of the country’s workforce and many hold leadership positions. The businesses that continue to thrive through this period will be the ones that are deliberate in connecting across generations. If your organization is primarily made up of one generation, proactively seeking a wider variety of employees and perspectives is a great place to start.

Fix anything that is broken now

As you begin to increase transparency in your organization and prepare for the coming generational shift, it is likely that you have or will identify weak points… areas in your organization that require improvement. One of the biggest mistakes leaders make is putting off those corrections. Organizations that last for multiple generations are organizations that have learned to be resilient and are skilled at evolving well. Start now.

If your dream for your company is longevity, we have experience that can help. Our team assists Middle Market companies strategically assess their options and prepare for big transitions. Please contact us for a confidential discussion about how we can help you.

There is no question that some celebrities excel at making money, but not all of them do it solely in Hollywood. 2019 has brought us a 22 year old celebrity as the world’s youngest self-made billionaire, not from music or movies, but from her own makeup empire. And while some celebrities are more public about their wealth building skills, others are quiet about their investing success. Here is just a short list of celebrities who excel at investing:

Ashton Kutcher – While he started his career as a model and has several popular movies and TV successes under his belt, Kutcher is also a co-founder of A-Grade Investments and Sound Ventures. He has made over 70 investments in high-profile startups, including Uber, Airbnb, Spotify, Soundcloud, and Shazam. In 2018, Kutcher’s firm set a target of $150 million for its second flagship fund.

Jay-Z – Jay-Z isn’t just a powerful influencer in the hip hop world, he is also a force in the business world. An experienced investor, he recently launched a new fund called Marcy Venture Partners. Previously he has backed several startups, including luggage maker Away, private plane company JetSmarter, and fintech company Robinhood.

Jessica Alba – Today’s new moms know actress Jessica Alba for her brand The Honest Company, which sells its own safe and consciously designed baby and beauty products. Aside from her company, she invested in Managed by Q, an office management platform currently valued at $223.5 million, and Honor, an elderly home care service. Like many other celebrities, Alba has also invested in Headspace, the popular meditation app.

Will Smith – One of the most popular and highest paid actors on the planet, Smith wisely believes in diversification. In 2018, Will Smith announced plans to launch a $100 million startup fund along with Japanese soccer star Keisuke Honda. Smith’s portfolio includes SPARK Nuero, Stance, Away, Julep, Fancy, and many other noteworthy startups.

Gwyneth Paltrow – Since taking a hiatus from Hollywood, Gwyneth Paltrow is primarily known as a founder of the website and lifestyle brand Goop. But she’s also an investor whose portfolio includes three apparel companies—Outdoor Voices, Rockets of Awesome, and Universal Standard—as well as Daily Harvest, a healthy food delivery service.

Tyra Banks – A former model turned actress / television celebrity, Banks also founded an investment firm called Fierce Capital. Through the firm, she has invested in Flixel, a mobile app that creates cinemographs; theSkimm, an online newsletter geared at female millennials; and The Muse, an online site for career advice and job searching.

Jared Leto – Perhaps one of the more surprising names on our list, the Oscar-winning Leto is an accomplished investor with approximately 19 companies in his active portfolio. He owns shares in everything from Headspace to Houseparty to Postmates and was particularly successful in his involvement with Blue Bottle coffee, which was acquired by Nestle for $700 million last year.

While we haven’t had the privilege of meeting these experienced investors personally, we do know how to help you prepare your company to attract new investment. Our team assists Middle Market companies strategically assess their options and prepare for big transitions. If you’d like to discuss your situation further, please contact us for a confidential discussion about how we can help you.

When an owner starts to think about selling their company, they don’t dream about being on the market for years or about knocking on doors for the right buyer. Instead, we all dream about the day when the perfect buyer shows up in our lobby begging for a meeting.

For most companies, the reality is somewhere in between the two. But leaders who do the right planning up front set themselves up for greater success and increase their chances of attracting the right investors to their company. When the right buyer looks at your company, you want them to see something enticing right from their first glance. Creating a great first impression takes a little prep work.

Think like a start-up: Clearly define and communicate your story

First, try to think of your company like a start-up. Many start-ups raise money before they have established sales. How? By selling their story. Your company has a brand and story as well. Now is the time to define it, before you meet with any potential buyers. Is your story inspiring? Is there potential for growth? Does it sound like a story that would intrigue your ideal buyer?

Once you have a compelling story, the next step is to clearly communicate it across all of your marketing channels. Buyers are busy and they look at hundreds of companies. Assume that they will make a snap judgement about your company after only a quick first impression. Utilize your website, social media accounts, and marketing collateral to share your brand story. No matter how your ideal buyer finds your company, you want them to encounter the same consistent messaging to capture their interest.

Prepare like a pro: Develop your prospectus before you have an interested investor

Second, pretend you already have an interested investor on the phone and prepare your prospectus now. A prospectus is a detailed 15- to 40-page document that outlines what your business does, how it makes money, and how it operates. It also includes data about market trends, growth opportunities, and frequently asked questions about the company. Having a completed prospectus ready to go means you won’t have to panic or scramble when investors knock on your door, avoiding costly delays or loss of interest.

Do due diligence now: Understand your business’s strengths and weaknesses

Third, review everything a potential investor would want to see before they ask to see it. This should include (but is not limited to):

– historical profit and loss data

– historical balance sheet

– summary of your financials (tax returns, bank statements, and merchant statements)

– customer lists

– a staff list

– suppliers’ names and information

Buyers may ask for interviews with staff, clients, and subcontractors. They may ask to see the contracts suppliers and staff have signed, as well as contracts for any business systems and vendors, etc. Being organized and prepared before due diligence starts means two things. First, you’ll have identified your strengths and weaknesses in advance, and have the opportunity to correct blemishes before they become visible to a potential investor. Second, your prepared team will be ready to respond to a potential buyer much faster than an unprepared team, giving you an advantage.

Once you have completed your prep work, potential investors will be able to quickly look at your organization and understand if it may fit their goals. Your business will be organized, interested, and ready to sell when the right opportunity comes along. Feeling overwhelmed? We can help. Our team helps Middle Market companies strategically assess their options and prepare for big transitions. Please contact us for a confidential discussion about how we can help you.

While Fortune 500 companies and sexy startups often get more media attention, the middle market is a powerful force, made up of nearly 200,000+ businesses, or three percent of all U.S companies and one third of all U.S. jobs. Middle market companies typically have annual revenues of $10MM – $1B and may be private and public, family owned, and sole proprietorships, geographically diverse, and span almost all industries. Given their size and variety of ownership, these businesses often endure a lot of change over time.

According to the National Center for the Middle Market, age and retirement are among the top reasons for leadership changes or major transitions in middle market companies. Larger organizations are more likely to make changes to spur growth and competitiveness. Sole proprietors and partnerships are more motivated to scale, while publicly held companies are more motivated to create change at the top. The most successful companies with the most longevity have figured out how to navigate these inevitable transitions successfully.

3 M&A Trends in the Middle Market

There are several broad trends that we’re observing in M&A activity within the middle market:

1. Mergers to gain innovation – As generations change, so do consumer needs. Making the right investment in innovation can help a company remain nimble as disruptors continue to enter the market. A great example is Coca-Cola’s $5.1 billion acquisition of British coffee chain Costa Coffee. By purchasing rather than creating innovation from scratch, Coca-Cola not only now has a strong coffee platform in Europe, but also acquired access to Costa’s coffee sourcing, vending and distribution expertise. A particularly smart move as consumers shift away from sugary drinks.

2. Mergers to gain a competitive edge – Amazon’s purchase of Whole Foods was understandably big news. What is interesting to watch is how other companies have reacted to stay competitive. Shortly after the Amazon purchase, Sprouts Farmers Market, the supermarket chain (a direct competitor to Whole Foods) announced a partnership with grocery delivery technology company Instacart, initially sending its stock soaring 5 percent. Smart companies are making purchases to gain innovation to stay on par with or ahead of their top competitors.

3. Alternatives for growth, outside of traditional mergers – While there are still plenty of auction-based deals, private equity enables a company to partner with a firm that maybe better aligned on strategic objectives. Forming the right partnership with a private investor or firm, means not only capital to expand a business, but also valuable expertise to redirect strategy. For example, Roark Capital is a private equity firm with a focus on fast-casual dining, perhaps best known for purchasing and turning around Arby’s in 2011. More recently, Roark acquired Buffalo Wild Wings for $2.9 billion. With its vast restaurant expertise, critical insight, and keen understanding of fast casual consumers, Roark is set to help Buffalo Wild Wings revamp its image to appeal to a new generation of diners.

Although the examples above represent the higher end of the Middle Market we’re seeing these same trends play out at the lower end of the Middle Market ($5M-$75M in revenue) with clients taking advantage of current market opportunities.

We help Middle Market companies strategically assess their options and prepare for big transitions. Please contact us for a confidential discussion

Whether you have just started to explore selling your company or if you’ve been preparing to sell for a while, it is likely that you’ve daydreamed about catching the really big fish… a large buyer who will swoop in and instantly see the value in your business model and won’t balk at your asking price.

“Luck is a matter of preparation meeting opportunity.” Lucius Annaeus Seneca

You won’t catch the big fish if you aren’t ready to. The sellers who “luck” into deals with large acquirers were able to take advantage of that opportunity because they knew the type of buyers they were targeting, they knew what those buyers look for in an acquisition, and they were prepared to fit that profile.

Identify your big fish

In your daydreams, who is your biggest fish? To choose your dream target buyers consider your industry, geographical region, differentiators, customer base, and other M&A activity that has occurred in your space. Think big. Once you have a long list of fish, narrow it down to your top three dream targets. Now learn about them – where are they, what purchases have they made in the past, and what seems to motivate them? If you were actually fishing, you wouldn’t guess about where to go. You’d know the type of fish you wanted to catch, where they are, and a little bit about them.

Know what they are looking for

You can’t catch a fish if you don’t know what they want to eat. In general, most buyers want to see four things:

1. Long term dedication/experience – That may mean an established track record in the industry, an experienced management team, a proven product, or all of the above.

2. Past growth – Buyers want a business that has shown growth, both from a profit standpoint and a business evolution standpoint

3. Future growth – Along those same lines, a buyer wants to purchase a business with growth potential, supported by accurate projections and marketplace assessment

4. Buyer ready – Sellers earn bonus points by being ready to sell. A big part of that is completing your due diligence in advance. The smoother and quicker you can make the diligence process, the more likely you’ll be to close a transaction under your original terms.

Be what they are looking for

It is one thing for you to have the right bait for the right fish. It is another thing for that fish to find the bait. Now that you know who your ideal buyers are and what they want, you need to communicate that you have what they need. Start with an evaluation of all of your external communications. If a potential buyer stumbles on to your website, will your business look like a good acquisition for them?

If you have questions on how to net the biggest fish to acquire or recapitalize your business, please contact us for a confidential discussion.

For many business owners, their business is their largest asset, so it’s normal to want to understand its worth. The problem is that it’s not always as straightforward as applying a simple calculation. Valuing a business is subjective, and two people could see the same set of company financials and arrive at vastly different valuations.

There are many reasons a business owner may need to know its current value, including if they want to sell the business and retire, or to obtain debt or equity financing. No matter the reason, valuing your business depends on many different factors.

Let’s review some of the most common business valuation techniques.

Assets-based approaches

Sometimes referred to as the cost-based methods, this is the most basic way to value a business. Essentially, you are taking the value of the business’ hard assets and subtracting the debts.

Assets-based valuations can be done one of two ways:

– A going concern asset-based approach will list the business’ net balance sheet value of its assets and subtract the value of its liabilities

– A liquidation asset-based approach will determine the net cash that would be received if all of the business’ assets were sold, and its liabilities paid off

While straightforward, this method often renders the lowest value for the company because it does not account for “goodwill”. Because of this, one of the two methods described below may yield a higher valuation.

Earning value approaches

This method follows the idea that the business’ true value lies in its ability to produce wealth in the future; essentially the buyer is estimating what your future cash flow is worth to them today.

The valuator determines an expected level of future cash flow using the business’ past earnings (taking into account unusual expenses or revenue), and multiplies this number by a capitalization factor. The capitalization factor reflects the expected rate of return the buyer should expect in the future.

Market value approaches

In this method, the valuator will establish the value of a business by comparing it to other similar businesses (“comparables”) that have recently sold. Of course, there must be a reasonable number of very similar comps that have sold within your industry to be able to use this method, which is not always the case with privately held companies.

It’s important to focus on more than one facet, such as industry, when looking at comparables. For example, a small ecommerce company cannot base its value off of Amazon, just as an internet startup cannot base its value off of what Facebook is trading at.

The earning value approaches are the most popular business valuation method used, although some combination of approaches may be a better fit. The first step in determining the true value is to hire a professional. As part of our process, we offer a detailed valuation / transaction analysis at no cost to owners considering their options for the business. If you’d like to learn more, contact our team.

If you’re in a situation where you’re seeking growth capital and/or potential recapitalization sources, you might have considered approaching a private equity (PE) firm. That can be a great strategy for business owners who have the ability and willingness to sell a large portion (or all) of their company within a strict time frame, but it isn’t the only option to consider.

Selling to a Family Office

Another relatively new option you might not be aware of is selling directly to a family office.  Historically, family offices that were interested in investing participated as limited partners in PE funds. However, more recently, many have increased capital flow thanks to the bull market and are looking to diversify — and part of their strategy is to invest directly in other small- to mid-market businesses.

Sellers potentially can realize several advantages by working with a family office. They are often willing to take a minority ownership stake, allowing you access to capital while maintaining your leadership position. In addition, family offices are frequently able to be patient with their capital, partnering with sellers more as a long-term investor than a PE firm would be able to.

There are Challenges

While this can be a great opportunity for sellers, the process isn’t without risks and challenges. Because many family offices don’t employ investment professionals, they frequently don’t have the level of experience and the ability to keep a deal progressing that PE firms do. The talk at many M&A conferences is that family offices “want to do deals” but very few are actually “doing deals.” That being said, it is critical that sellers considering “patient capital” from a family office pursue approaching multiple family offices. Also, given the lack of infrastructure many family offices have to source and execute on transactions it’s important to have a team (attorney, accountant, and M&A intermediary) that can help to drive the process. Knowing the potential hurdles in advance and preparing for them can open doors to family office investment – a capital solution that many owners have never considered but should.

The intermediaries at Symmetrical Investments have combined decades of experience helping business owners sell their businesses to a variety of buyers, including family offices, ensuring that their liquidity needs are met and the deal runs smoothly. Feel free to reach out if you’d like to confidentially discuss your options for an investment from a family office.

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