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.
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
Symmetrical Investments is proud to support local Chester and Montgomery County families. Together with Waste Management, Enterprise Holdings, and UnitedHealthcare, we donated $68,000 through the Educational Improvement Tax Credit (EITC) program. Through the program, many local families are able to afford preschool for their children. Pictured here is Symmetrical’s Managing Partner Chad Byers with Senator John Rafferty, Senator Andrew Dinniman, and Representative Becky Corbin.
Managing Partner Chad Byers was a guest on Behind the Numbers with host Dave Bookbinder.
In the segment, Chad provides business owners with tips to create value and increase their net worth. He reviews best practices, including understanding the value of your business, running your business as if you’re looking to sell it, and buying your real estate.
View the full video:
Chad Byers, Founder and Managing Partner of Symmetrical, was highlighted in a special section of the March 2nd issue of the Philadelphia Business Journal. He is an alumnus of the 2016 Outstanding Directors award for his service on the board of Hillside Acquisitions Group LLC.
A cheerful attitude persists in the middle market M&A world. Despite a slightly down year in 2017, optimism remains high, and we expect a marked increase in activity in 2018.
Key Observations
1) Because median valuation/EBITDA multiples continue to steadily rise, while at the same time monetary policies remain beneficial for financing deals, now is a particularly beneficial time for business owners looking to sell.
2) Overall M&A activity is expected to rise this year; however, expected increases in interest rates by the Fed later in the year may dampen activity.
3) Due to the recent tax legislation, American companies are expected to bring hundreds of billions of dollars into the U.S. and take on significant capital investments and acquisitions.
Highlights of 2017 M&A Activity
Slight Cool Down
Last year was a cool down from the previous two years. While the total number of deals was down over 16 percent from 2016, the total value did not fall as much as expected.
Increase in Diligence
A notable trend in the second half of 2017 was a larger focus on diligence. A likely reason is that 46% of buyers who canceled or started renegotiation of deals in 2017 did so after discovering adverse information through diligence.
This focus on diligence increased the time needed to close a transaction. The average deal took 16 weeks to close in 2017, which was up from an average of 12 weeks in 2016.
Cash Hoarding
Many expected the massive piles of cash being accumulated by U.S. companies to be unleashed in 2017, but instead we saw companies grow their reserves. The total value of cash-on-hand by U.S. companies is in the trillions, and companies like Apple and Microsoft grabbed headlines in 2017 due to the staggering amounts they are holding.
Fourth Quarter Unease
The fourth quarter of 2017 saw the greatest slowdown in M&A activity. Uncertainty over the tax reform legislation that was making its way through Congress is an often-cited culprit.
It’s believed that many firms hurried to close deals earlier in the year when the bill’s details were still unknown.
Lack of Succession Planning
One particular detail from a recent Pitchbook survey is notable to those involved in sell-side M&A: More than a quarter of businesses either don’t have a succession plan or have an insufficient plan.
Not only could this have been a factor in the lengthening of the diligence period in 2017, but it could continue to cause delays on an individual transaction basis as baby boomers continue to retire at an increasing rate.
2018 M&A Outlook
Tax Reform Will Spur Investment
The recent tax reform law is expected to spur investment in the short- to medium-term for three primary reasons:
1) The decrease in the corporate tax rate from over 35% to 21% will greatly reduce most companies’ tax bill, further growing their cash-on-hand.
2) The law has a low, one-time transition tax rate to incentivize repatriation of off-shore cash. We’ve already started to see this feature take effect as large firms make headlines with their plans to repatriate hundreds of billions of dollars.
3) The bill allows full and immediate expensing of capital investments for five years, which will increase overall corporate investment activity.
Continued Economic Confidence
By most accounts, the economy is doing quite well in both the U.S. and globally, and it’s expected to continue that trajectory.
Investor confidence remains quite high despite equity markets being on a long-term growth streak, and overall consumer confidence rose more than expected in the first month of 2018.
The upward trend in confidence may be attributed to the fact that unemployment is currently at a near 17-year low, hovering in the low four percent range.
Cash to Be Deployed
Because of the combined catalysts of tax reform, ballooning cash reserves, continued economic confidence, and the prospect of increasing interest rates, it’s likely that companies will start to put their cash to work at a higher rate this year.
In 2017, we saw that growing cash reserves for strategic acquirers and growing fund sizes for financial sponsors did cause an increase in activity in the upper-middle-market. We expect this trend to continue.
Increased Valuations
In 2017, the median valuation/EBITDA multiple in U.S. M&A transactions were at 10.3x, up slightly from 2016. Multiples will only be pushed higher as M&A activity picks up.
Interest Rates Will Slowly Rise
Interest rates are still relatively low, making it easy to finance deals. However, the Fed has indicated that they will continue to raise rates later this year.
Conclusion
The outlook for 2018 can most aptly be described as optimistic. Last year was a decent year, but there are still large pools of money-chasing deals. Private equity groups have cash that they need to spend, and they are looking to spend it soon.
The combination of a growing economy, demand for acquisitions, and a good financing environment are pushing prices up. That makes 2018 a great time for those looking to sell.
We have more than 75 years of combined experience helping business owners successfully sell their businesses. If you’d like to confidentially discuss your options, please contact us.
It’s a new year and many of you may be thinking that this is the year that you’ll cash-in and sell your business.
While the decision to sell the successful and valuable business you’ve built over the years can be taxing, you’ll immediately be faced with another, equally-important question. Should you handle the sale yourself or should you hire a sell-side advisor?
Many business owners make the mistake of choosing the former, thinking that it will save them time and money. But, even if a potential buyer approaches you, here is why you shouldn’t attempt to navigate a DIY sale.
Advisors Optimize Value
One of the most important factors in selling a business is ensuring that it is valued correctly in order to establish the best sale price possible. While there are common factors used to determine valuation, such as EBITDA, assets, liquidity, etc., every industry and even locality requires a slightly different approach. If you aren’t experienced in evaluating and negotiating deal points such as working capital and excluded assets, you’re potentially driving the valuation and your net proceeds down.
Advisors Make the Process Efficient
An almost equally important factor is ensuring that the sale process is efficient. Experienced advisors know the common mistakes to avoid and can help you get your business sold quickly. Who wants to spend a year of their lives trying to get through an M&A?
Some common mistakes that slow down the process include:
– Focusing on one potential buyer, usually someone the business owner knows, rather than confidentially connecting with a large pool of potential acquirers. This can hamstring you to the demands of your only prospect.
– Marketing your business poorly or not at all, rather than developing unique and targeted marketing materials for various types of buyers.
– Failing to help your potential buyer through the in-depth requirements of due diligence. This includes not preparing for the sale by organizing your books and analyzing your company’s financial standing before starting the process.
DIY M&As Fail … A Lot
Far too often, business owners find themselves in the midst of a difficult sale process only to see the deal fall apart. However, not executing the deal is not the only way to fail.
When selling your company is your path to retirement, not getting the money you need is just as bad. This commonly happens when business owners don’t take the tax impacts of the sale into account, fail to recognize suboptimal structures in the deal, or fail to minimize all closing risks.
Hiring an Advisor Lets You Focus on Your Business
Rather than stepping away from your business early to navigate a process you likely know very little about, hiring an experienced advisor allows you to focus on keeping your business running at peak efficiency. Showing consistent earnings is key to increasing value, and it’s probable that no one in your business is better at doing that than you.
If you’ve decided to sell your business, then make the smart choice and hire an experienced sell-side advisor. The advisors at Symmetrical have decades of combined experience and will make sure that your needs are met. Contact us, and let’s get started.