Quality of Earnings when selling your company

Quality of Earnings (QOE) represents the most accurate representation of a seller’s true earnings by looking at a company’s historical revenue, earnings, and adjusted EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization). Historically, this will include normalizing revenues and expenses that are either non-recurring or not part of future operations. Other areas of focus include concentrations of risk from significant customer relationships, vendors, safety, information technology, environmental, insurance, key employees, and benefits. QOE will also consider future ...

Increasing Merger & Acquisition Activity in this Election Year

A prevailing assumption is that a slowdown in mergers and acquisitions (M&A) occurs from October to December of an election year (and the following year depending on the party that is elected), but is that actually the case? Let’s first take a look at the last two previous election cycles...

Surprises to selling a company in COVID-19

We had several acquisitions working in March when everything shut down and were not expecting to initiate any new engagements until late summer. However, we did start discussions on a new acquisition at the end of May. Surprisingly to us, the response was overwhelmingly positive and, as of last week, we have nine bona fide offers to acquire this company, five of which are at or above pre-COVID market value. How could this be?

How does a Presidential Election Impact the Sale of My Business?

What happens to M&A in the run up to the 2020 Presidential Election? In past election years with an incumbent President, there has been a slowdown in M&A activity from October into mid-November, but how about 2016? Most experts got it wrong. Prior to the 2016 Presidential election, …

Is 2020 the right time to sell my company?

We were recently asked by a client if current market conditions are right for the sale of his company. There are two parts to the question: “current market conditions” and “for his company.”  The primary driver of the decision should be an analysis of his particular, unique business.  Current market conditions are an external driver of his company's performance and also impact the price a buyer will pay for his company, but they are only one factor of many factors that impact business valuation and timing for a sale.

Section 338 Business Sale –Stock Sale, with Asset Sale Tax Treatment

What is a 338 Election? How would I use it when I sell my business? In a typical acquisition (using an S-corporation as an example), the seller seeks to maximize capital gains, on which they pay a lower tax rate, and the buyer seeks to maximize the present value of tax deductions. While this may be desired, there may be a need to effect the transaction as a stock deal rather than an asset deal.

Recapitalize Your Company – For and Against.

Recapitalizations are a powerful tool, but like any tool, they only perform as well as the experience and controls of the operator. We consider 4 Points in Favor of a Recapitalization and 3 Points Against.

6 Areas of Focus for Troubled Companies

Most troubled companies share a common denominator: excessive debt and management indecisiveness. That doesn’t mean lack of desire to perform. It does, however, mean that there have been some fundamental issues, strategy mistakes or procrastination among senior management in the months or years leading up to that point. You could write several books on the lists of reasons that companies get into trouble and in a career of restructuring troubled companies, there are many stories to tell. In this article, we discuss 6 areas of focus for a troubled company: 1. Cash management 2. Profit and profitability 3. Controlling costs 4. Fixed Assets and Inventory 5. Accounts Receivable 6. Debt

The Best Buyer for your Business

When a business owner is asked who the most likely buyer is for their business, they will typically have a fairly good idea who the most likely candidates are, which normally fits one of the following profiles: i) a competitor who can’t access your market, client base, lacks certain proprietary differentiators or some other motivation; ii) a strategic buyer who would love to buy your technology, unique products, service, patents, intellectual capital, team, or maybe your reputation in the marketplace; or iii) the private equity group that has been courting you for years, or maybe even; iv) the Senior Manager in your Company who’s worked for you for 20 years and who, with the right financial backer, could buy, manage and grow the business.

How long does a Private Equity Group wait before selling your Company again?

Most people think of a private equity holding period as between 3 and 5 years, which could cause a significant and legitimate concern among business owners. However, there is no hard rule to apply to this asset class and to make a determination whether or not to consider a PEG as a prospective buyer based upon the median hold period, would be to make a one-dimensional decision.

How Much Should a Buyer Pay a Seller for Synergies of two Merged Businesses?

This is an interesting question and the answer has certainly changed over the years. Whereas synergies may have previously been credited entirely to the buyer’s benefit post closing, the trend has been for buyers to pay an increasing premium to sellers for some of the shared future synergies. In most strategic deals, there is now more…

Stock Buybacks at Unprecedented Levels – Good, Bad or Ugly?

U.S. Public companies are giving cash back to investors at unprecedented levels. Companies in the S&P 500 index are expected to pay at least $300 billion in dividends in 2013, according to S&P Dow Jones Indices, which would top last year's $282 billion. Is it a good thing? Does it help or hinder economic recovery? Help or hinder the business?

Is the Prospective Buyer of your Business Re-trading?

Re-trading is the fairly common practice of a buyer renegotiating the purchase price of a company after agreeing on price and terms. This article addresses the likely, causes and implications of a buyer attempting to re-trade.

Baby Boomers and Their Businesses – Implications for Mergers & Acquisitions in 2013 and Beyond.

The U.S. economy is at a critical intersection. Privately-held businesses have long been the driving force of the economy, and are now in a period of transition that has been building up for the last 50 years. Baby boomers own an unprecedented number of businesses and hold an unprecedented proportion of U.S. private wealth. Having propelled the booming U.S. economy since the early 1990s, baby boomers have now reached their peak in the consumer spending cycle.

Stock Markets Volatile – Time to Sell My Business?

We’re just coming off the back of a month when the Dow Jones lost almost 10%. Should this mean anything to you if you were planning to sell your business? We should try to separate perception and reality; future expectations and historical performance and discuss how they intersect.

Optimism Despite Strong Headwinds: Private Equity for Private Oklahoma Businesses.

Private equity has been in a lot of headlines lately … and many of those for the wrong reasons. Mitt Romney, a private equity success story, has brought unprecedented attention to the industry, amid political and public calls for sweeping changes to the tax treatment of their earnings; in an economic climate that has already hurt many private equity firms. In spite of all the negative press, a recent survey by CFO.com, along with Rothstein Kass, has revealed a positive outlook from those in the business; at least according to their survey responses

Ready to sell your business in 2012 – NOT SO FAST.

If you are considering selling your business in 2012, you need to consider the full sale process, from start to finish. Oftentimes, a business owner has so many other commitments and so little time, that they focus on the front-end of the sale process and work through the later stage of the process when the time comes. What we’re talking about today is why it is critical to consider the complete sale process at the outset and we’ll talk through some common mistakes and potential consequences.

Business Insolvency: Alternatives to Chapter 11 bankruptcy

Business insolvency has been increasing over the last few years and continues to be a significant problem in Oklahoma and across the US, with increased business bankruptcy filings through 2010 and sustaining elevated levels in 2011, according to the American Bankruptcy Institute.

Filling a Void? Oklahoma Venture Capital and Growth Capital

According to participants in yesterday’s Bricktown Capital Conference in Oklahoma City, Oklahoma has a need for more robust venture capital, nurture capital and in some cases private equity, when an entrepreneur needs between $1 million and $5 million to fuel the growth of their business. For any higher amounts, out of state capital is targeting Oklahoma companies, and for amounts below $1 million, there are small business grants, loans, incentives, family money and even bootstrapping that can provide the required capital. It is the critical gap in between where we need to focus our efforts.

Honor Thy Banks and Creditors – It’s Good for Business.

In the last year, huge numbers of loans were refinanced on the back of competition among lenders to sell money and attractive loan pricing. As a result, many CFOs have now refinanced, put their loan documents away and will revisit them in a few years when it’s time to renew. Unfortunately, it’s not that easy anymore; in particular in a sluggish and faltering economy, as your creditors keep a closer eye on all the covenants of your loan.

Acquisitions: Earnings Multiples or Absolute Valuations?

How is it possible to make an acquisition valuation based only upon earnings multiples in disparate economic environments and business climates? And how heavily should we rely upon “standard” earnings multiples for comparable transactions in an industry?

Lending for Business – Debt Ceiling Concerns?

In April and May, commercial and industrial lending was strong, companies were opening up new revolvers and refinancing at reduced rates. Banks were allowing extended maturities and were eager to put money to work; so much so, that some banks were loosening lending standards to offer favorable terms to those with less than strong credits.

Implications of Earnouts when you sell your business – Tax Focus

First, a couple of thoughts on earnouts when you sell your business. While an earnouts is often seen as a mechanism to defer payment of the purchase price; if used correctly, it should in fact be consideration to the seller of a company over and above full cash paid at closing. Earnouts should not be considered part of the purchase price if/until they materialize and are paid to the seller, but why not set additional opportunities to increase the purchase price paid, over and above the full cash price paid? If “x” is the maximum that a buyer will pay for a company in cash at closing, it is still possible to negotiate “x” at closing, plus an additional 25-50% or more after closing. As with most things in life and business, it is not the tool that is at fault, it is the way that it can be misused and misunderstood.

How would high inflation affect Oklahoma businesses?

Well, this may seem a strange day to write about inflation – I just read this morning that fixed-rate mortgage rates have dropped this week to the lowest level this year, with a 15-year available at 3.75%. However, it doesn’t do much good to dwell on the past or present – we should always be considering other scenarios in the future to stay ahead of the competition.

When should you sign a Letter of Intent – Business Buyer vs. Business Seller?

One purpose of a LOI is to document a mutual agreement between the buyer and seller on the major points of the purchase and sale of a business. With this in mind, a LOI is often signed much too early in the process. There is an understandable eagerness if you are selling a business to receive a Letter of Intent from a prospective buyer as early as possible. In some cases, business owners are even advised that they should request a LOI in order to learn price and terms from the prospective buyer.

Consolidation in Oklahoma’s Community and Regional Banks?

If Oklahoma follows the national trend, there is likely to be consolidation in Oklahoma’s regional and community banks. At the same time, we would expect some of Oklahoma’s banks to double or triple in size in the coming years. We’re going to consider the reasons behind this and some of the implications.

Building a bridge to the other side: Plan and process for strategic success.

How do you determine where to start in a new strategic business project? In simple terms, you need to be in clear and detailed agreement among all stakeholders on where you are and where you want to get to before you start planning how you want to get there. Clear communication between a Company’s senior management and their advisors is also critical. If we’re engaged on a M&A, restructuring or corporate finance project, there is a lot at stake and this blog highlights some of our planning considerations.

Winter storm hit your deal?

What happens when an unexpected winter storm hits your deal and what can be done to prevent this happening? If you can’t prevent it, how do you reduce the negative impact? In the same way as with this historic winter storm that hit our region, you may not be able to prevent it, but at least with the storm we had meteorologists predicting significant snowfall before it happened. We may have thought they were exaggerating the extent of the storm a few days out, but by the day before, most people had acknowledged that it was going to be severe and took the necessary precautions. Can you imagine the impact if we hadn’t had any forecast and preparation time in advance?

Oklahoma Economic incentives – What Value?

Whether each state offers incentives to attract businesses to relocate or remain in their state is largely a by-product of the incentives offered by competing states. If other states offer incentives, the logic is that Oklahoma has to in order to compete. And I’m not going to argue against that. Much has already been written on this topic, but today we are going to focus on a different angle: the accountability for those companies and investors that receive funds or assistance from our state. Perhaps there would be universal approval for state funded incentives by Oklahoma if the public could have greater confidence in the economic benefit to our state of the use of those funds. Here are some thoughts on ways to increase the effectiveness of the incentives and improve public perception and support.

The Positives of an Extended Recession

You may wonder how an extended recession can be positive for your business. What can be good about weak industry performance, more competition for less orders and a tougher environment to secure debt or equity investment? Well, every cloud has a silver lining. So here’s an alternative point of view.

Dividend Recapitalizations: Cash Alternatives for Private Equity

For those Private Equity Groups (PEGs) that own a strong portfolio company with high earnings and relatively low debt, they are increasingly turning towards dividend recapitalizations rather than selling ownership in their portfolio company in the short-term.

Protect Confidentiality Before the M&A Process Begins

In a merger, acquisition or sale process, there are likely to be considerable volumes of confidential information that need to be exchanged between the buyer and seller. This is reasonable, normal and essential to a successful M&A process. Make sure, however, that anyone who is given access to any confidential information is bound by the terms of a comprehensive confidentiality agreement before they receive any information. In a professional sale process of a privately-held company, this should be before you even share the name of the company that is for sale.

Oklahoma Bankruptcies – Silver Lining, but it may keep raining

From the storm clouds of rising bankruptcies, Oklahoma recently had a silver lining. Last week, we read about the positive news that bankruptcy filings in our state fell below the national average. In 2009, there were 3.85 nonbusiness bankruptcy filings in Oklahoma per 1,000 people, compared to 4.73 for the US as a whole, according to US Justice Department figures. And this really is good news. Oklahoma has performed better through this recession than most other states and we have confidence that our state can also perform better coming out of this recession.

Commercial Real Estate to Destabilize Regional Banks

Midsized regional US banks are being hurt the most by commercial real estate woes and it’s only likely to get worse. According to a study released last week by the International Monetary Fund (IMF), Commercial Real Estate (CRE) exposure represents 50% of the outstanding loans at midsized and smaller regional banks. And at seven banks shut down by the FDIC in the last couple of weeks, CRE represented 80% of the nonperforming loans. That’s a very bleak picture given what we’re about to discuss. While at a national level, CRE exposure makes up only 10% of total bank loans, the impact on regional banks has a major impact on small and midsized businesses that depend on them for capital.

Cash at Corporations. Save or Spend?

Companies are currently sitting on more cash than at any other time in the last 50 years. Cash and other short-term assets now account for 7% of all assets at non-financial US companies. If you exclude finance firms, US companies held $1.8 trillion in cash and short-term assets at the end of the first quarter, which is 26% higher than the same time last year and represents the biggest increase since the Federal Reserve started tracking cash levels in the 1950s. According to a recent CFO magazine survey and article, companies within the CFO Midcap 1500 (companies with $100 million to $1 billion in annual sales) are holding 15% more cash in 2010 than the same period two years ago.

Non-Compete Agreements: 15 Year or Accelerated Amortization?

Before, during and after any business acquisition, there are many variables to consider, one of which is the tax implication of the sale from both the buyer’s and seller’s perspective. In this case, we are talking about the treatment of intangible assets.

Bank Lending Troubles – Continued Uncertainty

According to a recent article in CFO magazine, the Bank for International Settlements, "the bank for central banks," issued its annual report published Monday. The article "Banks Not Out of the Woods" highlighted several points about the state of banks in the US:

Working Capital Needs: Bust to Boom

According to a recent CFO Magazine report, 2009 was one of the worst years ever for working capital performance, as companies were slow to adjust to the recession. Reviewing the 1,000 largest US public companies, average days working capital (DWC) jumped 8% in 2009 to 38 days, from 35 days in 2008. In round numbers, receivables were 10% higher in 2009, matched by an 11% increase in days payable. Coupled with companies replenishing inventories after 2008 and those holding unsellable product in 2009, days inventory outstanding (DIO) rose by 9%. This may not sound much, but further down the line to smaller privately held companies, less efficient financial management can exacerbate the problem.

Bank Lending in Doldrums and May Stay That Way

For the last 18 months, ClearRidge has published reports projecting that business lending will continue to worsen long after the end of the recession. History shows that to be true after every recession in the last century.

Oklahoma Bankruptcies Hit New High and Still Rising

There were over 158,000 bankruptcy petitions filed in the US in March 2010, according to a recent report from Aacer, a bankruptcy data collection company, which was 35% more than the previous month. This was also a 19% increase over filings in October 2009, the previous high since personal bankruptcy law was tightened in October 2005.

Impact of Healthcare Reform on Your Business?

Whether you were for or against healthcare reform, it is difficult to have an informed debate. Hardly any of us understand the Patient Protection and Affordable Care Act, let alone have sufficient information to debate how it may impact our businesses in Oklahoma.

Know which bank your business needs to work with

As I was preparing for the panel at the CREC Oklahoma Forecast event in OKC a few weeks ago, I made some calls to check on anecdotal data we had from bank lending in late 2009. As it turns out, we got very different answers from different lenders we spoke to.

What Shape is the Economic Recovery?

CFO.com had a recent article, which polled some of our nation’s most distinguished economists. They asked each one what letter or shape best reflects the outlook for economic recovery, from the"V" shape that described the fast recovery from the 1973–74 recession through to the dreaded "W" — twin recessions or "double dip" that keep the economy on the ropes for years.