Welcome to the August 2010 issue of our monthly electronic newsletter. Earlier this month, one of us (John Austin) attended a business coaches' summit in San Antonio, organized by CoreConnex and CompTIA, an IT industry trade group. The purpose of the summit was to bring together professionals who work with business owners to share ideas for better ways to help owners differentiate and improve their businesses.
Soon we'll be rolling out a new line of services for our clients, including a web-based financial dashboard from CoreConnex, industry benchmarking, and coaching services to help our clients stand out in the crowd. By improving their financial performance and learning and adjusting quickly to best practices and industry economics, company owners can increase their company value and hence their likely selling price.
In this issue the feature article describes what is included in the selling price of a business. If you are looking to sell, buy, or determine the value of an IT company, please give us a call or send us an email.
Sincerely,
John Austin & Bob Dale
Austin Dale Group
512-327-0427
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Selling Price Defined
When the time comes to sell a business, just what makes up the selling price? What is it that the seller is selling and the buyer is buying? It is important that the selling price be defined in such a way as to avoid any confusion.
Below you will find some sample wording used by business intermediaries to define the selling price. Keep in mind that this is sample wording only and is presented here merely for informational purposes.
- The term "selling price" shall include:
- the selling price of the assets acquired plus any obligations assumed by the purchaser,
- if the sale becomes one of stock, then the selling price will be all of the assets plus all of the liabilities of the corporation plus the value of any covenants not to compete, employment and/or consulting agreements plus the value of any allocations for goodwill and/or intangible assets.
The total sale price shall consist of all consideration received by the owner and/or the company including the sum of the following:
- The total amount of cash received by the company and/or owner in connection with the sale, lease, or other transfer of the company, or any interest therein. Such cash consideration shall include but not be limited to purchase price, lease consideration, non-competition payments, consulting payments, license fees, royalties, retained cash, and other consideration received at or subsequent to the consummation of the sale transaction.
- All future, contingent or undetermined amounts in whole, such as an "earnout." The commission shall be based on the actual amount of such future or contingent payments as and when they are received.
- The current fair market value of all non-cash items such as securities, notes or other property.
- Any amounts retained by the company for ultimate distribution to the owner, including any salaries, bonuses, deferred compensation, liquidation proceeds, or other amounts (in excess of the owner's historic salary) received, retained or withdrawn by or for the benefit of the owner (including profits generated prior to closing) from and after the date of execution of this Listing Contract.
- The amount of any liabilities assumed by a purchaser (except for unsecured liabilities shown on the company's financial statement or unsecured liabilities which arise hereafter in the ordinary course of the company's business; i.e., any secured debt assumed by a purchaser shall be part of the sale price.)
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Time is of the Essence
After all parties have agreed upon price and terms, it is important to quickly proceed toward closing.
Have you watched Olympic competitors when the start to their event gets delayed? They seldom do well. The nervous energy they are trained to channel into the competition begins to build beyond its bounds. Doubts, fears and anxiety creep in during the unexpected delay.
Delaying a closing can have a similar effect. The buyer is ready, focused on the event of new business ownership, but as the wait to begin drags on, the nervous energy can turn into doubts, fears and anxiety. Even sellers can begin to have increased anxiety over what they will do once their business sells.
A business intermediary can help keep the momentum moving toward closing, but buyers, sellers and other parties involved in the closing process must also proceed with a mindset that "time is of the essence."
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Corporate Growth Through Strategic Acquisition - part 6 in a series.
There are several categories of strategic acquisition that can produce outstanding results with effective integration of the businesses. Many acquisitions actually have elements from several categories:
6. BUY A SUPPLIER - This strategy is usually aimed at improving margins rather than growing revenues. If your product is made of several components, one way to improve profitability is to acquire one of your suppliers. You may achieve greater control of costs and availability. Another option is to acquire one of your distributors. This is called horizontal integration. |
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Private Equity Turns in a Strong 1st Half of 2010
PitchBook has released its 2Q 2010 U.S. private equity investment statistics showing that during the first half of 2010 private equity firms invested in 655 U.S. companies, totaling over $48 billion of invested capital. It was the best six months since the last half of 2008 and evidence that the industry is slowly recovering as the effects of the economic and credit crises continue to ebb. The second quarter also marked the 5th straight quarterly increase in exit activity with 100 exits in total since the beginning of April, generating over $25 billion in capital returned to PE firms and their limited partners.
"Investment is up, exits are up, valuations are up and fundraising is up, all encouraging trends for the industry and its investors. PE is still well below where it was just a few years ago, but as long as these trends and target company performance continue to improve, private equity should see an increase in deal-making,"according to John Gabbert, CEO & Founder of PitchBook, an independent research firm that provides data, news, and analysis to the private equity industry. |
Austin Dale Group helps business owners grow and sell their businesses, or buy other businesses, to reach their goals. We specialize in information technology companies with revenues from $1 million to $15 million. We have worked with all types of IT companies: resellers, systems integrators, technical service companies, web hosting and development companies, software companies, consulting firms, and staff augmentation companies. We offer these services:
· Succession and exit planning
· Merger and acquisition advisory services (business sales & acquisitions)
· Business valuation
· Business value enhancement - includes a financial dashboard, benchmarking, best practices, coaching, and virtual CFO services.
Contact Us
Austin Dale Group
P.O. Box 162727
Austin, Texas 78716-2727
512-327-0427 |
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