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July 2011 
In This Issue
Free Webinar in August
Private Equity Deal Activity Steady in Q1
Transition Your Business: Some Alternatives
 

Register for our webinar: "10 Steps to Prepare and Sell your Business"

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Did you know that over 50% of small and mid-sized businesses never sell when they are put on the market? Selling a business is not like selling a piece of real estate or any other type of asset. This free webinar is designed for business owners who are thinking of selling their business and need to know how to prepare and follow-through to be successful and maximize their proceeds. Even ifyou are just starting to think about it, it's more crucial than ever for owners to plan ahead to optimize the value of their company, and take advantage of market conditions and timing to get the most out of selling their business.

Target audience: Owners and executives of small and mid-sized companies.


Date: Aug. 25, 2011 (Thu.)

Time: 10:00-11:00 AM CDT

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Private Equity Deal Activity Remains Steady in Q1

There were 377 deals (mergers, acquisitions, and
recapitalizations) by U.S. private equity groups in Q1-2011 worth $28B. That's 9% fewer deals than occurred in Q1-2010, but the dollar value was 56% greater. Deal activity was in line with the trailing two-year average, suggesting that 2011 will be similar to 2010, or could climb in the second half of the year.


 

The lower middle market (companies under $50M sales) accounted for 42.6% of deals and 2.6% of dollar value. Information technology companies comprised 12% of the deals, unchanged from Q1-2010.  (Source:  Pitchbook Data, Inc.)
  
Austin Dale Group
 
512-327-0427 
 
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Happy Independence Day!  As we move through the summer months, we expect to see more business transactions in the 2nd half of the year.  Activity is slowly increasing, and despite the sluggish economic recovery some businesses are beginning to realize that M&A is a vital strategy to become more competitive and productive. At the same time, some owners have been thinking about selling their business since 2008, are tired of waiting, and realize that it may be a good time to act (or a good time to get ready for the next wave of activity).

 

We always welcome the opportunity to speak with you regarding any possible ways we can work together.

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John Austin and Bob Dale
info@austindalegroup.com

512-327-0427
Transition Your Business: Some Alternatives

Owners should recognize that there are multiple ways to transition either the ownership or management of their business. The most common way to transition is an outright sale of the business to another party. However, there are some other alternatives which could be considered.

 

External Transactions 

 

Third Party Sale
An outright sale to another party could take six months to a year to complete. However, this kind of transaction can produce a high valuation, sometimes all cash at closing, and the owner can possibly walk away right after the sale closes.


A Sale Over Time
The owner could sell a minority interest now with the balance to be sold later, for example in three to five years. This allows the owner to receive a portion of his or her investment, continue to run the business, and quite possibly receive a higher valuation for the company at some time in the future. 

 

Management Buy-Out (MBO)
Selling the business to a key employee or employees can be an easy transaction. However, the owner may not be able to maximize the value and may often have to participate in the financing. In many cases, there isn't any logical in-house employee qualified to make such a purchase.


Initial Public Offering (IPO)
Many middle market firms do not have the necessary revenues to be a viable candidate for an IPO. Usually, a company should have annual revenues of $100 million plus to be considered for an IPO. One plus is that an IPO most likely receives the highest valuation.  However, existing management almost always has to remain and run the company.

 

Internal Transactions 

 

Family Transition
Many owners who started their own companies want to keep them in the family. Sounds good, but family transitions have several minuses: it is difficult for the owner to receive the proceeds in the short term, and the family member may run the business into the ground. 

 

Recapitalization (Re-Cap)
Recapitalization may increase the debt as much as possible to provide the owner with a significant portion of the value of the business. The owner can then pay down the debt and sell the company later on. This assumes, of course, that the company does not have a lot of existing debt. The owner is also stuck running the business. 

 

Employee Stock Ownership Plan (ESOP)
Many firms are difficult to sell to another party because the employees may be the major asset of the business. Such businesses are generally people intensive such as law firms, architectural firms, medical practices, etc. ESOPs can be a good way to transition the business. However, the seller may receive the proceeds over a long period of time. 

 

Hire a CEO
This method allows the owner to retire, assuming he or she can live off the dividends or profits from the business. This allows the owner to sell the company years later. This also assumes that the new CEO maintains or increases the profits of the company.

 

Selling the business may be the most viable way for an owner to receive the most cash and also provide a reasonable exit strategy from running the business. Some sales do require the owner to stay for a period of time, but this can be negotiated at the time of sale.  

 

Consulting a professional intermediary is a good first step to see if selling makes the most sense. An intermediary can provide a general idea of potential selling price, terms and current market conditions.