The FBB Group, Ltd.
FBB eNews
April 2015

 

In This Issue 


Improving the Probability of Selling Your Company

 

FEATURED 

CLIENTS 


Specialty Service Provider

#215

 

This well-known and well-established business provides consulting, project management, and project design support services to assist private, municipal, state, and federal agencies to acquire property and easements for the expansion of public infrastructure, to include roads, bridges, rail, electricity, water, sewer, energy, water storage, and urban renewal.  There is no licensing required in the State of Colorado to provide this service; however, other states may require related licensing.  REAL ESTATE (valued at $550,000, subject to appraisal) AVAILABLE TO PURCHASE OR LEASE.  

 

Purchase Price...............TBS

Down Payment...........TBS

Gross Sales.....$2,776,176

SDE.............$1,051,989

 

 Business Summary


 

For more information,

contact Lynn Lage

 [email protected]


 


Well Established Plumbing & Heating Company

#415

 

This company is one of the longest established plumbing contractors on Colorado's Front Range. It has a large and diversified client base that includes both commercial and residential accounts, with a focus on new construction. The company had a Seller's Discretionary Earnings of $316,000 on $3.4 million in revenue for 2014. The business has an outstanding reputation in the marketplace and possesses several competitive advantages. There are experienced key managers and employees in place. The owner is retiring. He will assist the new owner in transitioning the long-standing client relationships. A profile buyer would be an industry acquirer looking to expand, or an individual with a strong construction background.

  

Purchase Price..........$575,000

Down Payment.......$145,000

Gross Sales......$3,412,105

SDE............$316,030


 Business Summary


 

For more information,

contact Ron Brasch

[email protected]
 


Recreation Facility Construction Contractor  

#2314

 

Profits for 2014 are over $680,000 for this elite recreational facility contractor, which serves a specialized high-end niche of the construction industry. The company has very limited competition. It primarily serves the Colorado Front Range, but works throughout the state on major projects. The clients are mainly general contractors, engineering firms and architects. The owner anticipates 2015 to be at least as strong as 2014 with a solid backlog already in place. This business would be appealing to an individual experienced in construction or a construction-related firm looking to expand. REAL ESTATE IS VALUED $310,000 (subject to appraisal), AVAILABLE TO PURCHASE WITH THE BUSINESS. The owner would prefer to sell the real estate in conjunction with the business but would also consider a lease. 
 

Purchase Price.............$1,660,000

Down Payment.........$365,000

Gross Sales....$4,035,406

SDE.............$681,993

 

Business Summary



For more information,

contact Ron Brasch

rb@fbb.com

 

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THE FBB GROUP, LTD.

 

 

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At the end of March, I attended the ACG Capital Growth Conference, which celebrated its 13th year.  The conference enjoyed record attendance of approximately 750 attendees, including many regional attorneys, accountants, and lenders.  The conference was also attended by many Private Equity Groups from around the country.  My takeaways from the conference are, first, that there is a lot of interest in lower middle market companies (defined here as companies with a value between $5 and $50 million) and, second, there is plenty of money for attractive deals. 

 

The next question is, "what is an attractive deal?"  Although the majority of business sales fall below the $5 million dollar threshold, the attributes of an attractive business are similar, regardless of the size. 

 

Here are some of the characteristics that we look for when we talk to potential clients:

 

1. Bench Strength -- Is there second level management that will remain after the business sells?  Many times in family owned businesses, several family members in key positions may want to exit at the same time, which jeopardizes the ongoing viability of the business.  Having key employees that will remain with the business reduces risk and builds value.

 

2. Diversified Customer Base -- One of the most challenging obstacles for an intermediary to overcome is customer concentration.  Ideally, no one customer would account for more than 10 percent of sales.  The greater the concentration of sales, the greater the risk to a buyer that, if that customer were lost, the business would fail.

 

3. Realistic Expectations of Value and Structure -- As an intermediary firm, most of our income comes from success fees.  The higher the sale price, the more money we earn, so our interests are aligned with the Seller to maximize the sales price.  Not only does the price need to make sense financially, but the transaction needs to be properly structured and the necessary assets included with the sale.  One of the biggest points of contention involves the amount of Working Capital that is included in a transaction.  In our industry, a common analogy is to compare a business to a car and Working Capital to the fuel.  In order for the car to run it needs a requisite amount of fuel.

 

4. Documentation -- After a business goes under a Letter of Intent or purchase contract, due diligence begins.  Due diligence is the process that the buyer and its advisory team undertake to verify the seller's financial representations and to investigate the strength of the seller's business practices.  For example, it will often include a review of customer contracts and insurance policies.  If the contracts are weak, outdated, or verbal, the buyer may have a concern about customer retention.  If the business is underinsured, the buyer might consider that the income is overstated, as the insurance expense would increase to properly insure the business.

 

5. Financial Records --  Having timely, accurate records is one of the biggest opportunities for a seller to positively position the business in the marketplace.  Although timeliness should be self-evident, many sellers with businesses actively on the market still file extensions.  Unfortunately, they do not prioritize the completion of the information to generate the returns.  Additionally, having accrued (as opposed to cash basis) financial statements can reflect a more accurate picture of the businesses performance.  For example, we have a manufacturing client that built and shipped product at the end of 2014.  Most of the costs were incurred and paid for in 2014, but the revenue, on a cash basis, will not be recognized until the product is paid for in 2015.  The result is that the income, on a cash basis, will be approximately $500,000 less than the income on an accrual basis.  While the client has a lower tax bill for 2014, he would like to value the business based on the higher accrual income.  This is problematic for both buyers and lenders.

 

I could continue, but I am sure that you understand the importance of having your business properly positioned if you want to take advantage of today's strong market environment.

  

The majority of our business is derived from referrals.  Please consider referring our services if you encounter a situation involving the potential purchase or sale of a business.  

 

Sincerely,

 

      RV Chernak Signature    

                      

Ronald V. Chernak

President 

     
Inspiring business relationships since 1982!