Key Factors on the Acquirer’s Side
There are several key factors on the acquirer’s side of a sale, most of which are necessary to achieve a successful closing. Just as a seller has to deal with quite a few factors, the acquirer must also. Some of the more important ones on the acquisition side are:
- Sufficient financial resources to complete the deal as specified.
- Depth of capable staff to run the existing business and also execute an acquisition at the same time.
- A rational approach to the type, size and geographic location of target companies.
- The willingness to “pay-up” for acquisitions such as 6x EBITDA and, if necessary, the willingness to pay 100% cash, whether the sale is one of assets or a stock transaction.
- Assuming the acquisition search generates satisfactory deal flow, a willingness to stay the course for 6 to 12 months in the search process.
- A confirmation by the board of directors of their commitment to complete a deal.
- A “point person” in the search process, preferably the CEO, CFO or Director of Development who is reachable on a daily basis to discuss relevant matters.
- Complete access to sales manager and others by the business intermediary to discuss suggestions of target companies.
GABB Today for August 2013
- GABB MONTHLY MEETING NEXT TUESDAY: Christopher C. Hanks, who teaches the entrepreneurship curriculum at the University of Georgia’s Terry College of Business, will speak to the GABB’s monthly meeting on Tuesday, Aug. 27. GABB’s monthly meetings are free and open to the public and are held at the South Terraces Conference Center, 115 Perimeter Center Place, Atlanta, GA, 30346. Networking begins at 9:45 a.m. with a free light breakfast before the group’s 10:30 a.m. meeting. Call Jeffery E. Merry at 770-534-6630 or email jem@thebusinesshouseinc.com for more information.
- The GABB Fall Educational Conference, featuring two IBBA Classes, excellent instructors, and eight hours of GREC CE credit, will be held from 8:00 through 5:00 on Tuesday, Sept 24, at Atlanta REALTORS, 5784 Lake Forrest Drive, Atlanta GA 30328. John Willems from the Law Office of John Willems in Dallas, Texas, will teach Legal Issues in the M&A Process, on the highly collaborative process of guiding a business and its owners through an M&A transaction. Walt Lipski, co-founder of Capital Advice, LLc, an investment banking firm in Scottsdale, Arizona, will guide students through the Balance Sheet – A Uniquely Powerful Closing Tool.
- GABB’s ANNUAL HOLIDAY GALA is set for Maggiano’s on the evening of Thursday, December 5. All GABB members and affiliates may bring one guest. There will be no charge unless a person not signed up attends, or someone signs up and doesn’t show, in which case we will charge $25 per head for those not compliant. GABB does this to insure an accurate head count. We also ask each attendee to bring a new, unwrapped toy for our annual charity toy drive.
- A BROKER’S GUIDE TO GETTING AN SBA LOAN: SBA Lender Cheryl Beer, SVP of Cornerstone Bank in Sandy Springs, offers quick guidelines for business brokers who need to know what it takes to get an SBA loan approved. Her guidelines are on the GABB blog.
- KEEPING YOUR LISTING ‘LEGAL’: Did you obtain a corporate resolution when your seller signed your listing agreement? Do you know your commission can be at risk without that resolution? Most business brokers are so glad to get a signature on the listing agreement that we immediately start marketing the business. How do we know if the business owner is authorized to sell the business? He might not even own the business. To find out how GABB forms can help you avoid this pitfall, readt Nick Nicholson’s article on Certificates of Resolution.
- USING PRATT’S STATS TO SELL MORE BUSINESSES. GABB President Matt Slappey gave an excellent presentation at the July meeting on using Pratt’s States. GABB members have free access to Pratt’s Stats which can help sell more businesses by helping to price a business accurately. Read more about Pratt’s Stats on the GABB blog. Also, find a detailed report on using Pratt’s Stats for business valuations in the GABB website library.
To contribute items for future GABB Today emails, please contact Diane Loupe at dloupe@mindspring.com
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Read MoreA Broker’s Guide to Getting an SBA Loan Approved
By Cheryl Beer, SVP/SBA Lender, Sandy Springs, Cornerstone Bank
- Provide three years’ returns
- Pre-approval of business financials
- Subject to buyer’s credit, management experience, outside income, collateral
- Minimum 650 credit score
- Management experience or strong franchise
- 1.2X Debt Service Coverage “DSC” (including all affiliates)
- If goodwill > $500,000, equity = 25%. In order for seller financing to be considered equity, full standby for two years (no P+I payments)
- What are reasonable add backs?
- Does business need a line of credit (Capline)?
- Does business do any international trade? 90% guaranty
- Does the deal make sense?
Cheryl Beer –SVP/SBA Lender, Sandy Springs
A 6344 Roswell Rd Sandy Springs 30328 C 678.576.9392
P 678.553.9421 | F 678.553.3551 | E cbeer@cornerstonebankga.com
Keeping Your Listing “Legal” – with a Certificate of Resolution
By G. B. “Nick” Nicholson, CBI
Did you obtain a corporate resolution when your seller signed your listing agreement? Do you know your commission can be at risk without that resolution?
Most of us are so glad to get a signature on the listing agreement that we immediately start marketing the business. How do we know if the business owner is authorized to sell the business? He might not even own the business. This condition is especially true with LLCs and Limited Partnerships. Who can speak for the LLC members and the partners?
Most of the time, we may not need the resolution. However, have you ever been close to closing and found out that the secretary of the corporation, the one who has to sign and approve all documents, is the owner’s ex-wife and she now lives in South America? Or that the owner’s father is the actual owner? Having the appropriate person sign the resolution should begin to uncover discrepancies.
We know for C and S corporations that the secretary signs documents. The person designated to sign for LLCs and Partnerships can vary. We brokers need to make sure that to follow the provisions of the underlying organization documents.
Former GABB affiliate and attorney Gary Whitaker drafted Certificates of Resolution for the GABB Forms Committee and GABB members. The forms are on the BBMS site under Forms and appear as:
- G102A1 Cert of Resolution C or S Corp
- G102A2 Cert of Resolution LLC
- G102A3 Cert of Resolution Partnership Limited
- G102A4 INSTRUCTIONS for Certificates of Resolution
A Certificates of Resolution should be a part of our Listing Agreement package. Use the Resolution when listing to make the closings go smoother and to protect your fee.
G. B. “Nick” Nicholson, CBI of Nicholson & Associates, Inc., has chaired the GABB Forms Committee.
Read MoreUsing Pratt’s Stats To Sell More Businesses
One obstacle to selling a business is an unrealistic asking price. GABB members can obtain access to Pratt’s Stats which can help sell more businesses by helping to price a business accurately. While Pratt’s no longer offers GABB members complimentary access, if a broker submits the details of a sale, they can obtain access to the database for a period of time at no cost.
The following is from GABB President Matt Slappey’s presentation at the July 2013 GABB meeting.
Pratt’s Stats can help you:
- Set REALISTIC owner expectations.
- Feel confident that you can support your asking price for your listings.
- Become knowledgeable about many industry values.
Brokers should use this tool in conjunction with Business Reference Guide and other sources. Pratt’s Stats allows you to validate information from each source!
What is the difference between BIZCOMPS® and Pratt’s Stats®?
BIZCOMPS® mainly covers main street businesses. As of February 2013, the median selling price of all the transactions in BIZCOMPS® was $168,000. BIZCOMPS® data includes up to 21 data fields per transaction.
Pratt’s Stats® covers both main street businesses, middle market transactions, and larger M&A transactions. As of February 2013, 60% of the deals in the Pratt’s Stats® database are businesses that sold for $1,000,000 or less, and 38% of the deals are businesses that sold for between $1,000,001 and $500,000,000. As of February 2013, the median selling price in Pratt’s Stats® was $440,000. Pratt’s Stats® data includes up to 89 data fields per transaction.
Does BIZCOMPS® overlap Pratt’s Stats®?
There is little overlap of information from BIZCOMPS® and Pratt’s Stats®, although there may be a few transactions that are in each database.
Do BIZCOMPS® and Pratt’s Stats® calculate transaction multiples the same?
No. There is one key difference between the two databases. BIZCOMPS® sales are all asset sales and the selling price does not include the cash, accounts receivable, accounts payable and inventory. Pratt’s Stats® sales can be either an asset sale or stock sale. For an asset sale, the Pratt’s Stats® selling price generally includes inventory and generally excludes cash, accounts receivable and accounts payable.
What is Pratt’s Stats?
- A Database of 19,500+ Private Company Sales
- Two Decades of Accumulated Transactions
- Additional Articles and Quarterly Reports
- Run by Business Valuation Resources, LLC and located at www.BVMarketData.com
- It’s FREE for GABB Members
- Board Members may issue a password
See a detailed primer describing how to use Pratt’s Stats Transaction Data for Private Company Valuations.
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