5 M&A Myths and How to Deal with Them
Where your money is concerned, myths can do damage. Tammie Miller, Managing Director of TKO Miller, explored five big M&A myths that can get you in trouble in a recent Divestopedia article, Crazy M&A Myths You Need to Stop Believing Now. Miller, who has more than 20 years of investment banking experience, says many of these myths are believed by CEOs despite having zero basis in reality.
Myth 1: Negotiating is Done After You Sign the LOI
The letter of intention is, of course, important. However, this is by no means the end of the negotiations and it is potentially dangerous to think otherwise. The negotiations are not concluded until there is a purchasing agreement in place. As Miller points out, there is a great deal that can go wrong during the due diligence process. For this reason, it is important to not see the LOI as the “end of the road.”
Myth 2: You Must Assume Seller Debt
Yyou don’t have to take a company’s debt as part of the purchase price, Miller says. Miller says her clients only “take seller paper when that debt bridges a big discrepancy in valuation.” She and other business brokers often recommend against seller paper “because it rarely comes with the appropriate protections professional debt holders (like banks) require.”
Myth 3: Everyone Who Makes an Offer Can Afford To
The idea that everyone who makes an offer has the money to follow through is, unfortunately, simply not true. Often people will make offers without securing the money to actually buy the business. Not only does it waste everyone’s time, it can derail your progress in selling your business. If you are not careful, it could actually prevent you from finding a qualified buyer. Check out any offers with an investment banker or trusted advisor.
Myth 4: I Can Sell Without a Deal Team
Somet sellers think they don’t need a deal team in order to sell their business. While it may be possible to sell your business without the assistance of an experienced M&A attorney or business broker, the odds are excellent that doing so will come at a price. Miller says working with an investment banker or business broker can add, on average, 20% more transaction value!
Additionally, there are other dangers in not having a deal team in place. A business broker can handle many of the time-consuming aspects of selling a business, so that you can keep running your business. It is not uncommon for business owners to get stretched too thin while trying to both run and sell a business and this can ultimately harm its value.
Myth 5: You Must Sell Your Entire Business
True, most buyers will want to buy 100% of a business, but a minority ownership position is still an option. There are many reasons to consider selling a minority stake, so don’t assume that selling your business is an “all or nothing” affair.
Ultimately, Miller lays out an exceptional case for the importance of working with business brokers when selling or buying a business. Business brokers can help you avoid myths. In the end, they know the lay of the land. To find a list of Georgia business brokers, visit the GABB directory.
Copyright: Business Brokerage Press, Inc.
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Federal Reserve Pauses Rate Actions, More Rate Cuts Predicted
ATLANTA–The U.S. economy is transitioning to a new growth path and production-level shocks in the system can derail its momentum, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s Robinson College of Business.
One shock, the indefinite grounding of all Boeing 737 MAX planes, is domestic in nature and bad news for parts suppliers, especially in the face of already weakened corporate capital expenditures over the past six months. The other shock, stress on the world oil supply from geopolitical issues (warlord activity in Libya, unrest in Venezuela, U.S. sanctions on Iranian oil exports), is global.
“Shocks become a problem when the economy transitions to a new equilibrium, as it is now,” Dhawan wrote in his “Forecast of the Nation” released May 22, 2019.
2018’s strong growth rate was set in motion with the Tax Cuts and Jobs Acts of 2017, which, Dhawan said, “provided a type of fiscal stimulus, a positive change in the investment climate and job growth one-third higher in the first half of 2018 than the normal monthly job creation pace of 2017.”
The boost to investment spending petered out in the second half of 2018 because of numerous factors, chiefly stock market volatility from trade skirmishes and softening global growth. But other factors changed as well. The Federal Reserve undertook four rate hikes in 2018 but has paused further action since December. The length of the pause, and whether the Fed’s next action is a hike or a cut, will depend on how uneventfully the economy transitions to its new growth path. So far, the transition has been more eventful than not.
Retail sales were hit hard by a steep decline in the stock market. After growing 6.1 percent in the second quarter of 2018, retail sales moderated to just 1.0 percent by the fourth quarter.
As a result, “the positive income effect from rising job growth got wiped out by negative wealth effects emanating from stock market carnage,” the forecaster said.
Dhawan expects the Fed to begin rate cuts in December 2019, with a total of three by mid-2020.
As for tariffs on China, Dhawan said “The immediate impact is minor. Future impacts, especially reduced corporate desire for investment, will not be apparent for some time.”
Highlights from the Economic Forecasting Center’s National Report
- GDP growth of 2.9 percent in 2018 will moderate to 2.6 percent in 2019, moderating further to 1.9 percent growth in 2020 and 2021.
- Investment growth will moderate from 6.9 percent in 2018 to 3.7 percent in 2019, then to 3.4 percent in 2020 and rise to 3.6 in 2021. Monthly job gains will moderate to 179,100 in 2019, drop to 121,000 in 2020 and gain a similar 129,900 jobs in 2021.
- Housing starts will average 1.221 million in 2019, 1.239 million in 2020 and 1.262 million in 2021. Vehicle sales will be 16.5 million in 2019, 16.0 million in 2020 and 15.9 million in 2021.
- Even in the face of expected Fed rate cuts, the 10-year bond rate will average 2.7 percent in 2019, rise to 2.9 percent in 2020 and rise further to average 3.3 percent in 2021.
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Georgia Economy in 2019 Started Strong Due to One-Time Factors
ATLANTA–Strong employment gains during the first quarter of 2019 – particularly in hospitality, retail trade and temp employment – were most likely due to one-off factors, such as hosting Super Bowl LIII on top of other championship games, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s Robinson College of Business.
“Georgia’s first quarter headline job gains were stellar, but there were one-time factors at play,” Dhawan wrote in his “Forecast of Georgia and Atlanta” released May 22, 2019. “Since there is not another equivalent big event on the horizon, the momentum created is already moderating as evident in April’s job loss numbers, which were concentrated in these hospitality and retail sectors.”
Annual employment benchmarking performed by the Bureau of Labor Statistics in March revealed Georgia’s job additions were downgraded from 103,500 in previously reported data to 89,000 in the benchmarked numbers. Analysis also revealed that globally connected sectors (such as corporate, manufacturing and information) showed continued moderation in job growth.
“Job growth moderation in globally connected catalyst sectors will trickle down into domestically demand driven sectors, (retail trade, hospitality) and result in a continuation of moderation of overall employment growth,” Dhawan said.
Metro Atlanta is expected to experience moderation similar to the state overall, according to the forecaster, especially because Atlanta contains most of the state’s Fortune 1000 companies.
“One continuing concern is where to find all the tech jobs we read about in the media,” Dhawan said.
His hypothesis is that some technology jobs are being counted in other sectors.
“Georgia is home to many technology companies in healthcare, particularly in the Atlanta area (GE Healthcare, Intermedix and McKesson Technology Solutions) and finance companies (Global Payments, NCR and TSYS),” Dhawan said. “Tech jobs may be counted in those sectors instead.”
Looking beyond Atlanta, recent job manufacturing announcements have brought positive news. The state announced groundbreaking on the Georgia International Trade Center in Effington County, and Plastics Express, a resins manufacturer, announced two new facilities in Savannah.
Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta
- Georgia employment will add 76,600 jobs (14,700 premium jobs) in 2019, 61,700 jobs (11,200 premium) in 2020 and 53,500 (9,700) in 2021.
- Nominal personal income will grow 4.4 percent in 2019, another 4.9 percent in 2020 and 5.0 percent in 2021.
- Atlanta will add 54,400 jobs (8,900 premium jobs) in 2019, 40,600 jobs (8,000 premium) in 2020 and 36,300 jobs (7,400 premium) in 2021.
- Atlanta housing permitting activity will fall 21.2 percent in 2019, decline 8.8 percent in 2020 and fall another 3.5 percent in 2021.
Word Up: Best and Worst Words to Use in a Business For Sale Ad
By Peter Siegel, MBA is the Founder And Administrator of BizBen.com
When it comes to selling your business, the right words matter. Using the wrong words can prevent or delay a sale, says Peter Siegel, Founder of BizBen.
When you’re selling a small business online, the first 30 to 45 days are critical. So Siegel says you want to fine tune your text before posting your business for sale online!
He offers a glossary of “Best Words & Phrases” and recommends using them in your copy, but only if they are true. And he also recommends avoiding the “Worst Text & Phrases.”
Best Text & Word Phrases To Use In Your Business For Sale Ads
Good Books And Records
Real Estate Included
SBA Loan PreQualified
Verifiable Financials
Owner Is Retiring
Great Location
Owner Carry Back Note
Health Forces Owner To Sell
Owner Will Carry
Owner Financing
Growing Sales
Growing Revenues
Consistent Earnings
Stable Revenues
High Adjusted Net Income
Provable Cash Flow
Staff In Place
Absentee Run
Semi-Absentee Run
For Sale By Owner
Relocatable
Home Based
Training And Support Provided
Long Established
Employees In Place
Management In Place
Easy Operation
Easy To Learn
Training Will Be Provided By Owner
Room For Growth
Steady Clients/Clientele
Computerized Operations
POS System In Place
Updated Client Database
Good Track Record
Owner Will Train
Owner Will Carry A Note – Help Finance The Deal
Long Lease In Place
Great Lease Terms
Will Cooperate With Brokers And Agents
Worst Text & Word Phrases in Biz for Sale Listings
Potential!
Owner Must Sell
My Loss Is Your Gain
No Training Provided By Owner
Don’t Let This Opportunity Slip Away
Will Sell Quickly
Moving Must Sell Quickly
Location, Location, Location
Must Check This Out
Act Fast Before It’s Gone
Priced To Sell
Will Not Last
Money Maker
In A A+ Location
Must Move Quickly
Don’t Lose Out
Dumb Advertising Strategies & Text Choices:
– Using All Capital Letters On Words
– Listing No Financial Information (Or Very Little)
– Giving No Selling Price or Price Range
– Not Giving A General Location
– Giving Very Little Information In Posting
– Using Multiple Exclamations – like !!!!!!!! to make a point, etc.
About The Author: Peter Siegel, MBA is the Founder And Administrator of BizBen.com (established over 20 years!) and is a Business Purchase Financing expert (SBA and Non-SBA financing) – see BizBuyFinancing.com. He consults daily with California business buyers, owner/sellers, business brokers, and agents regarding buying and selling California small businesses. Call him today regarding advise on finding, buying, selling, financing a business purchase/getting pre-qualified (ask about the BizBen ProBuy and ProSell Programs for business buyers and owner/sellers, and brokers). He’ll also give you referrals to the best resources on buying and selling businesses, brokers, etc and a FREE copy of his eBooks “How To Find And Buy A California Business Successfully” or “Valuing And Selling A California Business Successfully” with any personal consultation/service. Peter Can be reached direct at 866-270-6278 (if you get voicemail please leave some good times to reach you and a detailed message – thanks).
10 Questions Everyone Should Ask Before Signing on the Dotted Line
Before buying any business, a seller must ask questions, lots of questions. If there is ever a time where one should not be shy, it is when buying a business. In a recent article from Entrepreneur magazine entitled, “10 Questions You Must Ask Before Buying a Business”, author Jan Porter explores 10 of the single most important questions prospective buyers should be asking before signing on the dotted line. She points out to remember that “there are no stupid questions.”
The first question highlighted in this article is “What are your biggest challenges right now?” The fact is this is one of the single most prudent questions one could ask. If you want to reduce potential surprises, then ask this question.
“What would you have done differently?” is another question that can lead to great insights. Every business owner should be an expert regarding his or her own business. It only makes sense to tap into that expertise when one has the opportunity. The answers to this question may also illuminate areas of potential growth.
How a seller arrives at his or her asking price can reveal a great deal. Having to defend and outline why a business is worth a given price is a great way to determine whether or not the asking price is fair. In other words, a seller should be able to clearly defend the financials.
Porter’s fourth question is, “If you can’t sell, what will you do instead?” The answer to this question can give you insight into just how much bargaining power you may have.
A business’ financials couldn’t be any more important and will play a key role during due diligence. The question, “How will you document the financials of the business?” is key and should be asked and answered very early in the process. A clear paper trail is essential.
Buying a business isn’t all about the business or its owner. At first glance, this may sound like a strange statement, but the simple fact is that a business has to be a good fit for its buyer. That is why, Porter’s recommended question, “What skills or qualities do I need to run this business effectively?” couldn’t be any more important. A prospective buyer must be a good fit for a business or otherwise failure could result.
Now, here is a big question: “Do you have any past, pending or potential lawsuits?” Knowing whether or not you could be buying future headaches is clearly of enormous importance.
Porter believes that other key questions include: “How well documented are the procedures of the business?” and “How much does your business depend on a key customer or vendor?” as well as “What will employees do after the sale?”
When it comes to buying a business, questions are your friend. The more questions you ask, the more information you’ll have. The author quotes an experienced business owner who noted, “The more questions you ask, the less risk there will be.”
Business brokers are experts at knowing what kinds of questions to ask and when to ask them. This will help you obtain the right information so that you can ultimately make the best possible decision.
Copyright: Business Brokerage Press, Inc.
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