Due Diligence Helps your Success Rate
In the due diligence process, we keep a spreadsheet of the items needed and completion dates to keep our client and the buyer group on task. For our lower-middle market businesses and private equity groups, there are pages of items needed for a comprehensive due diligence process which is needed for a successful deal.
Last year Terence T. Burton posted an article on LinkedIn on a due diligence and in the article he stated the purpose of a deeper, more thorough Operations Due Diligence. It was a lengthy article giving reasons for it and examples of what happened when a deep, thorough Operations due diligence is not done.
Below are the key four points he put in his article on the why you want a comprehensive Operations Due Diligence.
- To find hidden, unknown and undiscovered problems that will have a severe impact on operating and financial performance of the acquisition. A few examples he gave are:
- Obsolete inventory and equipment;
- Inventory performance and variances off the books;
- A warehouse full of new products that will never work in the field;
- Employee morale and attitudes, and broader cultural readiness to adapt and execute the necessary changes that are required to grow into a compatible and highet performing part of the larger entity.
- Identify, prioritize, and deploy the right corrective improvement efforts to create maximum operational value quickly – like in the first 60-90 days of new ownership. These represent the tactical “quick strike-high impact” opportunities for improvement. These opportunities are the known low hanging fruit to the seasoned improvement practitioner’s eye that produce rapid improvements in business and operational performance. It is important to validate these opportunities with the internal managers to gain acceptance and begin building change ownership. Many acquisitions get to this step where a 50,000 foot boilerplate plan is produced – One that looks nice but is totally exclusionary, dillusionary, and non-actionable at a tactical level.
- Develop an aligned, organization-wide improvement strategy and vision, deployment plan, and practical implementation approach.
- This effort represents the unlimited unknown opportunities for improvement that must be continuously mined, prioritized, and scoped relative to alignment with the company’s business plan;
- The other purpose is to identify innovative breakthrough improvements that competitively position the new organization way out in front of the industry norms.
The big differentiator in great acquisitions is their ability to discover, harvest, and implement the real operating breakthroughs in their industry.
- Implement the required changes thoroughly and successfully during the acquisition integration process. Execution is the key to success and this is where the majority of acquisitions fall apart. The major root cause is management’s underestimation and oversimplification of execution. This leads to the failure to take on and implement major transformation initiatives successfully, while dealing with day-to-day business. In the face of crisis, improvement is always the first casualty.
This is a small portion of his article… you can find the full Linkedin article on this page or the link above.
Business Sales Awards
2017 marks Lakes Business Group;s 10th year assisting privately held companies execute their exit strategy in the lower-middle market. Our team has had the privilege of working with outstanding clients over the years. We take pride in designing and implementing our clients’ goals, while leveraging value up and getting maximum dollar for the sale of their businesses.
Throughout the past 10 years, our office has grown to become the #1 top producing M&A advisory firm in the Midwest. We have been providing Merger & Acquisition services in a wide range of industries. Below is a picture of our ‘trophy wall’ in our office. These awards are from 2008 to the present.
These award plaques and trophies include:
2017: Acquisition International’s Leading Mergers and Acquisition Adviser of the Year
#1 Internationally Ranked VR Office – 1st Quarter 2017
#1 Internationally Ranked VR Office – 2nd Quarter 2017
2016: #1 Internationally Ranked VR Office!
#1 Internationally Ranked VR Sales Agent – Mark Smith
#2 Internationally Ranked VR Sales Agent – Joe Braier
#5 Internationally Ranked VR Sales Agent – Nicole White
#6 Internationally Ranked VR Sales Agent – Andrew Falci
#9 Internationally Ranked VR Sales Agent – Michael Szmanda
#10 Internationally Ranked VR Sales Agent – Larry Heck
2015: #1 Internationally Ranked VR Office!
#1 Internationally Ranked VR Sales Agent – Michael Szmanda
#3 Internationally Ranked VR Sales Agent – Mark Smith
#7 Internationally Ranked VR Sales Agent – Tom Alberts
#8 Internationally Ranked VR Sales Agent – Larry Heck
2014: #1 Internationally Ranked VR Office!
#1 Internationally Ranked VR Owner – Tim Bullard
#1 Internationally Ranked VR Intermediary – Mark Smith
#3 Internationally Ranked VR Intermediary – Andy Schmelzer
#4 Internationally Ranked VR Intermediary – Michael Szmanda
#7 Internationally Ranked VR Intermediary – Joe Braier
#8 Internationally Ranked VR Intermediary – Larry Heck
2013: Most Valuable Intermediary – Tim Bullard – President/CEO
#2 Internationally Ranked VR Office!
#3 Internationally Ranked VR Intermediary – Joe Braier
#9 Internationally Ranked VR Intermediary – Michael Szmanda
2012: #1 Internationally Ranked VR Office!
#2 Internationally Ranked VR Intermediary – Mark Smith
#3 Internationally Ranked VR Intermediary – Joe Braier
2011: #1 Internationally Ranked VR Owner – Tim Bullard- President/CEO
#2 Internationally Ranked VR Office
#7 Internationally Ranked VR Intermediary Joe Braier
If you are considering selling your business call our office at 262-347-2083
Do You Have a Business Exit Strategy?
Most business owners plan to sell their business to fund their retirement. It is the number 1 reason for business owners, followed by burnout and new opportunities. Yet, when it comes time to sell their business, less than half of all business owners plan ahead.
|Deal Size||#1 Reason||#2 Reason|
|$500 – $1MM||Retirement||Burnout|
|$1MM – $2MM||Retirement||TIE: Burnout/Opportunity|
|$2MM – $5MM||Retirement||New Opportunity|
|$5MM – $50MM||Retirement||Burnout|
|These stats are fom an IBBA.org article in early 2017.|
Business owners assume their business is salable, but that is not always the case. By not having an exit plan and understanding the value of your business, you are taking a huge risk. Even if you are not ready to sell your business, you should get an annual estimate value of your business. Lakes Business Group can help. Our agents work with businesses in all industries and can provide an evaluation for your business with industry comparisons to help you properly prepare ahead.
Five Business Exit Strategies
Entrepreneur.com has a article with five primary exit strategies available to most entrepreneurs, written by Stever Robbins. Following is a short synopsis of these five strategies.
1- Just Take It: One favorite strategy of forward thinking business owner is simple to bleed the company dry on a daily basis. I mean pay yourself a huge salary, reward yourself with a gigantic bonus regardless of actual company performance, and issue a special class of shares that only you own that gives you ten times the dividends the other shareholder receive.
2- the Liquidation: One often-overlooked exit strategy is simply to call it quits, close the business doors and call it a day. I don’t know anyone who’s founded a business planning to liquidate it someday, but it happens all the time.
3- Selling to a Friendly Buyer: If you’ve become emotionally attached to what you’ve built, even easier than liquidating your business is the option of passing ownership to another true believer who will preserve your legacy. Interested parties might include customers, employees, children, or other family members.
4- the Acquisition: Acquisition is one of the most common exit strategies: You find another business that wants to buy yours and sell, sell, sell. If you choose the right acquirer, your value can far exceed what would be reasonable based on your income. How do you select the right company? Look for strategic fit: Which acquirer can buy you to expand into a new market, or offer a new product to their existing customers?
5- the IPO (initial public offering): There are millions of companies in the U.S., and only about 7,000 of those are public. If you’re funded by professional investors with a track record of taking companies public, you might be able to do it. You start by spending millions just preparing for the road show, where you grovel to convince investors your stock should be worth as much as possible. (You even do a “reverse split,” if necessary, to drive up the share price.) Unlike an acquisition, where you craft a good fit with a single suitor, here you romancing hundreds of Wall Street analysts. If the romance fails, you’ve blown millions. And if you succeed, you end up married to analysts. You call that a life?
This is a small portion of the article titled “Exit Strategies for your Business” by Stever Robbins
Business Information Needed when Ready to Execute your Exit Strategy
You’ve built your business and now ready to execute your exit plan. When contacting your business consultant, they will ask for the following information to complete an offering memorandum outlining the details of the business.
- AR Aging Report
- AP Report
- Number of Customers in Database/Number of Active Customers/Customer Concentration
- Number of Suppliers of Vendors/Supplier/Vendor Concentration
- Vending Contracts
- Maintenance Contracts
- Lease/Purchase Agreements
- Corporate Employee Chart
- Employee Benefits Summary
- Corporate Documentation
- Corporate Insurance Policy
- Any Shareholders agreements
IF REAL ESTATE IS OWNED:
- Floor Plans
MISC ENGAGEMENT DOCUMENTATION:
- Partnership/Consent of Spouse or Corporate/Partnership Resolution
- Licenses & Permit Documents & Process to Obtain Licenses and Permits
- Copies of Patents, Trademarks, Copyrights, Etc.
- Description/Documentation of Technology being used
- List of products and services sold Top 5 Income Producing Items
- Any outstanding legal issues
What Buyers Look for in a Business Opportunity
You’re ready to sell your business. You assume there’s a buyer out there who will pay you a fair price and then nurture the company with the same attention you have. What’s more, selling the business is a major part of your retirement plan.
Buyers look at businesses differently than sellers. So to achieve the outcome you want, it’s important to think like buyers and understand how they evaluate a business.
There are many types of buyers: strategic and financial, individuals, companies, and private equity funds. Despite differences, all buyers consider how much they’ll invest to acquire a business, the amount of risk they’ll bear and the potential return on their investment. To evaluate an opportunity, buyers focus on three major areas:
- Cost and Terms
What will it take to acquire the business? How much cash and how much debt? What are the deal’s terms and conditions?
Will the business continue to operate similarly after the sale? Much of the risk of buying a company relates to continuity. For example: The current owner has personal relationships with customers, distributors or vendors that the new owners may have to struggle to maintain, The owner has special expertise that is undocumented and difficult to learn, Key personnel aren’t committed to staying, or Outside competition looms. Sellers armed with solid responses to these types of continuity concerns are more likely to get their desired price. Even if you don’t want to sell your business for a few years, take steps now to ensure it can run smoothly without your personal involvement. That independence could be worth millions when you sell.
Are there unexploited opportunities? You may have focused your sales efforts in one geographic region, but there may be many opportunities to take the product national or international. A buyer that believes it can increase revenues substantially will pay more for the business than one that believes the current owners have already maximized opportunities. What sellers should do?
It may seem counter intuitive, but the things you may be most proud of can work against getting the best price for your company. Not many entrepreneurs like to boast that their company could run just fine without them or that there are plenty of opportunities they’ve failed to exploit. Yet these may be the very factors buyers seek, along with lower cash requirements. Please call us for help in understanding how to best present your company for sale.
Taken from an article written by Peter C King, VR Business Brokers/Mergers & Acquisitions, CEO
Valuing a Business
Do you know the value of your business? A business valuation lets you know where you are in terms of growth even before you are ready to leave . Knowing the value of your business helps you in planning your future and having an exit plan when you are ready to sell.
You should gather the following information to start the process of valuating your business:
- Five Years of Financials:
- Profit & Loss Statements
- Balance Sheets
- Cash Flow Statement
- 5 years of Tax Returns
- Lease (if rented)/Tax Bill (if owned)
- Inventory List
- Furniture, Fixtures & Equipment List / Depreciation Schedule
Now’s the Best Time to Sell a Business
Now’s the time to sell a business and retire, but many baby boomers are waiting. Find out why in the article below featuring Lakes Business Group’s Joe Braier where he explains that “The first step in exit planning is to find an advisor who is highly experienced in working with business owners. Do your due diligence and find a reputable mergers and acquisitions advisor who understands business valuation, deal structure, and the overall process of bringing a business to the open market. The right advisor will be willing to meet with you face-to-face, review your business, and discuss your vision for the company’s future and goals for the sale.”
AI Magazine’s Leading M&A Advisers of the Year
Please read the article below to discover the difference between listing and selling your business.
Why a Business Broker – what do they do?
Most people don’t know what a business broker does. In fact, it is said 9 out of 10 people have no idea why the role of a business broker is so important in the successful transfer of a business from one owner to another. So how does having a business broker help in the sale of your business?
1- Confidentiality protects the seller from their customers, suppliers, employees and others from finding out their business is for sale until it has been sold. The potential buyers sign a non-disclosure agreement before knowing the name or location of the business.
2-Help provide a fair market value. Based on their experience from previous sales and knowledge of the market helps determine the highest purchase price possible.
3-Have experience in handling complex issues in the sales process and anticipating them before they arise.
4-Can help remove some of the the stress and emotional challenges in the sale of the business.
5-The business owner can continue running their business while the business broker handles the marketing and inquiries for the business transaction.
6-Prepare a professional marketing package to attract the best possible and qualified buyers.
7-Screen out the time wasters and unqualified buyers who will not be able to get financing..
8-Act as a referral source to other professional advisers used in the sales process, such as attorneys, accountants, lenders and others when needed.
9-Prepare all offers to purchase on proper legal forms without needing expensive legal staff to draw up the offer terms and conditions.
10-Assist in due diligence process in making sure the buyer is informed on all the financial aspects of he business.
11- Keep the process moving forward by coordinating the landlord assignment of the lease and other details before the closing.
12- At the completion of the sale, business broker’s get their ‘success fee’ for their efforts in getting the deal done.
If you are thinking of selling you business, contact our office by phone or email and one of our agents can help.
SOLD! Industrial Controls and Manufacturing Business
Industrial Controls Design & Manufacturing business #1037, serving the southeast Wisconsin area and been in business for 11 years, was recently sold for $643,000. The company generates an annual revenue of approximately $1 million and is growing by engineering and developing over 100 industrial control products for a variety of industries such as food processing, chemical, power, and others for industrial and commercial customers.
The acquirer, was attracted by the anticipated growth of this industry for industrial controls used for process manufacturing and the need for automation, the customized engineering of niche products, and the excellent customers which results in recurring revenues for the company. Larry Heck, who brokered the transaction, says “This acquisition was a good fit for both parties.”