GRAND RAPIDS, MI – 2020: Owners aiming to sell their businesses don’t always have to look far to find the right buyer. There may be a key manager or managers already on board who have the knowledge, experience and desire to move into an ownership role.

But such deals can be stymied by the daunting and unfamiliar task of transferring ownership. It’s difficult to cross all the T’s and dot all the I’s when you’re feeling your way through the dark. While specialists such as accountants, bankers or attorneys can provide their own expertise, it often takes someone with a broader view to bring all the elements together.

Nuvescor Group, a West Michigan mergers and acquisitions service provider, has the resources to help. Nuvescor partners with other professional service providers to provide the full array of disciplines needed to complete successful and timely business transactions, including management buyouts. Once Nuvescor is engaged to help with such sales, they’re able to break through the fog and get a deal done in a few months.

“Lately, we’ve seen many companies interested in selling to an internal party. We’ve helped in a lot of these situations because people have the interest, but they don’t know how to put it all together,” said Nick Good, Nuvescor’s managing director.

“They’ll work with an attorney, and an attorney is great at the legal side of things, or we see them go to their banker. Banks are great at helping on the financing side, but not negotiating specific deal terms between the parties,” he said.

“We’ve found that people are hiring us quite often to come in and be that intermediary, not only explaining things to both parties, but acting as a hunting or fishing guide. Business owners and the potential buyer or buyers know what they want to do and what they want to have accomplished. We know how to get them there, we have a proven process of doing so, we know the supplies needed, and we know the people you need to talk to to get to the finish line.”

Many family-owned companies are changing hands as the business world experiences a generational shift. The average small business owner in the U.S. is 60 years old, and 40 percent of owners are 65 or older, according to Barlow Research Associates. These owners represent the tail end of the Baby Boom generation, the millions of Americans born after World War II and now at or near retirement age.

The COVID epidemic and its economic and emotional effects may accelerate that exodus, as aging business owners reassess their personal and professional priorities. Some may balk at the time, effort and money needed to adapt or rebuild their business, especially when weighed against other desires such as recreation, travel or time spent with loved ones such as grandchildren.

An internal sale that Nuvescor completed in December displayed the typical challenges such deals can present. The company owner and an employee started talking in spring 2020, with an eye on closing by mid-year. But like in many such scenarios, progress stalled. Nuvescor was hired in September and closed the sale three months later.

“The parties had gone as far as they knew to go, but they didn’t know what they didn’t know,” Good said. “They had talked about a deal structure, but hadn’t signed a letter of intent, and they hadn’t agreed to all of the deal terms simply because they hadn’t thought to discuss certain specifics at certain points of the proposed transaction.

“We walked them through it and got things drafted and signed so the attorneys had the framework they needed, the bank had the documents they needed for the financing, and the shareholders had what they needed to understand the proceeds from the sale.”

Another recent deal was between the company’s owner and general manager. With the help of a banker, they’d been discussing a sale for almost a year.

“Trouble is, they had never really agreed on all of the details of the transaction, simply because they didn’t know what the details needed to be, so the bank didn’t have what they needed to put forward financing,” Good said. “After some initial months of frustration, we got involved in October, and we’re going to close the transaction for them in January.”

Selling a business to an internal buyer has advantages – for the outgoing business owner as well as the company and employees going forward. For the new owner, there’s less of a learning curve and more potential for success.

“With internal sales, there are fewer questions like: Are your employees, your customers and suppliers going to like the person you are selling to?” Good said. “All the customers are familiar with the buyer, all the employees know him or her, all the suppliers know them. They’ve been working with them all along. There is typically less of a worry on these things from the seller’s perspective.”

That knowledge helps reassure the outgoing owner that his or her legacy is in good hands, a major concern when selling a business. What’s more, leaving a viable business behind improves the owner’s prospects of receiving his or her payout. Such deals are often structured with the owner receiving a portion of the payment at close, and the rest over time.

“If an employee is buying the company, and they’ve been doing things the same way that the seller has been, the seller has a pretty good idea of what the company is going to do in the future,” Good said. “This business is going to continue to grow, for example. The picture is much clearer to the seller.”

Nuvescor helps owners sell their businesses whether or not they have a buyer in mind. The company utilizes a proprietary proven process that greatly increases the success rates for business transactions as well as the customer experience. If no buyer has been identified, Nuvescor employs a detailed step-by-step process to market the business, vet potential buyers, and help the parties negotiate a deal. Beyond the “matchmaker” role comes a lot of hard work on the back end to bring the deal to a close.

A business sale that requires marketing the company and finding the buyer is typically a 6-to-8-month process, Good said. If a buyer is already identified that period is reduced to 3 to 4 months. Likewise, a deal with a known buyer costs the selling owner about half as much in fees.

Good sees 2021 as still a good time to sell a business. Interest rates remain at rock bottom, and investors and large companies are looking for acquisitions.

“There is a lot of money out there right now in private equity, and those people exist to buy and grow businesses,” Good said. “Also, in the corporate world, there are many businesses that have cash on their balance sheets and are willing to spend when they see an opportunity to grow.”

About NuVescor Group
NuVescor Group, based in West Michigan, is a distinguished mergers & acquisitions service provider that partners with other professional service providers to provide the full array of disciplines needed to have successful and timely business transactions. NuVescor works within many different industries and has a strong focus and track record specifically in the manufacturing sector. NuVescor utilizes a proprietary proven process that greatly increases the success rates for business transactions as well as the customer experience. For additional information, please visit www.nuvescor.com.

You’re a pro at running your business—at drumming up sales when you need to, at navigating the ups and downs of your industry, and keeping things running like a well-oiled machine. So you might think you’ll be equally adept at selling it. Most sellers have never sold a company before, and go into the process with many misconceptions that can erode value and ultimately tank the sale. Here are the most common mistakes—and how you can avoid them.

Not seeing things from the buyer’s perspective
Buyers don’t invest in businesses to enrich owners. They are investors, who want to grow the company and see handsome returns on their investment. Consider what information you would want to see if you were buying your business. What would you hope to do with the business? Then be prepared to answer buyers’ questions as quickly and comprehensively as possible.

Letting the business fall apart
Selling a business can be exhausting. Perhaps that’s why so many owners neglect their businesses during the sale process. Buyers don’t want to invest in your promises; they want to invest in the facts of your business. So if your business loses value, it’s a huge red flag. Investors are deeply risk-averse. Don’t activate their risk avoidance tendencies by letting the business fall apart.

Inadequate preparation
A sale isn’t something you can decide to undertake overnight. It requires lots of preparation. With enough time, there is plenty you can do to increase the value of your company. You’ll also need to get your books in order, prepare for due diligence, and increase your company’s curb appeal to the greatest possible extent. Disorganization and lack of preparation make your business look less well-run, and can deter buyers from giving it a second look. The right advisory team can lend professional credibility to the sale process while helping you prepare.

Unreasonable value expectations
You’ve poured a lot into your business. So for you, estimating value can be difficult—not to mention highly emotional. If you don’t know the value of your business or get so offended by value discussions that you walk away, you’ll kill the deal. Your business might not be as valuable as you hope it is. But being willing to take an honest look at key value drivers may help you generate additional value, especially if you plan the deal well ahead of time and work with a professional deal team.

A sale is a transaction that must generate value for both parties. Buyers want proof that your company is worth spending their money on, and they have no reason to take you at your word. So ultimately, avoiding seller mistakes means understanding what buyers want and finding ways to deliver this. For most companies, working with an M&A advisor can make the process easier, more transparent, and less stressful. Your advisor oversees the daily aspects of the deal, freeing your time and energy so you can remain focused on running the company.

Don’t Miss the Market:

How to Know When it is Time to Sell!

I remember a conversation I had with John whose business was doing extremely well. He was enjoying life and thought he was in a place that he could sell his business whenever he wanted, which would give him the financial resources to enjoy retirement. That was over 10 years ago, and John did not know his business value at that time was based on peak market conditions. John was in a small window of opportunity that could close at any time without much warning. He signed a large loan to expand the business, not knowing he would soon see his business and personal investments lose half of their value virtually overnight. Luckily, 10 years later John’s personal and business situation is almost back to where it was. However, now in his 70’s and with health issues, he cannot recapture the time he has lost waiting for peak market conditions to return.
The data was there but neither John nor I knew how to read it. Today we monitor important market conditions by tracking information such as: valuation multiples, interest rates, capital available for banks to lend, ratio of buyers to sellers and overall economic conditions.
We track this market data through subscriptions to multiple databases, and our team consolidates information from a variety of other sources. We also track the M&A market sectors specific to our clients. Understanding how to read this data is the key to knowing how to tell when there is a peak market and what type of value you could get for your business.
A summary of the data we use is described below starting at a macro picture of the market down to how the market is directly affecting the value of your specific business. This is accomplished by looking at the following:

Economic Outlook
• Key Economic Variables (actual and forecasted) shows the trends and predictions for real GDP, industrial production, consumer spending, consumer price inflation and business investment
• Commercial Rates Graph shows the changes and trends of commercial interest rates
• Commercial Loan Volume Graph shows the amount and trends of lending

Stock Market
• S&P Index Graph shows the trend and volatility of the large public stock market
• S&P EV/EBITDA Graph shows the valuation of the large public stock market
• Russell 2000 Index Graph shows the trend and volatility of the small public stock market
• Russell 2000 EV/EBITDA Graph shows the valuation of the small public stock market

Middle Market Environment (companies valued between $1 Million and $500 Million)
• US Mergers & Acquisitions Market Index provides the total number of transactions completed in the USA
• US Middle Market Monitor provides the average EBITDA multiple for transactions completed in the Middle Market
• US Private Equity Report provides the number of and EBITDA multiples for transactions completed by private equity groups
• US Strategic Buyer Report provides the number of and EBITDA multiples for transactions completed by corporate buyers acquiring other companies
• US Sector Activity provides the number of transactions by sector to see what areas of the economy have the most M&A activity

SME M&A Environment (companies with less than 250 employees and less than $50 Million in Revenue)
• Multiples by Size Graph indicates the valuation trend of companies of a given revenue size
• Multiples by Sector Graph indicates the valuation trend of companies in a given industry

NuVescor’s Proprietary Report: Specific Company M&A Environment (a specific proprietary report created just for your business based on specific buyers active in your industry)
• Multiples: private equity, strategic companies and individuals (if appropriate) are surveyed to obtain current EBITDA Multiples these buyers are willing to pay based on the characteristics of the unique business
• Deal Structure: the amount of cash versus seller financing or earn out these buyers are willing to pay

If you would like to receive a copy of the reports referenced above, please click below:

Click Here to Request Reports

Sincerely,
Randy Rua CEPA, CBA, MBA, CVB

When contemplating a business sale, focusing on key drivers of value can produce more favorable terms and a higher price. Those include:

• Growth: buyers rarely want to invest in stagnant or declining businesses.
• Earnings: An earnings multiple is almost always the key determinant of value. Selling more and spending less are ultimately the drivers of a higher sale price.
• Technology: The technology your business owns or creates can offer a lot of value, particularly if it’s patented. Speak with an IP attorney to explore whether a patent is an option.
• Other intangible measures: A good partner channel for sales, a hard-to-access market segment, or a unique product can all increase your value. Strategic buyers are especially likely to highly value these factors.

So what if you’ve already optimized these value drivers? Seven simple strategies can help you get the best price for your business:

Timing
Carefully time the sale of your business. You want all key value drivers on your side, and heading upward. Consider also the larger market, and your investors’ desire for liquidity. Selling in a low interest rate market can lead to higher values for financial buyers, while a high stock market often fetches a higher price from strategic buyers. When the two forces combine, you may get the highest possible price of all.

Don’t DIY
Selling a business is a complicated undertaking, and you’ll likely only do it once. A skilled advisor adds significant value, so choose your advisor wisely. Don’t try to manage the many moving parts of a deal by yourself.

Consider a Different Lawyer
Your general counsel may be great at what they do. M&A demands a completely different skill set. Don’t default to a lawyer you know, or the general counsel you employ. Hire a specialist. The other side will have a skilled team of experts. Shouldn’t you?

Plan for Due Diligence
Buyers won’t go in blind. They want to verify what you say. Due diligence can be a long and intensive process. Unpleasant surprises can destroy a deal, and may greatly reduce the value of your business. Preparing now can help you address any issues with your business. Having your paperwork ready now will also shorten the timeline from due diligence to a final sale.

Set Realistic Expectations
You might have big dreams for your business or its sale. But sky-high expectations can come back to haunt you. Set expectations that are realistic and match the demand of the market. A good advisor can assist with comparing a business valuation with the current state of the market. This can ultimately increase the value of your business, and establish trust.

Know the Value of Trust
Your rapport with the buyer may matter more than any other factor. No matter how clear your legal documents are, it’s still possible for either side to harm the other. A good working relationship with someone you like and trust motivates both parties to behave fairly. A buyer may be more willing to offer favorable terms when they trust and like you.

Relax
Some things are beyond your control. Deals are filled with highs and lows. Control your emotions, or they will dictate your decisions. Plan what you can. Ask for help from experts. And then get back to the business of running your business. A smooth-running enterprise is always and everywhere the best driver of value. So don’t allow deal preparation to steal your focus.