Articles by M&A Guy on ArticleSnatch.com

Should You Sell Your Software Company?

Sun, 19 Jul 2009 00:00:00 -0400

For many entrepreneurs, technology based companies or healthcare companies, the answer to that question is a resounding, NO! There is an exception to this with the rapid rise of the new economy, new media, and highly scaleable companies like Google, YouTube, Ebay, PayPal, and MySpace. In their case, their prospective customers highly value their newness, their breaking the mold, their non-establishment approach. They are viewed as doing what they do far better than the technology establishment stalwarts. The notable exception to this is Apple, who has been able to transcend old establishment and be accepted as both old and new economy. But I digress. Back to topic. Most companies that sell to other companies, or B2B companies, are evaluated by their potential customers in a traditional risk reward analysis. Or using computer terminology, their buying decisions are made using a legacy system. It was once said that no one ever got fired for making an IBM decision. Let's look at this legacy buying model and see exactly why your company's sales do not match the elegance of your solution. **End Summary** Topics: information technology investment banker]]> merger acquisition]]> venture capital]]> sell software company]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter and Managing Partner of MidMarket Capital , representing owners in the sale healthcare and technology based businesses. Visit and review our lists of buyers and sellers. The firm counsels clients in the areas of M&A, sales, valuation of intellectual property, âSmart Equity Capital Raisesâ and revenue enhancement.

Selling Your Healthcare Company- Deal Structures and Taxes

Wed, 15 Jul 2009 00:00:00 -0400

As a general rule, buyers of businesses have already completed several transactions. They have a process and are surrounded by a team of experienced mergers and acquisitions professionals. Sellers on the other hand, sell a business only one time. Their "team" consists of their outside counsel who does general business law and their accountant who does their books and tax filings. It is important to note that the seller's team may have little or no experience in a business sale transaction. Another general rule is that a deal structure that favors a buyer from the tax perspective normally is detrimental to the seller's tax situation and vice versa. For example, in allocating the purchase price in an asset sale, the buyer wants the fastest write-off possible. From a tax standpoint he would want to allocate as much of the transaction value to a consulting contract for the seller and equipment with a short depreciation period. A consulting contract is taxed to the seller as earned income, generally the highest possible tax rate. **End Summary** Topics: business broker healthcare information technology]]> merger acquisition]]> sell]]> investment banker]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter and Managing Partner of MidMarket Capital , representing owners in the sale healthcare and technology based businesses. Visit and review our lists of buyers and sellers. The firm counsels clients in the areas of M&A, sales, valuation of intellectual property, âSmart Equity Capital Raisesâ and revenue enhancement.

Software Company Mergers and Acquisitions- Avoid These Ten Mistakes

Sun, 12 Jul 2009 00:00:00 -0400

Selling your software company is the most important transaction you will ever make. Mistakes in this process can greatly erode your transaction proceeds. Do not spend twenty years of your toil and skill building your business like a pro only to exit like an amateur. Below are ten common mistakes to avoid: Selling because of an unsolicited offer to buy- One of the most common reasons owners tell us they sold their business was they got an offer from a competitor or more often these days, an Indian company looking to buy a customer base in the United States. If you previously were not considering this business sale, you probably have not taken some important personal and business steps to exit on your terms. The business may have some easily correctable issues that could detract from its value. You may not have prepared for an identity and lifestyle to replace the void caused by the separation from your company. If you are prepared, you are more likely to exit on your own terms. Poor books and records- Business owners wear many hats. Sometimes they become so focused on the next version release that they are lax in financial record keeping. **End Summary** Topics: information technology investment banker]]> merger acquisition]]> venture capital]]> sell software company]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter and Managing Partner of MidMarket Capital , providing business broker services to entrepreneurs in information technology, software, and high tech. Visit and review our lists of buyers and sellers. The firm counsels clients in the areas of M&A, sales, valuations, âSmart Equity Capital Raisesâ and revenue enhancement.

Before You Sell Your Healthcare Business- Focus on Recurring Revenue

Thu, 09 Jul 2009 00:00:00 -0400

This article discusses some actions the owners should take in anticipation of selling a medical business. Many of these actions would be implemented by the acquirer post acquisition. If you implement them prior to the sale, the buyers will reflect that in an enhanced purchase price. If the buyer implements them post acquisition, they certainly will not pay you for the improvements. Review all long-term maintenance contracts and implement price increases that are covered by your annual increase limits. Send your sales team out to all accounts that are not on your latest version. Bring those accounts current with the appropriate license and maintenance level increase. Identify all accounts that use your software, but are not currently covered by an annual maintenance contract, but by a T&M contract. Offer them a one-time fee to get the latest software version if they agree to execute an annual maintenance agreement. Do you have any Add-on modules that your customer base has been slow to adopt? Offer a 2 year price freeze on their currently installed software if they buy the add-on module and sign a maintenance agreement. **End Summary** Topics: business broker healthcare information technology]]> merger acquisition]]> sell]]> investment banker]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter and Managing Partner of MidMarket Capital , representing owners in the sale healthcare and technology based businesses. Visit and review our lists of buyers and sellers. The firm counsels clients in the areas of M&A, sales, valuation of intellectual property, âSmart Equity Capital Raisesâ and revenue enhancement.

Before You Sell Your Software Company- Focus on Recurring Revenue

Sun, 05 Jul 2009 00:00:00 -0400

This article discusses some actions the owners should take in anticipation of selling a software business or an IT Services business. Many of these actions would be implemented by the acquirer post acquisition. If you implement them prior to the sale, the buyers will reflect that in an enhanced purchase price. If the buyer implements them post acquisition, they certainly will not pay you for the improvements. Review all long-term maintenance contracts and implement price increases that are covered by your annual increase limits. Send your sales team out to all accounts that are not on your latest version. Bring those accounts current with the appropriate license and maintenance level increase. Identify all accounts that use your software, but are not currently covered by an annual maintenance contract, but by a T&M contract. Offer them a one-time fee to get the latest software version if they agree to execute an annual maintenance agreement. Do you have any Add-on modules that your customer base has been slow to adopt? Offer a 2 year price freeze on their currently installed software if they buy the add-on module and sign a maintenance agreement. **End Summary** Topics: information technology investment banker]]> merger acquisition]]> venture capital]]> sell software company]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter and Managing Partner of MidMarket Capital , providing business broker services to entrepreneurs in information technology, software, and high tech. Visit and review our lists of buyers and sellers. The firm counsels clients in the areas of M&A, sales, valuations, âSmart Equity Capital Raisesâ and revenue enhancement.

Software Investment Banking - The Art of Business Valuation

Sat, 20 Jun 2009 00:00:00 -0400

One of the most challenging aspects of selling a software company is coming up with a business valuation. Sometimes the valuations provided by the market (translation - a completed transaction) defy all logic. In other industry segments there are some pretty handy rules of thumb for valuation metrics. In one industry it may be 1 X Revenue, in another it could be 7.5 X EBITDA. Since it is critical to our business to help our information technology clients maximize their business selling price, I have given this considerable thought. Why are some of these software company valuations so high? It is because of the profitability leverage of technology? A simple example is what is Microsoft's incremental cost to produce the next copy of Office Professional? It is probably $1.20 for three CD's and 80 cents for packaging. Let's say the license cost is $400. The gross margin is north of 99%. That does not happen in manufacturing or services or retail or most other industries. One problem in selling a small technology company is that they do not have any of the brand name, distribution, or standards leverage that the big companies possess. **End Summary** Topics: sell software company]]> merger acquisition software]]> investment banker software industry]]> valuation]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter and Managing Partner of MidMarket Capital , providing business broker services to entrepreneurs in information technology, software, and high tech. Visit and review our lists of buyers and sellers. The firm counsels clients in the areas of M&A, sales, valuations, âSmart Equity Capital Raisesâ and revenue enhancement.

Changes in the Capital Gains Tax Will Hurt Business Sellers

Sat, 30 May 2009 00:00:00 -0400

Thinking of selling your business? If you have planned it correctly, most of your transaction proceeds should be long term capital gains. Given the current political climate and the changes coming from the White House, capital gains taxes will come under attack. If you are a business owner and are thinking of selling your business within the next 5 years, you may want to move up your exit timeframe. The reduced 15% tax rate on capital gains, previously scheduled to expire in 2008, has been extended through 2010 as a result of the Tax Reconciliation Act signed into law by President Bush on May 17, 2006. In 2011 these reduced tax rates will revert to the rates in effect before 2003, which were generally 20%. We believe that with the AMT currently targeted for elimination, the $800 billion will be made up by raising taxes elsewhere, and I believe this "owner of capital" tax is the most vulnerable for increase. I expect that the long term capital gain tax rate will be moved to an upper limit of 28% by late 2010 for the high end income bracket. **End Summary** Topics: capital gain tax in business sale]]> asset sale]]> stock sale]]> business broker]]> merger acquisition]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter and Managing Partner of MidMarket Capital , providing business broker services to entrepreneurs in information technology, software, and high tech. Visit and review our lists of buyers and sellers. The firm counsels clients in the areas of M&A, sales, valuations, âSmart Equity Capital Raisesâ and revenue enhancement.

Selling a Business, New Rules for Merger and Acquisition Success

Wed, 18 Mar 2009 00:00:00 -0400

If you are a business owner considering selling your business, most likely you will interview several business brokers or merger and acquisition advisors. In the process you might hear, "We have lists of qualified buyers." Some potential business sellers find this phrase almost hypnotic. It congers visions of this group of well funded, anxious buyers who can't wait to pay a generous price the moment they are made aware of this great opportunity. For the larger business owners that are interviewing M&A firms, this "qualified buyers" claim deserves a careful investigation. These M&A firms have lists of hundreds of private equity firms with their buying criteria, business size requirements, minimum revenue and EBITDA levels and industry preferences. All M&A firms have pretty much the same list. There are subscription databases available to anyone. The better M&A firms have refined these lists and entered them into a good contact management system so they are more easily searchable. The approach these M&A firms with these Private Equity lists employ is to blast an email profile to their list and if they get an immediate and robust response, they will focus on the deal and work the deal. **End Summary** Topics: business brokers]]> merger]]> acquisition]]> sell a business]]> Chicago Illinois]]> investment banker]]> valuation]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

Sell or Keep Your Business - The Numbers May Surprise You

Tue, 17 Mar 2009 00:00:00 -0400

In our Merger and Acquisition practice we watch as business buyers go through an exhaustive analysis to determine if it is financially prudent to make a particular company acquisition. Some use EBITDA multiples or free cash flow multiples. Others use the classic discounted cash flow approach while another group might look at a payback period analysis or debt coverage ratios. They all have one thing in common, however. They do a financial analysis as the primary determinant in making a decision to buy or not to buy. It occurred to me that a business owner, not necessarily a business seller, should do his own financial analysis to determine if he is better off owning the business or selling it. In other words, will a business owner make more money by selling the business and replacing his business salary and dividends with the investment income he would earn by investing the business sale proceeds? **End Summary** Topics: business brokers]]> merger]]> acquisition]]> sell a business]]> Chicago Illinois]]> investment banker]]> valuation]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

Selling Your Business - Beware of the

Tue, 10 Mar 2009 00:00:00 -0400

We were just concluding our first information gathering meeting with a new client who had engaged us to sell her business when she handed us a letter. That letter was from another Merger and Acquisition Advisory or Business Broker firm. The letter began: "Our buyer group has requested that our firm assist them in locating a company within your industry that would be willing to sell their business. The limited information we have regarding your firm indicates that your business may meet the buyer's requirements. We would like to speak with you further about the opportunity to sell your business." Our new client asked us what we thought about this letter given that her company was very unique and she did not believe that this company really understood what her business did. As I read the letter, my suspicions were confirmed. This unfortunate practice of soliciting business owners through mass mailing representing supposed buyers gives our profession a real black eye. I don't know where this practice started, but many in the business broker profession have unfortunately been taught that this is a valid way to prospect for sell side engagements. Here is how it works. **End Summary** Topics: qualified buyer]]> business brokers]]> merger]]> acquisition]]> sell a business]]> Chicago]]> Illinois]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

Selling Your Business - We Have Qualified Buyers

Mon, 09 Mar 2009 00:00:00 -0400

If you are a business owner considering selling your business most likely you will interview several business brokers or merger and acquisition advisors. In the process you might hear, "We have lists of qualified buyers." Some potential business sellers find this phrase almost hypnotic. It congers visions of this group of well funded, anxious buyers who can't wait to pay a generous price the moment they are made aware of this great opportunity. Let's lift up the covers and look a little closer. If this is a business broker who handles main street type businesses like convenience stores, dry cleaners, salons, and restaurants, he is typically selling to an individual who is buying a job. If the broker is one that does not charge an up-front or a monthly engagement fee, he is agreeing to work for a success fee only. To improve their odds of getting some success fees these contingent fee brokers take on dozens of clients. With dozens of clients, the broker can't really afford to engage in the labor intensive M&A process. Instead he can only list the business. **End Summary** Topics: qualified buyers]]> business brokers]]> merger]]> acquisition]]> sell a business]]> ]]> investment banker]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

Sell a Business, Key Factors for a Successful Exit

Mon, 22 Dec 2008 00:00:00 -0500

You started your company 20 years ago "in your garage", worked many 80 hour weeks, bootstrapped your growth, view your company with the pride of an entrepreneur, and are now considering your exit. The decision to sell is all too often a reactive one rather than a proactive one -- the primary reasons are a serious health issue, owner burnout, the death of a principal, general industry decline or the loss of a major customer. Exit on purpose and do it from a position of strength and receive the highest and best deal the market has to offer. 1. Hire a Mergers and Acquisitions firm to sell my business. You improve your odds of maximizing your proceeds while reducing the risk of business erosion by hiring a firm that specializes in selling businesses. A large public company would not even consider an M&A transaction without representation from a Merrill Lynch, Goldman Sachs, Solomon Brothers or other high profile investment banking firm. Why? With so much at stake, they know they will do better by paying the experts. **End Summary** Topics: business broker]]> merger]]> acquisition]]> sell a business]]> Chicago Illinois]]> investment banker]]> MA]]> exit plan]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

Sell a Business, Keys to a Successful Exit

Sat, 20 Dec 2008 00:00:00 -0500

The decision to sell is all too often a reactive one rather than a proactive one -- the primary reasons are a serious health issue, owner burnout, the death of a principal, general industry decline or the loss of a major customer. The purpose of this article is to discuss the ten key factors that a business owner should consider in their once in a lifetime opportunity to maximize the rewards from their lifetime of work. 1. Do not wait too long. Have you ever heard, "I sold my business to early?" Compare that with the number of times you've heard somebody say, "I should have sold my business two years ago." Unfortunately, waiting too long is probably the single biggest factor in reducing the proceeds from the sale of a privately held business. The erosion in business value typically is most pronounced in that last year before exiting. The decision to sell is often times a reactive decision rather than a proactive decision. An individual who spends 20 years running their business and controlling their outcomes often behaves differently in the exit from his business. **End Summary** Topics: business broker]]> merger]]> acquisition]]> sell a business]]> Chicago Illinois]]> investment banker]]> MA]]> exit plan]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

Clean Up Your Financials Well in Advance of Your Business Sale

Sat, 20 Dec 2008 00:00:00 -0500

Buying a business is a risky proposition. The buyer is attempting to examine and access all of the risk factors to determine how much to pay, what deal structure to propose, and even whether or not to even make an offer. What if I lose a key customer, employee, or supplier? What if our technology is surpassed by a new, lower-cost solution? What happens if a big company decides to enter our niche? These are just a few of the concerns that make buyers less generous in their offer price and terms. If your financials are questionable, that may be the deciding factor that diminishes your selling price or even blows up the deal. Audited financials are the best to put a buyer's mind at ease. For smaller companies, the cost of this is not warranted. The next best are reviewed financials. They show that a CPA has put your accounting process through some review and scrutiny. Compiled statements are OK, but are closer to a book keeper's role than a CPA's approach. Just remember, the buyer's accountant is going to perform due diligence on your financials at a level closer to an audited statements process. **End Summary** Topics: recasting financials]]> sell a business]]> maximize business selling price]]> business valuation multiple]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

Avoid the Number One Mistake in Selling Your Business

Thu, 18 Dec 2008 00:00:00 -0500

Ask any business owner who has sold a business or attempted to sell a business, "What would you do differently?" If he or she attempted to sell it without help, chances are pretty good that the transaction did not succeed. If the transaction were actually completed, chances are that they did not get a good price, but had no idea that this occurred. We were recently engaged to sell a medical products company. In our process we will identify 50 to 150 companies that would be likely buyers based on similar products, services or markets served. When those targets are approved by our seller client, we get on the phone and contact the buying prospect to see if we can generate some interest and get confidentiality agreements executed. We were able to identify several interested buyers and were at the stage where they were submitting their qualified Letters of Intent. The LOI basically says that if we complete our due diligence and we find that everything is as you earlier presented it, we will pay you $XXX under these terms and conditions. **End Summary** Topics: business broker]]> merger]]> acquisition]]> sell a business]]> Chicago Illinois]]> investment banker]]> MA]]> exit plan]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

The Management Buyout Business Sale

Mon, 15 Dec 2008 00:00:00 -0500

Many business owners want to thank their loyal employees that have helped them build their businesses when they exit. It is a noble desire that often leads to the exploration of a management buyout. Who better to buy the business than the management team that is familiar with the procedures, the customers, the suppliers, the industry and the intellectual property? From a practical standpoint, however, unless the potential management buyout team already owns a meaningful percentage of the company, it is unlikely they have the financial resources to complete the acquisition. These managers may be great employees, but they generally do not have the risk tolerance to put their personal assets at stake in order to finance the acquisition. They may originally think that they will be able to secure financing to make the acquisition. When they begin to peel back the layers they find that their enthusiasm begins to crack. Banks are not going to finance an acquisition based on a competitive market price for the business. They will make loans based on a percentage of the asset value of the equipment, receivables and inventory that exceed the company's debt level. **End Summary** Topics: management buyout]]> sell a business]]> sell business to employees]]> exit planning]]> exit strategy]]> merger]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

Financial Advisors - It's Time for Some Difficult Discussions with Your Business Owner Clients

Tue, 09 Dec 2008 00:00:00 -0500

If this recent market meltdown has taught us anything it is to make sure you are diversified over several investments and asset classes. Would you recommend that a client put 80% or more of their assets into a single investment? Of course not, but a large percentage of your clients actually have that level of concentration. Your clients that are business owners likely have 80% or more of their family's net worth tied up in their business. On top of that, privately held businesses are illiquid assets often requiring one to two years to sell. So for your baby boomer business owner clients, it is time to have some tough discussions. It is time to move your financial advisory practice beyond the scope of a provider of financial products to an advisor on family wealth maximization solutions. Business owners are typically not proactive when it comes to exit planning or succession planning in their business because it forces them to embrace their own mortality. Well, they just need to get over it. **End Summary** Topics: sell a business]]> exit planning]]> exit strategy]]> merger acquisition]]> business broker]]> estate planning]]> ]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

The Unsolicited Offer to Buy Your Company -What Should You Do

Sun, 07 Dec 2008 00:00:00 -0500

When a company approaches you and broaches the subject of acquiring your company, it is very difficult to suppress those feelings of riches beyond your wildest dreams. Your thoughts start to move from the twelve hour work days, personnel issues, keeping your clients happy, and drift toward the tropical island with the grass hut, the perfect climate, the umbrella drinks, and the abundant leisure time. Snap out of it! Put that Champaign away and get back to reality. We had been engaged by a client to sell her business recently and while we were in the planning meeting, the assistant walked in with a letter from a larger industry player expressing an interest in buying her company. She was feeling pretty special until we uncovered that this same letter was sent out to 50 other companies. Buyers are looking to buy at a discount if possible. The way they do that is similar to the approach that many of those get rich quick real estate programs recommend. Go out to 50 sellers and make a low-ball offer and one of them may bite. **End Summary** Topics: sell a business]]> letter of intent]]> buyer offer]]> offer letter]]> business buyer]]> business broker]]> merge]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

How Not to Sell Your Business

Thu, 16 Oct 2008 00:00:00 -0400

Ask any business owner who has sold a business or attempted to sell a business, "What would you do differently?" If he or she attempted to sell it without help, chances are pretty good that the transaction did not succeed. If the transaction were actually completed, chances are that they did not get a good price, but had no idea that this occurred. We were recently engaged to sell a medical products company. In our process we will identify 50 to 150 companies that would be likely buyers based on similar products, services or markets served. When those targets are approved by our seller client, we get on the phone and contact the buying prospect to see if we can generate some interest and get confidentiality agreements executed. We were able to identify several interested buyers and were at the stage where they were submitting their qualified Letters of Intent. The LOI basically says that if we complete our due diligence and we find that everything is as you earlier presented it, we will pay you $XXX under these terms and conditions. **End Summary** Topics: sell a business]]> valuation multiple]]> business valuation]]> letter of intent]]> due diligence]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

Selling Your C Corp - Negotiate Hard for a Stock Sale Versus an Asset Sale

Fri, 03 Oct 2008 00:00:00 -0400

If you are the owner of a C Corp and are planning on selling your company, you must understand the ramifications of the stock sale versus the asset sale. Here is what happens when there is an asset sale of a C Corp. The assets that are sold are compared to their depreciated basis and the difference is treated as ordinary income to the C Corp. Any good will is a 100% gain and again is treated as ordinary income. This new found income drives up your corporate tax rate, often to the maximum rate of around 34%. You are not done yet. The corporation pays this tax bill and then there is a distribution of the remaining funds to the shareholders. They are taxed a second time at their long term capital gains rate. This is often called the double taxation issue of a C Corp asset sale. Compare this to a C Corp stock sale. The stock is sold and there is no tax to the corporation. The distribution is made to the shareholders and they pay only their long term capital gain on the change in value over their basis in the stock. **End Summary** Topics: C Corp Asset Sale]]> C Corp Stock Sale]]> sell a business tax issues]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

Baby Boomer Business Sellers - The Rush to the Exits Could Erode Company Valuations

Sat, 01 Dec 2007 00:00:00 -0500

The Baby Boomers are retiring in large numbers over the next ten years and the impact on the economic landscape of America will be dramatic. This article will examine those trends and the likely impact on business valuations over the next several years. From a 40,000 foot view the number of businesses that change hands will mirror the number of baby boomers that are retiring. According to Federal Reserve's Survey of Consumer Finances, in 2001, 50,000 businesses changed hands. That number rose to 350,000 in 2005 and is projected to increase to 750,000 by 2009. Price Waterhouse reported in a Trendsetter Barometer Survey of Business Owners that 51% were planning on selling their company to another company compared with 18% anticipating passing on the business to a family member and 14% planning a sale to the company's management. The trends point to more than a doubling in the number of businesses that will hit the market looking for a buyer by 2009. Simple economics and supply and demand would suggest that unless the number of buyers increases significantly, there will be an erosion in valuations for business sellers during this rush to the exits. **End Summary** Topics: business broker]]> merger and acquisition]]> sell a business]]> succession]]> baby boomer]]> business valuation]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

Capital Gains Deferral in a Business Sale

Sun, 25 Nov 2007 00:00:00 -0500

The sale of business is a challenging and difficult transaction with several complicated aspects. Whether it's the complete sale of a business or simply the sale of a partial ownership interest in a company, one of the most troubling issues created by this disposition is the manner in which capital gains and other taxes are addressed. There are not many options available to a business owner, and the few that are come accompanied by complex rules and regulations. There are also restrictions that can increase future risk and possibly trigger IRS penalties. We are always looking for ways for our business sellers to maximize their transaction proceeds while keeping as much possible through the use of intelligent tax planning and deal structure. I asked Dan Carroll from Brook Hollow Financial to explain a unique way to defer capital gains taxes that are the result of a business sale. Large Tax Bill Due upon Sale Capital Gains, Depreciation Recapture and even Income taxes may be levied against the proceeds of the sale of the business. Depending on the initial amount invested and how much the business has grown, these taxes can consume much of the sale price. **End Summary** Topics: business broker]]> merger and acquisition]]> sell a business]]> succession planning]]> defer capital gains tax]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

Business Sellers - Beware of Potential Changes in the Capital Gains Tax

Tue, 20 Nov 2007 00:00:00 -0500

Thinking of selling your business? If you have planned it correctly, most of your transaction proceeds should be long term capital gains. Given the current political climate and the upcoming change in the White House, capital gains taxes will come under attack. If you are a business owner and are thinking of selling your business within the next 5 years, you may want to move up your exit timeframe says Dave Kauppi, President of MidMarket Capital, a Merger and Acquisition Advisor. The reduced 15% tax rate on capital gains, previously scheduled to expire in 2008, has been extended through 2010 as a result of the Tax Reconciliation Act signed into law by President Bush on May 17, 2006. In 2011 these reduced tax rates will revert to the rates in effect before 2003, which were generally 20%. Kauppi believes that with the AMT currently targeted for elimination, the $23 billion will be made up by raising taxes elsewhere, and I believe this "owner of capital" tax is the most vunerable for increase. I expect that the long term capital gain tax rate will be moved to an upper limit of 25% by mid 2009 for the high end income bracket. **End Summary** Topics: business broker]]> merger and acquisition]]> sell a business]]> capital gain tax]]> investment banker]]> MA]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

Capturing That Elusive Strategic Value in a Business Sale

Thu, 15 Nov 2007 00:00:00 -0500

Wow did I get a real world demonstration of the saying, "Beauty is in the eyes of the beholder." If I could rephrase that to the business sale situation it could be, Strategic Value is in the eyes of the particular buyer." We are representing a small company that has a patented and somewhat unique product. They have gotten distribution in several hardware store chains, Lowes, and are going into Wal*Mart next spring. The owners are at a cross-roads. To keep up with their growth in volume they recognize that they require a substantial capital investment. They understand that they have a window of opportunity to achieve a meaningful footprint before a much better capitalized competitor produces a similar product and undercuts their price. Finally they realize that a one product company at a big box retailer is quite vulnerable to the inevitable rotation of buyers or a change in policy that bumps them out of 25% of their sales volume. The good news is that their product is unique and is protected for 15 more years with utility patents. It is not a commodity so it achieves healthy margins. **End Summary** Topics: business broker]]> merger and acquisition]]> sell a business]]> EBITDA financial Multiple]]> strategic value]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.

Business Buyers Negotiating Tactics

Mon, 05 Nov 2007 00:00:00 -0500

If you are a business seller, one of the most challenging aspects of the sale process is listening to a potential buyer tell you why your baby is not beautiful. It is hard not to take that personally. A friend of mine is selling her condo and laughingly tells me of a buyer that came in and rolled a tennis ball across her floor to demonstrate that it is not perfectly level and that this flaw should justify a lower sale price. As I said, she laughed about it and did not get upset because she recognized it for what it was, a negotiating ploy. Business sellers, however, have a huge emotional connection with their business. Their identity is intertwined with the business they have devoted years into building. These positioning statements by buyers often are interpreted as personal attacks or insensitive comments by someone that doesn't get it. Managing this process often is critical to maintaining a good buyer/seller relationship and creating an environment where a deal is possible. **End Summary** Topics: business broker]]> merger and acquisition]]> sell a business]]> buyer seller negotiations]]>]]> About the Author: ]]> Dave Kauppi is the editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and Managing Partner of MidMarket Capital , providing business broker services to owners of middle market companies. The firm counsels clients in the areas of M&A, valuations, âSmart Equity Capital Raisesâ, sales and acquisitions. Visit our Web site to review our lists of buyers and sellers.