Prepare To Sell Your Material Handling Business
Topics: business broker material handling, merger acquisition, investment banker, lift truck, sell
Baby Boomers are hitting retirement age and are starting to retire in large numbers. For business owners, that retirement is often accomplished through a business sale.
Even if you currently view the idea as unlikely, you are wise to consider the possibility of selling your material handling company. 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. Advance planning can ensure that you exit your business from a position of strength, not from weakness due to necessity.
1. Because there is so much at stake you should hire a Mergers and Acquisitions firm to sell your material handling 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.
Companies in the $3 Million to $50 Million range fall below their radar, but there are mid market M&A firms that can provide similar services and process. Generally when you sell your business, it is the one time in your life that you go through that experience. The buyer of the last company we represented for sale had previously purchased 25 companies. The sellers were good business people, knew their stuff, but this was their first and probably last business sale. Who had the advantage in this transaction? By engaging a professional M&A firm they helped balance the M&A experience scales.
2. Engage other professionals that have experience in business sale transactions and especially the unique valuations of material handling dealers. You may have a great outside accountant that has done your books for years. If he has not been involved in multiple business sales transactions, you should consider engaging a CPA firm that has the experience to advise you on important tax and accounting issues that can literally result in swings of hundreds of thousands of dollars. What are the tax implications of a stock purchase versus an asset purchase?
A lower offer on a stock purchase may be far superior to a higher offer on an asset purchase after the impact of taxes on your realized proceeds. Is the accountant that does your books qualified to advise you on that issue? Would your accountant know the best way to allocate the purchase price on an asset sale between hard assets, good will, employment agreements and non-compete agreements?
A deal attorney is very different from the attorney you engage for every day business law issues. Remember, each element of deal structure that is favorable to the seller for tax or risk purposes is generally correspondingly unfavorable to the buyer, and vice versa. Therefore the experienced team for the buyer is under instructions to make an offer with the most favorable tax and reps and warranties consequences for their client. You need a professional team that can match the buyer’s team’s level of experience with deal structure, legal, and tax issues.
3. You need to be reasonable in your expectations on sales price and terms. The days of irrational exuberance are over. Strategic buyers, private equity groups, corporate buyers, and other buyers are either very smart or do not last very long as buyers. I hate rules of thumb, but generally there is a range of sales prices for similar businesses with similar growth profiles and similar financial performance.
That being said, however, there is still a range of selling prices. So, for example, let’s say that the sales price for a business in the Material Handling industry is a multiple of between 4 and 5.5 times EBITDA. Your objective and the objective of a good M&A advisor is to sell your business at the top end of the range under favorable terms.
If your business is marginally profitable, the market may be simply the fair market value of your assets minus your liabilities. If you have lots of high margin service revenue and a robust rental business, and annual maintenance contracts, you will be more valuable to potential buyers.
In order for you to sell your business outside of that range you must have a very compelling competitive advantage, collection of intellectual property, unusual growth prospects, or significant barriers to entry that would justify a premium purchase price. If you think about the process of detailing your car before you offer it for sale, a good M&A advisor will assist you in that process for your business.
With a 4 to 5.5 multiple as the metric in your industry and if you had an EBITDA for the last fiscal year of $2.5 million. Your gross transaction proceeds could range from $10 million to $13.75 million. A skilled M&A firm with a proven process can move you to the top of your industry’s range. The impact of hitting the top of the sales price range vs. the bottom more than justifies the success fee you pay to your M&A professionals.
4. If your company has any issues like a pending legal action, under funded pension, ground water contamination, etc. get those issues out on the table early in the merger acquisition discussions. A seemingly insignificant minor negative revealed early in the process is an inconvenience, a hurdle, or a point to negotiate around. That same negative revealed during negotiations, or worse yet, during due diligence, becomes, at best, a catalyst for reexamining the validity of every piece of data to, at worse, a deal breaker.
No contract in the world can cover every eventuality if there is not a fundamental meeting of the minds and a trust between the two parties. Unless you are lucky enough to get an all cash offer without any reps and warranties, you are going to be partnered with your buyer for some period in the future. Buyers try to keep you on the hook with reps and warranties that last for a few years, employment contracts, or non-competes that last, escrow funds, seller notes, etc. These all serve a dual role to reduce the risk of future surprises. If future material surprises occur, buyers tend to be punitive in their resolution with the seller. Volunteer to reveal your company’s warts early in the process. That will build trust and credibility and will ensure you get to keep all of the proceeds from your sale.
5. You should be flexible and open to creative deal structure. Everything is a negotiation. You may have in mind that you want a gross purchase price of $13 million and all cash at close. Maybe the market does not support both targets. You may be able to get creative in order to reach that purchase price target by agreeing to carry a seller note. If the sale process produces multiple bids and the best one is $11.3 million cash at close. You may counter with a 7-year seller balloon note at 8% for $3 million with $10 million cash at close.
If the buyer is a solid company, that may be a superior outcome than your original target because the best interest return you can currently get on your investments is 4%. Be flexible, be creative, and use your team to negotiate the hard parts and preserve your relationship with the buyer.
You may have spent your life’s work building your material handling business to provide you the income, wealth creation, and legacy that you had planned and hoped for. You prepared and were competitive and tireless in your approach. You have one final act in your business. Make that your final business success. Exit on purpose and do it from a position of strength and receive the highest and best deal the market has to offer.
Dave Kauppi is president of Mid Market Capital, Inc. MMC is an M&A advisory firm focused on middle market strategic business sellers. Dave a licensed business broker and a member of IBBA and the MBBI. Contact (630)325-0123 davekauppi@midmarkcap.com or www.midmarkcap.com
Previous Articles Highlighter:
Why Get A Holiday Home In Florida? (1)
Purchasers are now able to get far more property for their money because of the exchange rate which makes it cheaper and a more worthwhile investment. These investment opportunities have tempted not only experienced, confident investors but more cautious investors who take a risk due to the performance of the US dollar.
How To Massively Increase Your Income (2)
Yes it is! And you can achieve this without quitting your job. How? By not just focusing on your single, primary source of income. The only way to double or triple your income to create for yourself multiple streams of income.
Raising Venture Capital - Let's Be Realistic (3)
Because no one has a crystal ball, seven out of ten venture investments totally fail. With that backdrop, venture capital investors look to achieve a thirty times return on their investment in three years.
Credit And Employment (4)
However, several employers have found that determining credit mishaps did not establish certainty whether or not an employee was more likely to steal. The better most predictor would say: It is a full criminal background check that would show things such as bounced checks.
Real Estate Financing - What You Should Know About Home Mortgages (5)
Some tips to know: whether you're financing or refinancing. most people move or refinance within a seven year period. And loan programs for down payments of 20% or less require you to purchase Private Mortgage Insurance (PMI).
Self Certification Loans For Homebuyers (6)
You could finally paint the walls that shade of beige that you love, remove the shaggy carpet and replace it with laminate, and not have to worry about every scratch your cat makes in the panelling.
Debt Consolidation Quotes : Look For The Best Before Taking The Plunge (7)
Being wary of firms that are not qualified, enough to guide you through the process is extremely important otherwise in your bid to consolidate your credit card debt you could end up worsening your financial condition.
Some Quick Tips To Get Cheap Car Loans (8)
Any doubts that arise in your mind regarding the cheap loan terms and conditions must be cleared immediately. This way, you can decide upon the car finance offer that best fits your needs.
Bad Credit Debt Consolidation Loan : An Effective Tool To Resurrect Your Credit (9)
Summarizing The Advantages Continuing with the above example, Mr. X benefits from bad credit debt consolidation loan in a number of ways. Firstly, he is relieved of the tremendous stress that three different credit card companies were putting on him to make the payments.
Debt Consolidation Company: The Key To Your Financial Freedom (10)
All this may sound tough but a little effort from your side can get you the right company offering you low interest rate debt loans, which could be the key to the lock on your freedom.
Find Extra Needed Cash With A Remortgage Loan (11)
Borrowers have found that by shopping around for interest rates they can often find a lower price for their loans, sometimes with lowered or waived loan initiation fees. By asking for competitive rates, many of those with good credit scores are finding success in obtaining a remortgage loan at a reduced cost.
Student Debt Consolidation Program : Put Reigns On Loans (12)
We are living in a world where every child wants to get independent as soon as possible. Everybody wants to become self sufficient at an early date. The result is that you spend more and more out of your pocket and when your pocket becomes empty, you start borrowing from everywhere else.
Credit Card Debt Consolidation Help : Dont Let Weakness Master Over You (13)
But, many other problems have come up too. The huge capacity to shop leads us to overspend and then we have to face the aftermath. When it comes to paying card bills, we realize we crossed our limits a long time back.
Helping A Friend Or Relative With A Remortgage (14)
Be with Him or Her When the Remortgage Deal Takes Place Whether your relative or companion decides to use a remortgage lender online or a brick and mortar business down the street, be there with him or her during the whole process or as much of it as you can.
When Is Debt Good? (15)
In a perfect world, we would all have enough money to pay cash for the things we need and want, but the world is not perfect and without debt and credit, we could not sustain a high standard of living.
Some Easy Ways To Properly Care For Your Canvas Shoes (16)
To remedy this problem, use shoetrees (which can be purchased at most department and fine shoe stores) or pack the toes of your shoes with newspaper to help them regain their original shape after washing.
Self-Help: Get Out Of Debt (17)
This is simple common sense, but what if you do not have enough money to pay all of your bills on time? What can you do? When expenses outrun income you have two viable options.
Small Business Start Up Costs (18)
Several entrepreneurs are intimidated by small business start up costs and choose to avoid even trying their knowledge in a small business for fear of not achieving success. Because starting a small business involves many expenses, they often think that having such a business will just lead them to failure.
How I Was Losing $4,900 A Day Doing The Wrong Work (19)
I thought of hiring people to do the administration, logistics and accounting but I was initially too stingy. I thought to myself, 'If I hire an administrative assistant, I would have to pay the person $2,000 a month'.
Modeling The Worlds Greatest Investor (20)
In fact, if you study the most successful people in history, they all employed the power of modeling. They believed in standing upon the shoulders of giants rather than to re-invent the wheel.
Newer Articles Highlighter:
Eliminate Consumer Debt If You Want To Be Rich (1)
Topics: Adam Khoo, Financial Freedom, Financial Planning, Wealth Building The first step to take to increase your savings is to start reducing your expenses. So what is the first expense you must reduce and eventually eliminate?
Get Your Home Ready To Sell With A Home Equity Loan (2)
Lower Cost A home equity loan allows you to tap into the equity in your home. It is also looked at as a second mortgage and will provide you the funds you need to complete your home's preparation for sale.
What If I Cannot Make Timely Payments? (3)
On the subject of number of days late, it is important to remember that if a bill is late but paid within 30 days of the cut off date the delinquency may not be reported to the credit reporting agencies, which means it will not go on your credit history.
Let's Keep Spending (4)
In addition, when dealing with finances, the reason a loan amount is calculated upon income is to ensure it is affordable to you and doesn't leave you in financial disaster, so honesty really is the best policy.
Fighting Mortgage Repossession May Be A Battle (5)
Communication and cooperation with any court involved in mortgage repossession actions is also important as a homeowner who fails to answer in a court proceeding or fails to show up for hearings, will most likely be found in default and lose any opportunity they may have had to appeal a repossession proceeding.
Teaching Debt To Your Kids (6)
Giving your child an early exposure to credit and debt will help him or her later on in life in ways that cannot be measured. No parent wants to see their child in deep financial trouble and teaching a child early about credit and debt is one way to prevent that from happening.
Five Things To Avoid With Debt Consolidation (7)
If you are looking for debt consolidation, then here are a few tips to help you make the right decisions - and avoid bad choices. Responding Too Quickly For A Wise Solution The first thing that you need to avoid is rushing around with no direction.
Recession Investing And The Housing Market (8)
Will this investment strategy provide a positive return during a recession? Not necessarily but it will keep you in the stock market with a minimum amount of risk and the long term investor will be well positioned if there is no recession or for the upturn in stocks after the recession occurs.
Business Credit Cards Help Businesses Manage Finances (9)
Using a single credit card for all your business needs means at the end of the month, you'll receive a statement that itemizes every expense you had for the month.
Keys To Avoiding Student Loan Pain (10)
It is best to fill out the FAFSA in January using estimates on previous year's taxes. If you have any questions, and feel the FAFSA does not describe your financial situation, add a letter of explanation with the application.
Is It Possible To Get Ahead Financially While Paying Down My Student Loans? (11)
At the end of the ten year period you now have paid off your school loan and you have a total of $21,700 in savings that you have invested. Court helps people to learn about student loans.
Mortgage Repossession Can Devastate A Homeowner (12)
Additionally, other expenses continued to rise while income levels failed to keep the escalating pace, leaving the buyer little choice but to accept mortgage repossession. If possible, one solution is to refinance the mortgage for a fixed rate mortgage and, if any equity has been established in the property, use that to pay off any past due payments while bringing the new payments to an amount the buyer can afford.
How To Choose The Best International Travel Medical Insurance For You (13)
US insurance, like Medicare, should be checked for the extent of its coverage, or the possibility of needing to buy any additional coverage. There are a few group insurance plans that are relatively cheap, and if you're with a tour group or a visiting business delegation you could save money with group travel medical insurance.
Saving Now So You Can Quickly Pay Off Student Loans Later (14)
If not, food becomes a very large item. You can reduce your food expenses by buying food at the grocery store instead of eating out or buying food in bulk.
Online Car Loan Application : Gets You Overnight Loans (15)
A car loan for bad credit can also be obtained without any great difficulty, but you have the option to shop around for the best rates made available to you.
Ways To Profit From Investing In Real Estate And Land (16)
For example if you hold rented property and the rent is on time by the boarders and you maintain the property regularly with the rent being paid increases the value of the property and also the net worth of yours.
How To Find And Qualify For The Right Private Student Loans (17)
The lender will want to know about your past financial record. This will be in regards to any bankruptcy and your credit rating. If either is showing negative, you will need to go with a secured loan.
Simple Ways To Increase Your Personal Savings (18)
5 days a week for 52 weeks is 260 days. This means the cost to purchase lunch for 260 days or one work year at $6 per day is $1,560/year or $130/month.
No Snow Drops Andorra Tourist And Property Numbers (19)
But the one thing the country really needs to entice ski tourists hasn't been coming - snow. Over the last decade Andorra has been blessed with an abundance of snow, making for perfect ski conditions.
Pre-Foreclosures The Millionaire Maker (20)
There are homes here in Florida that have been lease optioned three and four times. Each time the person lease optioning plunks down anywhere between $5,000 and $50,000 which is non refundable.
Permalink to Prepare To Sell Your Material Handling Business