Exit Planning in the 2012 Deal Market: Value Added Commitment

“It’s not whether you get knocked down … it’s whether you get up”

 Vince Lombardi on Commitment

 We know it’s been a rough and tough market to get deals done:  

  • Values are down
  • Buyers are interested, but worried
  • Deal terms and conditions are different in today’s “new normal”
  • Financing remains uncertain, though improving

Yet, deals are getting done.  In the past 12-months, we’ve successfully settled 3 transactions (not bragging, just letting you know we’re persistent and active!). 

 A recent survey (*) of the middle market “deal makers (i.e., buyers)” regarding their 2012 plans had some interesting findings:  

  • 86% planned to complete 0-3 deals
  • 79% planned to complete the same or more deals compared to 2011
  • 51% reported that bank lending remains “tight’; 49% felt opportunities were improving
  • 76% felt that the biggest challenge of getting a deal done was the purchase price (i.e., too pricey) and economic uncertainty
  • The “hot markets” are technology, financial services and healthcare that combined represent 55% of the buyers interest
  • 51% expect to finance their deals with a combination of cash, equity (stock of the buyer) and debt (bank, seller)

In our experience: the deal market is improving — call it bubbling, but not yet boiling.  

So in a tough market, what’s the plan?  What are you going to do to add value to your company?  We’re all adjusting to the “new normal” as it is now called. To be honest, in our role as exit planning advisors, there is no magic plan; there are no new tricks.  It’s about remembering and emphasizing the good habits you had in the beginning that, over time, might be forgotten or overlooked.  Here is your opportunity to restart your business with a goal to increase the business value and prepare for your “exit”.  It’s basic business 101:

 Define your “brand”: narrow the market if needed, expand if there is an opportunity.  Revisit, reset, repeat as needed

  • Diversify your customer base: right or wrong, buyers are “squeamish” when a handful of customers represent a large part of the business,
  • Customer contracts – are they “assignable”? Is that in writing?
  • Profit margins – “run your business” to improve (not minimize) profit margins.  The “profit is good enough” attitude needs to go away.  Even if you’re in a commoditized industry, you don’t have to be the cheapest in town (note:  revisit #1 above — brand does matter)
  • Recurring revenue/cash flow – if you have an opportunity to convert from single billing to repetitive monthly cash flow, consider making the change (e.g., HVAC contractors who have both preventive maintenance contracts vs. time and material). Buyers like balanced, recurring revenue streams even when it’s the same dollars
  • Refresh, recharge the marketing look.  You’ve heard the expression you only get one time to make your first impression … website, tweets, social media advertising.  It’s predicted that by the end of 2012, 60% of the Fortune 500 companies will actively engage customers via Facebook marketing efforts.  Where are you?  What’s it look like?
  • Management team – we get it. You’re the decision maker about everything.  Loosen the reins a little.  Your key people are most likely staying with the new owner.  Give them the flexibility and authority to make decisions you‘ve been making.  Remember, you’re creating value for your company and key people are just that … valuable!
  • Management compensation plans, incentive plan:  Critical to buyers, and to your successful exit, is the ability to retain key management.  Take a fresh look at various incentive plans you could use now to retain the key staff in the event of a change in ownership.
  • Debt – credit lines and other forms of debt.  Do you use them just because they are convenient?  Or is the debt really needed to provide working capital? If not needed, make it go away. 

There you go. We hope we triggered some “Aha” moments for some.  We spend a lot of time with owners and their advisors helping them plan for a successful exit. As always, if we can help you, just give a call.

About the author:
Greg Caruso, Esquire, CPA, CVA works with lenders and business owners so they develop exciting goals and then surpass them through the exit and succession planning process, business brokerage, and business valuations. Greg is active in the valuation practice at Harvest Business Advisors and also oversees exit and succession planning activities. He focuses on engineering firms, contractors, wholesalers, manufacturers, and professional service providers.
My website is at: http://www.harvestbusiness.com


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