The business sale process has a number of distinct stages and typically takes 6 to 10 months to complete.
There are strategic and financial buyers. The best buyer is the one that benefits the most from the purchase.
A business's value is determined by market comparables as well as business specific analysis.
A second bite at the apple means a second chance or opportunity. In the case of Private Equity (PE), it means selling part of the business and then working with a private equity partner to create value and selling the remainder, which is likely a smaller percentage, at potentially an even a larger amount than…
Public company take-over bids typically consist of all cash or a combination of cash and shares. Consideration in private company acquisitions will usually include a sizable portion in cash (50 to 100%) but will often include an unsecured note and/or an earn-out. This is typically because: (i) the buyer does not have (or have access to)…
Why is the Letter of Intent so important? Because, in the context of a business sale, it marks the critical point where power shifts from the seller to the buyer. What I mean by this is that an LOI typically includes a term requiring exclusivity. Exclusivity means the seller has to stop engaging with other…
What is the Due Diligence? Due diligence is an investigation of a business or person prior to signing a contract. More specific to a business sale, business due diligence is the process of verifying the representations made in the CIM and other marketing materials provided to the potential acquirer by the seller. For example, in…
Buyer’s remorse, also called winner’s remorse is the realization that you have won an auction by paying more than anyone else was willing to pay. Does winner’s remorse mean you have overpaid? Not necessarily. When managing a company divestiture, there comes a point when interested parties are requested to provide non-binding expressions of interest (called…
Company Trading Multiples vs. Comparable Transaction Analysis vs. DCF. There are market based valuation approaches such as examining public company trading multiples and comparable transaction analyses, and there are company specific cashflow and earnings based methodologies such as Discounted Cashflow (DCF) analysis. In this post we review both market based approaches and company forecast analysis.…
Working Capital Adjustments in an Acquisition. Working capital adjustments are required when a going concern business is acquired by way of a share purchase agreement. This is the case for two main reasons: (i) because working capital changes every day as revenues are generated and supplier and payroll payments are made and (ii), because working…
Reps and Warranties All Purchase and Sale agreements (“PSAs”) have sections called buyer and seller reps and warranties. The intent of these sections is to disclose and describe any known issues in the business and to address how they will be dealt with. It is generally accepted that any issues that come up post-sale, but…
Mergers and Acquisitions Definitions Here we list Mergers and Acquisitions definitions alphabetically and try to add a little color about their significance. CAGR: Cumulative Average Growth Rate. For example, revenues growing 30% in the first year, then 10 % in the second year and 5% in the third year has a three year revenue CAGR…
The Purchase and Sale Agreement (PSA or SPA in the case of a Share Purchase Agreement) is one document in a set of final documents that completes a company sale transaction. Other documents typically include employment agreements, escrow agreements, non-competition agreements, releases, schedules and more depending on the type of transaction being contemplated. Importance of…
Five examples of acquirers paying a premium. What are buyers looking for in acquisition targets? The objective of an acquisition is to create value. This is accomplished by improving profitability and/or reducing risk; both enhance earnings quality and drive value. More specifically, acquisition objectives can include achieving economies of scale or economies of scope, vertical…
Private vs public company valuations; why are they different? For public companies trading on a stock market such as the NYSE, analysts express the value of a company as a multiple of earnings. It is called the price-earnings ratio or PE ratio. If the price of a stock is trading at a low multiple (say six…
