Around the Web: A Month in Summary

A recent article posted on the Axial Forum entitled “What Do Buyers Look for in the Lower Middle Market?” explains how to make your business valuable to potential buyers and how to find the right buyers for your business. The buyers in the lower middle market are usually strategic buyers, financial buyers, private equity firms, and search fund advisors. Buyers in this market are generally looking for the following characteristics: A strong management team who has incentive and is prevented from competing against the company if their employment is terminated Stability and predictability of revenue and cash flow Low customer concentration Other value drivers such as state-of-the-art operating systems High level of preparedness The article warns about the biggest obstacles for owners. Business owners should consult with experienced deal attorneys and investment bankers before speaking to any buyers. They should also consult with advisors before the company goes on the market to make … [Read more...]

The Importance of the Term Sheet

The value of the term sheet shouldn't be overlooked. From buyers and sellers to advisors and intermediaries, the term sheet is often used before the creation of an actual purchase or sale agreement. That stated, it is important that the term sheet is actually explained in detail. Let's take a closer look at its importance. What is a Term Sheet? Even though term sheets are quite important, they are rarely mentioned in books about the M&A process. In the book, Streetwise Selling Your Business by Russ Robb, a term sheet is defined as, “Stating a price range with a basic structure of the deal and whether or not it includes real estate.” Another way of looking at a term sheet, according to attorney and author Jean Sifleet, is that a term sheet serves to answer to four key questions: Who? What? Where? And How Much? Creating the Right Environment A good term sheet can help keep negotiations on target and everyone focused on what is important. Sifleet warns against advisors, … [Read more...]

Defining Goodwill

You may hear the word “goodwill” thrown around a lot, but what does it really mean? When it comes to selling a business, the term refers to all the effort that the seller put into a business over the year. Goodwill can be thought of as the difference between the various tangible assets that a business has and the overall purchase price. The M&A Dictionary defines goodwill in the following way, “An intangible fixed asset that is carried as an asset on the balance sheet, such as a recognizable company or product name or strong reputation. When one company pays more than the net book value for another, the former is typically paying for goodwill. Goodwill is often viewed as an approximation of the value of a company's brand names, reputation, or long-term relationships that cannot otherwise be represented financially.” Goodwill vs. Going-Concern Now, it is important not to confuse goodwill value with “going-concern value,” as the two are definitely not the same. Going-concern … [Read more...]