The Inman Company Blog


Electing to sell a business is perhaps the most important decision an owner(s) will make during their business career. It often presents a once-in-a-lifetime opportunity that can be a financially rewarding and painless experience.

In recent years, the economy has rebounded from the “Great Recession” and most businesses haveprospered. During therecovery, values of lower middle market companies (revenues of $5M-$100M) have reached record highs.

Factors driving current M&A activity:

  • An abundance ofl enders and financing options for buyers
  • Continued relativelylow interest rates
  • Limited organic growth opportunities for buyers
  • The need for buyers to add new technologies and intellectual talent

Due to renewed confidence and an increase in the number of buyers (particularly private equity firms), private owners have never had more options for selling. Most observers, however, believe current favorable market conditions will cool in 2020-21 as the economy again cools, the FED raises interest rates, and external factors impact many industries (regulatory, trade, etc.).

As a result, more business owners today are developing an “exit strategy”, particularly “boomers” who are at retirement age and with no clear succession plan.


Few business owners are experienced in the selling process. They often do not give serious thought to a transaction until they are approached by a suitor. Many are intimidated by the complexities and elect to take the first deal that comes along, which in just about every case, can be a mistake. They sometimes underestimate the time and resources required.

Experienced sellers know that buyers today are sophisticated and prepared. A Fortune 500 or public company would never consider a sale transaction without the assistance and participation of experienced advisors. They see studies that demonstrate that an experienced professional intermediary can add as much as 40-50% to the selling price of a business and greatly increase the odds of the deal closing.

An experienced M&A Advisor should provide the following:

  • An opinion offairMarketValuebaseduponthe MARKETastotheoretical considerations

  • Insightinto the seller’sindustry,and macro trendswhich impactvalue

  • Financial Benchmarksthatcompare the Companywith itspeersandcompetitors

  • An independentbusinessassessmentthatincludesa close lookattheCompany’smanagementand employees,market,customers,assets,andidentifiesitsstrengths,weaknesses,threats,and

  • Advice and counsel regardingthatcan impactvalue


Many firms and individuals claim to be experienced at selling a business. Some are “business brokers” who sell small businesses less than $5Million in value. Some of these are “franchise operations” where little, if any experience is required. Their closing percentage can be low with fees, if successful, of 8-10%.

Large Wall St, national and regional Investment and Commercial Banks have highly educated and credentialed capital market and industry specialists that work mostly in teams for public companies, but don’t normally represent companies with values less than $100Million. Their minimum fee is usually $1 Million

National, regional, and local “Boutique” M&A firms often serve companies in the lower “middle market” (revenues of $5M-$100M). Many of these have seasoned partners who serve as "rainmakers", while less experienced “associates” handle the “heavy lifting”.

Fees at these firms can vary but in a $20M transaction are typically in the 3-5% range.


Some M&A advisors specialize in certain industries. While this can sometimes facilitate a faster closing, it can also be problematic if the advisor brings preconceived biases and/or conflicts of interest to the engagement. Industry agnostic advisors, with broad experience, can offer a wider perspective, more relationships, and the creative approach needed to maximize value.


It is important that a M&A advisor(s) have the proper licenses and credentials, experienced professionals with expertise in all aspects of a transaction, financial, legal,

tax and operational. Some firms have executives with Board or C-level experience outside the deal business

Other important qualities:

  • Aknowledge ofand experience with the corporate governance ofprivatecompanies/familybusinessesand theunique issuestheypresent
  • Advice thatisindependent,withoutemotion orbias,based upon goodbusinesspractices,and withoutconflictsinterest
  • Theabilitytoprovide consulting servicesaswell asM&Aadviceandmakesuggestionswell in advance ofa transaction thatwill enhance value
  • Guidance and suggestionsasto variousdealalternativesand structure into minimize taxes
  • Accessto the detailed research (muchwhich issubscription based)required to be informed aboutthe Company'sindustry
  • The resourcesrequired toidentifythebestbuyers(strategicand
  • Theabilityand commitmentto professionallypackage the businessandpresentitin itsbestlight
  • Demonstrated negotiation skills
  • Theabilitytoassistthe buyerin arranging financing forthe acquisition,ifnecessary
  • Atrackrecord ofmanaging lawyers,reviewing the sale documents,andgetting dealsclosed
  • Solidadvice thatisindependentand factbased,withoutconflictsinterest,and in the client'sbestinterest
  • An approach notmandated bya needto close and thatpreservesconfidentialityalways


When selecting an advisor, it’s important that the seller not focus exclusively on the M&A firm, but also the individual(s) who will be doing the work. Being comfortable with the advisor on a personal basis is very important.

Look for these qualities in the people assigned to the project:

  • Aexperienced,mature individual withthe wisdomand appreciation ofandanunderstanding ofthe non-financial issues,including a sale’simpactandemployees

  • Financial stabilityanda long trackrecordmanaging manyM&Atransactionsovermanyyears

  • Apersonalcommitmentto the project,the patiencetotake the timerequiredtomake the bestdeal,and24/7 availability

  • Aprofessional appearance and the confidence thatreflectspositivelythesellerand the businesswith the communication skills,intelligence andmaturityrequiredto handle stressful,complexanddifficultsituations


A professional advisor should have a proven sale process that is highly disciplined, with established deliverables, deadlines, etc. that includes the following:

  • Abilityto maintain confidentialityatallstagessale process

  • Preparation ofa ConfidentialInformation MemorandumExecutive Summarywhich includesa confidential businessassessmentthe Companytoidentifyitsstrengths,weaknesses,andrisks

  • Benchmarkscomparing the Company’sfinancial performance withsimilarsize in the same industry
  • An opinion ofthe fairmarketvalue ofthe Company’sassetsbased uponcomparable transactionsandaccepted valuationmethodology

  • Varioustransaction alternatives

  • Identifyand pre-qualifypotential buyers

  • Personally,contactpotential buyers,build relationshipswith each,and establishthe sellerasseriousandnotsimplytesting the market

  • Negotiate the termsthe transaction

  • Participate inand supervise the due diligence process

  • Review the legal documentation,assistand manage the lawyers,and close the

In some cases, the advisor is asked to perform additional services:

  • Restructuring and/orrenegotiating theseller’sdebt
  • Arranging financing forthe buyer
  • Provide strategicconsulting well in advancea transaction to prepare theCompanyforsale
  • Assistin resolving shareholder/familyissuesthatcan destroyvalue
  • Develop incentive compensation (golden handcuffs)plansforkeyemployees


For many reasons, M&A transactions often fail to close. In the process, sellers become frustrated and the business can be damaged. An experienced advisor will work to preserve the confidentiality of the discussions, and limit knowledge of the sale to an absolute minimum. Buyer meetings with owners and key employees should be reserved for due diligence.

The owner must remain focused on managing the business, not handling the sale. Visits by buyers should be restricted to after-hours, and the protection of the Company’s customer history, operations details, managers, employees, should be the highest priority.


There are always alternatives in a sale of a business. A sale to employees or management is an option in some cases. A sale to an Employee Stock Ownership Plan (ESOP) can offer substantial tax advantages. Strategic partnerships and joint ventures are not uncommon, are relatively simple to negotiate and structure, and can be attractive alternatives to a sale transaction. A good advisor has experience in developing these agreements.

To maximize value, it is also important that the sale process includes strategic and financial buyers. These buyers have fundamentally different objectives, which usually affect the deal terms as well as the post-transaction dynamics.


M&A firms require written fee agreements. Terms can vary but are seldom negotiable. Unlike CPAs and lawyers who charge on an hourly basis, a M&A advisor’s fees should ALWAYS be PRIMARILY incentive-based and paid upon the closing of a transaction. This insures that their financial interests are in alignment with the seller’s.

Upon the closing, the advisor receives a “success” fee which can range from 1-10% of the transaction value with the fee percentage smaller in larger transactions. Fees for consulting services in anticipation of a transaction or for arranging financing are in addition to normal transaction fees and usually are billed monthly.


To close a sale of a business requires a great deal of information. The preparation of a professional “pitchbook” is designed to answer most buyer’s questions and to present the business in a professional, positive manner. Professional advisors insist on preparing this book and charge an upfront engagement fee to cover the costs of preparation. Depending upon the size and complexity of the Company, the cost can range from $15-$50k or more. This fee also serves to demonstrate a commitment that the seller is serious about making a deal, and the advisor is not spending time and money working on a project where the seller is simply seeking free information.

Normally, advisors also charge for travel expenses. In all cases, the seller is responsible for income taxes and other professional fees including, accounting, legal, tax, and environmental.


The sale of a business can be a very time-consuming process. Owners attempting to manage a sale themselves report that it can require 70-80% of their time for many months or even years. This is time away from the business and customers and can be costly. Although deals can have been closed in as little as 90 days, a professionally managed sale process can take 12 months or longer.


70% of all proposed M&A deals never close. Buyer and/or sellers often don’t appreciate the complex issues involved in a transaction until late in the process. Negotiations can be intense and difficult. Due diligence can be extensive, time consuming and

expensive. Emotional or personal factors sometimes interfere with good business judgement.

An experienced and knowledgeable M&A advisor should have a unique combination of deal experience, knowledge, communication and transaction skills, and integrity. They can shift the experience factor in favor of the seller. Most importantly, they should have the commitment required to make every transaction a win-win for everyone.

According to recent survey of buyers/investors (strategic and financial), virtually all see a continuation of merger and acquisition (M&A) activity in the second half of 2018, both in the number and size of deals.This year is forecast to be the most active in the deal business since 2015 and just shy of the record year of 2007. The number of deals was up 60% in the 1st QTR 2018 vs last year when many buyers/investors delayed acquisitions in anticipation of tax reform. Over the last three years, capital invested in private U.S. firms exceeded capital raised via IPOs by almost 150%!

Major factors contributing to this cycle of favorable deal environment:

•    Technology Changes- The need to acquire new technology now ranks as the number one strategic driver of all M&A deals and is also a major factor in the convergence of industries.

*    Growth of the global economy - For the first time in a decade, 100% of developed nations worldwide are experiencing economic growth. This creates greater confidence and encourages cross-border transactions. It also results in buyers/investors in taking a longer-term view of acquisitions and moderating their expected ROI.

•    Favorable Interest Rates - The cost of high yield debt relative to investment grade debt is lower today than more than 85% of the time in the last fifteen years.

Lots of cash. Because of better cash management since the recession, Corporate buyers/investors have plenty of dry powder.

* Fewer opportunities for growth. Buyers/investors are increasingly frustrated over an inability to significantly grow the growth of their portfolio companies organically. They instead seek to invest in enterprises with high growth potential. New tools allow buyers/investors to better predict deal success

* Improved methodology - New M&A technology provides non-spreadsheet tools that improve the acquisition process and increase buyer confidence in meeting acquisition goals.

Megadeals dominate many industry sectors:

•  Healthcare - Strategic deals are accelerating because of excess capacity and increasing costs drive smaller players to sell (for example, Aetna’s $70B bid for CVS)

•  Consumer goods - Retailers need scalability to compete and force vendors to consolidate (Keurig’s acquisition of Dr Pepper)

•  Technology – Artificial Intelligence is viewed as next great opportunity

•  Vertical integration - Many industries are consolidating vertically.

In the US lower middle market (transactions with values of less than $100M) the deal activity also remains strong:

  • Lots of sellers - There are about 350,000 companies with annual revenues between $5 million and $100 million.
  • Aging “Boomers”- Owners are retiring in record numbers and few have adequately prepared an exit plan. Record high valuations, a desire to diversify and create liquidity are attractive reasons to sell now.
  • Pace of change increasing - A need to invest in new technology, a shortage of skilled managers and workers, and rising operating costs result in rapid change in many businesses and putting pressure on earnings. Many owners see less upside but substantial risk by holding on.
  • Abundance of buyers/investors - There are more qualified buyers/investors than ever making for a “sellers” market.

Despite bullish conditions, there are concerns the current “bubble” may end in the next 12-24 months:

  • Based upon history, the current favorable economic cycle can’t continue. Many economists project a significant slowdown (but not recession) by 2021 which typically results in fewer deals at lower multiples.
  • A rapid increase in Interest rates will negatively influence financing for acquisitions.
  • Unexpected macro-economic changes (trade war) or an international crisis accompanied by significant correction in the public equity markets will kill deals.
  • Increased regulation is threatening consolidation in some industries (energy, telecom, media, etc).

Planning for an M&A Transaction requires experience, discipline, market knowledge, and commitment. Done properly, the process can require 12-24 months or longer.

Monday, 23 October 2017 15:45

Family Offices and Private Companies


A family office is the private office of a family of significant wealth. According to the 2017 UBS’ Global Family Office Report, the ideal candidates for establishing a single-family structure are families with wealth of more than $150m.

As of 2016, there were estimated to be more than 10,000 family offices world-wide, 2,200 of which are in North America. At least half of these were established in the last 15 years.

Functions of a Family Office

A family office serves families in several areas:

  • Investment management
  • Philanthropic management
  • Financial planning
  • Training and education
  • Estate and wealth transfer
  • Reporting and record keeping

At the heart of any family office is the investment of the family’s assets. This may include public securities, real estate, private equity/venture capital funds, and private companies.

Investments in public securities are managed by wealth management firms who assist in identifying opportunities, perform research on public vehicles, and compile reports. Unfortunately, many do not produce returns above those of the overall market.

Real estate holdings, including REITs are popular and do well in good times but, as we witnessed during the “Great Recession”, can crash when markets collapse.

VCs and Private Equity firms take ownership positions and fees for their management which can substantially reduce returns for investors.

Advantages to owning a private company

Well established private companies can play a role in a balanced (no more than 10%) of the investment portfolio of a family office:

  • There are an estimated 350,000 private companies in the U.S. with annual revenues of $5-$100 million. Approximately 60 percent are owned by baby boomers born before 1964. Many do not have a succession plan and their owners have concluded a sale/merger is their best exit strategy.
  • Unlike early stage or start-ups, an established business has a proven business model with sustainable value drivers.
  • Private companies are often more in control of their destiny and are less subject to wide swings in macro-economic conditions. Revenues and EBITDA are frequently more stable.
  • Some are under-performers with weak governance and little accountability. They can benefit greatly from experienced business people.
  • Valuation multiples are less than public entities and therefore the opportunity for significant returns is greater.
  • Since there is almost always a need by these companies for mentors as well as capital, members of a buyer family office can stay involved in the “great game of business” and allow younger family to grow their skills.
  • Proposed changes in the tax laws provide for a drastic reduction in the corporate income tax rate. As a result, ownership of a private company can provide significant opportunities to grow value with less of a tax burden.
  • Private companies provide their owners with “perks” not always available to investors. These may include the cost of business related travel, retirement plans, vehicles, etc.

The Risks

  • An investment in a private company should be viewed as a RISKY long-term project (minimum 5 years). As an illiquid asset, realizing any cash from the business before exit may not be possible.
  • Investing in a private company without expectations of a minimum annual ROI of 25% is not prudent.
  • There are certain to be challenges and ownership is best reserved for families with strong management experience and capital.
  • Many private businesses need changes in management which can create conflicts. A buyer must proceed with caution.
  • The sale of a private company can take up to 12 months requiring patience by owners electing to exit

Finding the right deal

It is well known in the M&A business that the best private companies are never “for sale”. These companies are owned by proud, successful business people who are emotionally attached to their business and are constantly approached by buyers. They almost always have options other than a sale to an outsider (recapitalization, inside sale to family, etc.)

Unfortunately, most sellers are not experienced sellers and are unfamiliar with the selling process. Sometimes they retain “brokers” who are seeking a quick fee. Often, they pick the wrong buyer for the wrong reason, at the wrong time and make a bad deal. This can lead to conflict with the buyer, disputes on even minor issues, and in some cases, expensive litigation.

In order avoid problems, buyers need to have available the best in legal, tax and M&A advice.

The role of a Professional M&A Advisor

Family offices often rely solely on their network of relationships to locate opportunities. These include other investors, bankers, wealth managers, attorneys, CPAs, friends, classmates, etc.

Some families are more aggressive and formally retain a professional M&A advisor. The right advisor will avoid conflicts of interest and have the experience of having closed hundreds of win-win transactions for BUYERS and sellers, over many years. A professional can significantly increase the odds of closing with a great company without over paying.

  • By meeting with the members of the management of the Family Office, the advisor can assist in identifying investment objectives and core competencies (other than capital) and determine if the family has the commitment, talent and experience to acquire and manage a business.
  • As independent intermediaries, they can establish the buyer as trustworthy, credible and qualified without appearing self-serving. They often become de-facto advisors to the sellers, guiding them and their advisors through the entire selling process.
  • Advisors have their own extensive network of relationships plus the research resources capable of identifying the best targets.
  • By keeping the seller and buyer apart, they eliminate egos from the negotiations and avoid the personality and cultural clashes that can sabotage a deal.
  • They manage the lawyers and due diligence, supervise the preparation of all documentation, and generally control the entire transaction.
  • An experienced advisor can identify potential targets, value the company, negotiate the terms, and close the transaction

Unlike other professionals, who charge for their services by the hour, M&A firms normally charge fees based primarily upon the successful conclusion of a transaction. Fees vary based upon the size of the deal but typically range from 10% for smaller companies to 1% for a $100M + business. In some cases, these firms will take their fees in equity in the target and continue to serve as advisors to the Family Office.


Investing a portion of their portfolio in a private company is a viable strategy for many family offices. Though not without risk, the benefits of ownership are significant provided the family has access to experienced professionals, carefully chooses the right opportunity, and follows a disciplined process. 

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