The Beringer Group has been advising business owners who are contemplating selling their business since 1979. In that span of time we have witnessed almost every conceivable variation of issues, good and bad, that arise in the course of the selling process. After hundreds of client engagements we have come to one conclusion: The selling transactions that are the most rewarding to the business owner(s) and their families are the ones that occur after in-depth planning for the event had been completed. An unplanned business owner exit can result in some nasty surprises. The Beringer Group has developed some presale actions that can help to avoid post sale problems.
Know your options
It used to be the case that a business owner had only a limited number of liquidity options for the equity that was trapped in their businesses: Go public; Sell to competitor, sell to next generation or do nothing and never retire. Today business owners have a wider list of liquidation alternatives.
- Sell all or part of the company to a Private Equity Group or Hedge Fund
- Sell to your Management Team assisted by a Private Equity Group
- Sell to your employees through a Employee Stock Ownership Plan on a tax advantaged Basis*
- Set up a auction where a number of your competitors bid for your company
- Go public through a Private Placement issue
- Don’t Sell…Transition!
*The Beringer Group is a member of the ESOP Association and The National Center for Employee Ownership (NCEO)
Know the value of your business
Businesses are valued for sale on a different basis than just the value of the assets less the company’s liabilities or “book value.” Values today are determined by multiples..current multiples of the company’s earnings or multiples of the company’s annual revenue. Additionally, the appropriate multiple for any company is determined by the current average multiple being paid by buyers in each industry and by the size of the company. These industry average multiples are available in proprietary databases where actual transaction information for both private and public companies are available to subscribers. (The Beringer Group uses Capital IQ and Mergerstat) It is always best for selling business owners to consider overtures or offers to buy their company from outside buyers as “Teaser” offers. Real Market Value is only derived from a properly developed examination of the price at which companies in your industry and in your range of annual revenues have changed hands in the past.
Know the value drivers
Every business has attributes that add to its market value. If you have any or all of the following positive attributes they should be prepared for the buyer’s attention
- A loyal client/customer base
- A record of earnings growth
- Margins equal to or better than your industry’s average
- A robust , comprehensive line of products / services
- Intellectual Property
- A proven management team
- A skilled employee base
- Barriers to Competitive Entry/Competitive Differentiation
- Your future earnings potential
Pre-Sale Tax Planning
It is very important for the selling/transitioning business owner to know in advance the best structure of the transaction to assure the most tax-efficient outcome. There are several structures that benefit the seller such as a sale of assets, a leveraged recapitalization with a one-time dividend, an installment sale, or the use of trusts to name a few. The Beringer Group usually runs an after tax model scenario for each structure for its clients and their tax attorney.