Keys to Negotiating a Successful M&A Deal

Keys to Negotiating a Successful M&A Deal  Whether you’re buying or selling a business, a few guidelines can help you negotiate a deal more effectively and improve your chances for an advantageous outcome. While you’re probably already familiar with basic negotiation strategies, most parties to an M&A transaction can use a refresher course when it comes to what may be the biggest deal of their lives.

Know Yourself

Good negotiators start by knowing themselves. Before you enter into sale negotiations, take time to identify your goals and your tactics for achieving them. If you’re buying, what’s your “reservation price”-the most you’re willing to pay? Would you be able to walk away from the deal if the seller refuses to budge on price?

If you’re selling, similar questions apply:

  • What’s the lowest offer you’ll accept?
  • Are you in a hurry to sell?
  • What conditions will you require as part of the sale?

For example, the retention of certain employees may be a priority. Also be prepared to speak confidently about your business’ strengths and address any perceived weaknesses. Since the buyer’s negotiating leverage emphasizes your weaknesses, you need to be aware of them and ready to provide a solution that mitigates an adverse effect on the buyer’s offering price.

Know the Other Party

Knowing the other side is as important as understanding your own priorities. This knowledge allows you to map out the negotiation ahead of time. As a buyer, you should have a thorough understanding of the business-gained through extensive due diligence.

If you’re a seller, it’s essential to know that your buyer can afford to purchase the business and, if the deal will be seller-financed, how well the company will be run while the note is being paid off. It’s also helpful to learn if your buyer has looked at many other businesses. Buyers who know they have other options if your deal falls through will probably drive a harder bargain.

Gathering knowledge involves more than research; you also need to be a good listener.

If you’re talkative by nature, make an effort to speak less and listen more when meeting with the other party. The better you understand them, the greater chance you have of anticipating their moves and preparing counter offers.

Build a Relationship

There are plenty of opportunities for differences of opinion in any business transaction, and a business sale is no different. Establishing a cordial relationship can go a long way toward reducing misunderstandings or unintended offenses. Social occasions such as dinner or a golf outing can break the ice. Expressing interest in the other party’s opinion and a sense of humor also can help build a good working relationship.

Going back on your word, exaggerating points or misrepresenting facts in an attempt to strengthen your position, on the other hand, can damage goodwill. Finally, don’t try to box the other party into an untenable position-it’s a tactic that’s likely to misfire.

Flexible is Vital

Selling a business is a complicated process, of which price is only one component. When entering the negotiation stage, keep in mind other items that are subject to bargaining:

  • Down payment amount;
  • Interest rate on a seller loan;
  • Collateral;
  • Seller warranties;
  • Earn-out provisions;
  • Non-compete agreements.

Also consider the structure of the deal-whether the company’s stock is being acquired, or just its assets. In general, sellers prefer a stock sale and buyers prefer an asset transaction, which provides better cash flow after the deal.

Good negotiators take advantage of the multifaceted nature of the process by remaining flexible throughout. This may mean compromising on some elements to get the ones that are most important to you, such as those related to financing terms, the closing date, employee retention or seller warranties.

With so many moving parts to consider, flexibility can get you past obstacles. If you’re hung up on a tough issue-say, the price of a particular asset-try putting it aside temporarily, moving to less controversial points such as the price of other assets, and then circling back later.

VR Waukesha, Wisconsin Closes Two Transactions Valued at 7.7M

VR Business Sales | Mergers & Acquisitions, the leading business brokerage and mergers and acquisitions company in the world announced  today that the VR office located in Waukesha, WI has completed facilitating two unrelated transactions worth over $7.7M of market value.
The first transaction, valued at $3.7M was concerning a metal fabrication company and involved a recapitalization. The second larger transaction came about rapidly after a Private  Equity Group took interest in a manufacturer of Skid Steer Attachments and negotiations settled on a $4.4M price tag.

Business Valuation Article – VR Business Brokers

Setting the Record Straight on Business Valuation

Many people can become incredibly confused about understanding what business valuation means. Many misnomers exist regarding the subject, which can be a complex financial discipline that consists of unintelligible jargon, reason and underlying mathematics to any outsider who may be looking to buy or sell.

Therefore, let’s reveal the truth behind a few myths of business valuation.

1.) Net income and net free cash flow are identical

First of all, there is nothing remotely similar to these two concepts. Net income includes a deduction for depreciation expense that many small businesses base on accelerated tax schedules. In addition, net income excludes debt service, financing proceeds, owner distributions, capital expenditures and changes in working capital.

Net free cash flow is more inclusive and relevant to value because it represents the amount of cash available to investors (equity and debt holders) in excess of the current operating needs of a business – the essence of value.

Therefore, a novice who substitutes net income for net free cash flow risks overvaluing the business because the former may disregard a company’s imminent need to update such things as equipment and the shareholder’s reluctance to reinvest in future operations. Net free cash flow takes into account capital expenditures and working capital requirements.

2.) Unprofitable companies have no value

Remember that fledgling businesses will possess value because they have potential to generate future cash flow, hard assets and internally generated intangibles such as patents, customer lists and proprietary software. Just because historically there may have not been profits in the past doesn’t mean there’s no value in a company that you may be looking to buy. For instance, startups and high-tech ventures my incur losses until they are up and running.

3.) If a competitor sold for 1.5 times revenues two years ago, a comparable business could do the same for a similar price-to-revenues multiple today

Nothing could be further from the truth in this instance. You may think comparable transactions provide objective, convenient evidence; but one, single transaction doesn’t provide a representative sample.

Remember that each transaction is unique. For example, a competitor’s sale might include buyer-specific collaboration like an earn-out or a seller’s employment contract. Ask yourself if the informant is reliable. Like an old wives tale, transaction details can become exaggerated and evolve over time as the story passes from one individual to another.

4.) Business value only matters when considering buying or selling

The granddaddy of all valuation myths, every business can benefit from studying the subject regularly, not once in a full moon.

Most owners have no clue what their business is worth from just an operational perspective. Therefore, having an informal valuation can teach management what drives value and show how to increase cash flow for both the short and long terms.

A valuation can shed light on economic conditions and industry trends that can help you improve operating efficiency and increase sales inevitably. It can be an integral part of contingency planning that can help management assess the adequacy of commercial and key person life insurance coverage as well as serve as an underpinning of effective buy-sell agreements, succession plans and individual wealth management planning.

— Peter King; CEO, VR Business Brokers

 For assistance with Business Valuation please contact VR Business Brokers at 1-800-377-8722

VR Business Franchise Owner in McKinney Texas Highlighted in Dallas Morning News

Larry Lane, Owner of the VR office in McKinney, Texas, was recently showcased in the Dallas Morning News, offering useful recommendations to small business owners who are looking to sell their business.

In the article, Larry discusses five tips to plan for an exit strategy:

Setting a Timeline

Since it can take more than a year from listing a business for sale to completing the transaction, the best time to sell will always remain when a business has a growing revenue stream with profits at their peak and more untapped potential to have greater success.

Making Sure the Business is Ready

The business should have a diversified customer base where no client makes up more than 15 percent of the total sales. A strong management team should be in place with updated equipment and software.

Focusing on Profitability

Make sure that the business has maximized their profits. Many business owners will instead maximize expenses to minimize profits, which in turn minimize taxes; however, this will turn away potential buyers who focus on profitability. Remember, most business transactions are based on a multiple of earnings.

Learning Business Valuation Trends

Most owners need to be educated in the importance of having a valuation done on their business to avoid offering the wrong asking price.

Understanding Tax Ramifications

Make sure that the business owner understands the full tax implications of a business sale. Have the owner visit an accountant to cover all the odds and ends, and ask him or her if they would consider providing seller financing – this typically defers some taxes and allows for a higher asking price.

Larry saw the potential that VR Business Brokers has to offer, which led him to become a successful business owner of his franchise location in McKinney, Texas in facilitating the buyer and selling of businesses.

For more information about owning your own successful VR Franchise please contact VR Headquarters at  (800) 377-872.

For a quick review of the VR Franchise please see the VR Franchise Webinar slideshow presentation 

How To Sell a Business – Training from VR Business Brokers

Article by JoAnn Lombardi, Pres. of VR Business Brokers

All business owners will one day exit their company.  This fact is inevitable.  Therefore the sale or divestiture of the business is one of the most important decisions an owner will ever undertake.

Every step in a business sale demands an extremely specialized effort, and at VR we know that there are no shortcuts to a successful transaction.  Transition to an entrepreneur about to sell a business, means exploring new options in life and making a decision to change.  Owners of businesses view this decision to sell as an opportunity to reap the rewards of years of sacrifice, dedication, and hard work.

Making quick, objective decisions comes naturally to the business owner.  So why is the decision to sell the company so difficult?  Because it’s made by weighing the advantages of moving on against the time and energy that’s been devoted to growing to operation.  The decision to sell a business usually goes far beyond the economics.  It involves defining lifestyle, and redirecting personal energies, resources, and values into the next stage of life.

The VR organization prides itself on recognizing the importance of being a trusted advisor to our clients.  VR intermediaries around the world guide business owners through the transition of divesting their businesses.  Individuals joining VR have made the commitment to a profession that over the next 25 years will aid over ’70 million “Baby Boomers” change from corporate careers to entrepreneurs and from entrepreneurs to retirement.

Hundreds of thousands of businesses change ownership each year, and though the reasons for selling vary, there is one common goal…maximizing the proceeds from the sale.  This is what a VR business intermediary is trained to achieve.

VR defines small business sales as those transactions with a value of less than $2 million.  As you begin your new profession this is the market place that most people gain their experience.  For the past thirty years, twenty percent of the businesses in this value range change ownership ever year.  That’s 1 in 5, in every town, in every city, in every state.  That’s the market and opportunity for successful business intermediaries.

Valued Representation of a business by a VR intermediary is a complex process that is fulfilling emotionally and financially upon successfully completing a transaction.  As a VR intermediary you will be trained in a manner that draws upon years of substantial knowledge, professional experience, and success.

Upon joining VR you will be trained on how to:

  • Build an inventory of quality businesses to sell
  • Value and price a business
  • Formulate different transaction structures to maximize value
  • Prepare a VR Business Profile
  • Confidentially launch a marketing campaign
  • Educate buyers and sellers on the transaction process
  • Recast financial statements for the privately-held company
  • Facilitate negotiations
  • Prepare all necessary documentation
  • Navigate successful due diligence

And of course… how to successfully close business sales!

As a professional VR business intermediary you will manage the process of selling businesses with the goal of successful transactions, while the owners continue to manage their businesses.  You will be an invaluable advisor during the process, offering proven valuation and marketing techniques, along with unmatched negotiation skills.

VR offers extensive training to all of the VR Business Franchise owners. Through the VR training specific methods and techniques on every aspect of being a successful business broker are covered in full detail.

For information on how to become a VR Business Broker and open a VR Business Franchise office, please call (800) 377-8722 or visit Owning your own VR Business Franchise, also visit VR on Facebook  at VR Business Franchise Facebook Welcome page and VR Franchise Facebook Updates.

VR Business Brokers Tips – How To Prospect for Businesses For Sale

Knowing How to Prospect Effectively for Businesses For Sale

A successful business intermediary will always meet business sellers and build a strong listing portfolio through using six essential methods of prospecting:

  • Personal call;
  • Telephone call;
  • Direct mail;
  • For sale by owner (FSBO);
  • Referral;
  • Centers of influence (attorneys, accoutants, etc.).

It has been proven that the most effective approach to prospecting is by utilizing a combination of personal and telephone calls with direct mail. The important point to remember when performing this process is the timing and follow-up elements. This is how you will be able to produce results. Selling businesses is not a one-call profession. To be successful, you must do so through multiple conversations with an owner. This is based on the steps of a business owner’s “Ownership Cycle.”

Understanding the “Ownership Cycle”

To correctly prospect, you have to understand that every business owner moves through an “Ownership Cycle.” There are three main phases: Building – focusing on growing the business; Plateau – the business has its momentum; and Selling – deciding to do something different with career.

In each area of the “Ownership Cycle,” you need to determine which phase the business owner is currently in, and when to follow up next. As a business intermediary, you should be introducing each owner to VR as early as possible. This will work beneficially towards both the seller’s and your common goal: a successful transaction.

Every VR office should be fully utilizing their tools available on the VR WebManager (only available to VR Business Brokers).

You can find the professional resources you need to prospect in the following categories when you login:

  • Build your customer base;
  • Build your listing inventory; and
  • Build public awareness.

VR offers extensive training to all of the VR Business Franchise owners. Through the VR training specific methods and techniques on every aspect of being a successful business broker are covered in full detail.

For information on how to open a VR Business Brokers Franchise office, please call (800) 377-8722 or visit Owning your own VR Business Franchise, also visit VR on Facebook  at VR Business Franchise Facebook Welcome page and VR Franchise Facebook Updates.

How To Be A Successful Business Broker

Hundreds of articles, primers, books and opinions have been written on “HOW TO BE A SUCCESSFUL BUSINESS BROKER”.

The basic answer is very simple, it requires working hard and working smart!

Yes, we know everyone considers themselves a “hard worker” as it may very well be, but it really takes hard work and plenty of wisdom and street smarts to be on top of the heap in this business.

Success begins with a plan. It’s important to develop a keen business plan from the start to make sure to stay on the right track to success. After all, you are in your own business as an independent contractor, and how many businesses are you aware of that do not have a definitive business plan. Formulate your plan and diligently work your plan by tunneling your efforts with the right tools and resources made available.

Surround yourself in a work atmosphere that provides a good quality work environment like that found in a VR Business Sales office (see link at end of article). All the resources are readily at your fingertips. Each VR office owner has proven career successes combined with a deep rooted entrepreneurial spirit that create an aura of excitement to be around. If you maintain the same deep rooted enthusiasm and creative deal making skills as the owner with whom you affiliate, your own successes will prevail.

Continually develop strong business relationships and prospect every day. Every person you meet will eventually consider selling or buying a business, when they do, it will be you they think about first. Develop centers of influence and referral networks. Focus on your needs and work your plan to accomplish on what you expect to get out of the business. You will only get back what you put in to the business; work a true forty hours per week and make every minute productive in obtaining listings. Good saleable listings must be kept foremost in your mind by establishing solid criteria of what you and your office are willing to work on. Only work on Sole and Exclusive Listings that are priced right.

Know your success ratios and work your ratios every day. These are good management skills that will pay off in the long run. You should know how many prospecting calls you need to make to attain your listing goals as well as how many buyers you need to speak with to get an offer. If fifty per cent of the offers you write do not go into a contract you are doing something wrong and need to start from the beginning analyzing your practices, work-habits, taking responsibility for your practices. Every two contracts should have a conversion ratio of one closing…Pay Day!

All aspects of the industry must be taken seriously and constant education in your field of endeavor by taking courses and attending seminars. Read anything related to the industry and regularly take motivational and self-help courses. Master negotiation skills and fine tune your skillset. Always do the right thing. Don’t procrastinate, there is no perfect situation.

By preparing for every situation prior to the engagement appointment to first time buyer meetings, you will demonstrate a command of presence for which you will always be recognized. Be a peer to your client and customer contacts, explain in one statement why you are the one to work with and what you bring to the table. Thinking outside the “box” will make you a deal maker standing ahead of the pack as you mature in the business.

Continually pay attention to the basics, be responsive and stick to your objective:

Make money

Meet People

Join Organizations

Ask for Referrals

Contact Sellers Regularly

Delegate as Much Computer Work as Possible

Practice Healthy Living by taking time for yourself and family.

Always think positive, think big and think Valued Representation.

VR Business Sales and Mergers & Acquisitions provides the best opportunity for having a successful business brokerage office of your own.

For more details please contact our Director of Franchise Development at 800-377-8722

or visit