Navigation Links
Newport Board Group, a National Business Advisory Firm of CEOs That Serves the Middle Market, Issues Guidance for Companies Considering a Sale in 2013
Date:6/3/2013

San Francisco, CA (PRWEB) June 03, 2013

With increasing signs of a recovering U.S. economy and with record setting amounts of capital in the hands of large corporations (“strategic buyers”), Private Equity firms (“PE”) and hybrid investors (neither strategic nor PE, for example wealthy individuals and family offices), private business owners contemplating a sale are fortunately faced with a myriad of options. Add to these traditional middle market lenders, commercial finance companies and Business Development Corporations (BDCs) all flush with cash, it is no wonder that many company owners are confused and uncertain as to how to maximize the exit value of their business.

The middle market, which we define as companies with $10 million to $500 million in revenue, has long been the predominant area for U.S.-based PE investment. And while deal volume and capital invested in U.S.-based middle market companies were down somewhat in absolute terms in 2012, the middle market expanded to 71.4% of total buyout activity—its highest share in the last decade.

PE buyers will generally want to purchase at least 80% of the company and will provide capital for growth. Typically, the PE buyer will target a 5-7 year exit of the business and will quite often resell the company to another PE firm. They will most often want to or at least be open to keeping a founder involved for a period of years to lead the execution of a growth strategy and to “earn out” part of the purchase price.

Strategic buyers are actively acquiring smaller companies in order to gain technology, market share, products or people. Think Instagram with 13 employees by Facebook for $1 billion dollars. Often, a strategic buyer will pay the highest value in that the product or service of the target, when added to the buyer’s business, will be “accretive” i.e. it will create more value for the whole, a sort of 1+1=3.

And lastly, the emergence of family wealth looking for good investments has provided additional tail wind for middle market M&A--as was the case of the acquisition of Peet’s Coffee by the German company Joh. A. Benckiser for $974 million (22 times EDITDA), a significant premium over the traded value of Peet’s.

No Shortage of Strategies

Middle market company owners have a range of different types of capital available to create liquidity:

1. Senior Debt – generally term debt with a low rate of interest available from banks, commercial finance companies and BDCs and often supported by company assets or company cash flow. This form of debt is generally tied to LIBOR or the prime rate or can be fixed as a corporate bond. (Range of cost: 5-10% APR)
2. Mezzanine Debt– available as term debt subordinated in priority to senior debt but above equity) from specialized lenders or PE firms, often with warrants or other equity kickers This debt is usually interest only and the term is for a period of 5 to 7 years. Usually used to recapitalize the company, buyout partners or for growth. (Range of cost: 12-18%).
3. Equity – Often issued in the form of common or preferred stock together. With respect to a PE firm or strategic buyer, control of the company is important and the owner will have a new boss and board of directors. For owners wanting to sell a business but stay on for a period of time as CEO, this may be an attractive strategy alternative. (Range of value for a well performing company is often begins at 5 times EBITDA and up, depending on the historical success and potential of the business). (PE firms are generally seeking returns above 25%).

Recapitalize the Company

There are other options available that would allow a company to generate capital for growth and provide cash to existing owners without giving up control of the business. There are PE firms that will purchase a minority interest in a company (at a lower multiple than for a sale given that the PE firm will not gain control). A recapitalization is a good tool to take advantage of current cash flow and to position the owners of the company for a final exit in the future. The steps are:

1. Raise subordinated debt or minority equity based on current cash flow and use the proceeds to pay dividends to owners.
2. Reinvest profits in the company and grow the top and bottom lines of the financial statements.
3. Position the company for a final sale down the road and sell 100% to a strategic buyer or PE fund, paying off the debt or retiring the convertible equity and distribute the remaining proceeds to the owners/sellers.
4. In the case of subordinated debt, it can be paid off with less expensive senior debt if the company’s assets have grown sufficiently, without having to sell the company,

This is the time to explore alternatives and take action, as there is a very good chance that the current, favorable climate for middle market M&A won’t last forever.

Newport Board Group is a partnership of board directors and senior executive leaders. We assist growth, middle market and private equity portfolio companies to navigate transitions and improve performance.

Michael Evans ((415) 990-1844) is Managing Director of the Northern California practice of the Newport Board Group.

Read the full story at http://www.prweb.com/releases/2013/6/prweb10782733.htm.


'/>"/>
Source: PRWeb
Copyright©2012 Vocus, Inc.
All rights reserved

Related medicine news :

1. Newport Beach Facelift Specialist's Tips on Skin Care Before and After Surgery
2. Newport Beach Cosmetic Dentist John Ravera Adds New Member to Dental Team
3. Newport Board Group, a National Business Advisory Firm of CEOs Serving the Emerging Middle Market, Releases a Technology Roadmap for Private Companies
4. Private Companies Will Face Increased Competition for Sales in 2013 - Newport Board Group Releases Seven Strategies Designed to Improve Customer Retention
5. d'Oliveira & Associates Helps Newport Woman Receive $150,000 Settlement for Auto Accident; Case: MI-11889
6. Stand Up Paddle Boarding Social Network & Marketplace, Supcity.com, Announces Launch
7. Three More Georgia Community Service Boards Select Netsmart as Technology Partner
8. Educational First Steps Welcomes Eight New Members to Board of Directors
9. Cleveland Clinic CFO Joins Explorys’ Board of Directors
10. Better Life Maids President Joins ARCSI Board of Directors
11. Dr. Russell Richmond Joins Explorys’ Board of Directors
Post Your Comments:
*Name:
*Comment:
*Email:
(Date:2/11/2016)... Island, NY (PRWEB) , ... February 11, 2016 ... ... has enhanced and updated its hallmark resource, Infusion Therapy Standards of Practice, to ... leader in vein illumination with an estimated 85% share of the market, facilitates ...
(Date:2/11/2016)... ... February 11, 2016 , ... The annual list showcases the 20 Most Promising ... team dedication and commitment to the SharePoint ecosystem. A panel of experts and ... goal is to recognize and promote technology entrepreneurship. , The survey was made ...
(Date:2/11/2016)... , ... February 11, 2016 , ... ... dynamometers and ergoFET force gauges used in physical therapy, occupational therapy and sports ... sensor for resistance cord exercise and therapy, introduces its new microFET Digital Pinch ...
(Date:2/11/2016)... (PRWEB) , ... February 11, 2016 , ... ... coverage results in significantly higher rates of several common cancer screenings, especially among ... in better outcomes and survival rates. , The study,“What Does Medicaid Expansion ...
(Date:2/10/2016)... ... February 10, 2016 , ... Sherly Sulaiman, certified clinical ... of therapeutic sessions to help Los Angeles-area actors cope with rejection, improve their ... series, known as “Mindfulness for Actors and Artists,” has been featured in ...
Breaking Medicine News(10 mins):
(Date:2/11/2016)...  Aytu BioScience, Inc. (OTCQX: AYTU), a specialty healthcare ... conditions, announced today that the Company will present its ... on Tuesday, February 16, 2016, at 4:30 p.m. ET.  ... overview of its business and growth strategy, as well ... 31, 2015. --> ...
(Date:2/11/2016)...  Ampio Pharmaceuticals, Inc. (NYSE MKT: AMPE) announced today, ... Controlled Equity Offering SM Sales Agreement with Cantor ... , Chairman and CEO, stated "During our most recent ... raising money and that we have enough money to ... complete all of our current objectives and nothing has ...
(Date:2/11/2016)... 2016 North America , ... MarketsandMarkets, The global market is expected to reach USD 20,190.1 Million ... CAGR of 10.2%. --> North America , ... by MarketsandMarkets, The global market is expected to reach USD 20,190.1 ... a CAGR of 10.2%. --> According to a new ...
Breaking Medicine Technology: