Waldron Private Wealth hosted a highly informative panel discussion on June 27 exploring the unique landscape in Western Pennsylvania for business owners looking to sell and entrepreneurs looking buy.
The panel included industry experts who have helped 100s of buyers and sellers maximize their multiples and gain entry into targeted markets.
John Lewis II, Co-Founder, Metz Lewis Brodman Must O’Keefe
Melissa A. Bizyak, Partner, Grossman Yanak & Ford LLP
Andrew J. Bianco, Managing Director and Founder, Strategic Advisors
Matthew A. Helfrich, President, Waldron Private Wealth
The evening kicked off with opening remarks from Waldron Founder and CEO, John Waldron, who set the stage by discussing the impact buying or selling a business has on an entrepreneur and the unique financial landscape we are currently in. For a business owner interested in selling their business, this transaction will likely be the biggest liquidity event of their life. In many ways, it will also be the culmination of their life’s work. Starting a business, growing it, hiring trusted team members, developing life-long customer and vendor relationships, establishing yourself within your community – for many business owners, their business is the crowning achievement of their professional life, and in many ways, their identity. They have poured all of their creative and entrepreneurial energy into this entity, so preparing to sell it is not just a big deal. It is the biggest deal of their life. You have to get it right. And for buyers who are looking to expand and get into new markets or extend their presence to become an industry leader, acquiring a new business can be a means of achieving their long-term goals for themselves and their family.
The private equity industry has $2.5 trillion in potential cash to be deployed right now. At Waldron, we have five clients who are currently working through the many layers of compliance, legal issues and terms of a business sale transaction. The environment we are in is hot. Companies are operating at capacity, employment rates are extremely high, performance and production are soaring, talent is at a premium and access points to entry are limited. Banks are willing to lend, private equity firms are flushed with cash and strategic buyers are looking at every opportunity to find access points.
Andrew Bianco’s firm, Strategic Advisors focuses their practice on private equity transactions, assisting buyers and sellers to negotiate the best terms possible for these momentous deals. He pointed out that multiples right now are some of the highest he’s seen, and have recently gone as high as 9.5, 12, 13 and even higher. Strategic buyers more than private equity firms are driving the trend because access points are limited and, as mentioned previously, cash is readily available. If people want a company in a given market, or a presence in a specific industry they are going to pay up for it. Companies that were trading at multiples of 4 just 10 years ago are routinely getting 6.5 times their ebita valuation. Even if you never thought about selling, the multiples people are willing to pay are high enough that depending on your long-term goals for yourself and your business, you might reconsider your position. He pointed out that you can create negotiating leverage with cash, by employing scheduled hurdles and by conducting thorough due diligence on the business and its assets so that you aren’t surprised by any liabilities – making sure relevant considerations are understood and factored in.
Melissa A. Bizyak, Partner, Grossman Yanak & Ford LLP. Melissa’s accounting firm specializes in business valuation and forensic accounting to help sellers prepare their business and balance sheets for the sale and buyers to understand the hidden liabilities and tax implications of acquisition. A trend she is seeing now is that while business owners are doing a great job delivering value to their clients and growing their businesses, they rarely come to the table with their tax liabilities and financial statements in good order or even in compliance. Because of the reduced transaction timelines, frequently dropping to 120, 90 and even 60 days, the quality of due diligence entrepreneurs are conducting in advance of the transaction is lacking. A few years ago, she would recommend sellers hire an independent third party to conduct an audit of their financial statements going back three years, but now due to the accelerated pace, she often settles for one (although three would still be preferred). Taking the time to kick the tires before you go down the road of exclusivity and letters of intent is of critical importance to not just the sale price, but to the speed of the transaction and can eliminate tax and legal complications down the road. Diligence also includes looking closely at the structure of the firm, from employees, assets and forecasting to external issues like competitors, potential disruptions, tariffs and regulatory issues. Another key component of diligence owners must conduct are quality of earnings (QofE) reports and a thorough review of the company’s ownership structure which can identify any roadblocks and potentially prevent additional legal issues.
John Lewis II, Co-Founder, Metz Lewis Brodman Must O’Keefe. John assists business buyers and sellers leveraging his experienced team of corporate transaction and securities specialists to establish terms of the purchase or sale that maximize not only the price but identify and mitigate any risk factors including fair labor standards, tax exemption and compliance issues. John also emphasized the importance of QofE reports, and pointed out that even deeper digs are often required, looking into the accuracy of earnings and conducting additional research into their sustainability. He mentioned a $100 million deal that had reached the Letter of Intent stage when the seller’s QofE report revealed a discrepancy that ultimately blew up the deal. This illustrated a point that all three panelists made, which is that in order to make a successful sale or purchase, you need to conduct your due diligence well in advance of the letter of intent to give you leverage in negotiations and to avert any surprises. He mentioned working with a client selling an S corporation who hadn’t actually filed their election paperwork. To be in a good position to sell your business, everything needs to be properly filed, executed and in compliance. If, for example, you were a seller, you should think of your business like selling a house. You need to do an inspection and then spend some money enhancing the curb appeal. You identify areas that require additional capital, and in some cases, you trim the fat, perhaps removing a pool which originally seemed like an enhancement, but as the family landscape changed, became a liability. Another critical aspect of the transaction sellers and buyers need help with is drafting or even reading the agreement – it is incredibly important to surround yourself with a team to help you manage all of the information and complexity so you are not overwhelmed. If the seller was a top line salesman, they likely act like they have ADHD already and will not take the time to carefully read the agreement, or even if they are a detail oriented engineer type, they will read everything and be overwhelmed anyway. The value of an experienced team is that they will walk you through the process and identify the salient aspects of the deal you need to focus on which simplifies negotiations exponentially.
Matt closed the event with a quick survey, asking each panelist what is the one idea people should leave the room with:
John Lewis: Know your business’ primary vulnerabilities before you get into a sales discussion.
Melissa A. Bizyak: Be aware of your risks and leave yourself enough time to fix it.
Andy J. Bianco: I would reiterate what has already been said: be prepared. If the other side discovers something, they are going take a big board and hit you over the head with it.
If you would like to discuss the potential sale of your business or a business acquisition click here to contact a member of our planning team – we would be happy to review your situation at no cost or obligation.