the middle market as a realm of businesses that have grown beyond single
management entities to significant regional or national stature with revenues
between $10 million and $200 million.
the majority of the middle market is made up of businesses that are built
around a single product area and its natural extensions. Normally, they are not
comprised of multi-market corporations with a group of divisions. Therefore, the
enterprise is an integral unit that does not lend it to being sold in pieces.
Various Types of Owners
business owners can come in a variety of different types. The businesses are
generally categorized as family managed, a small-sized entity or an independent
subsidiary or division of a larger enterprise.
owners of closely-held mid-market businesses have invested so much both
financially and emotionally that the sale is a very significant event in their
lives. This contrasts from the situation that a corporate development officer
from a Fortune 500 company
dispassionately executes a strategic shift by a redeployment of global
resources. Both of these types are participants in these kinds of transactions
where the sensitivities required vary dramatically from transaction to
Right Price on Both Sides of the
wants to obtain the right price. You will rarely find dedicated corporate
sellers that are determined to complete a transaction within a predetermined
time frame at whatever cost that the market will pay to sell the business.
than not, the given seller has never experienced the processes and complexities
that are involved. Many owners will soon retire and view the prospect of
receiving top dollar for the sale of their interest in the business as vitally
important. Receiving the highest price is a natural function when coming up
with an offer that will carefully cultivate competition among buyers, which
will give an accurate picture about the size of the market for the transaction.
prospective buyer will see a business as valuable if it’s highly profitable,
has attractive prospects and is the missing piece for their strategic jigsaw
puzzle. They have to see the business as an opportunity for maximum profit with
an organized and realistic description of their benefits and value.
will receive the best deal through a combination of a clear and convincing
presentation that shows that the business is an attractive fit for the buyer.
The company’s value is what an informed and motivated potential owner is
willing to pay for it.
If you are
selling, you want to be sure to review all agreements between your company and
other parties. You should focus on strengthening the business’ position on
existing and new arrangements that are flexible and identify problematic areas
that can be resolved with measures that can be implemented quickly. Also, you
must be aware with the buyer’s approach to measuring return on investment,
discounted cash flow and potential strategies to their overall plan.
Show Diligence with Add-Backs
maximize price, you have to have clear and reliable information. Pro forma
adjustments to financial statements (called add-backs) are the norm for
illustrating how the target company performed in the configuration that the
seller anticipates for the new owner.
are usually reduced to eliminate obviously unnecessary items. Good historical
financial data represents the best starting point, particularly audited
will feel more comfortable discussing add-backs when they know that the results
have been determined with audit scrutiny. The investment in having assessed
financial statements reduces clutter later in the negotiation and preparation
of the definitive agreements.
that add-backs and adjustments should be reasonable and consistent with the
overall expectations of the seller. For example, buyers do not appreciate being
asked to value a business for which the seller has added back $500,000 of the
compensation that CEO expects to continue to receive at the unadjusted level.
Therefore, make sure that if you have to have add-backs that they are few in
number, logical and easily identifiable.