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Today's Business Owner - May 2013

Volume 14: Issue 3       

May 2013

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Companies Can Improve Their Bottom Line With A Spin-Off  

Slimming Down

If your company suffers from growing pains or anticipates a hard stretch due to the current economic climate, you may want to consider a spin-off. Spinning off a business or unit can provide a variety of benefits, such as yielding much-needed cash, removing poorer-performing entities from your balance sheet and freeing up management to concentrate on your core business or pursue more profitable initiatives. To effectively grow your company, in fact, you may need to first scale back.


Several Forms

Spin-offs can take many forms and are accomplished in various degrees. A unit may be fully divested of its parent and become an independent entity; Or it may merely become a subsidiary of the original company, gaining owners but still being run by the same management.


Whatever the spin-off form a company adopts, a wholly owned segment of a larger company becomes a fully or partially independent business.  


Staging the Transaction

Spin-offs involve several stages, the first - and one of the most critical - being the "pre-spin" period. This is when a company prepares a division to be spun off. During this period, the company will work to ensure the proposed deal meets all tax and regulatory requirements. The company also must gain its board of directors' final approval.


From here, spin-offs generally are executed in one of two ways:

  1. Pure spin-offs. This is when the parent company distributes 100% of its ownership of a subsidiary operation as a dividend to current shareholders.  
  2. Partial spin-offs. Here, the parent company sells an interest of less than 20% in the subsidiary. This method often appeals to companies that need to raise capital but want to maintain ownership of their subsidiary.

Which type of spin-off a company should pursue primarily depends on its long-term goals. A partial spin-off, for instance, may be a better choice for a division that's not yet ready to stand on its own but that a parent company nevertheless believes the market has undervalued. Spinning off part of the division could enhance its value for an eventual sale or pure spin-off.


Why Do It?

Spin-offs have long been a popular and successful way for companies to improve their bottom lines and streamline strategic plans.  


Companies spin off divisions for many reasons. A company may need to raise cash for capital-intensive projects. Similarly, a unit's elimination could improve and make it a more attractive loan candidate. Some companies even enjoy tax benefits from a spin-off.


Sometimes spin-offs are accomplished for strategic reasons. A company might spin off a healthy entity with strong growth prospects to gain greater investor attention. Say, for example, that a company has a promising software division that's undervalued because its parent company isn't well known in the software sector. If that division is put up for sale and no longer buried in a larger company's basement, it could receive the market attention it deserves.


Finally, a unit could be a poor performer that has become a drag on the parent company's earnings. Selling troubled units can be challenging, however. To compensate for additional buyer's risk, you may need to retain an equity stake in the division or provide financing for the seller.


Benefit of Separation

Whether your company is under capitalized and looking for cash with which to pursue new markets or make business acquisitions, or you simply believe that a current division could be more competitive as a separate company, consider a spin-off. Separations can be painful, and they require some time and expense. But the benefits can more than make up for the trouble. 


Ensure Your Spin-Off Isn't Taxing

One advantage of spinning off a subsidiary is the potential for major tax savings. Although, selling a subsidiary outright typically means that your company will pay substantial capital gains taxes, tax professionals can help you structure the transaction to minimize the burden.


Check out more helpful articles on the VR Blog - Updated Weekly! 

EB-5 Immigration Program - Part 1
Job Creation, Capital Infusion, and Immigration through Investment   
The U.S. immigration system is essentially divided into three categories for those seeking permanent residency:
  • Close Family Ties: such as spouses, parents, brothers and sisters or adult children;
  • Education: those with at least a bachelor's degree and preferably a master's degree or those with no less than 12 years of work experience;
  • Money: those with no less than $500,000 or $1 million to invest in a qualified Regional Center in the United States or their own enterprise.  
Realistically, those with family ties will seek to apply for residency through this process if: such ties are of a close degree, the waiting period is not long, and the petitioner, or sponsor, has the financial ability to endorse such an application.
Those with a higher education, referred to as "skilled or professional workers" will need to identify a US sponsor willing to hire them for a specific job, at a specific salary, with a specific job description. Often times this poses a serious challenge for any foreign national as US employers generally seek to hire employees from within the US.
Furthermore, the employer must demonstrate that it is financially solvent during the entire process time period in order to ensure that the employee will continue to be gainfully employed at the end of the process.
Consequently, we are left with the "Money" alternative. The EB-5 program was created as a job creation and foreign investment program specifically to encourage high net worth individuals to migrate to the US, stimulate the US economy, and make a valuable contribution to society. While there are no English language skills requirements, the individual has several other qualifications which they are required to meet.

The EB-5 program is congressionally mandated and has been in existence since 1990. Congress intended the program to create jobs for Americans and stimulate investment, at the rate of ten direct jobs per investor family.
Subsequently, a Pilot Program which created the Regional Center concept was passed into law. The regional center pilot program allows U.S. sponsors to create investment opportunities in which the investor could place their funds. The benefit of this investment opportunity is that the job creation component would become the responsibility of the Regional Center sponsor instead of that of the investor. In this case, the law allows the sponsor to create ten jobs directly and indirectly within a prescribed geographic area known as census tracts.

The word "directly" implies that the U.S. employee hired by the Regional Center will be working full time for 35 hours per week and that a W2 form, demonstrating the employee's income, will be filed with the Internal Revenue Service. The word "indirect" or "induced" refer to those jobs which are "deemed" to have been created in the community as a direct stimulus result of the new Regional Center. All businesses must have been created after 1990. Thus, while each investor family must generate ten jobs for US residents or citizens, the direct and indirect jobs may be combined in order to meet the requisite total. The job creation component is established pursuant to an economic model which is developed by qualified economists and submitted to the United States Citizenship and Immigration Service (USCIS) as part of the application for regional center designation.

It is clear that the EB-5 program has had a checkered history, among which there were minor setbacks along the way. However, through legislation enacted in 2001, Congress demonstrated that it wanted to ensure the preservation of the EB-5 program through an increased structural approach. Since then, the program has demonstrated a greater level of security, although the program does require, intrinsically, that each investment carry an investment "risk".

What is this risk? First, the investor must assess and determine the financial risk of the project. Second, he must ensure that the documentation and approvals at both the USCIS and consular levels are met. Third, initially the investor will only be receiving a two year conditional residency. Ultimately, this will translate into permanent residency status only when the sponsor creates the project and can prove that the jobs necessary to the lifting of the conditional status have been created (a total of ten direct and indirect jobs per investor).

That being said, the future of the EB 5 program is very promising. An increasing number of people are aware of its existence, its utility and benefits. The number of investors signing up with responsible and viable regional centers is continuing to grow as they view the program as a fast track to US residency wrapped in a valuable investment. More politicians and economic development officers understand the nuances of the program which has now created thousands of jobs and generated billions of dollars into the US economy. The EB-5 program is a logical and natural win/win platform for the U.S. economy, U.S. sponsors, and foreign investors.
Check back next issue for more on EB5 Immigration and investment discussion. Questions? Reach out to Larry J. Behar

Q1 Middle-Market Leaderboard Activity 

Most Active Boutique Investment Banks
1 Corporate Finance Associates CA
2 Vercor GA
3 Carriage Hill NY
4 Global Capital Markets CA
5 Confluence Advisors PA

Most Active Middle Market Private Equity Groups
1 Smith Equity Partners IN
2 Newport Partners IL
3 G&H Ventures TX
4 Harbour Group MO
5 Andlinger & Company NY

Most Active Middle Market Corporate Acquirers
1 Fort Knox National Company KY
2 Banyan Water CA
3 EDSCO Fasteners TX
4 Xerox Corp (NYSE: XRX) CT
5 Chart Industries OH

Deal Distribution by Sector:

For a full activity report please visit the 
Axial Leaderboards.

VR Continues to Match Qualified Buyers with Businesses for Sale

In today's business climate, our clients demand quality and professionalism.  

We applaud our business intermediary professionals  - here are a sample of transactions closed across the VR network in the last month. 


Industrial Manufacturer $975,000 - Waukesha, WI           

Profitable Liquor Store, $480,000 - Alberta, Canada     

Party & Tent Rental Company, $362,500 - Miami, FL  

UPS Store, $199,500 - Sacramento, CA     

Sushi Restaurant, $60,000 - Artesia, CA 

Thinking of selling your business, or looking for an already running business purchase? Contact a VR office today!  





Electronic and Instrumentation Business

VR Business Sales | Mergers & Acquisitions of Edmonton, Alberta - a leader in  the sale of privately-held companies, recently facilitated the strategic sale of a a electronic and instrumentation business servicing the oil, gas and aggregate industries for $2,000,000.

The transaction, which closed last month, was handled by Jey Arul, a business intermediary specialist.

This business specializes in manufacturing temporary power vans and power panels for construction sites; designing, constructing, automating and maintaining electrical systems for aggregate crushing, aggregate washing and asphalt production plants, etc. Business has been established since the early 1980's and has a strong market presence with solid reputation in the industry and ample opportunities for further expansion.
Granite Fabrication and Installation Company
VR Business Sales, located in Austin, Texas, the leading business intermediary firm in the area, has recently facilitated the strategic sale of granite fabrication company for $1,022,000.

This established marble/granite installation and fabrication business is one of the most successful in Austin.  Having numerous established clients, the owner had all the business he wants at the moment, leading to expansion opportunities for the new owner.

Gary Zolnierek, a VR business intermediary, represented the seller throughout the transaction.


Tool & Die Company
Listed at $3,700,000  
VR Mergers & Acquisitions, located in Cincinatti, Ohio, announced it has been engaged to sell a one of a kind custom automobile manufacturer.

Machine and Tool Company for Sale Louisville, Kentucky. Quality machine and tool company for sale. Business has been established for over 30  years. Business has a great reputation and has been built on quality products and great service over the years. Sales have grown to the $2.3 million level with a corresponding owner cash flow of $750,000 after all expenses. With a resurgence of manufacturing in the US, and many machine tool companies out of business over the past 15 or so years, this company provides a great opportunity for growth. Business has a strong employee base with 11 full time employees and 1 part time employee with an average experience of over 20 years. This is a turn key business with the current owner, who is retiring, willing to provide training for a smooth transition for a new owner. Sale includes building and real estate valued at $600,000+, inventory and receivables estimated at $400,000 depending upon the timing of the sale,and  $1.6 million dollars of equipment, and the goodwill of the business. Good quality businesses like this are hard to find.
Please head to the VR Web Site and contact the office in Cincinatti for further details.
Landmark Restaurant in Key West
Listed at $899,000
VR Business Sales, located in Naples, FL the leading business intermediary firm in the area, has recently been engaged to assist in facilitating the strategic sale of a one of a kind opportunity to own a piece of Key West history.

This landmark restaurant in historic Key West is available for a new owner-manager or investment.  Experienced manager and chef is in place. Dedicated and experienced management and staff are in place to provide exceptional service and the ultimate dining experience in Key West.  The restaurant is a landmark with over 40 years of providing diners with lunch, sunset menus, and dinner including steak and seafood - along with an award winning wine list and full bar. This is truly Location, Location, Location - and a romantic, tropical, casual fine dining experience and destination for weddings, receptions, and private parties.  There is inside and outside seating for approximately 180. Seller and/or managers will provide familiarization and training.

Click here for more details on this truly one-of-a-kind business.



Therapuetic Show Company, $1,200,000 - Midwest U.S.         

Pool Cleaning & Repair Business, $900,000 - Palm Beaches, FL     

Restaurant & Catering Business, $490,000 - Savannah, GA 

Durable Medical Services Company, $250,000 - Wichita, KS    

Gourmet Snack Food Business $240,000 - Wilmington, NC  

Greek Life Apparel Business $105,000 - Tampa, FL    




VR is celebrating over 33 years as the world's only network of full-time professional business intermediaries that addresses the needs of small and mid-sized businesses.

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Now is a Great Time to Become Part of VR!
VR Artesia NO 1 2009With baby boomers selling their businesses to retire, corporate executives frustrated with their jobs and managers looking to buy a business to replace their corporate position, NOW is a great time to become part of VR!

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Copyright © VR 2013    
In This Issue
Companies Can Improve Their Bottom Line With A Spin-Off
EB-5 Immigration Program - Part 1
Q1 Middle-Market Leaderboard Activity
New Transactions
Featured Engagements
New Engagements

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