Differentiating Buyers That Are Strategic From Those That Are Financial
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A company that's looking to divest to a buyer will have to examine whether they should seek out one that's either strategic or financial. In these current times where capital is following, there are reports of companies being sold for extravagant sums to strategic buyers. Those entrepreneurs looking to invest in a company often find that strategic investors recognize higher valuations than the venture capitalists, who are more financially oriented.
To understand the difference between the two, a strategic buyer believes that your business will help make theirs perform better, whereas a financial buyer focuses on the economic value that your business will create on its own. In most cases, strategic buyers will pay more and occasionally buy when no one else will.
Locating Strategic Buyers
The best way to find a strategic buyer for your company is to consult with a VR M&A advisor. We will assist you in finding qualified candidates through identifying possible synergies such as:
Vertical. Integrating vertically allows the buyer to bring its solution to industries, in which the seller currently focuses. An example is a larger executive-recruiting company that acquires a business specializing in executive recruiting for the health care industry.
Horizontal. Integrating horizontally allows the buyer to bring its solution to the market, in which it currently focuses. A marketing company, for example, might acquire a Web developer so it can provide Internet-based solutions to its established clients and prospects.
Channel. The strategic buyer has a sales channel that can easily adopt the acquired company's products. As a result, the buyer will have more to sell to existing customers.
Capacity. The acquiring company has an unused capacity that can be filled with the target company's product. For example, the manufacturer can make the acquired company's products in its existing factories without adding new real estate or additional equipment.
Geographic. The seller gives the buyer access to its strongest geographic markets. For example, an office-furniture distributor headquartered in Chicago acquires a similar business based in Detroit.
Operational efficiency. The buyer may be able to operate the combined business at a higher margin by eliminating redundancies. For example, a bank may acquire a competitor and eliminate 15% of back-office costs by combining staff.
Time to market. The buyer quickly needs what the seller has in order to fill a strategic gap in its product line.
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Can A Shareholder Agreement Prevent Conflict Among Business Owners
By JoAnn Lombardi, PresidentVR Business Brokers/Mergers & Acquisitions
Shareholder agreements enable owners to plan their company's future - whatever unexpected events might befall it. These agreements assign ownership, set a value for company shares, dictate buyout terms, and outline how the company is to be managed. This detailed plan helps to eliminate surprises and minimize disagreements down the line.
Keeping It Inside
Often, businesses draft shareholder agreements to prevent owners from selling their stakes to outside parties or to restrict share ownership transfer upon an early abandonment of an owner's obligations. An agreement typically requires that an owner who wants to sell to someone outside the company give remaining shareholders the right of first refusal, or an option to buy the shares at a certain price.
This first-refusal provision may stipulate that a seller offers shares to the remaining owners at the same price and terms - including financing - offered by the outside party. The other owners typically are given 30 to 60 days to make their decision and arrange to finance. If they can't match the outside party's offer, they may have to accept the new partner.
Shareholder agreements also set up a succession plan to go into effect when an owner retires, dies, withdraws, or has his or her ownership terminated for cause. When owners die, their shares pass through their estates to their beneficiaries. If there are no buy-sell provisions, beneficiaries aren't required to sell their shares to the company. If they elect to sell them back, they can dispute the shares' value. Or the beneficiaries may choose to sell to an outsider - or to keep the shares and take an active role in the business.
Buy-sell provisions in the shareholder agreement protect remaining shareholders by requiring them or the company to buy back shares from the deceased owner's beneficiaries at a predetermined price per share. Carefully worded buy-sell language also eliminates tax consequences when a company elects to redeem the shares of a deceased owner.
Other Valuable Functions
Shareholder agreements might also discuss:
- Owner compensation, work benefits, and retirement benefits;
- The percentage of shareholder votes required to approve major decisions such as electing directors, transferring or issuing new shares, borrowing funds, or making large capital expenditures;
- Methods for resolving owner disagreements and disputes - including provisions for the departure of shareholders and procedures for enforced share sales;
- Shareholders' responsibility is to lend the company money if it can't find conventional financing to buy back shares.
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3 Overlooked Areas to Consider When Buying a Business
Without a doubt, there are a multitude of factors that go into buying a business. Since there are so many variables involved, it is easy to potentially neglect some important aspects. In this article, we will explore some of the key areas that can be overlooked when buying a business. Three areas in particular warrant special attention.
#1 Legal Documents
Upon first glance, it might seem obvious that all legal documents should be evaluated; however, many buyers forget that all legal documents are important and should be given weight. In short, there is no such thing as an irrelevant legal document, as one never knows what problems could be lurking within any given legal document.
For this reason, you’ll want to carefully examine any legal document before making a purchase. The stakes are simply too high to not evaluate everything from trademarks and copyrights to leasing agreements.
#2 W-2 and 1099 Forms
It is important to note whether or not 1099 forms were given out instead of W-2 forms. The reason is that the IRS has very specific rules regarding these forms. The last thing that any buyer of a business wants is to sign on the dotted line only to discover that there are problems with the IRS. Taking ownership of a new business only to learn that there are IRS issues is something that should clearly be avoided.
#3 Retirement Plans
Just as it is vital to look at overall financial documents, including W-2 and 1099 forms, the same holds true to evaluating retirement plans. You shouldn’t buy a business unless you know if the business’s qualified and non-qualified retirement plans are completely up to date with the Department of Labor. A failure to properly evaluate a given company’s retirement plans can be a very costly mistake.
Ultimately, there are many potential topics that can be overlooked when buying a business. In this article, we outlined three areas, but in reality, there are many more. This fact underscores the tremendous importance of working closely with a business broker, as well as other trusted professionals, such as lawyers and accountants, in order to properly vet any business that you are considering. One of the key steps in buying any business is to take every possible step to perform due diligence. No business is a flawless enterprise, but a seasoned business broker or M&A advisor can help you to successfully chart a path forward.
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Goodbye, Corporate America. Hello, Entrepreneurship
Professionals leave Corporate America for one reason or another. Some retire, while others may transition to the nonprofit world. Others are simply dissatisfied and need a fresh start.
Then there are people like Jonathan Kasen, who left an almost 14-year stint as a portfolio manager at a large financial services corporation to become a first-time acquirer and entrepreneur. Today, with a partner, he is co-owner of a regional chocolate company, in addition to managing Boston-based investment firm Shaker Valley Capital Partners LLC. The pair used their own capital to do the deal, which came through Axial and closed in February 2021.
“We both went from running multibillion-dollar funds to licking envelopes for accounts payable,” Kasen said of him and his partner. “We realized quickly that our new roles were for real.”
To be sure, leaving a high-paying, secure job to enter the world of deal-making and entrepreneurship in the lower middle market comes with risks, among them the potential to fail. Challenges run the gamut, from finding the right company to buy to fund the deal to run the newly acquired business, sometimes as a first-time, relatively inexperienced operator. Instead of wearing one hat, new acquirers may wear several, as they get their feet wet in a strange new industry.
But the move from big business into entrepreneurship — whether one is self-funded, an independent sponsor seeking outside funds, or an eager searcher looking for advisory and financial partners — is becoming a bit of a rage, and in most cases, the pros outweigh the cons.
Just ask Thomas Mangas, the former CEO of Starwood Hotels & Resorts Worldwide Inc., who in his own words has had an “eclectic career” and could have sauntered down his previous path until retirement. Before Starwood, Mangas was the executive vice president and CEO of Armstrong Flooring Products, and previously was a vice president at Procter & Gamble. In 2016, he left his post at Starwood and founded Centerfire Capital LLC, an investment firm and holding company. During the first few years of running Centerfire, he also worked as CEO of the International Car Wash Group in Denver, until January 2020 when he left the corporate world entirely. Bottom line: Mangas has an extraordinary resume, but he chose to found Centerfire because he wanted a new beginning. “I didn’t need to go do the next CEO gig,” he said. “I always imagined this would be a place to land.”
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Outdoor Living Company For Sale in Charlotte, NC
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This company specializes in the construction of outdoor sunrooms, screened porches, pergolas, decks, and patios. Relying on superior craftsmanship with a seasoned production team, the company is well-positioned to expand its offerings and revenue to include other outdoor living construction services. A well-established commercial and residential client list provides a superior foundation for referral business.
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VR Located in New Haven, CT Sold a High-End Landscaping Company for $5,600,000.
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This landscaping firm provided landscape maintenance services to high net worth homeowners located in a wealthy area in Southern New England. Most services were lawn care, garden, and shrub maintenance but they could engage in light landscape construction projects including patios, outside grill areas, water features to name a few. All revenue was recurring. In their market, the company was considered the leading provider of landscape services and had little competition.
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Thinking of selling your business or looking for an established
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Incredible Beach Resort in South Sinai, Egypt
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This holiday resort is situated on a 98,000 square meter land, overlooking the Gulf of Aqaba with 49,000 square meter floor space in various buildings, which includes lobby, rooms, restaurants, meeting rooms, Roman theatre, disco, spa, clinic, swimming pools, commercial stores, football, and tennis courts, Red Sea beaches, water world and gracious landscape.
Included in the total of 289 rooms are:
- Club rooms with direct garden/pool access and sea view.
- Executive Suites with sea views across the Red Sea.
- Family villas for exclusive and totally private accommodation.
The hotel's main restaurant has 250 indoor and outdoor seats serving breakfast, lunch, and theme night's dinner buffets.
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VR is The Only Remaining Founding Firm of The International Business Brokers Association ("IBBA").
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Have You Ever Considered Selling Businesses?
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