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By JoAnn Lombardi, President VR Business Brokers/Mergers & Acquisitions
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When selling your business, attracting the right buyer is crucial. Buyers, whether entrepreneurs or private equity groups, seek businesses that align with their investment strategies and offer great value. Here are 12 steps to help you attract the best buyer:
- Provable Books and Records: Ensure all financial records are accurate, comprehensive, and easily verifiable. Buyers will scrutinize these during the due diligence period, typically with the help of a financial advisor or CPA. This includes income statements, balance sheets, cash flow statements, and tax returns. Accurate records build trust and credibility.
- Reasonable Price and Terms: Set a fair market price based on industry comparisons and the business’s financial health. Attractive terms, such as seller or third-party financing, can enhance the desirability of your business. The return on investment (ROI) should be clear, showing how long it will take for the buyer to recoup their investment. Consider offering flexible payment options to accommodate different buyer needs.
- Financial Leverage: Utilize down payments and suitable loans to maximize investment potential. Financial leverage involves using borrowed funds to increase the potential return on investment. Offering financing options, such as seller financing or third-party loans, can make your business more appealing by reducing the upfront capital required from the buyer.
- Discretionary Earnings (DE): Highlight discretionary earnings, which include the owner’s salary, net profit, and other expenses at the owner’s discretion. Discretionary earnings provide a clearer picture of the true profitability of the business. Add back interest paid, depreciation, and any non-essential expenses to present a more accurate financial overview.
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An earn-out provision is a clause in a purchase and sale agreement that commits the buyer to make additional payments to the seller if the business achieves specified financial targets after the sale. These provisions, also known as payouts or contingent payments, are often used to bridge valuation gaps between buyers and sellers or when the seller finances part of the purchase price.
Key Components of Earn-Out Provisions
1. Purpose and Use Cases:
- Valuation Disagreements: Earn-outs are useful when buyers and sellers cannot agree on a price. The seller may believe the business has strong financial prospects and deserves a higher price, while the buyer may be unwilling or unable to pay that amount upfront.
- Seller Financing: When the seller finances a portion of the purchase price, an earn-out can provide additional security and potential upside based on the business’s future performance.
2. Structure and Mechanics:
- Initial Payment: The seller agrees to a lower initial payment at closing.
- Contingent Payments: Additional payments are made if the business meets certain financial milestones. These payments are typically based on a quantitative formula, such as a percentage of earnings, cash flow, or sales that exceed a specified threshold.
- Payment Schedule: The earn-out provision specifies when and how many payments are to be made
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3. Duration:
- Typical Term: Earn-out provisions usually cover a period of up to three years. Longer periods increase the risk for the seller due to potential adverse business events beyond their control.
- Alternative Financing: For longer periods, sellers might consider financing options like loans or preferred stock, which offer remedies if the business is mismanaged.
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A crucial part of selling your business is understanding and targeting the right buyers. Buyers generally fall into two main categories: strategic buyers and financial buyers. Below, we explore each group in detail, examining their motivations, propensities, and priorities when acquiring a business.
When it comes to buyer targeting, business owners should first define their ideal exit to prioritize the right type of buyers — whether financial, strategic, or a mix of both. This includes determining what you need to finance your life post-sale, how long you want to stay on to assist with the transition, your desired outcome for the company’s brand and legacy, your plans for employees, and your ideal exit date.
By knowing these things, you can create a more precise buyer profile that allows you to target the firms that are most likely to help you meet your exit goals. You can use this profile to create marketing materials aimed at targeting buyers that are more likely to help you meet your exit goals.
Once you have your ideal buyer profile and marketing materials, the next step is to target as many qualified buyers as possible, both strategic and financial. By expanding your pool of qualified buyers, you increase the chances of realizing your ideal exit.
In this post, we will:
- Explain the different motivations held by strategic and financial buyers, and how they exist on a spectrum between price and stewardship.
- Discuss how personal and business goals help determine your ideal buyer profile.
- Show how partnering with an M&A advisor will help achieve your ideal.
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An Auto Dealership and Body Shop Located in Boca Raton, FL
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This well-established auto dealership and body shop presents a remarkable opportunity in the automotive industry, featuring a stellar reputation and a loyal client base. The business operates as a one-stop shop for buying, repairing, and selling cars, specializing in acquiring vehicles from reputable auction platforms like Copart and Manheim. After conducting major repairs, the vehicles are efficiently sold through the popular online marketplace, eBay. Prequalified by the SBA, the business demonstrated financial stability with a revenue of $6.5 million and an adjusted net profit of $1.07 million in 2023. In the first half of 2024, it achieved a revenue of $4.1 million and an adjusted net profit of $625,000.
For more information contact: Tom Duyer
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VR Office Located in Artesia, CA Facilitated the Sale of a High-Volume Hispanic Market
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This high-volume Hispanic market is part of a well-established chain with a robust presence in Southern California for over 30 years. It is renowned for its loyal customer base and prime locations, offering a diverse selection of products, including fresh meats, produce, and groceries, along with value-added services such as check cashing.
A standout feature of this location is its fully equipped commercial kitchen, complete with a dine-in seating area that serves a popular fast-casual menu, driving additional foot traffic and revenue. Recently remodeled, the market is truly turnkey, outfitted with state-of-the-art equipment and modern fixtures that require no immediate capital investment.
This opportunity is ideal for an operator looking to step into a proven business model with strong community roots. The current owners are seasoned professionals in the industry, recognized for selecting high-traffic, high-potential locations and maintaining a reputation for offering the freshest, highest-quality products.
With solid infrastructure and a consistent revenue stream, this represents a rare chance to acquire a thriving, turnkey market with strong brand recognition and considerable growth potential.
Congratulations Neil Kaplan on your successful closing.
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AI in Cross-Border Transactions
by Gundo Kahle, CEO CBA Cross Borders Associates
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In cross-border mergers and acquisitions, the synergy forecasts on paper are often astounding. But as soon as the deal is finalised, the real test begins with integration – and this is where many deals fail. Cultural and integration challenges should not be underestimated. Cultural friction, mismatched leadership styles and poorly managed transitions often undermine the very value that was promised.
In the world of cross-border mergers and acquisitions, the lure of synergy is strong. Sellers confidently tout operational efficiencies, cost savings and market expansion. But once the ink is dry, reality sets in and brings with it the sobering realisation that post-merger integration is often the point at which even the most promising deals fail.
It’s not the strategy that fails. It’s the culture. It’s the execution. It’s the people.
The merger of Daimler-Benz and Chrysler is a classic example of a promising deal that was derailed by cultural differences. German precision met American informality, and neither side adapted. What was meant to be a powerful transatlantic alliance unravelled in less than a decade, and less than a decade later the painful divorce occurred, wiping out billions in value.
In contrast, Lenovo’s acquisition of IBM’s PC division in 2005 shows how well-thought-out integration can work. Instead of changing IBM’s culture, Lenovo kept the key executives, respected the ThinkPad brand and gradually shuffled the teams. The result: a Chinese company grew into a global technology powerhouse.
Talent retention is often the first casualty of integration failures. When the Belgian beer giant InBev took over Anheuser-Busch in 2008, there were strong cultural tensions. American managers felt sidelined by the aggressive cost-cutting ethos of their new European owners. Long-standing employees left the company and with them the institutional knowledge and brand loyalty. The company’s operational performance eventually stabilised, but the early loss of key talent made for a rocky road ahead.
On the other hand, the takeover of ARM Holdings by SoftBank was successful primarily because SoftBank respected ARM’s autonomy. By remaining independent, the UK-based company was able to maintain innovation and trust.
Brand repositioning is another minefield. After an acquisition, companies often rush to reposition their brand or unify it under a single corporate identity. But branding is an emotive area that can cause friction, especially across borders. When L’Oréal bought Carol’s Daughter, fans feared that the brand would lose its identity. But by retaining the brand’s voice, L’Oréal showed that integration does not have to mean assimilation.
Cross-border mergers and acquisitions are never just about numbers, but always about nuances. Language barriers, time zones and legal frameworks can all be overcome. But cultural blind spots? They are the silent killers of business.
The difference between failure and success often lies in the willingness to listen, adapt and invest in people – not just portfolios. Cross-border synergies do not happen automatically. They are achieved over time through integration strategies that view culture not as a hurdle, but as a cornerstone.
Cultural integration is not a box to be ticked. It makes the difference between long-term success and a deterrent example. Business may start with a strategy, but it succeeds with sensitivity.
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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?
Small businesses make up over 56% of the annual U.S. GDP and every year a large amount of them change hands. VR is the industry leader in facilitating such transactions. Click here for more information on how to join VR.
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