Buy side/Acquisitions
Wealth managers and financial industry observers have pointed out that we are in the midst of a
Starting with the End in Mind – webinar for business owners and buyers May 16 at 1PM (EDT) If you have the following questions, this webinar is for you! How do I strategically think about my end game? In other words, how do I figure out what game I am playing? What makes a business hard to sell and limited in market value? What are some major value enhancement strategies available to my business? What are reasonable timeline considerations in growing, preparing, and selling my business and what capacity needs are required to be added? How do I build a team of advisors? Speakers include: Amanda A. Russo: CEO of Cornerstone Paradigm Consulting Ryan Goral: CEO of Gspire Group Paul Cronin: three-time founder and M&A Advisor at True North Advisors Group For event details and registration, click
A Guide to the New 2023 SBA SOP Written by Live Oak Bank here.
Mergers and acquisitions are successful because the subsequent integration provides value. The Board of Directors of the acquiring firm plays an important role in ensuring that the Executive Team has a good integration plan and implements it effectively. In addition, board members can be a great resource for those executives as they may have experienced what goes right (and what does not) during integrations. To learn more please see this article which I authored that was published in Private Company Director:
I get this question a lot in M&A. The purchase price of a business can have a number elements: 1. down payment (cash equity from the buyer) 2. bank financing 3. seller’s note 4. installment sale 5. earn-out 6. commissions on future sales 7. consulting agreement for the seller, post-acquisition Earn-out’s, commissions and consulting agreements are often used to “bridge the value gap” between buyer and seller. In some cases, an earn-out is prohibited (SBA loans usually do so), or impractical. So, a consulting agreement can help. Let’s say you own a business and the buyer offer’s $1 million, but you think the business is worth $1.2 million based on growth potential with a new customer coming in. The buyer thinks there is downside risk that customers may leave, once you (the seller) leaves. One solution is where you and the buyer to agree to the $1.2 million purchase price contingent on the terms of the consulting agreement: $200k cash $800k bank loan $200k consulting agreement that might look like this: If the revenues stay at 100% to 90% of the current year (the base year), you earn $200k. If they fall 89% to 80%, you earn $150k, and follow a similar “ladder”. If the new contract yields at least a 10% increase in the base year, you (the seller) gain 20% of the profits from that new customer. This presents a win-win scenario for buyer and seller, and usually works with many lenders.
Methodology to Avoid Business Disruptions A business requirements study is conducted before the software implementation begins. The legacy software database is transferred to the test environment and verified daily for accuracy. Once test-environment data is verified for accuracy the step below will be taken. End users are trained in the test environment that has data with which they are familiar Software Implementation Project managers are assigned to each department i.e., accounting, warehouse, and purchasing. Data accuracy verification in the test environment eliminates the need to run parallel software. Prior to going live with the new ERP-Software, users’ proficiency is determined. To ensure successful going live with new software, training and technical staff remain on site. Client’s Return-on-Investment Imperial Dade: Foodservice and Janitorial Supply The business grew through M&A integrating the acquired company’s software into the VAI ERP Software 100% ROI Payback in 1.1 years Savings: $ 1,194,353 Black River: Produce Distributor 45% ROI, Payback in 2.3 years Savings: $ 1,188,529 Autumn Harp: Cosmetics Manufacturer Boosted Productivity and Reliability Saved $100,000 in one year Dorcy International: Warehouse Automation Increased Efficiencies and Productivity Dropped from a $170,000 variance to less than $5,000 in one year SMC Data Systems, Integrated ERP Software,
Our borrowers often ask us, “Is it better to buy an established business or start up a business?” It’s a reasonable question for those looking to exit their current employment or invest in a business for another income stream. While it may make sense in specific industries to start a business, the benefits of purchasing an established business, along with the security it provides to a new business owner, make a strong case for searching for a company to acquire. Established companies typically have the following positive attributes: Existing customer base Established supplier channels Brand recognition Established market share Sustainable and predictable cash flow Employees that generally transfer with the sale Established reputation Seller consulting period (up to 12 months post-closing) Ability to start earning an owner’s salary from day one In addition to the above benefits, if financing is needed, a lender will typically be willing to lend more for a borrower to acquire an established business than to start up a business, typically at a more favorable interest rate. The SBA allows a lender to finance up to 90% of total project costs to acquire a business. While SBA policy also allows 90% financing on start-ups, most lenders will require more equity from the borrower ranging from 20% to sometimes 30% of the project costs. Additionally, some lenders shy away from financing start-ups altogether, so your lender pool will be much smaller when seeking start-up financing. There are resources available to search for listings, one of the largest being BizBuySell. Engaging the help of a business broker in the market you wish to purchase a business is also helpful. A reputable broker or M&A advisor will often have access to off-market listings and a good pulse on available inventory on the market. Buyers should prepare to provide a list of their search criteria, including but not limited to industry type, revenue size, EBITDA, location, sale price, etc. If you are considering purchasing a business, it is never too soon to start building your team of trusted advisors and lenders. A deal team should ideally consist of the following: M&A advisor/broker CPA for financial due diligence and structuring of legal entities for tax purposes Banker, if financing is needed An attorney with business acquisition experience Lastly, if you purchase a business and utilize bank financing, the bank will engage a third-party valuation firm to confirm the company’s value. A valuation will assist you with determining if your offer price is reasonable or needs to be renegotiated.
Mergers and acquisitions (M&A) have become an influential business strategy as leaders look for opportunities to accelerate growth and gain market share. As these transactions happen in a more condensed time frame than ever, all parties are rushed to perform proper due diligence. Don’t let a merger or acquisition void your insurance coverage, The following are potential hidden M&A insurance risks and liabilities you should consider. Accept a Seller’s Liability A pressed M&A process increases the buyer’s risk of neglecting the seller’s liabilities. The responsibility for alleged or actual wrongful acts does not terminate with the transfer of ownership. These exposures can exist for many years following the transaction. The type of sale determines the extent to which liabilities are assumed. A seller retains possession of the legal entity and its liabilities in an asset sale. Only individual assets (e.g., equipment, trade secrets, inventory, licenses) and their accompanying liabilities are transferred to the buyer. Asset purchases are preferred as they reduce the likelihood of future contract disputes, product warranty issues, or product liability claims. In a stock sale, the buyer purchases the selling shareholders’ stock directly and obtains ownership of the seller’s complete legal entity, including all accompanying liabilities. Stock sales present more risk for buyers as there is a potential for future lawsuits, environmental concerns, employee issues, or
Business acquisitions are among the eligible uses for Small Business Administration (SBA) 7(a) loans. In fact, the SBA 7(a) program provides many advantages for acquiring an established business, including its attractive terms, allowing a buyer to finance up to 90% of total project costs. Eligible Project Costs for SBA 7(a) Loans Include The acquisition of an SBA-eligible business and owner-occupied commercial real estate (owner-occupancy minimum of 51% is required) Working capital Closing costs SBA guaranty fee The franchise transfer fee, if applicable New equipment, if needed Inventory Loan Terms If the acquisition does not include commercial real estate, the maximum loan term is 10 years, fully amortized with no prepayment penalty. If commercial real estate is included, the SBA allows a blended loan term with 10 years for the business acquisition and 25 years for real estate. However, if 51% or more of loan proceeds are allocated to real estate, the SBA allows a 25-year term. Prepayment Penalties A prepayment penalty applies to all loans with a term of 15 years or greater. The penalty is 5% in year one, 3% in year two and 1% in year three, and none after that. In addition, the SBA allows a borrower to prepay up to 25% of the outstanding principal per year without penalty. Down Payment The SBA requires a 10% equity injection. The entire 10% injection can be from the buyer or a combination of a 5% buyer down payment and 5% seller financing if the seller is willing to have their note on full standby with no principal and interest (P&I) payments for the life of the loan. Eligible Sources of Buyer’s Equity Injection Include Cash in savings or checking accounts, seasoned for two months Home Equity Line of Credit (HELOC) if there is a secondary source of repayment not related to the business to be purchased Gifted funds that do not need to be repaid Seller financing on full standby of no greater than 5% of the 10% equity required Investor contributions from partners Personal guarantees are required by all individuals who will own 20% or more of the business to be acquired. Collateral Requirements SBA requires the lender to be in the first position on all assets to be acquired. In addition, if there is less than one-to-one collateral coverage, the SBA requires the lender to take a lien on all real estate owned by personal guarantors with 25% or greater equity. Pre-Qualification Documents To
We interview Jeff Swiggett, Business Sale and M&A Advisor as part of our Expert Interview series. Jeff discusses how Buyers look at your business across 6 different value and risk factors. This first interview covers Owner Dependence and Financial Controls as key issues that Buyers want to explore as they are preparing to make you an offer to buy your business. This series of interviews provides great guidance on how to prepare for a strategic exit or sale of your company. Here is a link to the video on my blog page where you can get the download:
Our motto is “Speed is our weapon”. Every day I see this come to life with my clients from day 1 to closing. Here’s how we can help: Pre-qual listings within 24-48 hours upon receipt of your CIM, 3 years taxes and YTD financials Pre-qual buyers with our approving credit manager within 48 hours from receipt of their complete package Underwriting completed in 7-10 business days Larger M&A deals exceeding SBA 7A cap of $5MM can be accommodated with our companion conventional loan up to $4MM, for a total of $9MM financing 100% expansion financing for established buyers with a similar business Closings within 45 days for non-real estate transactions, 60 with real estate We also pay referral fees upon successful closing of all 7A referrals. Call me to discuss a specific transaction or for additional information. 203-461-5097
BLUE RIDGE ESOP ASSOCIATES ACQUIRES CROWE LLP ESOP BUSINESS Crowe Employee Stock Ownership Plan (ESOP) and certain tax-related 401(k) Plan services will transition to Blue Ridge CHICAGO (August 11, 2022) – Blue Ridge ESOP Associates, the nation’s largest independent ESOP administration and recordkeeping firm, announced today that it has acquired the ESOP services and certain tax-related 401(k) services of Crowe LLP, a leading public accounting, consulting and technology firm. Financial terms of the transaction were not disclosed. Following the transaction, significantly all assets and Crowe professionals associated with the Benefit Plan Services (BPS) business will transition to Blue Ridge. “We’re excited to integrate Crowe’s ESOP business and people with Blue Ridge,” said Bill Yoerger, Chief Executive Officer of Blue Ridge. “It’s a great fit for our organization, as the BPS team’s technical expertise and personalized client-centric culture mirrors ours.” “The Crowe ESOP and 401(k) plan administration practice offers true expertise in ESOP and retirement plan services.” said Tom Roback, President of Blue Ridge. “Together we form a powerful combination of thought leadership, high quality, technological innovation and customer service.” Pete Shuler, VP–Senior Consultant at Blue Ridge and a former Crowe partner who transitioned as part of the transaction, added, “We look forward to transitioning the BPS clients to Blue Ridge, where they can expect to receive the same exceptional service to which they’ve become accustomed. Given the nature of our complementary businesses, clients will benefit from the expertise provided by both Blue Ridge and BPS. This is a win for our clients, a win for our people, and a win for both organizations.” About Blue Ridge ESOP Associates Founded in 1988, Blue Ridge ESOP Associates is the largest independent ESOP and 401(k) Third Party Administration and Recordkeeping firm. Blue Ridge provides high quality, technically proficient independent plan administration and repurchase obligation forecasting. Blue Ridge administers over 1,400 ESOP company clients servicing over 500,000 participants along with thousands of 401(k) plans. The Blue Ridge family of companies employs over 165 talented professionals and is headquartered in Charlottesville, Virginia. Crowe LLP is a leading public accounting, consulting and technology firm with offices around the world. Crowe uses its deep industry expertise to provide audit services to public and private entities. The firm and its subsidiaries also help clients make smart decisions that lead to lasting value with its tax, advisory and consulting services. Crowe is recognized by many organizations as one of the best places to work in the U.S. As an independent member of Crowe Global, one of the largest global accounting networks in the world, Crowe serves clients worldwide. The network consists of more than 200 independent accounting and advisory services firms in more than 130 countries around the world. # # # Contact: Bill Yoerger, Blue Ridge, +1 434 443 2137, byoerger@BlueRidgeESOP.com Tom Roback, Blue Ridge, +1 434 220 7947, troback@BlueRidgeESOP.com Mark Semer / Sara Widman, Gasthalter & CO, +1 212 257 4170, llcp@gasthalter.com
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Let’s suppose you have owned a business for any years and are considering selling it to retire (kinda the dream…). Say it is worth $5 million and your capital gain is $4million You will be facing state and federal capital gains taxes, as high as 40% depending on where you live. It gets worse. If you are a C-corp, you could face tax at the corporate level AND the personal level. We call this double taxation. Most buyers want an asset sale, not a stock sale, to avoid liabilities of the seller (legal and debts). There are also some tax advantages. Sellers in a C-corp might prefer to sell stock, to reduce taxes, but that might expose the buyer to additional taxes and legal liability. You now see how this conflict can kill a deal (the tax-tail). (Note that there are ways to mitigate some of this, but we will save that to another day). However, all is not lost if the double taxation occurs, because the seller can use other strategies to offset/reduce the personal side of the capital gain. Saving money on corporate taxes or personal taxes is really about saving money. Money is money. So, before you get too deep into the tax questions, spend some time talking to your CPA and financial advisor about your future plans to sell your business, and let them come back to you with options for planning. If they do not come back to you with good options, then maybe you need new advisors.
Unleash the Power of Conative Data for Your Small Business Small business owners are continually juggling tasks and managing personalities. Conflicts arise whether we like them or not; team leaders and members inadvertently cause disruptions to productivity and damage morale. But what if you could understand why they’re clashing based on their natural need to take action in a certain way? That’s where Conative Wisdom comes in. New Ideas Versus What We Have Always Done Kolbe doesn’t focus on personality traits or feelings; it zeroes in on conation—how we instinctively solve problems and get things done. Understanding your team’s Kolbe Action Modes (Fact Finder, Follow Thru, Quick Start, Implementor) can shed light on the root causes of conflict and guide you toward effective resolutions. Common Conflict Scenarios Through a Kolbe Lens: The “Analysis Paralysis” vs. “Leap of Faith” Clash: A high Fact Finder meticulously researches every detail before making a decision, while a high Quick Start jumps in with an innovative idea. This can lead to frustration, with the Fact Finder seeing the Quick Start as reckless and the Quick Start viewing the Fact Finder as slow and indecisive. Resolution: Value both perspectives within the context of the goal or project. The Quick Start brings needed energy and new ideas, while the Fact Finder ensures solid grounding. Guide them to leverage each other’s strengths. The Fact Finder can help the Quick Start refine their ideas with data, and the Quick Start can help the Fact Finder overcome analysis paralysis by setting realistic deadlines. The “Chaos Creator” vs. “Order Keeper” Tug-of-War: A high Follow Thru thrives on structure and predictable systems, while a high Quick Start prefers flexibility and breaking the rules. This can result in the Follow Thru feeling frustrated by the Quick Start’s perceived chaos, while the Quick Start feels stifled by the Follow Thru’s rigidness. Resolution: Define clear integration of these values for the goal or project. Allow the Follow Thru to manage established processes and systems while empowering the Quick Start to brainstorm new solutions and suggest improvements. Establish agreed-upon boundaries and communication protocols. The “Idea Generator” vs. “Executioner” Bottleneck: A high Quick Start is bursting with new ideas that provide opportunity but struggles with implementation. In contrast, a high Implementor prefers tangible tasks and hands-on creation of quality outcomes. The Quick Start might feel held back by the Implementor’s slower pace, while the Implementor feels overwhelmed by the constant influx of new options without proper execution. Resolution: Create a clear system for evaluating and prioritizing new ideas. Let the Quick Start focus on generating concepts while the Implementor takes ownership of execution. Break projects into smaller, manageable steps and assign clear deadlines. Provide the Implementor with the resources and support they need to bring Quick Start’s ideas to life. Using Kolbe to Resolve Conflicts Assess your team’s Kolbe A™ Index results: Knowing each person’s Action Modes is crucial. Identify the underlying conative differences: Is the conflict stemming from a difference in how they prefer to approach tasks or solve problems? Facilitate open communication: Help team members understand each other’s perspectives and appreciate the value of their different approaches. Encourage collaboration based on strengths: Assign tasks that leverage each individual’s natural abilities and preferences. Create a culture of appreciation: Foster an environment where everyone feels valued for their unique contributions. Embracing Conative Wisdom Learn to do more than tolerate new ideas and opportunities that seem to threaten productivity. Instead, utilize the Quick Starts need to explore ideas as a jump-start to accelerate progress toward growth goals. Tap in to, not out of, the Quick Starts talent; their need to solve problems through ideas and opportunities. Now, you can avoid the entanglements of problem-solving methods and overcome conflict, so you don’t miss a step in your timeline to success. Resolve immediate issues and build a stronger, more collaborative, and ultimately a more successful small business. Stop managing feelings and start understanding action – your team will thank you! Call to Action: Are you ready to understand the power of your team’s strengths? It is important to have a Certified Kolbe Consultant guide the interpretation of this data to attract, engage, and develop your team so you can grow and exit on your terms.
Listen to this post as a podcast: How a Smart Roth Conversion Strategy Can Build Tax-Free Generational Wealth www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you engage our firm for advisory services. The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor. The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. Bloomwood is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Bloomwood and its representatives are properly licensed or exempt from licensure. 730 Starlight Lane, Atlanta, GA 30342.
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Among the wave of Executive Orders issued by President Trump was one rescinding a 1965 Order established by President Lyndon B. Johnson (“LBJ”) designed to prevent workplace discrimination by federal contractors. This LBJ Order is the basis for all Affirmative Action obligations of federal contractors. President Trump’s rescinding Executive Order, titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” is part of President Trump’s broader campaign to dismantle diversity, equity, and inclusion (“DEI”) initiatives in both the public and private sectors. LBJ’s Order and Trump’s Rollback Executive Order 11246 was signed by LBJ in 1965, just one year after the Civil Rights Act was passed. The Order prohibited workplace discrimination by federal contractors and subcontractors and required them to take “affirmative action” to ensure equal opportunity. It also gave the Labor Department the authority to enforce its provisions. President Trump’s Executive Order rescinding LBJ’s Order stated DEI initiatives can violate civil rights laws. This Order removed all affirmative action requirements imposed on federal contractors/subcontractors while still prohibiting consideration of race, color, sex, sexual preference, religion, or national origin when making employment decisions. Additionally, the Order requires the following provisions to be included in every federal contract or grant award: A term requiring the recipients to agree that compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions; and A term requiring such recipient to certify it does not operate any programs promoting DEI that violate Federal anti-discrimination laws. For Federal contractors, this is a huge development but whether the Order will withstand court scrutiny is unknown. Right now, affirmative action is gone but before relying on this to change federal contractor’s practices check with counsel to monitor the status of the legal challenges. Warning to the Private Sector Trump’s efforts to dismantle DEI initiatives extend beyond just federal contractors and the public sector. Trump’s Executive Order encourages the private sector to “end illegal DEI discrimination and preferences.” Specifically, Trump ordered the Attorney General to prepare a report within 120 days providing recommendations to encourage the private sector to end DEI initiatives. The report was ordered to contain a proposed strategic enforcement plan intended to deter DEI efforts. Employer takeaways The crackdown on DEI does not come as a surprise, and many large corporations rolled back their DEI initiatives in the months leading up to Trump’s second term. As a precaution, employers with DEI programs or similar initiatives should review any such program to ensure compliance with anti-discrimination laws. Moreover, employers should remain vigilant for updates regarding any further anti-DEI actions. The current Administration has many irons in their fire. Whether it will push this issue, remains to be seen. Brody and Associates regularly advises management on complying with the latest local, state and federal employment laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.
This is a short video speaking to the importance of business exit planning for business owners, and about my journey to develop the Exit Planning Exchange of Charlotte. This is a short clip from a long-format interview I sat for where I shared my personal journey, the development of EvaluSys, my empathy for business owners and their advisors, the emergence of AI and its importance to EvaluSys, and other topics. The original interview can be found at
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