Download Valuing, Buying or Selling Your Advertising Specialty Company in

Valuing, Buying or Selling Your
Advertising Specialty Company in
Turbulent Times
Jeffry Meyer, CMC
Sunday, January 3
4:00 p.m.-5:00 p.m.
Room 101B
Sponsored by Fields Manufacturing asi/54100
All education handouts are available to download at www.asishow.com/education
“Valuing, Buying or Selling
Your Promotional Products
Company in Turbulent Times”
Jeffry C. Meyer, CPA, MAS
Certified Marketing Consultants, Ltd.
January 3, 2010
“Value Buying or Selling Your Promotional
Products Business in Turbulent Times”
The following material presented by
Certified Marketing Consultants, Ltd. is
based upon historical data collected by
CMC, Ltd. The opinions and conclusions
expressed during this presentation are
the unbiased and professional opinions
of CMC, Ltd. and are being presented
for the purpose of discussion only.
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Consultants, Ltd.
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Thinking about selling your company?
Some common questions will be…
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•
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•
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“How much is it worth?”
“Is now a good time to sell?”
“How long does it take?”
“Can we keep it confidential?”
“Who might be interested in buying it?”
“How do we get started?”
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Consultants, Ltd.
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Value is not a black-and-white
concept
• Value is different from person to person based
upon individual preferences. This sometimes
leads to differences in opinion.
– Stock Market
– Estate Taxes
– Divorce Settlements
– Buyers & Sellers
– Economic conditions
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Consultants, Ltd.
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What determines value?
• Current value to small business owners
is typically based on:
– Income Stream
– Status in the community / industry
– Ego
• Which of these provides value to a
buyer?
– Value to a buyer is based only on
expectations for future earnings
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Consultants, Ltd.
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The qualities used to estimate
future earnings differ from
buyer to buyer. We will
identify some of the more
common ones.
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Consultants, Ltd.
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What qualities increase the value to
buyers?
• Qualities that buyers believe will
contribute to future earnings.
• Qualities that minimize risks to future
earnings.
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Consultants, Ltd.
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What qualities contribute to future
earnings?
• Historic earnings (usually the most important
quality)
– Growth trends
– Margins
– Stability
• Management strength, depth and continuity
• Customer base
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Consultants, Ltd.
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What qualities contribute to future
earnings? (continued…)
• Customer continuity
– Multi-year contracts / corporate programs
– Years as customer
– Personal relationships to salespeople /
owner
• Salespeople continuity
– Contracts
– Independent reps vs. commissioned
employees
– Personal relationship to owner
– Impact on total
company
(c) Certified
Marketing sales and profit
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Consultants, Ltd.
3
What qualities contribute to future
earnings? (continued…)
• Niche products, services, distribution
channel and or market
• Investment in the business (overhead)
– IT (hardware, software, e-commerce,
administrative systems)
– Capital expenditures
– Human resources
– Product development
– Customer acquisition
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Consultants, Ltd.
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What qualities contribute to future
earnings? (continued…)
• Operational excellence
• Location
– Expansion into new markets
– Remote shipping point (suppliers)
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Consultants, Ltd.
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What qualities minimize risks to
future earnings?
• Broad customer base with no customers >5%
of total sales
• Strong management team
• Owner manages the business, not a major
salesperson
• No salesperson >10% of total sales
• Customer service department that works
directly with customers
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Consultants, Ltd.
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In addition to the enterprise value of a
company, sellers can add value / minimize
buyer’s risk in the structure of the sale:
• Employment agreement
• Finance some of the sale for the buyer
• Agree to an earn-out incentive
• Be flexible
• Adding value in the structure of the
transaction means increased money to the
seller.
Adding value in the structure of the
transaction means increased money to the
seller.
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Consultants, Ltd.
“Is now a good time to sell?”
• YES!
• Some owners deferred selling decisions in
2009 because of economic uncertainty.
• The M&A market is extremely active despite
and in some cases because of economic
conditions and uncertainty in the world.
• It is neither a buyer’s or seller’s market.
• There are more active buyers at reasonable
prices than ever before.
The key is for selling companies to be available
when buyers are ready to buy!
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Consultants, Ltd.
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“Is now a good time to sell?”
Financial challenges:
• Economy
• Legislation
– Regulating usage of promotional
products
– Increasing cost & complexity of
owning a company
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Consultants, Ltd.
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“My business is down. I think I’ll wait until
things get better.”
Risk/reward?
• Depth of recession
• Rate of recovery
• Finance cash flow with debt
• Future value vs. debt
Alternatives
• Have your cake & eat it, too.
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Consultants, Ltd.
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“I’m still not sure whether to sell?”
The biggest mistake sellers make is
indecision. If you wait things may get
worse and you lose.
Many owners don’t get it. They build
good companies but never realize the
fruits of their labor. They can have the
BEST of both worlds.
Because of the economic conditions your
business may never fully recover. At
some point your best decision will be to
sell.
Trusted and experienced advisors / brokers will
help ensure you don’t make a big mistake!
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Consultants, Ltd.
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“How long will it take to sell my
company?”
• CMC has completed transactions in a matter of
weeks before.
• 60 to 90 days is not uncommon.
• Unless you are motivated to sell quickly, you
should expect the process to take 6 months.
• CMC has represented clients who were not in a
hurry. They wanted to find the “right” buyers
and the right deal. This approach can take a
year or more.
Timing can be affected significantly
depending upon how efficient & effective
your broker is!
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Consultants, Ltd.
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“How can we keep it confidential?”
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Don’t tell ANYONE that doesn’t NEED to know.
Blind solicitations.
Confidentiality Agreements.
Trusted advisors & brokers. (Some highprofile Industry people can’t keep a secret!)
• Careful communications; phone, e-mail,
FedEx, etc.
• Be prepared to answer direct questions.
Sometimes it leaks out. But the
consequences are usually not significant
despite your fears.
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Consultants, Ltd.
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“Who might be interested in buying
my company?”
• Any company in CMC’s database of over
20,000:
– National competitors
– Local competitors
• Individual Industry buyers who have
expressed an interest in buying a company for
themselves.
• Other non-Industry buyers.
• Venture capitalists are unlikely but potential
buyers.
CMC has multiple companies in its database
who have expressed an interest in a
company like yours.
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Consultants, Ltd.
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“How do we get started?”
• This will probably be the largest
transaction of your life!
– Know what your business is worth by
getting a valuation
– ACCURATE ACCOUNTING RECORDS!
– Retain experienced business brokers
– Know what your role will be after the sale
– Tax planning
– Experienced attorney that you can “control”
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Consultants, Ltd.
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“How do I choose a broker?”
• The right business brokers bring value
and peace of mind to the selling
process:
– The right brokers have years of experience
and have completed MANY deals in the
Promotional Products Industry
– Their credibility opens doors to buyers and
facilitates successful negotiations
– They have the process systemized with a
database of buyers/sellers, purchase docs,
etc.
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Consultants, Ltd.
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“OK, I want to buy a company, what
about me?”
• You should retain a broker also ....
– The right broker will use his database to find a
company that fits your buying profile. If you
are going to invest in a company, you should
buy what you want, not what happens to be
available.
– A broker with credibility serves as the middleman who can open doors to sellers that many
times won’t talk to competitors.
– You may not have the time or expertise to
value a company and negotiate a deal
structure. After all, you already have a
business to run!
– The right broker will save more than you will
pay him.
– CMC represents more buyers than ever before.
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Consultants, Ltd.
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“What might a deal look like?”
• Value
• Structure
– Cash at closing
– Future contingent payments
– Non-compete
– Employment agreement
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Consultants, Ltd.
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?
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