2017/2018: Good Times to Buy and Sell a Business

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buy sell2017 was an eventful year in many respects. Politics, cryptocurrency, and social issues were constantly in turmoil and at the forefront of discussion.

However, those of us who own, operate, buy, and sell business have seen a lot of good growth and have a fairly bright outlook for next year. Why? Here are a few reasons…

The Stock Market

While it’s probably a bit of a stretch to attribute entire rises in the stock market to one person in the White House, it’s clear that currently business confidence in the U.S. is at a recent high.

Stocks are continuing to grow and advance and that also leads to an openness in people willing to buy businesses to diversify their portfolios.

Tax and Regulation Reform

Early on in his presidency, President Trump signed an executive order squarely aimed at going after red tape: for each new regulation, two regulations would be removed. Further, at the time of this article, the government is looking to pass a large tax reform bill.

Whatever you might feel about that executive order or the particular bill, it’s clear there seems to be an appetite to finally deal with this long dormant dragon and make life easier for business owners.

This also leads to confidence from sellers – who expect to see it become easier for them to run and sell a business, and from buyers, who expect fewer regulations and hence ease in continuing to operate businesses they’ve bought.

Low interest rates

Interest rates continue to remain low, making business loans a no-brainer for any who have the confidence, desire, and drive to build something for themselves. Combined with a helpful SBA, this drives confidence in buyers.

More buyers in the market

In 2017 we’ve seen more buyers in the market, for all the reasons given above. Overall optimism about business and growth leads people to take leaps that they may have been waiting to make for some time.  

2018 looks to be a bright continuation of 2017. If you’re looking to cash in on your hard work, or to invest some of your hard-earned cash in a future you own, contact us today!

Case Study #12: The Right Multiple

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handshakeIn 1993 Dennis Hart founded Apex Media Sales (what a great name!). Apex focused on long-form direct response television advertising, in the specific categories of religious and infomercial advertising.

Dennis enjoyed the structure of the company. It was a cash-in-advance business. While the television and cable networks demanded payment upfront, he was also able to demand that same payment from his clients.  

He didn’t have a warehouse or equipment he needed to buy or maintain. All he needed was hard drives to store the “inventory” from his clients. In the early 1990s there were very few players in this space and Dennis took advantage of being one of the first to market and generated $750,000,000 in revenue over the lifetime of the company.

The right timing…for once

Dennis had learned from previous experience in the stock market that he had the ability to pick winners. Unfortunately, he simply had bad timing. He would wait too long and those winners would become losers. When he started Apex he wanted to grow the company to a specific size and then sell…with no regrets.  

By 2007 he felt that he’d grown the company to a size that was the limit of his experience and desire. The company needed someone with more of both to go to the next level, and this realization dovetailed with interest from VCs, one in particular that was pursuing a roll-up strategy in this space.  

7X EBITDA

Apex would be the first company in this roll-up and 7 times EBITDA was the agreed-to deal point. But the acquirers did start to go over some of the owner benefits, which in Dennis’ estimation weren’t shameless tax avoidances but true business expenses around acquiring and romancing potential clients. Dennis was a tough negotiator, and on more than one occasion he was prepared to walk away. In the end, he obtained 95% of the purchase price up front and 5% to be released after one year.

A Family Affair

Dennis’ daughter Carrie had a similar vision to Dennis. She wanted to bring others into the company to take the firm to the next level. On more than one occasion, as Dennis threatened to walk away from the deal, she was the honest broker that kept everyone talking.

Dennis stayed on with the acquiring firm (and is still with them) and continues to work in the space. Dennis’ takeaways from the transaction should be similar to our own:

  • Begin with the end in mind. Think about what your exit strategy is and what your Why’s are.
  • Know your numbers and have clean financials. They will always make a sale easier.
  • Know what you want and be willing to walk. Instead of sabotaging your deal, you’ll often find that this impresses buyers because it indicates confidence in what you already have.

Got questions? Be sure you speak with your Apex Business Advisor to understand more of the ins and outs of the selling process.

Annual Meetings: Not Just for Shareholders

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Annual MeetingMost of you may be familiar with the “annual meetings” required by law for corporations. For small businesses these meetings are often virtual and imaginary, a function that’s simply required for corporate compliance.  

For others, it’s a real and genuine chance to meet their shareholders in order to look over financials for the last year and cast a vision for the following year.

But some of the best companies also ensure that there’s an annual meeting with employees as well, in which their input is solicited and their efforts are specifically recognized.

The Meeting Itself

You could take a half day or a whole day, but make sure it’s not entirely devoted to business. Make sure you’ve got some good food set aside – whether you choose to do it onsite or offsite. Also, make sure that you’ve given them at least some sense of the agenda so they can prepare ahead of time.

Things to cover

  • Financials
    Now you don’t have to give your employees a full set of financials. What you can do is put together a custom report with some key numbers which may lead to some questions that can promote conversation. You can ask where you think growth is coming from, where savings could be gained, what the overall reaction is to growth/decline, etc. The major intangible for the employees is the feelings of trust and inclusion you will foster by sharing these numbers. They’re unlikely to have experienced this in previous jobs and you have a chance to make them feel special and valued. 
  • Brand audit
    As businesses grow and develop (and sometimes pivot) the original sense of the brand can drift. This isn’t a bad thing – it’s a natural part of the journey. However, it’s important to use opportunities like this to recalibrate. If you ask your employees what the brand means to them (and these are people ostensibly working in and around the brand on a daily basis) and you don’t like what you’re hearing, it’s a chance to make a course correction. On the other hand, you may hear something you hadn’t even considered, and can double down in that direction.
  • Employment audit
    Think of this as a group version of an annual review. Ask people what it feels like to work there. Would they recommend it to their friends? Why or why not, etc. By making it a group activity, people will feel safer sharing things that they might not in an individual format.
  • One good/bad thing
    Ask them both:

    • What is one thing we do exceptionally well?
    • What is one thing we can really improve?

This will allow you to revel in something positive while also being honest and focused on ongoing improvements.

The secret weapon in all of this is safety. Your staff must know there will be no recriminations for whatever they say. That means you may need to, as a leader, go first.  

You may have to be vulnerable and share some dreams/hopes/fears that you normally hold back. This gives them permission to be honest with you too. It’s obviously a delicate line to tread, but the best leaders and owners aren’t afraid of that.

Here’s to a great new year for you and your team!