Exit Planning--Structured Financial Partners: Building value for your company's tomorrow ℠

What exactly is a middle market business?

In our exit planning consulting business, we often describe our clients as the owners of closely-held Middle Market companies. What does that mean? We define this by saying that the companies we work with generally do between $5 million and $100 million in sales. This market niche we have carved out is consistent with other definitions of middle market that come in saying companies with revenues ranging between $10 million and 50 or 60 million meet fit the bill.

But the Middle Market is defined differently by as many people or institutions as use the terminology. Banks serving the middle market define their own range. Merger and Acquisitions firms announce they are going after the middle market and they make waves. Today's Wall St. Journal Blog ran a post ran citing this tidbit. Kim Davis, managing director of Boston-based middle-market buyout firm Charlesbank Capital Partners, said that Charlesbank defines mid-market companies as those with roughly $250 million to $500 million in enterprise value. The article further stated that Elliot Royce, a partner at AlpInvest Partners LLC, one of Europe's largest limited partners, said that their maximum for a middle market deal is $125 million…

While comparing revenues to deal size isn't apples to apples, you can see that the company sizes vary pretty widely…

 

2010: A Management Odyssey

Today's guest blogger is my partner, Susan Laine…

According to a recent Pricewaterhouse Cooper's Private Company survey, 57% of the CEO's interviewed plan to increase their total workforce expenses over the next 12 to 18 months. Only 5% expect a decrease.

This is great news for the economy. The future is looking brighter and owners are, once again, starting to think about expanding their businesses. To foster that growth, 39% of the same respondents indicated that they plan to invest in new talent, and also to invest in programs to develop existing talent. The CEO's goals are to better capitalize on their existing workforce and to attract high-quality talent to their firms. But how do you attract the right talent and spend your compensation dollars wisely?

In our consulting practice, we call this the 3 R's—Recruit Reward and Retain. Who do you hire? How do you imbue them with your corporate culture? How do you create a work force whose goals are aligned with both your short and long term goals? How do you compensate them?

These are hard questions to answer. You must sit down and think about these questions as part of your overall business strategy—what do I want to accomplish for myself, my business and my family? How does my staff and more importantly, my management team, help me to achieve my goals?

Only then can you design and implement a talent management program which moves you forward on the road to success.

This may sound out of place in an exit planning column, but as we learned from Stephen Covey, we must begin with the end in mind. Too often we have seen business owners give away stock to key employees in a haphazard manner, absent any strategic objective or planning only to face real difficulty later on. In one case, an employee left and both he and the owner both forget he owned shares. He later reappeared when he heard the company was being sold.

Before designing an incentive and compensation strategy, it is critical to know what the owner's exit goals are. When does he or she plan to leave? To whom does he imagine selling the company? Having a handle on these questions will help in the design of incentive strategies for key people.

The strength and depth of your management team will often be a key factor in the value of your business. Thinking of it as a strategic investment will pay dividends when you sell your company.

Exit Planning--Stepping into a buyer’s shoes

I had coffee a couple of weeks ago with a young professional who was on a mission. His goal was to buy a business.

Perfect timing, I told him, there should be plenty of businesses out there, and at bargain prices.

What I learned from him, though, is that the businesses for sale in his price range--$1 to $3 million--were being offered by owners with unrealistic estimations of what their companies are worth…He saw a parade of companies offered by transaction intermediaries that I know and like. All of the those comapniesy had owners who were unwilling to make concessions to the reality of market value.

This $1 to $5 million transaction size is a tricky arena. It is hard for a business broker to tell the owner to be realistic or refuse the listing…And only the very best company can attract a boutique investment banker. A lot of time gets wasted by serious minded people who want to make a deal. In this case, a 40ish, law school educated guy who has run companies and now has cash in his pocket to buy one and some high quality business brokers.

From an Exit Planning perspective, we represent sellers, in advance of their sale and the first thing we try to get them to do is to get realistic. WHATEVER THAT MEANS TO THEM... If they need a certain amount of money to retire and this business is not worth that much now, can they work and grow the business for a few more years? If they need to get out now, can they afford to get by on what the business is actually worth???