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

The unsolicited offer

Many business owners have told us that they get offers to buy their business all the time. Even in this down market for business sales, those letters keep coming.

Are those offers ever real? Not usually. Are they ever? Sometimes.

A few years ago we were working with a client on a consulting project—not a comprehensive exit plan—but more of a modular approach. The client showed us a letter he had received in the mail. After we reviewed it and discussed it with him we developed a plan. First, we would have someone other than him call in response. In this case, we introduced the client to one of our investment banking contacts. After the initial contact was made and it was determined that the solicitation was not a ruse, the client engaged the investment banker. THIS WAS CRITICAL. IF THERE WAS ONE BUYER INTERESTED, HOW MANY OTHERS MIGHT THERE BE??? The investment banker in this case did a tremendous amount of work where we left off. Getting multiple buyers to create a bidding war…Keeping the deal together every time it fell apart. And ultimately closing the deal for an amount that would make a major league all-star proud…

So for business owners who get an unsolicited offer and are inclined to answer it HERE ARE A FEW TIPS:

• DON'T make the call yourself. Have an investment banker, business broker or attorney make the call for you
• DON'T fall for the line about sending over your financials for review. "The worst that will happen is you'll get a free valuation, " they will tell you. NO! the worst that will happen is your competitor will have all your financial information.
• If you want to able to act on that call when it comes, start planning for it today. Exit Planning is a value enhancement process. If you do it your value goes up. If you don't do it your value will be discounted by your prospective buyer.

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…