Finding the right buyer for your business is a critical step in selling your business – probably the most important.

The Vetting Process: Worth Its Weight in Gold

A good business broker (or intermediary) will vet-out the buyer in such a way that guarantees that you are dealing with a reputable individual or group that is purchasing your business.

Most buyers that have the type of money that we are talking about to purchase your business didn’t get that money by being an idiot. If they did, a quick Google search and a few reference calls will show this sooner than they can admit, “I’m not really qualified.”

Your broker will not just consider the financial equation (although that’s vitally important) but will also look at experience, reliability and the right “fit” for your company. For instance, does the buyer have relevant experience that will relate to your business? Maybe, maybe not; prior experience doesn’t always have to align perfectly.

Experience: (Also) Worth Its Weight in Gold

Case in point: the buyer that I sold my business to was a suitcase salesman. Yes, that’s right; he sold suitcases to department stores. You may say, “How does that guy have the right experience to sell janitorial services to multifamily housing complexes?”

Well, let’s stop seeing suitcases as apples and janitorial services as oranges and put like experience with like experience instead. After all, this wasn’t just any suitcase salesman. It just so happened, he was a top salesman of a very high-price, high-quality kind of luggage. Well, it just so happens our business was known for its “high-quality” image in the janitorial business. Now, instead of apples and oranges, suddenly you’ve got like with like.

He was also as experienced in dealing with executives over many location department stores as he was used to dealing with the local saleslady that couldn’t care less about what luggage to use; she just wanted to make sure that customers didn’t come storming back in to complain when the luggage was destroyed at the airport. Well, as you can see, his past experiences in luggage sales also made him perfect for the janitorial business.

My business needed someone with sales experience. I had a manager that was awesome at running operations, but he was terrible at getting new business. As it turned out, this new buyer couldn’t just go to individual apartment complexes and sell our high-priced janitorial services, but he could meet with the management companies that managed 30 and 40 complexes to convince them to let us into all the complexes.

Now, this was not that difficult for a good salesman. But the hard part was convincing the local manager that we were worth the extra cost and we would take care of their needs without their new tenants coming back to complain. Suitcases or janitorial services, soap or CDs, Mustangs or Maseratis, a good salesman isn’t good because of what he sells; he’s good because of how he sells.

Turns out, this buyer was perfect!

The Right Buyer Can Put Your Mind at Ease

Now that I sell businesses for a living, it amazes me how many perfect buyers we find for folks just like you every single week. Now, keep in mind, this is not a sales pitch – just an explanation of the benefits of working with a quality brokerage firm that wants the best for both the buyer and the seller. And trust me, putting two wrongs together in a deal never makes a right.

Another case in point: I was in a manufacturing plant the other day taking a tour with the seller and a prospective buyer. As we were walking around the production floor during a certain point in the tour, I pointed at an item that the business manufactured and asked the dumb question: “What is that?”

The seller picked it up and began to look at it slowly and then said, “I’m not really sure.” To that the buyer chuckled and said, “That’s a high-pressure water valve that is used in blah, blah, blah application…”

Believe me, it didn’t end with “blah, blah, blah” either. In fact, he told me more than I ever cared to know about that particular valve! The point is that, in this case, the buyer knew more than the seller about something that the seller’s business actually produced.

Now, how well do YOU think this buyer will do in the business?

Scot Cockroft is the owner and president of Huntington Business Group Inc. a VR Business Sales firm in Dallas (www.vrbigd.com). To learn more about Seller Financing and Finding the Right Buyer for Your Business, read Part 1: How Do I Know If A Business Purchaser Has The Experience to Run “My” Business

VR Huntington Business Group, located in the heart of the DFW Metroplex, serves the entire Dallas-Fort Worth Metro area as well as North Texas. The company specializes in Business Brokerage, Mergers & Acquisitions, Business Valuation and Consulting services focusing on small businesses and mid-market companies.

VR Huntington Business Group is active in the middle-market sector and defines this sector as being one comprised of companies with revenues between $10 million and $200 million.

There are many complexities surrounding an M&A transaction, but arguably the key component is the valuation. Attention should be directed to the value drivers of a company with a specific focus upon those drivers that can enhance value for the client company owners. While many professional intermediaries lack the consultative expertise to advance its clients interests, VR Huntington Business Group recognizes the benefit its clients derive from a broad offering of services. Our ability to identify value drivers and to effectively advise our clients will vastly expand the likelihood of a successful transaction.

We believe the following nine value drivers will enhance a valuation and strengthen a client’s company position while being marketed:

#1: The Customer Base

The customer base of the company being acquired is a primary focal point. What percentage of sales is generated by repeat customers? How many new customers have been acquired annually over the past few years? Is the customer base stable? Is there a concentration of customers and how will economic fluctuations and impact the customer base?

#2: Recurring Revenue

Recurring revenue from the customer base provides confidence to a buyer that the revenue streams can be sustained. What percentage of sales is recurring? Will the combination of revenues from the acquiring company and the acquired company create an opportunity for a higher recurring revenue percentage of the total when the deal is completed?

#3: Product Integration

A major reason for making an acquisition is to acquire a new and complementary product line so that the acquiring company can leverage its current distribution system and, therefore, increase revenues and gross margins.

#4: Gross Margin

This is often the most important line item on the P&L. A detailed analysis must be completed to determine whether an acquiring company can improve gross margins.

#5: Intellectual Property

Intellectual property includes trademarks, patents and copyrights, but it also can refer to a process such as a unique method to generate sales leads and close sales. Proprietary processes should be closely examined – these processes can add considerable value.

#6: Human Capital and Management Depth

Post-sale integration failures of the past are largely the result of management departing after the deal is closed. When valuing a company that is for sale a close look at the human capital of the organization is a necessity. Also, does the management team have substantial knowledge and can they add value to the new management team?

#7: General and Administrative Leverage

Almost as important as gross margin is the general and administrative leverage when combining the acquiring company and the company to be acquired. Careful planning is necessary in this area prior to the LOI stage since synergies carry value.

#8: Sales and Marketing Effectiveness

Another important element of a successful transaction is to determine whether the company has developed an effective sales and marketing model. How long has the model been in place and what are the historical results of the model? Is the model scalable through the forecasted period?

#9: Barriers to Competitive Entry/Competitive Differentiation

Barriers to competition are becoming more difficult to identify, as many companies are reluctant to file for patents even if a technology or process is evaluated to be “protectable.” Buyers seek effective barriers to competition when evaluating a potential acquisition through competitive differentiation.

Conclusion

In today’s tough M&A environment, the professional intermediary must analyze the numbers and make solid recommendations based on that analysis. It also is more important than ever to concentrate on these value drivers when advising middle-market clients on maximizing value during the transaction process.

Mike Derrick is a Senior Business Intermediary with VR Huntington Business Group Inc. a VR Business Sales firm in Dallas (www.vrbigd.com).

VR Huntington Business Group, located in the heart of the DFW Metroplex, serves the entire Dallas-Fort Worth Metro area as well as North Texas. The company specializes in Business Brokerage, Mergers & Acquisitions, Business Valuation and Consulting services focusing on small businesses and mid-market companies.

DALLAS, Tex. – CKS Transport, Inc., a FedEx Ground line haul contractor domiciled out of the Hutchins terminal near Dallas, was acquired by The Perham Group, Inc. of Arizona last week with the assistance of VR Huntington Business Group in Dallas.

Prior to acquiring this FedEx Ground operation in 2007, CKS president Colin St. Clair actually considered acquiring a different business with VR Huntington. Although he went a different direction with his decision, he always remembered the way VR Huntington Business Group presented businesses for sale and the way he was treated as a buyer. So it was only natural when it came time to sell CKS that he called VR.

“As a buyer, I met with several Dallas area business brokers looking for purchase opportunities,” he said. “Not one organization provided the level of professionalism, knowledge and access to data that VR Huntington did. As a seller, I wanted to make sure my business had those same advantages, so listing with VR was an easy decision.”

Bob Perham, president of The Perham Group, Inc., was actively searching for a suitable acquisition opportunity in the FedEx Ground system. He researched dozens of opportunities around the country, but in the end no available business fit his criteria as well or was presented as effectively to him as CKS.

“When I started researching FedEx listings to acquire, I discovered several that appeared to be what I might be looking for, but I was discouraged by the lack of response and information I was able to get on these operations, “ Perham said. “At the end of the day, VR Huntington was the one organization what was able to deliver the quality and depth of detail I needed to actually review the business and ultimately make an offer.”

VR Huntington not only assisted St. Clair in the marketing of his business and the qualifying of potential purchasers, but they were also deeply involved in every detail of the sales process – from negotiating the purchase price and the asset purchase agreement, to coordinating closing and funding, VR Huntington was critical to this transaction being a success.

“There’s no question that without VR Huntington and my agent that this transaction would have never closed,” St. Clair said. “There were several occasions where the deal stalled and I thought we might have hit a dead-end, but my agent never got frustrated – he was always there with a new solution, and ultimately that’s what helped make the difference.”

VR was established in 1979 and is the oldest professional business brokerage in the nation with more than 125 offices and 800 agents worldwide. VR Huntington Business Group (www.vrbigd.com) is based in Dallas and has finished the last four years as one of the top VR offices in the world. VR Huntington Business Group specializes in assisting the owners of privately-held companies to value, market and sell their businesses, as well as representing buyers interested in professional assistance in their business searches.