Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

October 12, 2015

The Hidden Wall Street Impact on Main Street Transactions

By Joseph Eneldas

business-valuation1

By Achim Neumann

Frequently, we see business owners attempting to “time” the sale of their businesses, motivated by factors like personal lifestyle, tax considerations, business seasonality, or a desire to finish a project  before selling.

“Over and over, we have cautioned business owners not to ‘time’ a transaction,” says Achim Neumann, President, A Neumann & Associates, a New Jersey-based Merger & Acquisition/brokerage firm. “Once a deal has been agreed upon, it should be the goal of both parties to close the transaction as soon as possible.”

What can go wrong, and how can Wall Street’s gyrations have an out-sized impact on a mid-sized transaction?

For one thing, in small to mid-sized transactions, the investor typically relies on personal funds for at least 25% to 40% of the agreed-upon transaction amount.  Quite often, these funds reside in stock and bond portfolios.  “At the time an offer has been accepted,” says Frank Arcoleo, Managing Director, Central Pennsylvania, “the investor starts liquidating positions to raise cash.  If the market experiences a significant downturn between the time of offer acceptance and deal closing, this might be problematic.”

A second factor is that such investor portfolios often also serve as collateral for acquisition loans, and declining portfolio values obviously shrink such collateral.  “Add in the emotional impact of situations like we experienced in 2009 and 2010,“ says Gary Herviou, Vice President, “during which investors saw tremendous portfolio devaluations, and there could be considerable hesitation to execute acquisitions.”

Additionally, there can be a change in the financing environment.  In general, deal structures call for fifty percent bank financing.  Delaying a deal closing can have significant negative impact in a variety of ways.

First, a change in the macroeconomic environment can reduce the willingness of banks to lend.  As recently as two weeks ago, a Bloomberg Radio interview discussed the banks’ willingness to lend, and the interviewee expressed that in the current environment, it is more profitable for the bank’s shareholders for the bank to allocate excess cash to buying back its shares in the stock market than to provide new lending.  No wonder that even individuals with stellar credit ratings, like former Federal Reserve chairman Ben Bernanke, have been denied refinancing of their Washington, D.C., homes.  “In other words, delaying a deal can simply close the door on funding availability,“ says Aaron Soury, Managing Director, New York.

Secondly, the lending interest rate can change when a deal is delayed. For example, assuming a $2m transaction with fifty percent bank lending on a company with a $400k cash flow, a two percent change in the interest rate of the acquisition loan will reduce the free cash flow by 4%.  How many business owners are willing to forgo a 4% reduction in profit margin?

In sum, once a deal has been agreed upon by seller and buyer, both parties should move expeditiously to close the transaction.  “Time is the enemy of all deals” is a common statement in the brokerage industry.  And Wall Street might have considerably more impact on a deal on Main Street than the mid-sized business owner can imagine.

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About A Neumann & Associates, LLC

Neumann & Associates, LLC is a professional Mergers & Acquisitions and business brokerage firm with more 30 years of experience in PA, NJ, NY, MD and DE that assists business owners and business buyers with the business transfer process in a completely confidential manner. A Neumann and Associates is affiliated with the BBN, with over 50 offices and access to a national network of qualified buyers and sellers. For more information, please contact A. Neumann & Associates at 732-872-6777.

About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or info@neumannassociates.com

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Client Testimonials

“ I appreciate your diligent approach to screening buyers and sellers as well as the high quality CIM that you produce.”

Andrey O, Investor

“Finally enjoying retirement after recently selling my business using the services of A Neumann & Associates. Joe Oddo provided the conduit to a successful transaction. Joe knew when to inject input and when to simply listen and allow the buyers to vent, step back and regroup. The outcome met our expectations and got us to the finish line, which included my staying with the company six months in order for the buyers to get their footing and keep our workforce in the loop. He helped at every step by providing his expert guidance & resources. Thank you!”

Emily Parker Myers, Co-Owner - Myers McRae

“I had been in touch with Karin and Gary from A Neumann & Associates regarding some opportunities and was looking forward to meeting with them. Hence, when they organized a seminar in Princeton, NJ, I was quick to sign up. The seminar was very informative as the team walked the attendees through various scenarios and referenced real life buying/selling situations they had been through. The sessions by Gary, Karin and Achim were crisp and focused and brought clarity to potential seller and buyers. I strongly recommend the team and look forward to continue working with them.”

Gaurav Tyagi

“Thank you for your Event on "How to value, Sell, and Buy A Business for Maximum Profit" and the insight into ANA’s approach on what is involved in the Business Exit for sellers. Garys Hervieiou's "Business Valuation", Achim's "Deal structure" presentation and Karin’s "Preparing the Package" are real street knowledge shared. They answered attendees questions which makes it more interesting for learning from others. Great for small businesses like us. The presentations were totally worth our time and travel for the event to Princeton, NJ from Rockville MD. Ravi Bhutani, President, CIPS”

Ravi Bhutani

“Gary, this is to thank you for an excellent job done in selling our business. We could never have done it without your professional expertise, dedication and time put in without reservation to make it happen. We will gladly and highly recommend you to anybody in our position.  It was a pleasure to work with you.”

Pat Iammatteo, Owner

“Your vetting is simply outstanding, among the best I've seen from a broker.”

Eric H., Investor

“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Marc, who explained the process in detail. After meeting with Marc in order to get a clear understanding of my business, and what I was hoping to accomplish. His patience in answering all my questions and his knowledge of the proper way to market my business gave me great confidence that this is the firm I will be using to sell my business for max value. Working with Marc at A Neumann & Associates was very easy and professional. I did not know all that was going to be involved in selling my business but they helped me through the process. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. I highly recommend this firm to anybody who wants to sell now or down the road. Marc not only knows his stuff, but actually is a real nice guy.”

Double Diamond

“Used A Neumann & Associates to sale my business. could not imagine having done it with out the patience and experience Gary provided. Thanks Gary,”

Dennis Frazier

“Working with Marc and his company was a pleasure. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. Marc handled most of the interaction and he has one of the greatest demeanors. Again, it was a pleasure working with him and his firm.”

Douglas DiCeglio

“I recently completed an acquisition using A Neumann & Associates. Tony Valentino was very helpful and accessible during the entire process. They do a thorough job vetting both parties and got us to the finish line.”

Srini Mudambi
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If you are considering selling your business, please contact us to learn more about our comprehensive service spectrum. Our experienced professionals will answer all your questions about selling a privately held business in complete confidentiality. Please fill out our contact form, or call us at 732-872-6777. We will contact you directly and will never identify ourselves to your employees.

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