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 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

“Claus out of Florida helped us with the sale of our business. We had never done anything like this and him and his team walked us through the process from start to finish. We had some challenges through the process and Claus continued to show up even in the difficult conversations.”

Colby Harris, Co-Owner, Del Mar Designs

“Claus Madsen thoroughly helped us with selling our company. From the 1st introductory meeting explaining to us what was possible, to providing us with resources to assist with the sale. Claus was invaluable throughout the whole sales process. Claus was with us every step of the journey and always made himself available for any questions or issues that came up along the way. If you are interested in selling your business, I encourage you to reach out to Claus and the ANA team so that they can let you know what’s achievable. These guys will make it happen!”

Ron Harris, Co-Owner and Vice President, Del Mar Designs

“A Neumann & Associates is the only business broker I would use or consult with. They have assisted with 3 business sales over the past 15 years with me. They are honest and sincere and have always performed better than my expectations. They are the only one i would use for the sales of my businesses.”

James Belanger, Business Owner

“I wanted to take a second to commend the exemplary customer service from both you [Karin Neumann] and Mr. Valentino. It’s both a rarity in the industry, and very much appreciated.”

Andrew G., Investor

“We worked with Neumann & Associates to investigate the purchase of a research company in 2010 and found Achim to be capable, forthright and realistic. His depth of experience enabled us to fully understand our options, offering creative options that might enable the acquisition. While we didn’t acquire that particular company at that time, we know exactly who to call whenever we’re looking to buy or sell a business.”

Daniel Coates, Buyer

“Purchasing a business through this firm was a pleasure. Gary was very professional and transparent throughout the entire process. I look forward to working with A Neumann & Associates in the future.”

William Klemens, Buyer
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Contact A Neumann & Associates, LLC

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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