Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

March 9, 2015

Top Five Things Investors and Business Buyers Look For

By Joseph Eneldas

Investors

During the past ten years, our firm has seen consistent behavior among investors & buyers when they contemplate a company investment or a company acquisition. “As a matter of fact,” says Achim Neumann, President of A Neumann & Associates, LLC, a New Jersey-based Mergers & Acquisitions and Business Brokerage firm, “the point of time when an investor loses interest or a deal falls apart is fairly predictable.”

Seller Response (aka “Deal Motivation”)

Most business buyers – as well as seasoned investors – have been “burnt” in the past with “wannabe” business sellers.  Typical telltales for such sellers include a hesitation to accept an offer even after several legitimate business buyers have been introduced, referring all matters to the (sell-side) attorney, or being unable or unwilling to provide the latest financial information. In other words, consciously or unconsciously, the seller is doing everything to delay the deal or make it impossible.

Investors looking to buy a business are very sensitive to such behavior, as they have seen it before, and they do not want to spend up to $10,000 in accounting and legal fees for due diligence, and three months of their own time, with a seller who ultimately does not want to moe forward with a transaction. Thus, it’s imperative for the seller to be responsive and react immediately to buyer requests.

Professional Business Presentation

The most critical marketing document, the Confidential Memorandum, needs to include tax-return-based financial information, a detailed asset listing, growth projections, and current and projected EBITDA and true Sellers Discretionary Cash Flow (SDCF) – including all the personal expenses that an owner runs through the business (such as vacations, second homes, etc.), as well as a an outline on how the business operates.

For example, what is the company’s competitive advantage? How does the company attract customers? Are revenue streams recurring? Which contractual arrangements exist? What kinds of personnel are in place? These are just a few topics that a Confidential Memorandum needs to address if you’re entering the process of buying a business or selling a business.

It is paramount that the financials are consistent. For example, it’s not acceptable for the tax returns to be on the accrual basis, alongside cash-basis P&Ls for the current and future years.  Similarly, the usefulness of the financial information is compromised if the asset details in the Confidential Memorandum are grossly outdated.

Growth Perspectives

Without exception, all buyers want to see that a company has potential for growth. There is not a single buyer who will simply buy a company for its current performance.  Thus, a seller needs to outline what growth paths exist, what plan needs to be implemented, and what capital infusion does such a plan require.  The current business owner, being intimately familiar with the business, is the most qualified individual to provide guidance for such growth.  Naturally, the growth prospects need to be realistic.

Without a credible company growth plan, a successful sale is very unlikely.  Buyers and investors are motivated by a positive cash flow and good company growth projections, and they need to see them documented.

Management Continuity

Almost all buyers want to see continuity in how a company is managed. The very first question typically is: who will stay and who will go?

Buyers seek continuity, and studies have shown that in less than five percent of mid-market transactions will a buyer make any significant personnel changes in the first 12 months of ownership. The management team is an important part of the “goodwill” for which the buyer paid at the closing table.  It would not be smart to destroy such goodwill.

Thus, the Confidential Memorandum needs to include an organizational chart, identification of key personnel and their tasks, and an outline for a transition.

Improper Legal Representation

Another major concern for business buyers is for the seller to have proper legal representation.  Rest assured, the buy-side’s team will include an attorney with extensive transactional background, and the most frequent cause for terminated deals is a sell-side attorney who is not familiar with the “ins and outs” of business sale transactions and has to “read up on” them.  This situation nearly always results in delayed and erroneous responses to the buy-side’s legal counsel.

“In all our years of operations, we have never had a single scenario where the buy-side attorney was not an astute, well-experienced transaction attorney,” says Frank Arcoleo, Managing Director, Central Pennsylvania. “However, we quite frequently see sellers hiring attorneys that are simply not strong in the field of business transactions, and consequently, kill the deal.  Needless to say, it puts our firm in the precarious situation of having to advise the seller that his or her chosen attorney cannot successfully close the deal.”

In summary, if a seller is sensitive to the five major concerns outlined above, and addresses them accordingly, a seller’s offer will attract more buyers to their business, generate appropriate dialogue, and lead to a successful closing.

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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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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