The World's Largest Organization of Middle Market Intermediaries
The June 2012 M&A Source Conference was the place to meet fifty plus Professional Buyers with available funds to invest. It was apparent there are more funds available than there are good companies to buy.

Repeat, there is no shortage of buyers with money. I would estimate there are about 16 buyers for every seller. So why aren’t buyers doing more deals?

As we all know, so many companies are not as profitable as they once were, so sellers are not willing to sell at lower values right now. But another problem I learned from the Private Equity Groups (PEGs) at the Conference was that sellers are not prepared to sell. Sellers need M&A Source Intermediaries more than ever to prepare their companies for sale. Unfortunately, many sellers resist this process. Why should sellers love the M&A Process? They will make more money! In my thirty years of selling businesses, I continue to be amazed at how sellers unintentionally make the due-diligence process difficult for buyers.

The PEGs at the conference told me that they need to make sure that what the seller is representing for sale is truly what is being acquired. Once a strong confidentiality agreement is made and price and terms are generally agreed upon, the buyer needs to be assured that:

1. The financial records are clean and credible

2. The customers will continue to buy the products or services

3. The key employees will stay employed

4. The vendors will continue to supply

5. There are no pending insurance claims, environmental issues or litigation

6. The landlord is willing to lease for reasonable terms

7. The equipment is in good operable condition

8. The payables are being properly paid and the receivables are collectable

9. Inventory is accurately recorded and is viable and saleable

10. All tax and legal matters are in compliance

First and foremost, the buyer wants to be assured the profit of the company is as stated. The intermediary and the seller should analyze the financials, making adjustments for all discretionary expense items not required to run the business. Often these expenses can be added back to the bottom line so the buyer sees what it truly takes to operate the business. Adjusting the profits has a multiplying effect on value. Make sure the adjustments are clearly explained to the buyer.

This makes it easier, less costly and, most importantly, less time consuming for the buyer to close the transaction. Why not make it easy for the buyer?


Published on the M&A Source Website By:
Kevin Dempsey, CBI, CMC, CMEA, Summa Financial Group, LLC, M&A Source Incoming Chairman