How To Win in a Financial Crisis

Businesses face difficult challenges when enduring a financial crisis. But what highly successful businesses have discovered is a financial crisis can also provide many opportunities. If the right opportunities are pursued, market share can experience sharp increases. This gives companies the push needed to move ahead of industry leaders. With the right strategies, a business has the ability to maximize success during a financial crisis.

Unique Opportunities
A financial crisis provides unique opportunities in regards to regulations. While government regulations may have previously been stringent, a financial crisis can create a shift. Often times, companies are able to get around normal boundaries which can greatly increase the opportunities available.

Foreign Ownership
Companies often identify potentially lucrative opportunities in other countries. But because of foreign ownership constraints, the company’s options are at a standstill. A financial crisis often provides opportunities to bend the rules. Foreign ownership rules may be relaxed which allows businesses to execute successful business plans for expansion.

Stronger Negotiation Abroad
After time, many businesses become complaisant on their views regarding regulations. When a financial crisis occurs, management needs to adapt new attitudes and think creatively about regulations. Instead of accepting current rules, executives need to explore the effects of expanding the limits. If you challenge regulations, you may be able to gain entry into new markets. This can provide an advantage over the competition.

Taking on Industry Leaders
During difficult financial times, industry leaders are often hit hard. Difficult economic conditions often shake consumer confidence which can have a negative effect on these leaders. This provides a unique opportunity for small and emerging companies to penetrate the market. Smaller market competitors can capitalize on this opportunity by moving in and building a stronger market share.

Opportunities for Expansion
Many companies have ambitions to expand but have been limited by stringent regulations. Yet, as regulations begin to relax, companies are apprehensive about expanding during a financial crisis. Although this strategy may be counterintuitive, there are huge rewards for successfully expanding during a financial crisis. A company can take advantage of relaxed regulations that wouldn’t otherwise be available. And because many other companies aren’t willing to take the risk, it gives your business a strong edge against the competition.

Merger and Acquisition Deals
When a financial crisis hits, companies will often table discussions of acquisition or merger deals. Taking advantage of a merger or acquisition during hard times can actually turnout to be a successful strategy. This can be a great time to find deals that will create value and assist in expanding a businesses’ market share. The key to this strategy is finding the right deals and not overpaying. If you take advantage of the right opportunities, the payoffs can be huge.

Wagering Risk During Hard Times
When financially rough times occur, companies often clam up, holding all of their assets closely. But if you take a look into history, companies that make successful bold moves during a financial crisis can positively change the path of their company. Making strategic moves during a financial crisis can be risky. For companies who are up for the risk, the rewards are big. Work closely with management to develop winning strategies based on the economic changes.

Consider Your Positioning Strategy
During poor economic times, high-end goods providers typically experience drastic affects as consumers hold onto their money tighter. Companies that experience success in a financial crisis are usually those selling discounted goods. A company should develop strategies to tap into the marketplace changes. Closely evaluate your price points, marketing and packaging. This can assist in generating creative strategies to position your products closer to the market’s needs.

The Value of Quick Response
Those companies who come out of financial crisis ahead of the competition are usually quick responders to marketplace changes. Eliminating processes that slow down a company’s ability to respond to economic change quickly will add to your success. Work closely with senior management to quickly create and execute strategies.

Corporate Culture Changes
When companies design new strategies and quickly implement changes there is often a shift in corporate culture. Because managers often become comfortable with a set approach to business, there may be some resistance to change. Executives need to quickly gain management and employee buy in to make the new strategies a success.

A Call for Strong Leadership
In a financial crisis, companies need a leader that is resilient and can successfully implement change. Having a strong visionary that is willing to throw all of the old rules out and adapt new winning strategies is critical. Making these changes can lead a company down a path full of opportunities which can yield high payoffs and rewards.

Resources:
Dominic Barton, Roberto Newell, and Gregory Wilson. “How to Win in a Financial Crisis.” The McKinsey Quarterly 2002.

VERCOR is a middle market investment bank that creates liquidity for small and middle market business owners. For more information visit http://www.vercoradvisor.com/.

Are You Maintaining your Company’s Value in an Uncertain Economy

The global economy might be plagued with accounts of slumping business valuations. VERCOR managing principal, Mark Jordan, stresses it is still possible for companies to preserve and increase business value in the current economic climate.

Most known for guiding hundreds of business owners through the merger and acquisition process and his book, “Selling your Business the Easy Way,” Jordan continues his tutelage with the webinar, “Maintaining your Company’s Value in an Uncertain Economy.” The webinar provides business owners advice on how to preserve and increase business value and boost sales price a despite the economy.

Understanding the Short and Long Term Views
Jordan’s advice to business owners is to evaluate short and long-term views of mergers and acquisitions. While short-term factors such as tax rates and access to financing are critical, business owners should weigh long-term factors more heavily. This will remain a business strategy of choice due to valuable benefits including access to additional markets, greater economies of scale, and the ability to gain new talent.

Understanding Value Drivers
The merger and acquisition consultant also stresses the importance of understanding value drivers and their strong tie to the sales price of a business. A company’s strengths and weaknesses are a few principal factors to consider because they shape business value. Jordan notes it is important to consider a product’s uniqueness. ”Do not worry if you have opportunities for improvement. A seller actually appreciates a company that has some areas of opportunity,” he adds.

Enhance Value Drivers
Jordan also dispenses advice on how to enhance value drivers to boost a company’s sales price. A primary way to determine a company’s strengths is through customer and employee feedback and by understanding strategic planning for all business units. The business advisor recommends choosing a board of advisors. “A board can provide unfiltered feedback and vision planning which can make the company more effective,” suggests Jordan.

Jordan is confident that webinar attendees and all business owners can gain direction on preserving and increasing their company’s value in a tight marketplace. He states, “With proper guidance, business owners can navigate their way through this complicated maze and elevate their sales price.”

VERCOR is a middle market investment bank that creates liquidity for small and middle market business owners. For more information on the webinar, “Maintaining your Company’s Value in an Uncertain Economy,” visit www.vercoradvisor.com.

Is Your Business Ready for the Future? Get on Track with These Four Steps

While most business owners agree it is sound business practice to create and maintain a strategic plan, few businesses have one. Mark Jordan, managing principal of the middle market investment bank, VERCOR, reveals that only five percent of companies have a formal business plan in place. He warns that a lack of a business plan can affect the sales process. “Even if the sale of your company is years away, effective planning can make a huge difference,” states the merger and acquisition consultant.

Jordan has assisted hundreds of companies through the merger and acquisition process and most recently published the book, “Selling your Business the Easy Way.” He takes his advice a step further with “Preparing to Sell your Company,” a webinar that provides companies valuable planning information to give their business the competitive advantage in the sales process.

Preparing a Smart Base Camp
Jordan explains how preparing a “smart base camp” can create solid footing for a business. This includes designing specific actionable steps that will position a company for a successful sale. Even if business owners are not anticipating selling for 10 years, it is important to plan. The webinar provides detailed steps to assist with preplanning efforts.

Understanding the Value Pillars
When selling a business, business owners must also understand their core competencies. “This allows you to communicate how your products or services have a special place in the market,” states Jordan. The expert advises business owners to perfect the financial aspects of their company to display their performance to potential buyers.

Determining the Value of your Company
Determining business value is another important component of selling a business. Although there are several ways to assess a company’s value, Jordan explains that using the market value calculation is most accurate. This includes researching values of comparable businesses and talking to potential buyers.

Using a Scorecard to Evaluate your Business
To increase marketability and sales price, Jordan recommends businesses owners evaluate their companies. Criteria should include management compensation, opportunities for business growth and the ease a company will transfer to new ownership.

Jordan looks forward to providing a blueprint for companies to position their business for a future sale in the webinar. He warns, “Business owners are facing a time of uncertainty. For prepared business owners, it can be a time of great opportunity. Business owners cannot afford to be without a plan.”

VERCOR is a middle market investment bank that creates liquidity for small and middle market business owners. For more information on the webinar, “Preparing to sell your company,” visit www.vercoradvisor.com.

Where do middle market business owners fit in the economic downturn?

Turn to the front page of any newspaper across the country today and you can read about our seemingly endless economic woes; the wall street free-fall, government bailout plan, the credit crunch and of course, lagging consumer confidence and spending power.

While it is easy to focus on the short-term factors that can affect your business, it is critical that business owners in the middle market continue to focus on long-term business drivers that improve overall business value. Factors such as growth, innovation and effective cost management can positively affect overall business value in the long run.

Forward thinking middle market business owners know long-term value drivers, and not stock or credit markets, determine the overall business value and eventual sale price of a company. That is why they continue to pursue long-term strategic objectives with the same vigor today as they did before the economic downturn.

VERCOR, a middle market mergers and acquisitions firm, has successfully helped business owners create liquidity through acquisitions and selling their company for over two decades throughout various economic cycles. We help business owners focus on the long-term factors that affect their overall business value while enabling them to continue focusing on the day-to-day operations of their company. We have relationships in place to help maximize capital when it is the right time to acquire a business or when you get the right price to sell your company.

The good news is that, despite the economy, now is still a good time to consider selling your company. This is because:

-Valuations in some middle market sectors are still at historic highs
-Sales prices are not based on the stock market, but the value of individual businesses
-There are more buyers available than there are quality deals
-VERCOR is there to help you determine the fair market value of your company and will persevere until the deal is done

Now is also a good time to acquire a company in order to grow your customer base, reach new global markets or gain access to a broader talent pool. This is because:

-Opportunities for organic growth are slowing
-Finding and retaining top talent is a long and challenging process
-VERCOR is there to help you source acquisition targets that are the best strategic fit for your business

Great things are still happening in the middle market despite the economy. Middle market companies are growing; they are innovating and moving forward to long-term success.

Mark Jordan is the managing principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of Enhancing Your Business Value…The Climb to the Top, Selling Your Business The Hard Easy Way and co-author of The Business Sale…A Business Owner’s Most Perilous Expedition. He is also the author of numerous articles. For more information email him or visit www.vercoradvisor.com.

Remember the Map

For the vast majority of business owners, external factors and random events dictate the path they travel on their business journey. They may have a general idea of where they are going, but for the most part their plans are reactionary. They readily admit they need a road map but so often fail to ever take action. After consulting with hundreds of business owners around the country, I have observed the most common reason is know-how. They simply lack the knowledge of how to research, organize and prepare, and use a business plan.

Before we tackle the know-how, we should start by gaining an understanding as to how a business plan will really benefit your organization. It will provide goals, an outline of how to get there, and a system for measuring your progress.

Case in Point
To illustrate let’s look at "Frank," an owner of a small manufacturing company that was established over ten years ago. Frank’s business was a steady performer and provided a healthy income. Recently, Frank invented a unique tool for a specialized niche in the utility industry. The tool was a "one of a kind" and certainly appeared to have great promise. Frank began to spend all of his time on fine-tuning his product design. Armed with a working prototype, he set about marketing his product. He quickly found out there was no market for his product. In the meantime, his core business suffered greatly as he needlessly pursued this particular product. Had he gone through the development of a business plan first, he would have quickly seen there was no real market potential for his product. His company is still trying to recover from the year he wasted.

In addition to saving you from wasting time and resources, there are at least four main purposes in developing a business plan: You need additional funding, you need to make strategic decisions regarding starting, buying, or growing a business, you want to improve the operations and organization of your company, and you are considering selling your business.

Action Step
Purchase business-planning software or engage a professional to begin the process of preparing a plan.

Research is the first and most important component in developing your business plan. To conduct your research effectively, you need to first determine the topics to be discussed. Your topics will provide the framework and direction for your research. With your framework in mind, utilize as many resources as possible from a diverse background including industry associations, competitors, employees, and the Internet.

After your research is complete, it is time to organize and prepare your plan. While there is no requirement as to how you organize it, most plans contain the following sections: an Executive Summary outlining goals and objectives, Company History, Corporate mission and goals, Management team history, Your service or product offering, Market potential, Marketing plan, Financial projections, and Exit strategy.

As you prepare and organize your plan, commit to presenting accurate and realistic information. Insure your ability to defend your assumptions and projections. Some of the more common mistakes made by business owners in preparing their plans are: Presenting unrealistic financial projections, Showing an unrealistic growth plan, Overestimating sales, Underestimating or belittling the competition, and Providing too few details.

Your final step is committing to use your plan. Your plan, of course, is of no benefit if upon completion it goes on your shelf. You should review your plan at least semi-annually and update it at least annually.

You can’t build a reputation on what you’re going to do - Henry Ford.

Once you begin to use your plan, learn a lesson from the many businesses in the marketplace that never succeed. Those that fail or stagnate usually trip up in one of the core areas of finance, sales and marketing, management, or operations. In finance, they typically underestimate start-up costs or cash flow needs, overuse debt, fail to understand the difference between profit and cash flow, or make overly optimistic assumptions. Failures in the sales and marketing area usually revolve around underestimating the competition, inaccurate assessment of market potential, inability to promote the product or service, unrealistic estimates of length of time to penetrate the market, or lack of understanding of customer needs. The breakdown in management most commonly occurs due to lack of experience, divergent shareholder goals, wearing too many hats, and lack of structure. Operational problems develop as a result of poor location, too much overhead, wrong equipment, or poor utilization.

Mark Jordan is the managing principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of Enhancing Your Business Value…The Climb to the Top, Selling Your Business The Hard Easy Way and co-author of The Business Sale…A Business Owner’s Most Perilous Expedition. He is also the author of numerous articles. For more information email him or visit www.vercoradvisor.com.

How do you stack up against competitors?

How do you stack up against competitors in the marketplace? What unique abilities or systems do you possess that arm you with a competitive advantage in your industry? To answer these and many other competitive related questions, you need to implement a business intelligence program.

A business intelligence (BI) program will assist you in determining customer buying decisions, industry trends, market opportunities and new ways to showcase your product or service. It will allow you to determine your competitive superiority - where you outperform your competitors relative to such areas as quality, customer service, price, distribution and customer service. A business intelligence program will also enable you to uncover areas where you are at a disadvantage relative to your competitors. There are many resources available for launching your intelligence gathering, but every plan should include the following:

• Reports
• Internet Research
• Legal
• Industry and Trade Organizations
• Personal Contact

Evaluating your competitors, especially privately owned companies, is challenging at best. That is why VERCOR has done some of the heavy lifting for you by developing industry segment insight reports on the leading industries in the middle market today. These reports, which are updated every quarter, will provide you with the snapshot you will need to determine how you stack up against your competitors and industry trends that can impact your business.

To request a copy of an industry segment insight report to add to your existing business intelligence process or to kick- start your business intelligence efforts, please contact us. We understand your business needs and VERCOR is here to help.

Mark Jordan is the managing principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of Enhancing Your Business Value…The Climb to the Top, Selling Your Business The Hard Easy Way and co-author of The Business Sale…A Business Owner’s Most Perilous Expedition. He is also the author of numerous articles. For more information email him or visit www.vercoradvisor.com.

Keeping Your Business Records Organized

As a business owner, I am sure you can relate to the shuffle of getting organized before the “auditor” arrives. Even if you are the most organized person in the world, something is usually out of place somewhere and can use a little tweaking to obtain a more professional appearance.

How much tweaking needs to be done before you can present your business to potential buyers? If your business finances are disorganized, other areas of your business are probably disorganized as well. Even if your financial reporting is disjointed, there is hope.

An investment banker is in the business of organized business sales. He has helped countless businesses uncover their value and present it in the most profitable way. His goal is to increase your company’s profits to achieve the highest sales price possible as he guides you through the process of identifying what types of reports are mission critical.

Once you have obtained the expertise of an investment banker, you can continue to focus on what you do best, managing your company. You can consider your newly acquired professional assistant your partner. You are both working towards the goal of the successfully valuing and eventually selling your business.

It is a proven fact that organization brings about higher productivity and higher productivity can equate to a better overall business value. The methods you use to achieve this productivity are your own choice. Maybe you will only implement enough change in your company to create organization in your company’s financial reporting. Conversely, maybe once you see the profitability of organization you will apply the principal throughout all aspects of your company.

Whichever road you choose, organization will always be a part of your sales and management strategy. Whether you hire professionals to lighten the workload and diminish your direct input or work through the process yourself, organization is an important key to your success.

Mark Jordan is the managing principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of Enhancing Your Business Value…The Climb to the Top, Selling Your Business The Hard Easy Way and co-author of The Business Sale…A Business Owner’s Most Perilous Expedition. He is also the author of numerous articles. For more information email him or visit www.vercoradvisor.com.

Leading Business Advisor Guides Business Owners through the Business Sale Process in Selling Your Business the Easy Way

ATLANTA, July 23 /PRNewswire/ -- Selling Your Business the Easy
Way ($11.95, ISBN-13: 978-0-9816572-0-2) guides business owners through the process of selling a business and highlights the common pitfalls they can easily avoid.

"Everyday I encounter business owners who are confused about selling their businesses. They want to know what they should do, shouldn't do and what mistakes they should avoid," explains author Mark Jordan. He adds, "Business owners should not entertain selling a business before knowing the answers to
these important questions."

Jordan cautions that too many business owners forfeit a power seat at the negotiating table by over or undervaluing their business. Lacking in-depth knowledge of business valuation or the tools to track comparable business sales, these business owners are without the expertise and objectivity necessary to assign a realistic value to their business. They either chase
buyers away or lower their bargaining position as a result.

Jordan also offers readers sage advice on how to make the business sale process easier. Not surprisingly, the managing principal of middle market investment bank, VERCOR, stresses the importance of choosing the right team to navigate them through a transaction. "Sellers close their deals at a better price and on better terms than those that go it alone. Besides, business
owners expose their assets and their company when they go through a complex deal by themselves or with an unqualified, unlicensed advisor," warns Jordan.

Because advisors are now required to maintain a securities license if they handle asset and stock transactions, business owners are facing the nightmare of having their deal rescinded for using an unlicensed broker. Jordan adds, "Selling a business is a complex, but rewarding process. You can bet that your mistakes will cost you. That is exactly why I wrote this book."

Selling Your Business The Easy Way (Decere Publishing, 2008) is available for purchase at major booksellers, or online at www.amazon.com or www.sellabusinessbook.com. Lightning Source, a subsidiary of Ingram Industries, Inc., is distributing the book.

Mark Jordan is the managing principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of Enhancing Your Business Value... The Climb to the Top (Decere Publishing, 2002) and co-author of The Business Sale... A Business Owner's Most Perilous Expedition (Decere Publishing, 2001). He is also the author of numerous articles on mergers and acquisitions. For more information, visit www.sellabusinessbook.com or www.marktjordan.com.

Mezzanine Financing: How can it help you?

By Vijay Madyastha – VERCOR Atlanta

In Summary
-Mezzanine financing allows borrowers to obtain unsecured debt financing based on cash flow rather than traditional collateral.
-In deciding on a source for mezzanine financing, businesses should pay attention to the lender’s personnel turnover, commitment to the business, track record and flexibility in structuring.
-PROS: The mezzanine financing arrangement is usually flexible taking into account the cash flow.
- CONS: Mezzanine financing requires the business owner to relinquish some measure of control over the lender. Businesses may be forced to accept restrictions in how they spend their money in certain areas.

To some, mezzanine financing might sound like a complicated term. With a little insight, however, mezzanine financing may turn out to be just the avenue you need to grow your business to the next level.

What is Mezzanine Financing?

The word “Mezzanine” comes from the Italian word meaning half, in the middle or lower.

Mezzanine financing, also referred to as "mezzanine capital" or "junior capital," allows borrowers to obtain unsecured debt financing based on cash flow rather than traditional collateral. It is a tool that can typically fill the financing gap that often occurs between owners' equity and traditional bank financing. Business owners often use mezzanine financing is most for re-capitalization, financing growth, acquisitions or ownership changes.

Generally speaking, mezzanine funds occupy the middle of the business finance scale making it less risky than equity or venture capital, and more risky than senior bank debt. Companies beyond the startup stage, but without the historical cash flow desired by traditional lenders, typically use it. Still, borrowers are required to demonstrate an established cash flow, strong management and operations, a growing market scope, and a solid business plan. Major sources of mezzanine financing include private equity groups or investors, insurance companies, mutual funds, pension funds, and banks.

How Does It Work?

To utilize mezzanine financing, a business borrows some of the money that it requires to grow their business (either through acquisition, increasing of existing operations, etc.), then raises additional funds by selling stock in the business to the same mezzanine financing lenders. In a mezzanine financing arrangement, the borrower negotiates an arrangement with a lender wherein the necessary capital is secured by combining a loan with a stock purchase to the lender. As a rule, the business only pays interest on the money it borrows for a given period specified by the lender. At the end of the arrangement period, the business can cash out their investors by going public or by recapitalizing their business in a new round of financing.

Here is an example:

ABC Company requires $10million to purchase land and facilities to expand its business operations in two new locations. Traditional lending institutions may offer to loan ABC Company $5 million for the land and facilities acquisition based on the companies current performance as detailed in their existing financial statements (balance sheet, cash flow statement and P&L Statements). ABC Company will need to devise a way of supplementing the $5MM in a traditional loan with additional funding to be able to execute their growth strategy. That is where mezzanine financing comes into play. ABC Company can look to mezzanine lenders to raise the additional $5MM needed to execute their strategy by offering lenders stock or a percentage ownership stake in their existing business of that $5MM value for a term of five or so years. At the end of the term ABC Company has the opportunity to buy back the stock (or cash out) from the Mezzanine lender and the new value of stock, based on the return on the expansion investment.

What is in it for the Mezzanine Lender?

The lender makes their money by earning interest on their loans, and if the value of the business they invested in has increased, they realize capital gains by selling their stock in the business.

Why Go To A Mezzanine Lender?

Business owners go to mezzanine financing because it is seen as a viable financing option for some companies that have moved beyond start-up status, but do not yet have the ability to finance substantial growth moves themselves or via traditional lending arrangements. The amounts raised via mezzanine financing can be sizeable in nature. The domestic commercial and industrial loan market is estimated to be greater than $1 trillion annually, and a conservative estimate of the number of mezzanine funds available today is around 180 separate funds.

What Should You Look for in a Lender?

In deciding on a source for mezzanine financing, businesses should pay attention to the lender’s personnel turnover, commitment to the business, track record and flexibility in structuring. Low turnover and commitment to the business are good indicators for a lender, because businesses rarely perform exactly according to plan, prompting the need for an investor who understands the business and will respond readily and appropriately.

To Whom Do Mezzanine Funds Look To Lend?

Since they are more concerned than senior lenders about their overall yield, mezzanine lenders are very liberal in designing their investment to meet the financial, operating and long-term cash flow needs of the borrower. As so much as the lender's anticipated yield is satisfied, they can be flexible as to the loan and the interest rate. One of the important factors examined by a mezzanine lender is the business's capacity to generate cash flow. In addition to cash flow, lenders also tend to look at ownership flexibility, business history, growth strategy and acquisition targets.

Pros of Selecting Mezzanine Financing

-The business owners usually will not be subject to any management interference from their lender.

-The mezzanine financing arrangement is usually flexible taking into account the cash flow requirements of the business.

-Lenders are usually long-term investors rather than entities looking to make a quick buck.

-Mezzanine lenders can offer valuable strategic assistance.

-Mezzanine financing increases the value of stock held by existing shareholders, though the existing shareholders’ ownership stake becomes diluted.

Cons of Selecting Mezzanine Financing

-Mezzanine financing does require the business owner to relinquish some measure of control over the lender.

-Subordinated debt agreements may include restrictive covenants, including agreements by the lender not to borrow more money, refinance senior debt from traditional loans or create additional security interests in the assets, as well as the various financial ratios that the borrower must meet.

-Businesses may be forced to accept restrictions in how they spend their money in certain areas.

-Mezzanine financing is more expensive than traditional or senior debt arrangements.

-Arranging for mezzanine financing can be a hard and lengthy process. Many mezzanine deals can take at least three months to arrange, and many will take twice that long to complete.

The Outlook of Mezzanine Financing

Many experts believe that the use of mezzanine financing will continue to increase among both small and large companies. Businesses are becoming more in tune with financial restructuring in order to create incentives to increase business value. The growing demand of mezzanine financing from businesses along with a growing supply of mezzanine capital from a varied base of institutional investors, will help ensure that mezzanine financing has a home in future capital agreements.

Hiring a Mergers & Acquisitions Firm

Once a business owner has made a decision to sell their business, the next question is who will handle the process. There are only two choices – manage the process personally or delegate it to someone else - that someone else is called a business intermediary. This article is focused on helping you understand the benefits of using an intermediary.

Some business owners are capable of managing the process of selling a company, but frequently the benefits of hiring a professional mergers and acquisitions firm outweigh the costs. The key benefits are best remembered with the acronym SUCCESS: Strategic Fit, Understands the Process, Creates Multiple Options, Communication / Negotiation, Expectations are Managed, Stay Focused on the Business, and Sustained Momentum.

Let’s look at each of these benefits in more detail. Strategic Fit means there exists some synergy between the purchasing entity and the seller. This could take many forms, but a few examples include product, distribution, geographic, and management synergies. Product synergy occurs when the purchaser and seller have complementary products that when combined create greater value. Distribution synergy is evident when the purchaser has products that can be distributed through the seller’s customer base or vice versa. Another type of strategic fit is geographic synergy. This is where a purchaser needs a new geographic presence in which the seller is located. Management synergy occurs when management gaps are closed upon the purchase of a new company. A deal where there is a Strategic Fit between the buyer and seller often yields greater value.

An intermediary is usually more adept at demonstrating synergy between buyers and sellers. A good example to illustrate this point is with a past technology company client that was sold to a strategic buyer. After the first round of marketing there were two reasonable offers which were within 10% of each other, but neither was a strategic buyer. The second round of marketing targeted companies that had complementary products thereby creating a strategic fit. From this group, a third offer was secured from a strategic buyer that was twice the value of the previous two offers. The deal was closed several months later.

Understanding the seven step process of selling a company is a vital component to a successful transaction. Steps 1 and 2, which are comprised of the initial meeting and financial review are conducted to determine the probability of success and potential fit between the mergers and acquisitions firm and the seller. Step 3 is finalization of the agreement between the intermediary and the seller. The real process of marketing a company begins with Step 4 - pre-sale planning. Step 5 begins the actual marketing outreach. Steps 6 and 7 involve negotiation and transition planning.

The process of taking a company to market and moving it to closing is very complicated and time consuming. Very few business owners understand the process well enough to manage all facets, and they rarely have the time.

Creating Multiple Options relates to the ability to orchestrate and manage several buyers on one deal at the same time. The classic mistake a business owner makes when selling his business is dealing with one interested party at a time. The most common scenario we observe is as follows. A potential buyer contacts a business owner expressing an interest in his company. The owner responds by saying “sure, I would consider selling if the price is right.” The owner sends information to the buyer (frequently without an effective confidentiality agreement) and the information exchange begins. In the meantime, the buyer is doing nothing to generate additional interest from other prospective buyers. If and when the buyer finally makes an offer the owner has no idea if he is receiving a strong value, because he frequently has no other offers for comparison.

If the marketing outreach process is managed effectively, there is a greater probability of securing several interested parties on each deal. Multiple interested entities means greater clarity in evaluating the merits of each offer and increases the likelihood that a strong value will be received.

Communication and Negotiation is the foundation of every deal, but contrary to popular belief it is not the only step that matters. This is by far the most common stumbling block to most business owners. They perceive themselves to be excellent negotiators, therefore they assume they can negotiate the best possible deal forgetting that a lot more goes into “getting a good deal” than your ability to communicate.

Consider the owner who focuses exclusively on price in his negotiations. He may very well get his price not realizing the purchaser gladly agreed to it because the structure of the deal heavily favored the buyer. Another common development is “sowing seeds of discord.” In an attempt to negotiate the best position, the purchaser or seller unintentionally insults the other thereby creating an antagonistic relationship, which sticks with them throughout the process. Their ability to resolve minor disagreements is impeded. A professional intermediary is typically able to “remain above the fray” and eliminate personal feelings thereby increasing the chance of resolving disagreements.

Few sellers know what is reasonable to expect and how to manage Expectations. Is it reasonable to ask for a confidentiality agreement before releasing any information? How much information should I release initially? When should I meet with the buyer? When should I expect a letter of intent? What about earnest money – how much and when? Who drafts the purchase agreement? When do I tell my employees? How long will due diligence take? Who pays for due diligence? These are just a few of the questions that come up during the process. Knowing what is reasonable dictates how you respond to the buyer and demonstrates your skill level. This sends a strong signal to the buyer.

Many buyers will “tilt the table” in their advantage if they feel a seller is uninformed. The most common approach a buyer uses is “this is the way we always do it.” Since the seller has no idea what is reasonable, he naturally assumes the buyer’s request must be reasonable. For example, buyers frequently tell a seller they will not provide a letter of interest or value assessment before visiting the seller’s facility. When a seller consistently concedes this point to buyers, they end up investing a lot of time in “tire kickers” who are not serious candidates. A mergers and acquisitions firm knows what to expect, how to communicate it, and how to deal with any surprises that surface throughout the process.

The biggest risk a business owner faces when attempting to manage the process himself is the inability to Stay Focused on the Business during the sales process. The owner typically becomes distracted in two ways – time and mental energy. Given the time consuming nature of the process, it is easy for an owner to wake up one day and find he is spending the majority of his time on the transaction. In addition, when managing the process himself, the owner frequently becomes mentally drained. Both of these create a scenario where the business suffers during a critical time.

Tying in closely with focus is the importance of Sustained Momentum. The sale of a business is like any other process – momentum is critical. When you have positive momentum during the process, good things tend to happen. Conversely negative momentum tends to feed on itself.

The typical business owner runs into the following scenario quite often. He begins the process of selling his business, or worse yet, he responds to an inquiry. He invests considerable time in responding to information requests and the buyer begins to exhibit serious interest. The owner then becomes distracted with more pressing issues within his business such as a key employee deciding to leave. As his focus turns within the business, he begins to lose momentum with his prospective buyer, as they become frustrated with a lack of responsiveness. The buyer moves on to another deal, and the owner must start the process over again.

By delegating the process to an intermediary, the owner is able to focus on the business while the process operates in the background enabling him to be insulated from the ups and downs of the process. Momentum is sustained and prospective buyers are dealt with on a timely basis. Of course, even when an intermediary handles the process there are no guarantees the deal will close, but it will not be lost due to a lack of responsiveness or lack of focus on the deal at hand.

Mark Jordan is the managing principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of Enhancing Your Business Value…The Climb to the Top, Selling Your Business The Hard Easy Way and co-author of The Business Sale…A Business Owner’s Most Perilous Expedition. He is also the author of numerous articles. For more information email him or visit www.vercoradvisor.com.

IPO Slowdown: Is It Good or Bad for the Middle Market?

The first quarter of 2008 witnessed a drastic slowdown in IPO offerings. Data from Thomson Financials indicates a massive reduction of 46.1 % in US IPO proceeds. The study also points to a 15 % drop in IPO volume for January 2008. Further painting a bleak picture is IPO proceeds worth $6.3 billion fading away from the global market owing to withdrawal of 21 IPOs in January 2008. This figure is significantly three times higher than what it was for December 2007 when only 16 IPOs collectively valued at $2.1 billion were withdrawn.

The primary cause for this IPO slowdown is considered to be the consistently dropping value of the US greenback. The weakening dollar resulting from a poor economy and a credit crunch in the US is causing frequent fluctuations in the global markets. Market upheavals over the past several months have made investors apprehensive about investing in IPOs. Instead, investors are playing the wait and watch game to tide over the rough weather.

The IPO slowdown is however not necessarily bad for everyone. It has brought in its wake wonderful merger and acquisition opportunities particularly for the middle market segment. According to a recent Baird's Investment Banking Group report, mergers and acquisitions among the small and medium sized enterprises will be much more active than other segments.

Baird defines middle market transactions as those under $1 billion. This makes the deals far more attractive than the multi-billion dollar mergers and acquisitions. Buyers can now materialize their business ideas without spending a fortune. Plenty of buyers as well as sellers are available in the middle market segment. It is their attempt at expanding and strengthening existing assets. In line with the general sentiment, experts forecast enhanced M&A activity in the middle market segment through 2008.

In contrast, big ticket deals are expected to take a back seat owing to the tough
situation the credit market is presently facing. Economic instability has made it difficult to secure large amounts of financing that mega-deals warrant. Due to the IPO slowdown, the bigger players have decided to wait for the economic conditions to improve or at least stabilize before making the next move.

Studies show 2007 to be replete with vigorous merger and acquisition activities in the technology sector. Many of the deals happened between European countries and the US. Experts indicate further consolidation of these markets through 2008 with buyers resorting to creative ways of acquiring companies.

In addition to Technology, other sectors Baird identifies as favorable for merger and acquisitions include Telecom, Energy, Materials and Business Process Outsourcing (BPO). Strategic business combinations are slated to replace superficial mergers that are oftentimes destined for failure from the beginning. True evaluation based on tangible value is the driving force behind present day deals.

Today's middle market mergers may seem similar to the heightened M&A activity in the late 1990s when the IT boom was at its peak. However, it is different in the basic ways it transpires in the current environment. At that time, deals were signed on the basis of the number of visitors to a web site and other data which painted a rosy picture of an otherwise ailing venture. Because of the in-depth assessment of today's consolidations, a deal recession similar to the one that happened at the beginning of this century seems unlikely.

Private equity is also playing a key role in acquiring cross-border companies. In fact, these acquirers invested $55.5 billion within the first two quarters of 2007 in 29 deals. A continued drop in the value of the dollar and the availability of investors with loaded pockets make market analysts predict the trend to continue in 2008. Which way the tide turns remains to be seen. It depends on several important parameters including the appreciation or depreciation of the US dollar and the overall US economy.

Mark Jordan is the managing principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of Enhancing Your Business Value…The Climb to the Top, Selling Your Business The Hard Easy Way and co-author of The Business Sale…A Business Owner’s Most Perilous Expedition. He is also the author of numerous articles. For more information email him or visit www.vercoradvisor.com.