The first thing you are going to be wrangling with is the due diligence process. Almost immediately after the LOI is signed, the buyer will hand you a 30 page (average) due diligence checklist, which is a request for all of the documents they want relating to accounting, legal, IP, sales & marketing, HR, etc.  The list will be daunting and you will inevitably question some of their requests.  Just remember that you don’t need to hand everything over to the prospective buyer carte-blanche. There will be highly sensitive information that a buyer will reasonably need, but that could be highly damaging if it got into the hands of a competitor. Beware that this highly sensitive information can come in many different forms and many sellers don’t think objectively about what information may be highly sensitive.  A good M&A advisor will know how to identify those sensitivities and ways to avoid giving the buyer sensitive information at the wrong time.

Remember, due diligence is typically used to benefit the buyer, so the longer and more detailed the due diligence, the more likely it is that the buyer will gain the upper hand.

The First Negotiation

At the end of due diligence, the buyer will most likely try to provide you with revised terms and price for the deal based on their due diligence findings or simply due to your growing fatigue and strong interest in closing the deal.  Buyers typically position this first negotiation before either side spends significant money on tax or legal advisors.  At this point, you will have to decide whether you’d prefer to continue to play ball or walk away.

Negotiations can be productive like going to a dance where both of you are in the groove. Alternatively, they can be competitive, and leave you feeling as if you just entered a boxing ring. The aura surrounding the negotiations will often depend on the negotiation styles and personalities of the parties involved. If you wish to make progress and reach the finish line, the best approach is one of give and take.

The most productive negotiations are ones in which both parties expand the pie by finding creative solutions and productive alternatives which adds value to both sides.  When you have a fixed pie, with each party wanting the bigger slice, take the negotiation as far as you can while keeping your professionalism, objectivity and rationality.  Don’t forget, M&A is not a contact sport.

The Second Negotiation

If you have made it past the first round of negotiations, congratulations, your deal is still on.  The next negotiation is the Purchase Agreement which is typically negotiated between your M&A attorney and the buyer’s General Counsel or outside counsel.  The Purchase Agreement negotiation is a much more choreographed negotiation than the first negotiation.  In many cases, the buyer sends you a draft of an agreement favourable to the buyer.  Your attorney should return the document with a large number of changes that the buyer’s attorney is already expecting.  After a few rounds back and forth, most issues will be resolved, but a few important issues will remain.  These issues are generally deal-specific and are geared towards specific concerns of both sides.  At this point in the second negotiation, both sides are generally working towards closing the deal in good faith and it will generally make sense to discuss the concerns and develop solutions that address them.

Negotiations can be emotional and it is important to think objectively.  How badly do you want this deal to happen and how much is the buyer really willing to pay?  At the final stage, most sellers think “this buyer really wants me,” but is most cases, the buyer can also buy your competitors or another company that also fits its strategic goals.  You always have to know when it’s time to close up the briefcase, sadly shake your head and walk away from the table. Negotiations aren’t about making the best deal; they are about making the right deal!

Companies like this give M&A firms a bad name. They act as “engagement fee mills” making most of their money on a multitude of upfront engagement fees yet successfully close only a small percentage of the deals taken. However, just because a firm charges an engagement fee does not mean they are a fee mill. For a sell-side engagement, most reputable M&A advisors, including Orion, will charge some sort of upfront engagement fee that is credited back to the client upon a successful closing.

Unfortunately, many middle-market business owners feel that M&A advisors should only be paid a percentage of the deal, similar to a real estate agent. There are advisors with similar business models known as business brokers, who typically focus on businesses less than $2 million (regardless of claims they may make that they can successfully close larger deals). Most business brokers rely on client volume, post businesses on the internet, and cross their fingers that buyers will come across their listings.  They also usually target wealthy individuals as buyers instead of larger companies and private equity groups.

However, for bona fide M&A advisors, the primary purpose of an M&A engagement fee is to serve as a basic commitment to such advisors.  A good M&A firm will put a significant amount of effort into your deal by performing financial analysis, developing compelling marketing materials, developing a viable buyer list and contacting each buyer individually, usually via several mediums.   In order to devote such substantial effort (as opposed to merely passively posting your business on the internet), we need to know that you are committing to our process and not testing the waters. Your commitment also means that you will be incentivized to tell us everything about your company, good and bad, so we can address issues upfront instead of doing damage control when we discover negatives during buyer due diligence. Additionally, M&A firms have significant internal and external costs they incur to undertake the aforementioned tasks, which an engagement fee helps to offset.

So what can you do to avoid using an “engagement fee mill”? First of all, do research. This can be a simple Google search. If Google’s suggestions include “complaints” or “scams”, you will want to read these findings and strongly consider avoiding that firm. Second, see if the firm would consider accepting the engagement fee over a few months instead of upfront. This will provide you the opportunity to “test-drive” the firm before giving them the full fee. If they object, determine if their reasoning makes sense. A good reason does not include that a majority of their work occurs in the first month. Finally, make sure to ask if your deal will be transacted through a FINRA broker-dealer. Many firms that don’t use a FINRA broker-dealer will try to wrongfully convince you it is unnecessary for a private transaction. If your deal isn’t handled through a broker-dealer, the M&A firm is breaking the law, and you will be left dealing with the consequences of such illegal behavior, which could include having to unwind the deal and return the money you received to the seller.

If you have questions about M&A firm practices or the regulations that Orion or any other M&A firm must adhere to, please don’t hesitate to ask.

The excitement and buzz of Silicon Valley is definitely what makes it the technology capital of the world, but the peer pressure in the area tends to make many entrepreneurs lose sight of reality.  In the Silicon Valley, almost every entrepreneur’s checklist includes: get venture capital, grow beyond wildest dreams, and do an IPO or sell to Google.  With less than 1% of startups getting funded and less than 10% of those companies having a great exit or going IPO, you have a 1 in 1000 shot of meeting the goals on such a checklist. 

Of the other 999, most of them generate very little if any revenues and just fizzle away.  Some become viable technology businesses with none or little outside funding and achieve significant growth until they get somewhere between $5 and $20 million in sales.  While such companies are growing, most think that their growth path will continue for quite a bit longer than it actually does.  Generally, once they get to that plateau, they get stuck and have a difficult time growing due to one of several reasons:

• Their technology or offering starts becoming obsolete due to a new technology, service  or website
• Their well-funded competitors start to take their customers due to more expensive marketing campaigns, lower cost, or a better service
• A company like Google starts to offer the product for free

Once you get to this point, it is very difficult to reverse the damage.  At this point, many technology companies feel that if they just add value to the customer, they can usually offset the above negative factors.  Sometimes, they can continue to grow, but usually either the competitor is one step away or the increase in value doesn’t warrant the increase in cost to the customer.   So what is the best way to beat the plateau?  When your company is at a long-term plateau, the answer is to sell the company or take on a majority partner that can help you grow through synergy, capital and management. If you don’t do one of these, you are definitely not getting the best return on your investment and there is a good chance you could lose your entire investment in a few more years. 

In fact, the best time to sell a technology company is when you are growing.  Our rule of thumb is that while the company’s revenues are growing greater than 20%, it is best to keep growing the company.  When it starts teetering around 20% or dropping below 20%, it is best to sell the company.  The reason is that selling a company exhibiting growing forecasts is much easier than selling a  company exhibiting flat or nominally increasing forecasts.  Buyers are typically looking at the forecasts of your company to determine its value, so it is much better being in a position to offer strong, growing forecasts that a buyer can believe. 

Thus,  the take-away here is that if you are self –funded or a bootstrapped technology company that saw or is seeing good growth, most likely, it will come to an end.  Therefore, you have to make a decision whether you will continue trying to grow the company or whether you will capture the value you have already created for the company by selling when your company is in a strong position.  If you attempt to continue to grow, there is a good chance, you will plateau and probably decline.  Think objectively and choose the right path.

When you invest in the stock market, your advisor will tell you not to “time” the market since you should be investing with an eye towards long-term returns. Some listen to that advice but many don’t because most people know that timing can be everything. When one of your stocks doubles in a week, it’s difficult to sell because you assume it will continue on that path. As we all saw a couple of years ago, the market could easily do just the opposite and in 2007 many people lost substantial amounts of money—in some cases, the majority of their net worth. While the verdict may be out on the benefits of timing the stock market, there is no doubt that timing is incredibly important in the sale of your business due to several reasons:

• Most business owners have a significant concentration of their net worth in their business
• Business financials and value will typically fluctuate more than the GDP or stock market
• Most businesses are vulnerable to huge value fluctuations caused by the death of key shareholders, litigation, loss of a major contract or various other reasons

In addition, because it can take 8-12 months to find a buyer for smaller businesses and to close on the transaction, timing is much more critical than investing in the stock market, where shares are highly liquid and can be disposed of within minutes with only nominal transaction costs. Moreover, business owners should anticipate where their business will be 8-12 months out from any given date, because financials and the market conditions 8 – 12 months from the date the business owner begins the selling process usually dictate how much a business owner stands to make from the sale of his business.

Let’s look at the first variable: what are your financials going to look like in 8-12 months? Buyers are notorious for trying to slash your company’s price before close if your revenue or EBITDA drop. Secondly, if you provided the buyer with forecasted financials and you are far from the first year target after 8 -12 months, they may decide to drop the price before close. Don’t fall into the trap of thinking once you have closed out last year’s financials and have an acceptable Letter of Intent from a buyer that you are going to close with the terms agreed upon at the beginning of the deal. So from your company’s financial position, commit to the sale at a time 8-12 months PRIOR to when you think revenue and EBITDA will be higher than it is now.

Now let’s look at market conditions. While the stock market may be a good indicator of market trends, you still have to consider the fact that market conditions at the time of close are typically the most important indicators because they give buyers another chance to reevaluate whether your company is still a good opportunity. Public stock valuations and overall M&A trends are not a good enough indicator to determine what is happening in your industry or for deals sized similarly to yours, so don’t completely rely on such indicators. It is important to look at the statistics that are relevant to your company, determine what variables drive trends and make an intelligent guess about what is going to happen.

Here are a few market forces to consider and our guess about how they will affect different market sizes:

• Will capital gains tax increases in 2011 cause people to sell stock in public companies and thereby cause a subsequent market/valuation dip in public companies at the end of this year? Probably. This dip in prices could subsequently cause a buying spree of public companies by other public companies. Will the capital gains increase cause a valuation dip in private companies at the end of this year? Probably not. Here, the 8-12 month lead-time required to close a deal may be an advantage since it is unlikely that there will be a flood of private companies starting the sale process towards the end of this year for pure tax reasons.
• If inflation hits, generally, the trend is a negative hit to stock valuations of both large and small companies because interest rates rise and make bonds more attractive to investors.
• If approximately 70% of private businesses wish to sell in the next 10 years as many expect because of the retiring baby boomer population, will it affect valuations of private businesses? You bet. Will it affect public companies? Much less so.
• Through the recession, both private equity groups and strategic buyers tended to favor smaller companies. As both strategic buyers and private equity groups have record amounts of cash, the size of acquisitions they will want to make will increase, making larger companies more attractive again.
• When looking at various industries, it’s important to note how they are affected in relation to the stock market and economy. Here are some take-aways by industry:
  • In 2009, the total value of Healthcare and Consumer Staple deals (under $500 million) done in North America were significantly higher than in any other year in the last five years. Why? Because those are the industries everyone runs to when the economy is bad. In 2010, middle-market companies in those industries haven’t been as attractive
  • 2007, was, by far, the best year in the last five years for Consumer Discretionary, Utilities and Information Technology deals (under $500 million). 2009 was the worst year for all three industries. These industries tend to mirror the general stock market.
  • Industrials and Manufacturing total deal value hit its low in 2009 and has now rebound on an upward trend to be even higher than 2006!
  • Energy and Materials companies tend to follow their respective market trends.

Is now a good time? For small companies in many industries, now is a good time. We’re at an inflection point where deal sizes will begin to increase, there will be a bigger supply of small and middle-market business sellers in the next few years and right now, for many industries, valuation multiples are good. The “right” answer does vary from company to company, so you should discuss with an advisor like Orion to determine when will be the right time for you and your company

If you are not the CEO of a public company, how do you know how much your company is worth?  Unless you are seeking growth capital or planning for a liquidity event, you may not be focused on your company’s value.  However, staying informed about your company’s current and anticipated value is just as important as staying informed about the value of your stock portfolio.  Wouldn’t it be beneficial to quickly and easily determine the value of your enterprise?  Valuations are both art and science and thus can vary drastically depending on the purpose for the valuation, as well as the professional undertaking the valuation.  Despite the variations in methodology and perspectives, this article will introduce the concepts inherent in a basic discounted cash flow (“DCF”) method for an M&A valuation.

Current vs Future EBITDA

When selling your company, most people will tell you that your company is worth a certain multiplier of your current EBITDA.  While applying a multiplier to a company’s current EBITDA will produce a rough estimate of value, the reality is that most buyers determine value based on a multiple applied to future EBITDA.  Why is this distinction important? Current financials have less relevance because buyers are not buying your past financial performance—they are buying your future financial performance and the  value of synergies your company provides.  Therefore, an approach that simply applies a multiplier to EBITDA will be a form of rough justice.  For instance, assume there are two companies in the same industry, with the same current EBITDA, but one is growing much faster than the other.  Would a buyer pay the same amount for each company?  Of course not!  Secondly, an EBITDA or revenue multiplier will not work for companies that don’t currently have EBITDA or revenue, thus the DCF method is the best way to value such a company.  Note that in this article, EBITDA does refer to a “recast” EBITDA in which all unnecessary and one-time expenses should be added back to your actual EBITDA.

Discounted Cash Flow Method

The first step is to develop a reasonable five-year forecast that can be justified with historical financials and reasonable assumptions.  Remember, every CEO represents their company’s future growth curve as a “hockey stick” and buyers and investors tend to be highly dubious when they see numbers that reflect such a trend.  After determining a reasonable, well-justified forecast, the next step is to select a multiplier.  In the simplest terms, a multiplier can be thought of as the number of years it would take to replicate your business under ideal circumstances.  More than likely, it took you longer than the multiplier you select because it is often the case that business are not started in ideal circumstances.  If it took you 20 years to start your business, it might not necessarily take a third party 20 years to replicate your business, so focus on a realistic number that represents the effort a third party would reasonably need to undertake to re-create your business.  For example, industries with high barriers to entry and market fragmentation as well as companies with higher sales typically have higher multipliers.  In order to pick an accurate multiplier, the most objective method is to look at the multipliers of various deals and pick one that closely matches your size and market.  There are services available to get this information, but they can be expensive.  To get an average for your specific market, you can go to our online valuation tool at www.orioncg.com/valuation.php and click on the “Multipliers” link towards the bottom.

Finally, the last component needed to calculate your value is a discount rate.  The discount rate reflects the amount of risk a buyer is taking by purchasing your company.  For small companies, the discount reflects the risk of not getting a guaranteed rate of return (represented by the 5-year Treasury rate), plus a discount for a lack of liquidity, plus a discount for the risk of not hitting the forecasted financials.  Hence, the smaller the company, the higher the discount.  The higher the risk of the business or industry, the higher the discount.  For companies with revenue of at least $2 million but under $50 million that are profitable, the total discount will probably be around 15%-35%.  Conversely, biotech companies that are in early clinical trials and have high risk of never commercializing may have discounts around 60-70%.

Once all of the above figures have been determined, you can input them into our online valuation tool (www.orioncg.com/valuation.php) to get an estimate of financial value of your company.  This is the value that a financial buyer, such as a private equity group, would probably pay for your business.  Of course a strategic buyer would usually pay a premium that represents the value of their increased cash flow from the synergy your company provides.  This would vary depending on the amount and type of synergy being provided. 

Now that you have had a crash course in using the discounted cash flow valuation method, you should have better insight on why it is important to continually forecast financials and why it is best to focus on future financials when speaking to potential buyers or investors.  After understanding how the discounted cash flow valuation method works, it is important to note a few take-aways:

1. As interest rates increase, so do discount rates and the value of your company decreases.  You can experiment with this on our valuation tool.  The interplay between discount rates and interest rates is important to consider given the uncertainty regarding projected inflation rates over the next several years.
2. The best valuations occur when your company is  growing significantly because in such growth scenarios it is easier to justify a continued “hockey stick” trajectory (as opposed to when your historical sales & EBITDA have been flat and you try to show significant growth over the next five years).

If you have further questions about this method or how to apply it to your business, please contact us.

The first issue that many companies fail to realize is that they may have nexus in a jurisdiction they didn’t think they did.  A business may have sales tax nexus if it has a physical presence (office, warehouse, agency, employees, shipping point, etc) in a particular state.  There are nuances to be careful of for each jurisdiction.  For example, a state may deem you to have a physical presence even if you make regular visits there but have no employees physically residing in that state.  Secondly, it is essential to realize whether you are selling tangible personal property or a service and how each state imposes sales tax on each of those.  Even though this may seem obvious, in certain types of businesses such as software or internet services, there may be a fine line.  Finally, with the current state and county budget deficiencies, sales tax rates and rules are changing rapidly and it’s essential to make sure you have current information.  Beware also that different counties in a state may impose additional sales tax as well.

Failing to pay the correct amount of sales tax can be a large liability to your company or a buyer when they purchase your company.  If four years later, a particular jurisdiction determines that your company should have been collecting sales tax from the end-user, it will be up to your company to recover that back-tax from your customers or the burden will fall on your company.  Even though you may feel safe because you are selling goods over state lines, you should ensure you have resale certificates from your resellers.  That way, if an issue arises, you can make a defensible case for yourself.  If a buyer wishes to purchase the capital stock of your company, the buyer will be highly concerned about a jurisdiction wanting to collect unpaid taxes from them that were incurred while you managed the company.

Value-added taxes (VAT) are typically used by international governments to accomplish something similar to sales tax.  Canada and countries in Europe, Asia Pacific, and Latin America typically utilize value-added taxes instead of sales taxes.  The primary difference is that instead of the taxing jurisdiction receiving all of the tax revenue when the end-user purchases the goods, it receives revenue on each component of the supply chain.  When you make a purchase or import in a VAT jurisdiction, you pay the vendor or customs broker the VAT on the purchase.  When you sell in that same VAT jurisdiction, you collect from your customer the VAT on the sale.  Basically, you pay the VAT rate on your gross profits at a specified frequency but ultimately it is still the end-user paying the entire VAT burden.  For most companies that import into VAT countries, compliance is less of a problem since they pay VAT to the country’s Customs department at the time of import and company wants to recover the VAT they have paid.

Where we see the largest concerns on sales tax and VAT are companies that generate revenue from downloadable software, Software-as-a-Service (SaaS) and other internet services.  These sales are difficult to track for tax jurisdictions and many companies in the software and internet services business may not understand the sales tax and VAT laws of various locations.  The penalties for not complying with these tax laws may be huge and some countries penalize VAT deficiencies at up to 400%.

As you probably see every year on your tax returns, use tax is the tax on self-reported goods you purchased that were not levied sales tax.  Since US states have substantial budget deficiencies and are increasing sales tax and use tax rates, they are also leading a major initiative in trying to collect sales tax or use tax for purchases from out-of-state retailers.  This may include obtaining records from the leading online retainers or the shipping companies.  As a result, tracking your out-of-state purchases for the purpose of reporting use tax may become a significant concern as well.
Here are some things you can do to reduce the chances of sales tax, use tax, VAT issues:

• Use resellers if possible and get resale certificates
• Make sure all resale certificates are up-to-date
• Look through your sales and operations to make sure there is no location you could be considered to have nexus
• Check where your sales people visit frequently
• Make sure you are current with the current rates and rules in the jurisdictions you have nexus and the VAT jurisdictions you sell to
• Track out-of-state and out of country purchases more carefully
• Contact a consultant to help you through the process

Don’t allow sales, use, and value-added tax noncompliance issues kill or obstruct your deal.  Correct all issues now.  Contact us if you require names of consultants that can assist you with Sales Tax and VAT compliance.

–Neil Shroff

Let’s look at what happens to the capital markets during inflation. In order to curb inflation, governments try to reduce the money supply by increasing interest rates and sometimes increasing taxes as well. When interest rates increase, the cost of financing an acquisition is much higher and such increased cost usually discourages buyers from acquiring. Secondly, most buyers use a valuation method that uses some form of a discounted cash flow model. When calculating the amount by which to discount your projected cash flow, the starting point is usually the Treasury rate (or risk-free rate). This means that when the Treasury rate is higher, the discount is higher because a buyer could safely park their money in a risk-free investment with high interest. The result is that buyers are likely to discount your company even more to accommodate the additional risk. Ultimately, all valuations will probably decrease if the interest rate is increased. Also, as you are likely aware, as taxes increase, investors decrease risk and don’t make as many efforts to generate money through investments. As taxes increase, business owners themselves are also less likely to cash out due to the increased tax consequences from any such sale.

Therefore, if we see significant inflation similar or greater to what we saw in the 1970’s, our capital markets will continue to be in a difficult situation. This will be terrible for corporate growth, funding for startups, and M&A and in general. Inflation, coupled with the large number of baby boomers that will need to exit their business within the next ten years, will most likely affect valuations. Because there will likely be “mini-M&A” wave coming later this year and next year as money supply increases, but before inflation hits, you should consider identifying your options for a timely exit, given that it generally takes 6 to 12 months to find a buyer. An M&A intermediary or an M&A advisor such as Orion Capital Group can assist owners of companies valued between $3 and $50 million plan their exit and find buyers. Visit our website at www.orioncg.com for more information.

First of all, set the meeting far enough in advance to do some research, but not too far out to lose momentum on a potential deal.  Give yourself enough time to gather enough information to be confident about valuations in your industry and businesses in a similar size range as your business.  Also, give yourself enough time to think about how motivated you and your family are to exit, but don’t discuss this with anyone else at your company.  When dealing with an experienced buyer that has bought many companies, it is important that you understand your company’s value.  The buyer will gauge your actions and words carefully, and it is important to stay alert but not scare off the buyer by being too defensive.  Since they are already interested in your company, you should be confident about your position but listen very carefully to what they are suggesting.

While it is not very common for companies under the $50 million valuation mark to receive unsolicited offers, it does happen.  When it happens, most buyers offer a low price because they think the business owner might accept and has not researched other options or sought other buyers.  For instance, they may offer you $20 million when your company is really worth $40 million to them, and if you don’t know how best to value your company, $20 million may seem like a fair value to you.  Keep in mind, valuations are very subjective and can range immensely between any two valuation experts.  However, knowing the criteria of those valuations and your own company’s situation will really help you become comfortable and suave in your negotiations and conversations.  Valuations can be a little confusing and the value can depend on what the buyer is interested in: cashflow, IP, talent, product offering, etc.  Feel free to contact us if you need help understanding valuations.

If you do have interest from a company, you may choose to go ahead with that buyer, or you may retain the services of an M&A intermediary, M&A advisor, or boutique investment bank (generally synonymous terms) to help you leverage the existing buyer’s interest in order to find other buyers willing to pay more than the offer you may receive from the interested party.  If you are a scalable business with revenues over $3 million, resist the temptation to use a business broker.  More likely than not, they won’t be able to give your company the exposure it needs to obtain a quality buyer.  A professional M&A firm will obtain the optimal price for your business by procuring several buyers in various geographic areas, similar industries, and even various types of buyers.  As with most competitive bidding situations, having one interested party is about as good as having no interested parties.

Whether you decide to proceed with the interested buyer or use an M&A firm, it is important to ensure you are being represented by competent, experienced, and cost-sensitive attorneys and accountants.  They are crucial in completing due diligence, reducing tax liability, helping you understand what is “market,” and negotiating the letter of intent and purchase agreement.  It is important to note that while these professionals are there to protect you, their protection may also cost you the deal.  An experienced M&A team will generally help to finalize the deal because of their experience in seeing deals through and putting the pieces back together when issues arise  in due diligence.

Orion Capital Group, Inc. (www.orioncg.com) is an M&A advisory firm that specializes in advising clients and finding buyers for companies valued between $3 and $50 million and we are constantly in touch with buyers looking for investments in various industries.  Numerous times we have come across companies that were acquired without having gone through a competitive bidding process because it was convenient for the shareholders or because they were unaware they had other options.  Ultimately, many were taken advantage of by the buyer due to low valuations or below-market terms.  If a company offers to acquire you, call us and we can inform you of your options and guide you in your decision making process at no cost.  Even if you are just looking to find names of good accountants or attorneys, we know many professionals who can assist with other aspects of the deal process.

Every entrepreneur is told that they should create an exit plan at the same time they create their business plan.  However, most people think that an exit plan only encompasses when and to whom they want to transfer their business and don’t actually go through the planning process.  As skilled and as successful as most business owners are, they cannot, working alone, create and execute their exit plans. Even your attorney, CPA or financial and insurance representative, individually, are usually unable to craft a successful exit plan. Successful exit planning is a multi-disciplinary effort that requires you and your advisors working together.  For your exit plan to succeed, you need your legal, financial, tax, and investment banker input.  In addition, having an exit planning professional on your team should help you lower the costs incurred by these professionals and assist in keeping your exit plan on the right track.
Whether your endpoint is a sale to a third party, a transfer to family member, an orderly liquidation, or something in between,  each outcome will have a separate set of actions needed.  For instance, if you are selling to a third-party, your end objective should be to maximize value.  Alternatively, if you wish to transfer to family, you would want to minimize the transfer value.

You will also have to address as part of this planning process, what would happen to the business and to your family in the event your death or disability preceded your planned exit.

Below are the most common objectives of a thorough exit plan:

• Minimize taxes now and/or following the transfer of the business
• Minimize estate taxes when you transfer your wealth/business to family
• Determine how to meet your retirement goals
• Prevent business value from crashing upon your death or disability
• Communicate your goals and expectations with your family and keep them on the same page, supportive, and cohesive
• Build value within the company to maximize eventual sale price and terms
• Improve chances of sale because of certain features implemented
• Understanding the value of your business
• Determine who would be the best type of buyer (family, third party, employees, management, partner, etc.)

Once you have finished your comprehensive exit plan, it is important to implement it otherwise that plan is only an expensive piece of paper.  Save your money on getting a plan done if you have no intention of implementing it.  Just like your business plan, your exit plan will probably change along the way and it is important to adjust it accordingly.  However, that isn’t an excuse to avoid the planning process.  Remember, now may be a good time because you may have more time on your hands and might be able to negotiate for some leniency on rates from professionals.

Go to www.orioncg.com to learn more about exit planning and even take our survey to see how you compare against other business owners.  If you are interested in learning about how we can do them at no charge, contact us.

With hundreds of billions of dollars being allocated to information technologies, healthcare, biotech, communication technologies and energy technologies, it is inevitable we will see substantial intellectual property (IP) changing hands. Presently, intellectual property is increasingly affordable as many large companies focus on their core competency and shed IP holdings in the process. Additionally, many small IP-rich companies are wondering how to survive and are selling innovative processes, products, and other IP in the process. Technologies in the above-mentioned industries have a history of changing so rapidly that squatting these technologies for a few years may deem them worthless. Unless the stimulus plan imposes restrictions, the funding that companies receive from the Stimulus Package will be heavily used for technology acquisition and internal research and development.

M&A activity will also increase as a result of other forces. Distressed industries such as banking, automotive, homebuilding, retail and others will focus on consolidation as a result of necessity. Owing to an increase in economies of scale and reduction in fixed costs, the historic trend of consolidation during poor economic times will likely continue. As stimulus funding becomes available, you should expect to see an increased number of acquisitions as we witnessed recently in the banking industry. As many economists still believe, the worldwide bank problems are still far from over.

Surprisingly, we may even see a wave of cross-border M&A arising from both Europe and Asia. Recently, the Chinese government announced that as part of their stimulus package, they would support local Chinese companies in overseas acquisitions in the energy and chemical industries. Asia’s reduced dependence on credit provides them with a stronger cash position to acquire more depressed US companies right now. Moreover, the stricter “Buy American” clauses implemented in Obama’s new Stimulus Plan will most likely draw investment from foreign manufacturers looking to acquire US-based businesses in order to break into the US market. US companies are still inexpensive by worldwide standards even though the dollar has gained strength against many currencies in the last year.

Overall, we’re not implying that the mergers and acquisition industry will return to the level it was at two years ago. Valuations will still be lower. “Mega-deals” may become prevalent for industries that need to have consolidations such as banking and automotive. On the technology side, we expect to see the small intellectual property deals valued up to $100 million depending on the allocation and limitations on stimulus funding. If you are a technology or intellectual property-based company, you should be considering how the American Recovery and Reinvestment Plan is going to affect you and your industry over the next few years. We suggest that you speak with an M&A advisor about your company to entertain the options that might exist for you. Orion Capital Group, Inc.’s (www.orioncg.com) M&A advisory team is specialized in information technology, healthcare, biotech, communication technologies and energy technologies and would be happy to have a complementary consultation with you about your options.