Business buyers are interested in a business for various financial, and often personal reasons.
So there are numerous aspects that could make a business valuable.
But at the heart of a valuation process is cash flow, the amount of cash a business is producing, and the risks associated with maintaining or increasing that level of cash once the business is purchased.
Buyers determine cash flow risks by elevating such things as a company's unique position in the marketplace, the consistency of its sales process, and reliability of contacts with suppliers and key employees.
Having solid operational procedures and processes in place significantly reduces cash flow risk and increases the value, and marketability, of any business.
At Abraxas, we are particularly well-suited for working strategic acquisitions because the members of our team have actually sat in the chairs of multiple business disciplines - something we consider very important to evaluate investment potential.
We begin by understanding our client's objectives in terms of why they are acquiring the business and how it fits into their existing operation.
We next perform a targeted search, identify prospects and prepare a term sheet which highlights important business issues. The challenging part is getting from this term sheet to the Closing Table because there are so many moving parts, such as financing, due diligence, and the preparation of closing documents.
The most important thing to understand is that throughout the entire process, we are effectively managing the relationship and negotiation between client and seller.
Buying a business is complex. It's our role at Abraxas to understand our buyer's objectives and then to search out a business that best meets those objectives.
Once a prospect is identified, we prepare a term sheet, again with our buyer's objectives in mind.
During the entire negotiation, we manage the relationship between the buyer and seller - which helps to assure a smooth and efficient due diligence process.
Finally, we work with the attorneys, and other resources such as bankers and accountants, to develop closing documents that best meet our client's needs.
The preferable way to get paid at the Closing Table is in cash. A Buyer assembles that cash from various sources: the Buyer's own resources, investors, a commercial loan from a bank, or other types of loans such as mezzanine financing.
Often times, there are seller notes, where the seller loans the buyer money to buy the business.
These seller notes can be thought of as bridging the gap between what the buyer and seller think the business is worth and what the lender thinks the business is worth and is willing to loan against.
Seller notes are typically secured, just like a home mortgage, but they are always subordinate to the bank loans.
There are occasionally contingent payments made to the seller depending on events after the close. For instance, perhaps an earn-out is paid if the revenues in the first year after the close are equal to or greater than the revenues in the year before the close.
How you get paid is every bit as important as how much you get paid, and your Abraxas Advisor will work with you to get a deal in place that satisfies you on both dimensions.
The value of the business must be viewed from the perspective of a buyer. A buyer is looking for a solid operational structure that can exist without depending on the expertise of the current owner.
What are the characteristics of your business that a buyer would pay a premium for, such as a highly competent management team or a well-developed brand name?
Conversely, what are the areas of your business that a perspective buyer would view as a detriment, such as customer concentration risk or the business's reliance on you as the owner?
An Exit Plan can help you, the owner, understand the business from the buyer's perspective and will identify the gaps in your business that will need to be filled.
Another Business value is not an easily calculated number, as it depends on many variables.
At Abraxas, we think that enterprise value equals cash flow divided by risk.
Cash flow is the amount of money generated by the operation of the business before the owner takes a salary or benefit out of the business. This is called different things, often owner's discretionary earnings or adjusted EBITDA.
Different cash flows have different values: for instance, the cash flow generated by a manufacturing business is worth more than the cash flow generated by a professional-services business.
And, two businesses in the same industry, with the same cash flow can have different values. This is where the concept of risk comes in. Here we define risk as a function of the sustainability of the cash flow: what are the chances of the cash flow after the sale will be equal to or greater than the cash flow before the sale. Factors that could impact this include:
At Abraxas, we strongly believe there is, in fact, process for selling a business.
The basic approach is this:
It takes a village to raise a child...
...and it take a team to sell a business.
Think of Abraxas as the quarterback that is going to get you to the Closing Table. To be successful, we need three other position players on our team to prepare for the final negotiations.
There are three principle types of buyers:
A succession plan is a form of an exit strategy where your exit strategy is built around people already identified, typically your management team or your children.
The goal of a succession plan is to position your key managers and/or children to be successful after your transition out of the company. With planning, all players are best positioned for an effective transition.
To successfully exit a business, you will need a team. The core of your exit team is you. You will then need a professional who can help you understand how to best position your business for an exit and you will need an advisor who can best position yourself and your family financially.
In addition to this core group, other experts may be needed, depending on your particular circumstances. For instance, an employment attorney may be needed to implement key employee agreements. Or, a CPA may be required to review the financial records to identify areas that needs to be better managed from an accounting perspective.
Naturally, each business is unique and will have different needs throughout this complex process. At Abraxas, our role is to coordinate the activities of these advisors to assure that the team is working to achieve your particular objectives.
Every business owner needs an exit strategy. It's reality - at some point you must leave your business, either through retirement, financial crisis, disability, or death.
Having a well-thought out Exit Plan and then diligently implementing that plan gives you options about how to best transition your business to meet your financial and your personal goals when the time is right.
There will be! Conflict is inevitable. But conflict actually is an opportunity to create the best solution for all.
By analyzing the root causes of conflict, including possible emotions underlying the issue, and guiding constructive dialogue between buyer and seller, the Abraxas team’s expertise in negotiation and conflict management keeps the transaction moving to the Closing Table.
Planning for the transition of business operations will begin on the day a term sheet is signed.
The Abraxas team will direct the development of a transition document that includes a detailed communication plan. This communication plan will identify all of the stakeholders that need notification, the message to be delivered, and the timing of those notifications.
Transitioning a business is never easy. But with Abraxas methodologies guiding the process, stakeholders are prepared to move the business forward once the deal is completed.
At the heart of our practice is an appreciation and respect for the business owner who has built a significant asset and has decided to sell.
We differentiate ourselves by the experiences and skills our team, by the methodologies we have build to drive the process of selling a business, and by the quality of advice we provide our clients.
What this means for our clients is that we do the best job of selling their businesses for the best price and terms while guiding them, answering their concerns, and counseling them through the process.
We are often told that our offering memorandum is remarkable superior. This means that we have been successful in assessing the business, articulating the value proposition, and explaining the weaknesses of the business.
What this means for our clients is that we present their business in their best light which attracts the very best types of buyers and makes the buyers' evaluations of the business as efficient as possible.
And, our clients give us accolades for our efforts to successfully sell their businesses while providing personal support during this emotional, intense, highly important process.