Posted on Mon, Feb 13, 2012
You’ve spent years developing your business, building its value, enhancing its reputation. Now you’re ready to move on.
You place a “Business for Sale” advertisement in the Internet classifieds, and the next day an eager – overly eager – buyer approaches you with a deal that seems too good to be true. The buyer offers full price and wants to structure the deal as a stock sale. A stock sale means the buyer will get the entire business, including all of its assets (cash, checking accounts, receivables, inventory and so on) at closing. The buyer doesn’t ask any tough questions and seems in a hurry to close the sale. He or she offers a 10% down payment and says the full balance will be paid off within a year.
Seller beware! Business owners and regulators have found that scam artists use these types of transactions to strip value from companies, pulling out cash, and leaving the seller with a fistful of worthless stock. Within days of closing the sale, the buyer factors (sells) the receivables for cash, runs up company credit cards, sells off inventory, and empties cash accounts. The firm’s creditors don’t get paid. Your formerly prosperous business becomes an empty shell.
How can you avoid these types of scams when selling your business? Here are a few suggestions.
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Perform an extensive background check on any potential buyer, including a review of the person’s credit reports, litigation history, tax liens, and so forth. A skilled attorney can often help with this research.
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Beware of sales that go too smoothly. Legitimate buyers will perform due diligence, asking tough questions, inspecting financial records, and calling customers and vendors. If the buyer wants to close the sale in a hurry and doesn’t seem interested in the firm’s ongoing prospects, beware!
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The buyer must meet deadlines and supply all requested data in a reasonable time. If he or she is always late, move on. Find a buyer who’s serious about the transaction.
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Before turning over ownership, require a substantial percentage of the purchase price up front. Some advisors suggest 50% in cash at closing. Serious buyers, who want to continue growing the firm, will put their money on the line.
If you need help navigating the sale of your business, call us at 904-400-6610 or Contact Us electronically.
Posted on Thu, Jan 05, 2012
Two of the most prominent businessmen in Jacksonville, Fla., exited their companies this week, under different terms but using common means. Other owners can learn from their examples.
Wayne Weaver, principal owner of the Jacksonville Jaguars has sold the National Football League team. Herbert Peyton, founder and president of Gate Petroleum Co., is transferring control of the chain of service stations and convenience stores to his son, John.
Though Weaver exited through an external sale and Peyton through an internal transfer, both said the time was right for change and that they will spend more time pursuing personal interests while their successors continue to grow the businesses and support their communities. Weaver will be 77 years old this month, while Peyton turns 80.
Here are three exit-planning lessons that small-business owners can learn from Weaver and Peyton.
1) Envision life after your business.
As the first owner of the Jaguars, Weaver had little free time while steering the organization through almost 20 years of football, business and community involvement. He will now devote more time to family and travel. In an interview published on Dec. 31 he told The Florida Times-Union:
“I will have an office and I will have a place to get up every morning to go to when I’m in town and we’re not traveling and not spending time with family. We’ll just have a lot more free time. We won’t have to make 8 o’clock staff meetings.”
Peyton opened the first Gate service station in 1960, in Jacksonville. The company has grown to more than 225 locations and also has resort and real estate operations. In a Jan. 3 letter to employees announcing his resignation as president, which was posted online by the Jacksonville Business Journal, Peyton wrote:
“Anticipating this transition, several folks have asked where I will go and what I will do. Frankly, I am not sure, but training and fitness will continue right on. I am certain, however, about what I am not going to do. I am not going to be a distraction to management. I will not be involved with the day-to-day operation of the company or second guess the decisions that are made. I will help when needed and offer advice when asked—and on occasion, when not asked. And, I will keep my office and continue to visit various operations from time to time.”
2) Determine your goals.
Weaver was adamant that the Jaguars remain in Jacksonville. He told the Florida Times-Union:
“At some point we had to have an exit strategy and what was really important to me was that the team stay in Jacksonville. I found the right person and the right family that’s going to come in and continue to build the legacy we started here in Jacksonville, so that was my biggest motivation of timing right now.”
Peyton has been unwavering in his determination to keep Gate Petroleum in the family. In a Florida Times-Union article published in July 2001, he said of his son and company: “
"His mission is very clear, and that is to carry the company to the next generation, and after that, to the next generation," said Herb Peyton, who at some unspecified future date will step into the role of chairman and turn over daily management to his son.
"We have no plans or no desires to go public or to merge or to sell out," he said.
3) Choose your successor.
Weaver sold the Jaguars to Illinois businessman Shahid Khan in a deal that closed Jan. 4, reportedly for $770 million. The terms were similar to those that Weaver first presented to Khan on a cocktail napkin in a one-to-one meeting in a hotel bar in late 2011. They sealed the deal with a handshake; then they worked out the details with their staffs, advisors and league representatives.
The deal was the culmination of months of meetings and communication between Weaver and Khan as the two got to know each other. “Very few people were involved from his side or my side,” Weaver told The Florida Times-Union. “It was a very small circle. There were a lot of phone calls and a lot of texting back and forth. Face-to-face meetings, probably close to a dozen.”
Weaver cited Khan’s integrity, values and business acumen as factors in his decision to sell. Upon completing the deal on Jan. 4, Weaver said, “Parting with the Jaguars is not easy but we have great confidence in Shad and his family that the franchise is in good hands.”
As well as Weaver got to know Khan, Peyton was even closer to his successor, his son John. The younger Peyton is a former mayor of Jacksonville and a long-time Gate executive. In his Jan. 3 letter to employees, the father wrote:
“In life, as in business, timing is everything. I believe this is the time for GATE to transition to the next generation. I am sure you have observed family businesses where founding owners have been unable to gracefully transition leadership. I am determined not to let that happen in our company. I am absolutely confident John’s experiences both within and outside of our company ideally suit him to meet the challenges of managing this organization.”
It is now up to the new leaders of the Jaguars and Gate Petroleum to build upon their predecessors’ successes. Wayne Weaver and Herbert Peyton have greatly influenced their community and their companies for decades, positioning their organizations to prosper for years to come.
With their transitions from their businesses behind them, the next phases of their lives are squarely ahead.
To learn how you can create a transition plan that allows you to control the terms of your exit, download our complimentary e-book, "Transition Strategies for Business Owners." The quality of your plan will determine the success of your transition.
Posted on Mon, Nov 22, 2010
Traditionally the engine that drives job growth, small business has become the caboose.
Beset by red-tape, lacking financing and grappling with fiscal and economic ambiguity, entrepreneurs are starting fewer companies, according to the Wall Street Journal. Those who do start companies cannot, or will not, hire employees.
“Newly opened companies created a seasonally adjusted total of 2.6 million jobs in the three quarters ended in March, 15% less than in the first three quarters of the last recovery, when investors and entrepreneurs were still digging their way out of the Internet bust,” reporters Justin Lahart and Mark Whitehouse wrote.
Yet the big get bigger. According to Gallup’s Job Creation Index, during the week ended Nov. 14, 42% of employees at workplaces with at least 1,000 employees reported that their company was hiring. Only, 9% of workers in businesses with fewer than 10 employees said the same.
As a small business, you can get job growth back on track by managing for recovery.
- Identify your valuable formula by determining why customers buy from you and how you make money. Re-assess the competitive element that generates profit and sustainable success for your business.
- Modify operations by focusing on what you sell, how you provide it and how you sell it, carefully evaluating each department. Review your systems and revise as needed.
- Manage for cash, making it the absolute priority, above profit and investment. The latter will return as operating conditions improve.
These three principal areas of improvement are inter-related. Emphasizing one over another will threaten your company’s long-term survival.
Addressing them collectively will bring long-term success, eventually moving small business back to the front of the train.
Learn more about “Managing for Recovery” by downloading a free white paper from ROCG.
Posted on Wed, Oct 20, 2010
As 3G Capital digests its $4 billion acquisition of Burger King Holdings Inc., statistics on private equity investments and transactions provide food for thought.
Through the second quarter, fewer private equity deals were done in the first half of 2010, but those that closed were larger, according to "The Private Equity Breakdown 3Q 2010" from PitchBook Data Inc., an industry research firm.
Deals worth less than $50 million accounted for the smallest percentage (40.3%) of total transactions since 2003, while those of $50 million to $250 million (38%) hit a seven-year high. The percentages of transactions worth $250 million to $500 million (7.6%), $500 million to $1 billion (10.4%), and $1 billion or more (3.7%) also increased.
Large deals accounted for most of the private equity dollars invested in the first half as well. Investments of $500 million or more accounted for $31 billion of the $48 billion invested in the first six months.
The most active segment was $500 million to $1 billion, with $14.8 billion invested. That was a 44 percent increase from the first half of 2009 and put the segment on pace for its third biggest year, according to PitchBook analysts.
While the overall increase in private equity activity and the strong showing for large transactions and investments are encouraging, a dearth of deals could stymie growth or exits at smaller companies.
Investors prefer funds focused on “reasonably –sized deals capable of closing today,” PitchBook analysts wrote. Finding financing for smaller companies is challenging.
Only three funds of $100 million to $250 million closed in the first half. Funds of $250 million to $1 billion accounted for more than half of the closings.
Still, you do have options if you own a small company that wants to draw private equity investments or buyers.
- Build a bigger business that is large enough to fit within the preferred investment and transaction sizes.
- Draw interest by making your company attractive based upon the needs of specific buyers.
- Position your business as a strategic acquisition that would accelerate a rollup.
- Lower your debt to equity ratio to make a leveraged buyout more attractive.
- Pursue relationships with private equity funds that have worked with companies similar to yours so that you can develop your business to their specifications.
Regardless of how you choose to proceed, implement your plan now. With 100 deals and almost $25 billion in proceeds, the three months ended June 30 marked the busiest quarter for private equity exits in almost two years, according to PitchBook.
Analysts expect exit opportunities to increase as private equity investors have record amounts of cash and demand for public offerings of PE-backed companies is increasing.
Position your company now, so that you will benefit later.
