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After growing a regional technology services company to a multi-million dollar operation, it came time for me to consider an exit and sale from the business to allow the company to grow to its next level. I envisioned that through either a strategic acquisition or through bringing in a new CEO that has a deeper and wider relationships in the software services arena that a more robust growth will take place. This process eventually led me to comprehensively understand what goes on inside the exit and sale of a business. Having been on the other side as well of buying other businesses, my blog will reflect actual real life transactions and events that pertain to the complex and complicated process of buying and selling small businesses.

Tuesday, December 14, 2010

Ohio M&A activity picking up after two lackluster years

RICK ADAMCZAK | Daily Reporter

Published: 12/01/2010

Following a couple of moribund years it looks like there's growing activity among buyers and sellers of companies. "In the last quarter it's come back like a banshee," said Emmet Apolinario, president of the Ohio Business Brokers Association.

That's certainly welcome news for an industry battered by the recession that started in 2007 when many investors lost money and had none left over to buy companies. Those who did have cash or credit remained quiet, wary of the economy's future.

Apolinario, in fact, said membership at the Ohio Business Brokers Association has plummeted more than 40 percent since the start of the recession.

But the mergers and acquisitions landscape has brightened in recent months as worries about the economy have calmed.

"(Next year) is looking pretty bright," said Apolinario. "It will be an improvement from 2010. Investors are coming out of the woodwork who we've never heard from before, who had their money on the sidelines."

He attributed the boost in activity, at least in some part, to the passage by Congress of the Small Business Jobs and Credit Act of 2010.

Signed into law by President Barack Obama in September, part of that law includes enhanced U.S. Small Business Administration loans that are 90 percent guaranteed by the federal government. The law gave the SBA $14 billion in additional funding for banks to loan to small business owners.

In the first week of the Jobs Act, the SBA has stated it provided nearly 2,000 loans totaling nearly $1 billion in lending support.

"The dealmakers are really taking advantage of this, especially the smaller ones since it's for (loans) of $5 million or less of value," said Apolinario. "We were cued up for it, so when it hit things were busy."

The SBA loan provisions, however, expire Dec. 31 and money available for the program could even dry up before then, he said.

The outlook for 2011 will depend somewhat on whether those loan provisions are extended beyond Dec. 31, said Apolinario.

"It depends on what the fed does. We're hoping it's renewed," he said. "If it's not renewed lending will still happen, deals will still happen, but not at the hectic pace we've seen."

He said there's a "perfect storm" that's making smaller deals very popular, with some unemployed workers or Baby Boomers who are looking to buy small businesses.

Existing and established franchises are popular targets for investors, especially those in the service industry, but not so much in the food sector. Environmentally friendly industries and technology companies should also see an increase in mergers and acquisitions activity in the coming months, Apolinario said.

Meanwhile, larger deals are happening, most notably at the local level.

Dublin-based Cardinal Health's announcement Monday that it's acquiring Chinese pharmaceuticals distributor Zuellig Pharma for $470 million. Earlier in November Cardinal Health announced it had agreed to buy Kinray Inc., a pharmaceuticals distributor based in New York, for $1.3 billion.

"They're coming into 2011 with an appetite for bigger companies," said Apolinario. "We're going to see growth among the (larger acquisitions) because there's a lot of pent-up energy."

Several national and even global predictions confirm Apolinario's assessment that mergers and acquisitions activity is picking up.

According to a survey conducted by Thomson Reuters and Freeman Consulting Services, the 150 people polled expect deals to rise by 36 percent worldwide to $3.04 trillion in 2011, the highest figure since the $4.28 trillion recorded before the credit crunch and banking crisis started in 2007.

The Ohio Business Brokers Association is a non-profit corporation founded in 1987. The group helps align prospective business buyer with businesses that are for sale.

Copyright © 2010 The Daily Reporter - All Rights Reserved

View the article on the Daily Reporter website HERE.

Wednesday, December 1, 2010

Displaced Execs Fueling Deals for Small Businesses

Mergers & Acquisitions

Displaced Execs Feling Deals for Small Businesses
Business First of Columbus - by Robert Celaschi For Business First
The market for buying and selling businesses is heating up.

The number of closed transactions reported to BizBuySell.com nationwide jumped in the second quarter. The San Francisco-based online marketplace for businesses tallied 1,106 transactions, up from 1,040. To put the numbers in perspective, the volume is about half what it had been in 2008, said BizBuySell, an Internet marketplace that has 700,000 visitors looking for business opportunities each month.

The market has buyers, especially for smaller businesses.

“In the last two or three years, there are corporate executives displaced, underemployed and unemployed. They are wanting to take control of their destiny through business ownership,” said Emmet Apolinario, president of Columbus business brokerage International Resource Group and president of the Ohio Business Brokers Association.

Clay Baker is one such buyer. An executive in mortgage banking for 16 years, his career took a turn along with the mortgage industry in 2007. He had savings, but not enough to retire. Besides, he said, mortgage banking didn’t look very good on a resume at that time.

“I recognized the only path to get back to the income level I was accustomed to was to own a business,” Baker said.

He did his research, and worked with Apolinario to buy a Fastsigns franchise.
Making signs and banners didn’t interest Baker that much, but he saw an opportunity.

“The previous owner was ... not that actively involved,” Baker said. ”I figured with a little sales and marketing, there should be an opportunity to grow this business.”

In the first nine months, revenue grew about 25 percent, he said. Then the recession hit, and revenue dipped a few percent in 2009. This year it is holding steady.

With revenue on a plateau, he’s considering whether to buy a second business.

“I think there could be opportunities, and I might be mitigating some risk factors by acquiring something completely different than the sign business,” he said.

Which brings up one of the factors putting the brakes on deals.

“We are running into buyers who want to buy, but we have trepidation from the banks,” Apolinario said.

Baker can testify to that. When he applied for financing in the spring of 2008, he got approval within 30 days, he said.

"Had I gone about this in October of 2008, I wouldn’t have been able to get financing. That’s how much things changed in six months,” he said.

Smaller deals are easier to finance, according to BizBuySell. But bigger deals still get done, said Frank Wisehart, business advisory services director for Schneider Downs & Co. Inc. in Columbus. His office has seen a pick-up in calls for M&A due diligence work.

The most active market comes from companies with revenue between $10 million and $100 million. He said banks have cleaned up bad loans and are able to put up more money this year, he said.

The other challenge is dismal performance. Because of the way business valuations are calculated, a company that had a lousy 2009 would fetch a lower selling price this year. On the other hand, sellers are looking at higher capital gains taxes if they wait until 2011, Apolinario said.

Wisehart said companies that have downsized have returned to profitability and are seeing more sales.

“Manufacturing and technology seem to be improving,” he said. “Nearly everyone agrees the market will turn positive. The question is when that occurs or what event triggers the tipping point. ... I think economic prognosticators were caught flat-footed by the recession, and no one wants to wrongly predict an extended positive growth period.”

Robert Celaschi is a freelance writer.

Tuesday, November 30, 2010

The Legacy Options for Two Family Owned Businesses - The Conundrum

Last month I met with a buyer interested in acquiring one of our "Big 10 University" licensed promotional companies. The buyer is considering our business as an "add on" to the existing business he currently run as a family. In my process there needs to be an understanding as to why such acquisitions make sense for our client seller. The way this deal might be structured may make sense because both the potential buyer and the seller client are both running legacy businesses that involve close family members. You may consider this a "blending of two families" with two separate businesses. As simplistic as it may sound, it might be the most complex proposition to consider as eventual to this type of merger you have egos getting in the way.

In addition to the already complex "blend" the buyer will add a variant to the ongoing business for sale through the relocation of the acquired company. This relocation plan, in discussing with the seller, will be the biggest hindrance to making this a conducive deal. A key family member working in the business opposes the relocation. For many years the business has been in a location favorable to the key employee and if this key member will cease to be involved in the business, the business may lose one of its attractive value proposition, which is to inherit trained and skilled employees in the acquisition.

It is unfortunate that the seller did not consider such aspects of his exit from the business in advance. Exit planning does not happen overnight. It is a series of steps in evaluating the critical factors that will be considered in the future. Not everyone has a crystal ball to predict the future, but with careful planning and a timely execution, alongside of working with professionals who are equipped and credentialed in the exit planning process, similar hindrances enumerated above will be mitigated, if not avoided.

Lending Problems Still Hamper Small Business Sales

April 1, 2009
Lending problems still hamper small business sales
AP Business Writer

Andrea Edmunds got a great deal when she decided to buy a small business. But that still didn't make it easy.

Edmunds recently bought back PoshTots and PoshLiving, two linked retail companies she had co-owned until three years ago. The firms' new parent company was in bankruptcy court and Edmunds wanted to buy the businesses back, even though the companies' sales were way down and financing is hard to get.

"I had enough confidence and faith that it's going to turn around," Edmunds said of her businesses and the economy.

Edmunds managed to accomplish what many would-be entrepreneurs are hoping for in a troubled economy: to buy a small business despite the many obstacles that are making deals hard to complete.

Business brokers, who bring buyers and sellers together, say there are a growing number of people who want to buy, including many who have lost their jobs over the past year and need to make a living. And there are plenty who want to sell, including baby boomers hankering for retirement.

Getting financing for deals is still tough, although the government has taken steps to make Small Business Administration loans easier to obtain. The brokers say banks are not only uneasy about borrowers, they're also questioning the health of the companies up for sale.

"Even with those changes, we feel that it seems as if the money may never reach the small business owner," said Jeff Hoops, senior vice president of The Haley Group in Paso Robles, Calif.

Small businesses have found it hard to borrow from banks for years, long before the recession; a neophyte owner or company has been too risky for many banks to take on. The recession and banks' unwillingness to lend in general over the past six months have made it that much harder.

Edmunds said her financing came from a private, locally-owned bank that was supportive of her plans. The fact that she knew her businesses so well was a plus, and the purchase price was down dramatically — $735,000, compared to the $12 million she and two partners got three years ago. The companies, based in Glen Allen, Va., sell upscale home furnishings.

Brokers are seeing lower prices in general along with fewer transactions.

Peter Berg, managing director of Transworld Business Brokers in Fort Lauderdale, Fla., said the volume of deals his firm did last year fell 10 percent but the value of all the deals put together went down 30 percent.

Meanwhile, deals are taking longer to complete while banks give prospective borrowers and companies much closer scrutiny. Emmet Apolinario, who owns a Sunbelt brokerage in Columbus, Ohio, said that before the credit crisis, a purchase could close in 45 to 60 days after an offer was accepted. Now, one of his pending deals will take five months to close.

Would-be buyers have been hit in several ways. Besides the bank financing issue, the nest eggs they would have used for down payments have shrunk as the stock market plunged. They can't draw on home equity because housing prices are down, and if they already had a home equity line of credit, their banks have very likely pulled the accounts or cut them drastically. Also, banks that are willing to lend are demanding bigger down payments.

Sellers have their own set of problems. More of them are having to act as lenders to close the deals. Apolinario has been telling them, "there is no way I can get you 100 percent cash. You will have to provide some seller financing."

That does have an upside for sellers, though: They get income from the interest on the loans they grant their buyers.

But, Apolinario said, many owners are also finding that they can't get the price they expect on their companies; these assets have fallen in value along with real property and stocks.

Brokers see small signs of a possible pickup in deals. Apolinario said the SBA loan changes have led to more prospective buyers calling.

Berg said he sees many people actively looking for a company: "They either have been laid off or are afraid of being laid off and want to be pre-emptive."

Still, he said, "it doesn't mean an uptick in the number of transactions. We're just seeing an uptick in the number of inquiries."

Hoops expects the climate for buying and selling to start picking up perhaps as early as June, "when people get comfortable with the fact that they're going to have to live with this (economy) for a while."

He expects prospective buyers to say, "things are bad, but I've got to plan for what I'm going to do next, no matter what happens in the economy."

Franco Ferrari, owner of a Sunbelt business brokerage in Casselberry, Fla., near Orlando, expects that the entrepreneurial spirit is what will bring more buyers in, rather than expectations that government steps will heal the economy. "There's confidence in their ability as a mom and pop operator that they can go in there and make that business produce," he said.

Found Dead

We talked to a potential client last December about the possibility of exiting his business. The client has a nice operation that they have built through the years and provides services to enterprise class customer base. To summarize the business, it is a B2B operation that, over the years, has provided an ongoing strong value proposition to their clients.

In our discussions we would normally talk about the competitive aspect of their business. They said that there was one particular national competitor on a regional basis that manages to "under cut" them from their pricing. It is not typical that the client would lose out on a potential engagement because the other party would be able to offer a more attractive price.
I mentioned that when a competitor is able to offer a less expensive route in most cases, there are areas where they take short cuts in either their product or service. In order to offer low prices, they would have to cut the quality by obtaining products from an overseas alternative, where quality assurance and product integrity may not be up to par. Do they use labor or utilize service that do not adhere to the same standards they do? What drives these costs or savings?

The competition is a smaller operation that does not have the same investment in infrastructure and operations. From the description of this competitor, it is the typical competitor that sells their services and products on a purely commoditized model. The short cuts occur in the safety aspect of their business and they have minimal safety procedures in place. It may even be described as an outright risk doing business with such a vendor.

Today they found one of the competitor's associates dead. He was found in a structure where there was no safety gear (and procedures) in place. The competition's delivery of their service and product was delivered in such a manner that extreme short cuts were taken in order to provide a highly competitive price. It took 35 rescue and first responder personnel to extract this employee's body.

In reviewing this particular incident, who incurs the liability in this tragedy? The enterprise customer could certainly be held liable for this incident. Yes, it was a contractor, not an employee, but should blame be put on their purchasing decisions? They wanted something on the cheap without taking into account, what short cuts are actually being taken to deliver this service at such a price. I would also venture to say that the company probably did not even have any insurance coverage for such an event.

This awful tragedy does turn a benefit for our client in the sense. They can clearly show the value proposition of why their pricing schedule is different. They do what is proper and right to deliver their services in a safe and quality manner. They've already won additional customers as a result of their standards.

In choosing the right service provider to help you exit the business, are you utilizing the right decision matrix to accomplish this? Have they gone through a similar process themselves, ran their own enterprise and understand all the nuances of business ownership and the eventual exit of an owner? Choose wisely for one of your biggest investment in your life: your business. Utilize the help of a professional.

Year 2010 M & A Market Hoping New Year Brings More Activity Than Did Dismal 2009

M & A market hoping new year brings more activity than did dismal 2009
Daily Reporter Staff Writer
December 24, 2009

A local leader in the mergers and acquisitions field said he's "cautiously optimistic" about increased activity in the coming year after a moribund 2009.

"The recession for Wall Street is over, but then I talk to companies and they're still not hiring," said Emmet Apolinario, president of the Ohio Business Brokers Association.
During tough economic times businesses that are struggling may not be attractive because buyers want to acquire more successful companies.

"We do have a lot of buyers right now but there's a shortage of good businesses being taken to market," Apolinario said.

On the other hand, it's also a good time to go bargain hunting, he added, if the companies are stabilized.

"There are valid reasons for a sale. They don't have to be distressed," he said.
Many businesses hurt by the economy, however, are attempting to slug it out during the slow times with hopes of improvement not far away, Apolinario noted.

"I'm seeing a lot of distressed businesses hanging in there, hoping for a glimmer of hope," he said.

Other, more financially strong businesses are waiting to see if they can improve more and fetch a higher selling price, Apolinario said.

There some signs of life, however, especially among buyers.

"There is still some money in private equity, executives looking to buy, (but) some have been looking for a year. There's a shortage of good businesses to sell," he explained.
Many of those buyers are executives or Baby Boomers looking for a new career and or the independence that comes with being an owner.

"They've been in the corporate jobs for 20 years and they are finding opportunities in buying businesses," Apolinario said, adding they're often doing it not as a part-time or side gig, but as a full-time job.

As far as the types of businesses sought, health-care companies are in the strongest position, Apolinario said.

Also, handyman and repair businesses are doing well as consumers hang on to products longer rather than purchase new ones and perhaps need the old items maintained.
At the other end, the retail sector is abysmal.

"Businesses that have a footprint in the retail market have not done well, being affected of course by consumer spending," said Apolinario.

Restaurants, too, are "challenging," he said as consumers have cut their spending on dining out.

Any increase in activity would be an improvement on what's occurred this year in the deal-making business.

"It's been a tough year for mergers and acquisitions and business brokerage," said Apolinario. "The SBA stimulus package was a big help to get some deals done."

The federal stimulus package in the spring included a 90 percent federal guarantee of U.S. Small Business Administration loans by banks and lowered fees, which encouraged banks to provide more small business loans.

Still, it was such a rough year that Apolinario said he's seen some people leave the business brokerage field and that Ohio Business Brokers Association membership is down more than 20 percent this year.

Meanwhile, national mergers and acquisitions experts, too, are holding their breath that activity will improve next year.

"While it is likely that deal activity may not return to pre-crisis levels within the next few years, there is some cause for optimism when looking at the three drivers of deal activity: confidence, credit and cash," said Steve Krouskos, Americas markets leader for Ernst & Young LLP's transaction advisory services, in a recent statement.

For the second half of 2009, deal activity remains sluggish but is showing signs of modest acceleration, according to Ernst & Young.

The firm said deals continue to get done, but the types of deals completed, and the way these deals are financed and executed, has changed significantly.

"The new 'normal' is defined by continuing uncertainty, weaker demand and margin erosion, scarcity of capital and more risk-aversion in strategic decision making. Managing all aspects of the capital agenda is the best way to manage the new normal," said company officials.

"In this deal environment, the margins for error have narrowed," added Rich Jeanneret, Americas vice chairman for Ernst & Young's transaction advisory services. "Many companies feel inclined to stash cash and be reactive, but winning companies will be those that have the confidence to use their capital to seize opportunities."

Monday, September 20, 2010

Becoming A Certified Exit Planning Advisor - What is Involved PR Attached

Emmet Apolinario Receives
EPI’s Prestigious CEPA Credential
By Exit Planning Insititute
May 15, 2008 - 1:23:00 PM

CHICAGO, IL— The Exit Planning Institute is proud to announce that Emmet Apolinario, of Columbus, Ohio recently earned the Certified Exit Planning Advisor (CEPA) certification after completing the Institute’s intensive CEPA program. Apolinario joins an exclusive group of fewer than 100 business advisors worldwide who have received this designation.

About the CEPA Program
The CEPA program was specifically designed for business advisors who work closely with owners of privately held companies. Using an executive MBA style format, the program is designed around a central case study and uses a combination of lectures, group discussions, case studies and individual exercises to introduce participants to concepts and to reinforce skills.

To receive the CEPA certification Apolinario completed a rigorous 4 day program that involved approximately 100 hours of pre-course study, 36 hours of class room instruction, and successful completion of a 6 hour proctored examination.. The program was held at the
University of Chicago Graduate School of Business-Gleacher Center (http://www.gleachercenter.com).

About The Exit Planning Institute
The Exit Planning Institute is the premier provider of learning, knowledge, and future-oriented research for exit planning professionals. The Institute delivers innovative learning experiences, performance-enhancing resources, and strategic tools designed to advance the exit planning profession.
The Institute is made up of business brokers, accountants, attorneys, financial advisors, investment bankers, valuation advisors, commercial lenders, insurance advisors, and management consultants in the United States, Canada and the United Kingdom. The common thread that unites these different professionals is their commitment to helping clients exit their companies successfully.
More information about the Institute can be found at www.exit-planning-institute.org.
CONTACT: Dennis Gano, Executive Director, 847.303.6887, gano@exit-planning-institute.org

2009 Mergers and Acquisition Activity Forecast

Credit crunch to slow 2009 M and A Activity

Rick ADAMCZAK, Daily Reporter Staff Writer

It should be a strong buyers' market in regard to sales of businesses in Ohio next year, according to the president of the Ohio Business Brokers Association. Sellers should have no trouble finding suitors because the recession has brought out a wave of bargain shoppers looking to buy businesses at lower prices. "More than ever we're seeing buyers looking out there for deals, but people are looking at things with caution," said Emmet Apolinario, president of the OBBA.

"We do have a lot of buyers coming into the market, a lot of bottom-feeding." A year ago it was more of a sellers' market, but that changed once the economy's woes worsened throughout the year. "Our phones are busy with buyers looking for deals, but sellers have to be flexible on credit terms. Ninety percent of them are going to have to consider carrying a seller's note," said Apolinario. He said he expects 2009 to be an active year for mergers and acquisitions in Ohio, though the credit crunch will keep the pace of deals down. "Credit is an issue. It's a big challenge," Apolinario said. "It's still going to be active in 2009.

It's like a dam and when the water breaks, it's going to gush." He said health care should remain one of the strongest sectors. "If we have a client with a health-care company it's easy to pitch it to a buyer," said Apolinario. The service sector, too, should be busy in the coming year. "It'll be strong with cash flow doing well in Ohio. There's still some growth to it," he said. The retail market, however, will be "challenging." "You're going to have to be willing to provide a good amount of notes," Apolinario said. A seller's note is when a seller agrees to receive a portion of the purchase price as a series of installment payments. Despite the woeful economy, Apolinario said there still are plenty of companies in good positions to buy other firms. "There are still stronger companies looking to do deals, they have some cash, but they're very selective," said Apolinario. Still, there remains a lot of uncertainty among buyers and sellers as the recession plows into its second year. "I think we're going into uncharted waters here," said Apolinario. "Everyone wants to do it right away, but you can't. It's a bit of a challenging market with the economy. This is a new world order and it's affecting many aspects of (mergers and acquisitions)."

Reinforcing Apolinario's forecast of cautious buying, a new report by the Association for Corporate Growth indicates that merger and acquisition activity in Ohio may slow in 2008. The percent of Ohio professionals involved in mergers and acquisitions who say the current M & A environment is good or excellent has fallen to 10 percent this month, from a high of 95 percent in June 2007.

The percentage dropped to 70 percent in December 2007, then to 41 percent in June 2008. The latest survey of middle market merger professionals by the Association for Corporate Growth shows the most negative outlook in the history of the survey, with 90 percent of Ohio dealmakers saying the current mergers and acquisitions environment is "fair" or "poor." Most Ohio dealmakers do not see it getting better any time soon. According to the survey, 33 percent of dealmakers expect the M & A environment six months from now to be the same while 28 percent believe it will worsen and 19 percent said it would improve. Apolinario said Baby Boomers remain influential in the mergers and acquisitions arena, since many of them have owned business for perhaps 15 or 20 years or more and are preparing to sell them to move on to other pursuits or retirement, though the recession has likely altered many of those plans. "They may be hanging on to them until the credit market is there again so they can walk away with more cash," said Apolinario. "I'd say about one-third are just tired, one-third are faced with the challenges of the credit crunch and one-third are ready to move on."

Date Published: Tuesday, January 6, 2009

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