eNewsletter
November 2017

Featured Clients this issue:
**Details of each client below article

- Well-Established Property Management Firm #1417
- Award Winning Garden Center & Nursery  #1317
- Automotive Service and Repair #1716

                                                           
 
For the last 35+ years, I have been meeting with entrepreneurs to discuss exit planning, positioning their business for sale, and taking the business to market.  After discussing goals and objectives, we discuss the process of going to market, timing, and collecting appropriate information relating to the value of the business.  The first question I am typically asked is, "What is the number?" or, more specifically, "What is my business worth?"  It is also not uncommon to get that question over the phone with an introductory comment along the lines of, "I have a distribution business that has been in business for XX years and the business grossed $Y,YYY,YYY last year." Although I wish that I was smart enough to respond with a reasonably accurate answer, in reality, the process to reach an opinion of market value is fairly complex and involves a many factors.

Before discussing some of those factors, it is important to differentiate an opinion of market value from an appraisal.  An appraisal is a more formal valuation used for a specific purpose, such as estate or gift tax value, determining the value of a marital estate for a divorce, or the value of a business for the buyback of stock for buy/sell agreements.  The appraised value of the same business can be different in each of these scenarios, as there are regulations that provide guidance for tax purposes, state law court opinions for divorces, and, sometimes, formulas built into the buy/sell agreement.  For our purposes, we will calculate an opinion of market value based on a number of factors, including the following:
  • Fair Market Value of Assets:  This can include tangible assets, such as furniture, fixtures, equipment, and inventory, as well as intangible assets, such as patents, trademarks, and tradenames.  It is important to note that the appropriate number to use for each asset is not the book value of the asset or the new replacement cost of the asset, but rather what it would cost to buy a similar asset of that age and condition.
  • Cash Flow:  This metric is often measured by EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for larger businesses that use GAAP accounting or SDE (Seller's Discretionary Earnings) for smaller, privately owned businesses that use less disciplined accounting and where the business owner may expense items, such as personal vehicles, excessively-compensated family members, and write off of club memberships.  Regardless of the metric used, cash flow is typically one of the primary drivers of value.
  • Trends:  This factor applies to both the industry and the individual business.  Are sales and profits increasing, decreasing, or remaining flat?  Are margins consistent?  Is the industry segment growing or declining?
  • Market Conditions:  We are currently in one of the best M&A markets in history.  Buyer demand is high, money is relatively cheap and available, and there are more buyers than good businesses available to purchase.  The Colorado market is particularly attractive due to its growing economy, central location, and high quality of life.
We are advising potential sell-side clients that, if they are contemplating the sale of their business within the next three years, they should strongly consider going to market now.  If you fall within that category, we can help to determine "What is the number?"
 

The majority of our business is derived from referrals. Please consider referring our services if you encounter a situation involving the potential purchase or sale of a business.


Ronald V. Chernak
President
 
Inspiring business relationships since 1982!

Celebrating 25 Years of Winning Together!

Last month, Ron Chernak attended The M&A Source Fall Conference, where attendees have the opportunity to effectively discuss their deals with a concentration of private equity group (PEG) representatives available nowhere else. With hundreds of millions of dollars of available capital represented in one room, this Expo is the must-attend event for any professional intermediary! 

Well-Established Property Management Firm #1417
This property management company is one of the oldest in the Colorado Springs area. It has a large and diversified client base that includes homeowner associations and individual property owners. Both the company and the industry, in general, have a long history of being recession resistant due to its recurring monthly revenue. The company has a strong brand name in the marketplace. It utilizes current software for all management activities. There are experienced personnel in place.
This firm would be an appealing acquisition for 1) an already established property management company looking to grow, 2) a real estate brokerage firm wanting to expand its services, or 3) a qualified individual with appropriate experience.
  • Purchase Price...$745,000
  • Down Payment...$185,000
  • Gross Sales...$724,869
  • SDE...$193,681

For more information contact Ron Brasch rb@fbb.com.
Award Winning Garden Center & Nursery  #1317
This well-established business wins awards every year for its outstanding selection of inventory and superior service. The high-traffic location, over 75% repeat business, and seasoned staff will allow you to focus on growth. The current owners wish to retire. The strong financial performance continues in 2017 and there is ample space for future growth.  This should make an excellent acquisition candidate for an industry buyer looking to expand into a new territory or an entrepreneur seeking an established, profitable business with opportunities for growth. 
  • Purchase Price...$795,000
  • Down Payment...$200,000
  • Gross Sales...$1,589,066
  • SDE...$240,940

For more information contact Gary Curran gary@fbb.com.
Automotive Service and Repair #1716
This company provides high quality work, fair pricing, and certified technicians.  From simple oil changes and tire repairs to complicated diagnostic and electrical repairs - even tire sales.  The company's commitment to creating a positive working environment for its employees guarantees the vehicles serviced are treated with the utmost care and attention to detail.  We believe this would be an ideal acquisition candidate for an entrepreneur with a love of automobiles or another similar business looking to expand into the area.
  • Purchase Price...$895,000
  • Down Payment...$230,000
  • Gross Sales...$1,665,708
  • SDE...$247,404

For more information contact Rob Amerine rob@fbb.com.
**Terms & Definitions

TBS (To be suggested by Purchaser) - Seller, in his/her sole discretion, has the right to accept or reject all offers.

Seller's Discretionary Earnings (SDE):  A term used to denote a business's cash flow or the amount of pretax money a buyer can expect to earn in first-year operations.

EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization):   All interest, tax, depreciation and amortization entries in the Income Statement are reversed out from the bottom line Net Income (It purports to measure cash earnings without accrual accounting, canceling tax-jurisdiction effects, and canceling the effects of different capital structures.)
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