Diving into Diligence


“Financial Due Diligence” (FDD) and “Quality of Earnings” (QoE) are often bandied around during a transaction —sometimes used interchangeably— but what’s the difference? In this post, I explore the key differences between typical FDD and QoE, including when each term applies and what they tell us.  Being Diligent  FDD and QoE are both exercises in diligence, but they serve different purposes – and sometimes at the same time.  On the buy- and sell-side of a transaction, owner-operators, lenders, investors, and, at times, regulators will request that FDD or QoE is performed so that relevant stakeholders can gain assurance and mitigate their risk.  From an owner’s perspective, [...]

Diving into Diligence2020-06-30T13:57:49-04:00

Why Now is the Time to Buy a Business


Many small businesses have closed, severely reduced output, or are slowly reopening during the COVID-19 pandemic.  So why would a business buyer consider moving forward with a transaction in such a dismal environment?  This is why:  Business Owners are Motivated to Sell  A large percentage of small business owners are Baby Boomers that have survived 9/11 and the Great Recession. These owners are near retirement, yet they have been on the fence about selling and have had a difficult time walking away from the steady profits they have received from the recent strong economy. Now, COVID-19 is changing their outlook and many are ready [...]

Why Now is the Time to Buy a Business2020-06-30T13:43:42-04:00

Revenue Recognition and Private Equity: Are You Paying Attention? Part II


In our previous article, we broke down one of the most considerably penetrating compliance changes in over a decade (Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09)) and its significant impact on private equity groups. Between May 2014 and today, amendments and implementation guidance for both companies and practitioners have been released; meaning, PEGs should prepare to be well versed on the standard and how it will impact portfolio companies, recent acquisitions, acquisition targets, and even exit strategies. The following is part two in a two-part article series. PRE-TRANSACTION CONSIDERATIONS Are you currently evaluating potential [...]

Revenue Recognition and Private Equity: Are You Paying Attention? Part II2020-06-02T15:50:25-04:00

The 4 Types of Family Office Investors and Which Are Likely to Close a Deal


Doing business with a single-family office (SFO) is not an easy proposition, even finding contact information for an office principal can be a daunting feat. There is a tension in how you think about family offices. Like Willie Sutton remarked about banks, you cannot disregard them entirely simply because “that's where the money is.” But at the same time, their reclusive and nebulous nature makes dealing with them even more challenging. What I would like to do today is review the family office marketplace in aggregate, and then offer you a framework for how to think about the various types [...]

The 4 Types of Family Office Investors and Which Are Likely to Close a Deal2020-06-02T15:38:30-04:00

Closing is Just the Beginning – Post-Merger Integration Plan Best Practices


Growth by acquisition can be a risky proposition, but it carries less risk when compared with organic growth. In theory, you are paying market value for a book of business that will immediately begin generating cash flow. If the valuation is reasonable, then the deal should be appealing to shareholders. In contrast, organic growth or investment in new growth areas doesn’t always materialize. Acquisitions are the preferred choice for many companies looking to grow on a retracted timetable, and the process is an exciting one. When it comes to acquisitions, the “closing date” is often seen as the crescendo of a [...]

Closing is Just the Beginning – Post-Merger Integration Plan Best Practices2020-03-03T13:39:51-05:00

3 Takeaways From Harvard Business School’s 2019 Search Fund Conference


Though search funds still make up a relatively small percentage of lower middle market investors, this investment model continues to gain prominence. In December 2019, I had the pleasure of attending the HBS Entrepreneurship Through Acquisition (ETA) conference for my third consecutive year. It’s been incredible to see firsthand the search fund community gaining prominence. I’d like to sincerely thank Harvard Business School and the ETA Club at HBS for producing the incredible event. For those unfamiliar with ETA, it is a career path in which professionals (often after an MBA program) acquire a profitable lower middle market business and assume [...]

3 Takeaways From Harvard Business School’s 2019 Search Fund Conference2020-03-03T13:39:58-05:00

Value Rises, When There are No Surprises!


How to protect your client’s business value from unplanned, chance events. As we all know, there are rarely good surprises in business. Record concurrent years of positive economic growth are behind us, with an unclear future. Risk exposures beyond our control loom daily -- tariffs, trade wars, industry slowdowns, recession, partisan politics or international crisis. Of equal concern, internal operating risks abound -- increasing pay rates, hiring difficulties, technology edge and  compliance requirements to name a few. Most business owners want to enjoy the value that took years to develop. So how can we help them protect and grow that same [...]

Value Rises, When There are No Surprises!2020-02-05T09:38:00-05:00

A Business Valuation is Not Just In the Numbers: Part Two


A Business Valuation is Not Just In the Numbers Leadership & Culture The culture of an enterprise may be hard to measure, but it nevertheless very important to the worth and value of a business.  Employee retention and turnover is one important variable that appraisers will want to understand, as well as some of the underlying drivers.  Companies with weaker benefits and compensation programs will likely face more competitive employment pressures and increased turnover, which in turn creates increased discounts to value when analyzed by a qualified appraiser. Another issue many businesses face is key person risk.  We have enjoyed a [...]

A Business Valuation is Not Just In the Numbers: Part Two2020-02-05T09:37:47-05:00

A Business Valuation is Not Just In the Numbers: Part One


A Business Valuation is Not Just In the Numbers As a professional business appraiser, we are called to provide our best estimate of fair value.  On its face, it would seem relatively straightforward to assume that most of it has to do with the financial well-being of the company, which it does.  However, it is also very easy to overlook some of the more salient issues in the ongoing operations of a business which subtract meaningful dollars from its value.  In our experience, the issues most prevalent impacting potential valuations can be found in the following areas: financial operations, sales function, [...]

A Business Valuation is Not Just In the Numbers: Part One2020-01-07T12:34:11-05:00

Update on the BIEF Campaign for Clarity


Update on the BIEF Campaign for Clarity On September 11th, a subcommittee of the House Financial Services Committee (HFSC) held a public hearing on various bills, including HR 609, The Small Business Mergers, Acquisitions, Sales and Brokerage Simplification Act of 2019. In its memo announcing this hearing, the Financial Services Committee staff summarized HR 609 as follows: This bill would codify an SEC no-action letter by exempting certain merger and acquisition brokers from registration as broker-dealers. Under the bill, M&A brokers are defined as brokers that facilitate the transfer of ownership of privately held companies with earnings [EBITDA] of less than $25 million or revenues of less [...]

Update on the BIEF Campaign for Clarity2019-11-05T16:36:43-05:00
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