When the recession hit in 2008, the number of mergers and acquisitions dropped precipitously. Now that the stock market and economy are improving, more and more businesses are undergoing transactions, both in sales and purchases of companies.
And if you’re one of these companies, partnering with a firm that focuses on Transaction Advisory Services can increase your value.
“Whether you are involved in selling or buying a company, buying out shareholders, transitioning your business to family members, obtaining funding for your venture, or a host of other transactions, there are typically a lot of dollars changing hands, and it’s an important time for a business owner from both a financial and emotional perspective,” says Wade Kozich, CPA, senior director and director of Transaction Advisory Services at GBQ Partners LLC. “There’s a lot of value that comes to businesses as a result of using a firm with strong capabilities that is highly focused on transactions, which can save you millions of dollars during a transaction process.”
Smart Business spoke with Kozich about the importance of Transaction Advisory Services and key items you need to understand about business transactions.
How can businesses take advantage of the change in the mergers and acquisitions environment?
We are back in an environment where people are feeling a lot better about the economy. Many people held off on selling because there weren’t enough buyers, or the prices they were getting weren’t justifying what they thought their businesses were worth. Multiples are very high right now, which is encouraging businesses to sell part or all of their company.
Even if you’re considering another type of liquidity event, such as a management buyout or ESOP, interest rates are at all-time lows and it is a great time to lock in long-term interest rates. Low capital gain rates, due to expire this year, are also causing more transactions to occur.
On the buy side, many companies have been hoarding cash, but more are now aggressively seeking acquisitions. Banks are also starting to loan more to finance transactions. Private equity funds have windows of time to make investments, and those windows are closing.
Why are Transaction Advisory Services important to businesses?
On the buy side, it’s making sure that what you think you’re buying is actually there, and you are looking for synergies and opportunities to expand revenues and profits. You also want to make sure you are paying the right amount and that you have the right structure for the deal.
On the sell side, you want to make sure your company is in good shape to be sold. A seller maximizes its value based on how it positions the company prior to a sale. There are a lot of things a firm can do in terms of pretransaction planning, evaluation of opportunities and transaction execution, and even post-transaction planning, to maximize value.
What should businesses look for in Transaction Advisory Services?
Look at a firm that has people with strong capabilities who have a lot of experience going through many transactions. A lot of nuances are only learned through real-life experiences.
It’s important that a firm has people with diverse technical skills, including tax structuring, due diligence, valuations, state and local tax, technology, business consulting, corporate finance and restructuring and succession planning. Having it under one roof and in a coordinated fashion is critical to adding value.
What key items do companies need to understand about business transactions?
If you are selling, start preparing at least a year in advance. Clean up your company and your financials, and have a review or audit done if you have not done one in the past. Make sure your tax structure is most advantageous for a sale. Do due diligence on your own company, checking the things a buyer will look at when it does due diligence. You want to sell when you’re most profitable, so start planning at least a year in advance, sometimes up to five years, because you want to maximize profitability and sell at the right time.
You also need knowledge of how to go through a transaction. Who should you consider as a buyer? Should you use an investment banker? Who would be interested in buying the business — a strategic buyer or a financial buyer? You need to scope out the marketplace. Start building relationshiops with potential buyers. Too often, a business will get a call from someone and end up doing a transaction without fully considering who the best partners are to buy the business. It may never realize that it could have gotten a much better price and sold to a better partner.
When people sell companies, they may keep a minority interest and stay in the business, so you are, in essence, taking on a new partner. Who you take on as a partner is crucial. How is that person going to treat the people you’ve been working with for years? Will that person treat them well and retain them, or get rid of as many as possible? That can be important.
What are the benefits of using a firm for Transaction Advisory Services?
There are many complex nuances in deals. The buyers you are talking to have been through a lot of deals, and if you do not have experts on your side, you will be at a huge disadvantage. Going through a transaction can be very distracting and stressful on a business, and particularly on the owners. A strong transaction advisory team can alleviate a lot of the distraction and stress and give you peace of mind. There are also a host of risks inherent in all transactions that you may not realize. Having a good Transaction Advisory Team on your side will greatly mitigate those risks. Any time you go through a sizeable transaction, you want the smartest and most skilled people on your side, because there is a lot to be gained or lost.
Wade Kozich, CPA, is a senior director at GBQ Partners LLC. Reach him at (614) 947-5255 or [email protected].
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