Time business sale to maximize return

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The decision to sell your company is in many cases the most important nancial decision of an owner's life. Whatever prompts the sale retirement, industry consolidation, liquidity, succession issues or valuation concerns selling your company and enhancing its value involve three major factors: timing, planning and execution.|ret||ret||tab|

Let the marketplace increase your value. Selling your company at the right time can add signicant value, while selling at the wrong time can be disastrous. Before going to market, you need to study the following: industry trends; general nancial markets and economic trends; overall deal climate; interest rates; and the current tax and regulatory environment.|ret||ret||tab|

The capital markets and merger-and-acquisition markets have been improving over the last three years. The number of acquisitions completed through the end of September surpassed those of the full year 2002 and has almost eclipsed those completed in the full year 2003. |ret||ret||tab|

As acquisition activity increases, we also are seeing valuations for smaller and mid-sized companies increase. Aggregate deal value through three quarters in 2004 has surpassed that of the full year 2003. Average valuation multiples are up from 5.8 x EBITDA (earnings before interest, taxes, depreciation and amortization) in 2002 to 6.56 x EBITDA during the rst half of 2004 for transactions of less than $250 million. |ret||ret||tab|

Strategic buyers are re-entering the mergers-and-acquisitions arena bolstered by improved nancial performance, low interest rates and increased access to debt and equity nancing. Buyers with strong balance sheets have been aggressively bidding on companies. This is certainly good news for sellers as the re-entry of the strategic buyers increases competition on deals contributing to higher valuation multiples. In addition, private equity rms, fueled by an abundance of capital and low interest rates, continue to aggressively pursue opportunities. |ret||ret||tab|

Increase your company's value before going to market. Increasing the value of your company begins with planning. To help identify areas of value, you should analyze the company's nancial condition, products and services, markets, competition, customer base and management. |ret||ret||tab|

It is important to present a clear nancial picture, and "recasting" both the balance sheet and income statements is an important step in this process.|ret||ret||tab|

Many companies have assets that may be presented on the balance sheet at values signicantly less than their market values, such as real estate, or may not be on the balance sheet at all. Machinery and equipment leased with an option to purchase may not be shown as an asset on the balance sheet. It may enhance the balance sheet if this equipment is shown on the balance sheet with a corresponding liability to reect the payoff balance of the lease.|ret||ret||tab|

Another example of assets that may not be on the books are rock reserves for quarry operators. A recast balance sheet for quarry operations should reect the market value of their reserves. Many quarry operators are nding alternative post-quarrying uses for the property such as landlls or lakes that will be used in a new land development. In some instances, the secondary use has a signicant value, and these potential uses should be shown to a prospective buyer to demonstrate additional value. |ret||ret||tab|

Another item to examine closely is working capital. If your company has excess working capital, you will want to value the business independently of the amount considered to be excess working capital.|ret||ret||tab|

Most privately held companies have "discretionary" or unique expenses that will not continue under new ownership. It is important to identify these expenses for the three years before the sale, including the current period. Identifying these expenses to add back to the bottom line can have a signicant impact on the ultimate value of a company because it is based, to a large degree, on multiples of operating cash ow.|ret||ret||tab|

In the above example, where equipment has been leased with an option to buy and the payments have expensed, it may be appropriate to add the lease payments back to the bottom line and then show the equipment as an asset with a corresponding liability for the remaining lease/option obligation. Other items to consider include owners' salaries, bonuses, perks, appraisals and special-project costs.|ret||ret||tab|

Put your best foot forward. A company's value will be based, to a large degree, on a multiple of operating cash ow or EBITDA. Any incremental increase in this multiple is crucial to getting the most value for your company. To increase the multiple, the company must be thoroughly prepared: You must properly present its strengths and opportunities, effectively execute the marketing program and conduct condential, competitive negotiations. |ret||ret||tab|

Find the right buyer and conduct competitive negotiations.|ret||ret||tab|

Identifying the right buyers through a detailed market analysis is vital to increasing the sale price. A seller should not assume it has already identied the perfect buyer. Buyers come from several areas. They may be a competitor or peer in your industry, or they may be a company in an unrelated industry requiring comparable skills and equipment that wants to diversify.|ret||ret||tab|

We are seeing strong buyers from both the strategic sector as well as the nancial sector (investment companies) looking to acquire good operating companies.|ret||ret||tab|

To produce negotiating leverage and increase the value of your company, the sale process should be managed to simultaneously negotiate with multiple buyers. This will provide you with choices in a controlled time frame and will contribute to achieving the best t, deal structure and increased value. Other items to consider include maintaining condentiality during the sale process, reducing stress on management and reducing post sale risks.|ret||ret||tab|

By working with a professional team dedicated to the sale process, the company owner can focus on running the company with condence that the largest transaction of their lifetime will be a success.|ret||ret||tab|

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Steven D. Blumreich is president of BKD Corporate Finance LLC, a wholly owned subsidiary of BKD LLP. BKD Corporate Finance is a member of NASD, SIPC and the Moores Rowland International North American Corporate Finance Group.|ret||ret||tab|

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