According to the results of the PPCMP (, business owners reported having increased enthusiasm about their company’s growth plans, but almost one-half of them reported the lack of necessary financial resources to successfully execute their growth strategies.

There have been about 250 bank failures since the start of the financial crisis in 2007 and with hundreds of additional bank failures expected over the next few years, business owners may be unable to finance or refinance their needs through traditional sources: senior cash flow lenders, asset based lenders and mezzanine funds.

The PPCMP reports on the current climate for accessing and raising capital from not only traditional sources, but also private equity groups, venture capital firms, angel investors, factors and family and friends. The ongoing research includes; the conditions influencing the decisions of each group, provides the cost of capital in each market segment and helps growing business owners make better financing decisions.

The available pool of alternative capital represents a unique opportunity for the business owner to step outside their normal comfort zone and explore new arenas of commercial financing in these challenging times.

Before approaching any source of capital, the absolute “must” is a well-prepared business plan that documents how the funds will be used, secured and paid back!


The buyer’s due diligence process deals with the legal, financial and strategic reviews of all of the seller’s documents, contractual relationships, operating history and organizational structure. Due diligence is a process and a test of the value proposition underlying the transaction to insure that the buyer’s company meets the expectations created before the signing of the Letter of Intent.

Effective due diligence and planning starts with a standard comprehensive due diligence checklist; however, it must include the buyer developing questions regarding issues and problems pertaining to the seller’s business. The buyer must identify the potential risk in the acquiring company and investigate.

The due diligence work is divided between two efforts:

  1. Financial and strategic due diligence focuses on the confirmation of past financial performance of the seller; synergies and economies of scale to be achieved by the acquisition; integration of the human and financial resources of the two companies; and collection of information necessary for financing deals.
  2. Legal due diligence focuses on the legal issues and problems that may serve as impediments to the transaction; how the transaction should be structured; and the contents of the transaction documents, representations and warranties.

Sometimes the best deals you make are the ones you don’t make.


The value of your company is in the eye of the buyer; therefore, sellers of middle-market companies should position their businesses to drive the strategic value and attractiveness before a possible sell transaction. Enhancing the value of your company is an ongoing process; sellers should prepare their company for sale 18 to 24 months before marketing their company. The following actions will help you start the process:

  • Clean-up the balance sheet: dividend out extra cash and securities not required for working capital; write-off uncollectible accounts receivables and obsolete inventory; sell off non producing assets; eliminate stockholder and employee loans; and, record all company liabilities such as vacation time and other employee benefits.
  • Put “change of control” agreements in place for key employees: the buyer’s perception of value is strongly influenced by the retention of key employees. Incentives in compensation and change of control agreements with key management will help maximize company value.
  • Position the company for income and opportunity: Identify the drivers of value, elevate existing processes; control the expenses, do not take excessive compensation, negotiate leases that will not hinder a sale; prepare financial projections for the next few years.


In the current economic environment, troubled, distressed, insolvent and Chapter 11 bankruptcy businesses are presenting strategic and financial investors with attractive opportunities. Distressed transactions may provide the acquirer with a pathway to: gain access to a new client base or geographic territory; acquire assets at extremely discounted prices; effectively eliminate a competitor; or new technology, product lines or services that are complimentary to that of the purchaser.

These unique “targets” present a different range of transaction options as well as significant challenges. After thorough and exhaustive due diligence the structure of a distressed transaction will center on a number of important factors about the “target,” including: issues of value (assets and/or stock), debt and capital structure, the immediacy and extent of cash needs, cost and timing of the transaction and the essential consent of third parties (the bank). The assessment of these concerns will dictate the structure of the transaction.

Identifying these opportunities may be through current vendors, competitors, local bankers and attorneys, and those familiar with troubled companies. Investors in troubled companies should consult with a qualified advisor having expertise in M&A and insolvency at the earliest possible stage of investment.


Sellers and buyer’s perspective vary greatly when looking at the value of companies. When it comes time to sell, it is important that the seller consider those factors that are important to a buyer. Buyers look at the expectation of future earnings; then use the characteristics below as risk factors affecting, both positively and negatively, the future earnings potential of a target business:

  • Growth Prospects; being in a growth industry places the company at a higher value
  • History of Earnings; sustained year-over-year revenue growth is highly valued
  • Type of Business and Competition
  • Management Team; strength and depth commands a higher price
  • Employees; established, reliable workforces demand a premium price
  • Customer Focus & Retention; long-term relationships, cross-selling opportunities are preferred
  • Diversification; can products be expanded or fill a niche
  • Location & Facilities; desirable geographic areas and well-maintained facilities command a better price
  • Terms of the Sale; debt financing or equity capital

Certainly buyers and sellers should be aware of the characteristics above as they heavily influence the ultimate value, the time it takes to sell, and sometimes whether a company will sell at all.


A great amount of real wealth is created when entrepreneurs sell their business. The secret behind ultra-successful entrepreneurs is their development and implementation of an exit strategy and timetable of events beginning with the start their business.

The good news is the short and long term successes are not mutually exclusive. Exit planning is absolutely necessary because your business will transfer in your lifetime or upon your death. Depending on your goals, the type of business you own and the way you grow your company, they should all be aligned with your exit strategy.

When you properly build your business with a defined exit plan, you can maximize short term revenues and profits while preparing the company for a multi-million dollar exit. An overview of some business exit strategies to contemplate and pursue:

  • Selling to an Acquirer
  • Selling to a Friendly Buyer
  • Transferring Ownership to Family
  • Merger
  • Liquidation of Assets
  • Initial Public Offer

Take the time now, to develop an appropriate business exit strategy, to build a business that has value to others, and to exit the company with the end-game objectives defined at the beginning of the process.


Most M&A professionals will warn you that you can’t keep your intentions to sell your business close enough to your vest. Confidentiality in M&A transactions is a serious concern in four areas:

  • With employees of the selling company
  • With customers and suppliers of the selling company
  • With competitors of the selling company and the public
  • In cases of a public company, as possible insider information

Two approaches exist with employees:

  • The Controlled-Disclosure Approach – relevant information is released in a highly-controlled manner.
  • The Surreptitious Approach – very few people are aware of the impending sale.

The seller and M&A advisor may minimize the risk of breach by:

  • Agreement on strict rules regarding all transaction related communications.
  • Nondisclosure/confidentiality agreements with potential buyers
  • Control of the Executive Summary
  • An agreed-upon target list of buyers

Keeping the sale a secret is nearly impossible; be prepared to announce the transaction, especially in cases where the word leaks out. A planned announcement by the M&A advisor will minimize the damage of a leak, and prevent potential loss of value or sale.


Synergy is the magic dust that allows for the achievement of revenue enhancement and cost efficiencies in business mergers and acquisitions. The value of synergy depends entirely on the assumptions made about how combined businesses will operate after closing. The assumptions are unique to the companies involved in the deal and may not always be achievable. Synergistic value includes:

  • Revenue Enhancement: cross-selling & branding, improved market reach & visibility
  • Cost Reduction: economies of scale, staff reductions, purchasing power, technology, logistics, distribution
  • Asset Reduction: disposal of idle assets; buildings & inventories
  • Tax Reduction: depreciation derived from step-up in basis; transfer of net operating losses
  • Financial: improvements in free cash flow, low cost of capital, coinsurance
  • New Options: existing in growth, exiting, ability to change

Achieving synergy is easier said than done; synergies do not happen until possibilities are converted into results. Although the Buyer would appear to be entitled to the value of the synergy of a merger or acquisition, the Seller must negotiate for his share of the value.


Once the preparation for the sale of a Company is complete, the major decision becomes what “auction” path should the sale process take. Auctions in the M&A Process are focused on eliciting competitive bidding among interested parties to facilitate the sale of a business at the highest price and on the best possible terms.

The formal or controlled auction is based upon sending standardized company materials to a large audience, providing the targets with specific dates of management meetings and timing for which offers are due. This formal process can lead to very positive results when the business is unique, with few buyers.

An informal or negotiated auction, however, may offer the best approach to the sale of Middle Market companies. This approach does not have the typical deadlines for Expressions of Interest and Letters of Intent, but allows more flexibility for the sellers to interact with the buyers.

Prospective buyers do not like auctions and some buyers may refuse to participate. Generally considered an efficient and effective process for selling a business, auctions will most likely maximize the transaction value for sellers of Middle Market businesses.


A key step in the sell-side merger or acquisition process is generating a list of potential acquirers. Today, M&A professionals avail themselves to extensive and expensive research tools which help them in identifying possible buyers for their sell-side clients’ businesses. This relatively straightforward exercise of identifying likely acquirers from databases may be greatly enhanced by a creative approach to recognizing potential buyers by a set of categories.

  • Potential buyers who have Existing Relationships with the seller and the M&A professional’s proprietary database of buyers.
  • Same-Industry buyers who might benefit from potential synergies.
  • Prospective buyers in Related-Industries that may benefit from entering the seller’s business.
  • The seller’s Supply-Chain offers another group of likely buyers.
  • Identifying buyers seeking advantages from entering new Geographical Markets.

After the initial target list is created, the next step is applying a logical filter to reduce the set to a more focused set of buyers. Access to financial resources, a history of past acquisitions, and successfully integrating acquired companies may be the qualifiers to assist in reducing a list of potential buyers to a winning transaction for the seller.