According to Robert T. Slee, an investment banker and influential author of Private Capital Markets: Valuation, Capitalization, and Transfer of Private Business Interests, US private markets operate on a 10-year transfer cycle, and mid-market companies are currently in the midst of unprecedentedly high valuations and a pre-recession earnings boom (Seller’s Market). Slee’s corroborated data suggest that this prime selling time will begin to diminish towards the end of 2017, transitioning into a period of uncertainty until 2020 (Neutral Market), followed by a period of deal recession (Buyer’s Market) through 2023 before returning to current market levels again.

Private equity groups (PEGs) insatiable appetite for deals at above-average multiples remains undeterred, and stagnant, large corporations continue to look for growth through acquisitions of mid-market companies. With the largest demographic of mid-market business owners between the ages of 54 – 58 and more than a quarter of a million Americans turning 65 every month, the time to formulate and implement a comprehensive exit strategy is now!

Whether it’s selling to a PEG, a strategic, or watching your “baby” flourish, Allston Advisory Group has the experience to assist you with the desired transaction for your business.


A solid growth strategy provides companies with a quantifiable vision for growth in revenues and profitability; thereby, enhancing the value of the company post-implementation and increasing its attractiveness to strategic buyers.

Company owners must identify the value drivers of their business, determine an acceptable level of risk, and decide on the best method for their business’ expansion and growth. Although largely contingent upon finances, the competition, and government regulation constraints, some of the most common growth strategies for businesses include:

  • Market penetration – sell more products, current customers
  • Market expansion/development – sell more products, adjacent markets
  • Alternative channels – different avenues, i.e. Internet
  • Product expansion/development – new products, existing customers
  • New products for new customers
  • Acquisition – horizontal, forward, backward
  • Diversification – unrelated businesses
With the successful implementation of a growth strategy and anticipated earnings growth for the foreseeable future, business owners position themselves to receive numerous offers for their business and capitalize on a much higher sales price.


Generally Accepted Accounting Principles (GAAP) are a framework of accounting standards, rules and procedures defined by the professional accounting industry. No single reference source exists for all of GAAP; briefly, the sources of GAAP are:

  • Accounting principles promulgated by the American Institute of Certified Public Accountants (“AICPA”) including Financial Accounting Standards of the Financial Accounting Standards Board (“FASB”), FASB Interpretations, Accounting Principles Board (“APB”) Opinions, and AICPA Accounting Research Bulletins.
  • Pronouncements of AICPA Industry Audit and Accounting Guides, AICPA Statements of Position, and Technical Bulletins issued by the FASB and the Emerging Issues Task Force.
  • AICPA Accounting Interpretations and practices that are widely recognized and prevalent in the industry.
  • AICPA Issues Papers, pronouncements, textbooks, literature and articles.

GAAP provides a range of reasonable alternatives for identical transactions. M&A transactions values are negotiated based on historic and/or projected financial results, and only GAAP prepared statements will suffice. However, in the Middle Market, GAAP prepared statements don’t always exist.

The situation is more complicated for both Buyers and Sellers when providing and accepting the representations and warranties of the financial statements. Buyers must be prepared to deeply scrutinize the financial statements.


Although a detailed analysis of the financial statements reveals pertinent financial data, the true value of a Company requires that normalizing adjustments be made to the financial statements. Normalizing adjustments reflect a more accurate financial performance, both historically and projected. Normalized financial statements also help determine the Company’s future cash flows, and assess its financial performance relative to similar businesses and industry peers.

Normalizing adjustments, especially for middle-market businesses, are made with numerous motivations, but are ordinarily comprised of unusual, nonrecurring, or extraordinary items, unusual accounting conventions, non-operating items and/or discretionary expenses. Some of the most common normalizing adjustments include:

  • Lawsuit settlement
  • Non-arms-length revenue or expenses
  • Accounting methods for inventory and depreciation
  • Owner compensation – above or below industry standards
  • Rents – above or below fair market value
  • Owner “perks” – company cars, country club membership

It’s not uncommon for the normalizing adjustments to become a major point of contention between buyers and sellers in mergers and acquisitions transactions. A knowledgeable M&A Team will begin the discussion of True Company Value with the use of Normalized Income.


Upon execution of the Letter of Intent (LOI), buyers and sellers kick-start the due diligence phase of the mergers and acquisitions (M&A) process. Due diligence, a most critical step in the M&A process, provides buyers the opportunity to confirm the seller’s financials, determine the risks, establish the potential benefits and understand the overall strategic fit. Successful transactions depend on a streamlined due diligence process; consequently, experienced M&A advisors, on behalf of the seller, will establish a well-organized Virtual Data Room (VDR) to serve as the conduit for sharing information and expediting the confirmatory process.  VDRs provide:

  • a secure environment to share sensitive data
  • the ability to manage the information exchange process
  • control over timing and accessibility
  • permission to print documents for review
  • email notifications to buyer’s counsel as documents are continually added during the process

The due diligence phase will always serve as a critical function of the M&A process. A seasoned M&A Team will be primed with the VDR long before the LOI is signed; ensuring a smooth and efficient process to the benefit of both parties privy to the transaction.


When contemplating a merger and acquisition (M&A) transaction, it is important to consider each step of the deal process seriously; beginning with the end in mind. Executing a Letter of Intent (LOI) constitutes a critical juncture in the M&A process; however, if it’s that important, why is it non-binding?

The importance of an LOI in M&A negotiations includes:

  • Both parties understand the most significant business terms of the proposed transaction.
  • Company weaknesses are disclosed before signing the LOI.
  • Avoids distractions from business; spending time and money dealing with misunderstandings.
  • Avoids performing audits and reviews in the course of confirmatory or final due diligence.
  • Sets the tone for future negotiations; signifies comfort levels and expectations.
  • Avoids providing potential buyers access to the seller’s most confidential business information.
  • Serves as the basis for formal negotiations to the closing documents.

Sellers must understand and agree with all of the LOI terms before signing it. Attempts to change the LOI’s terms after signing will undermine the integrity and trustworthiness of the negotiators and possibly jeopardize the deal altogether.


Investment bankers have access to an array of industry-specific data, statistics, and analytics; however, the most comprehensive understanding of a business’ nuances originates from sincere collaboration between sellers and their trusted M&A advisors. No two businesses are alike; therefore, sellers must carefully select an experienced team of investment banking and support professionals. A qualified advisory team knows how to collaborate with the seller and each other to ensure that no stone of value be left unturned in the structuring of a successful transaction.

Some sellers forgo the expertise of a veteran M&A advisory team; choosing instead to represent themselves. This unfortunate seller mistake is most commonly due to misconceptions about an M&A advisor’s roles and responsibilities (i.e. only a “Matchmaker”), an attempt to avoid the perceived cost of an M&A advisor, or to pursue a “substantial” offer currently on the table. In most cases, self-representation denies sellers the offer they never received, the financial sum they left on the table and the exponential economic gain realized in comparison to the fees paid to the investment bankers.

The most successful deals are almost always the result of collaboration between sellers and their trusted M&A advisors.


According to a number of recent surveys, including the Securian Financial Services survey, it’s estimated that less than 30 percent of business owners have an exit strategy. These figures are alarming given the inevitability of an exit, and the fact that most business owners’ accumulated wealth is tied to their businesses.

After years of hard work, sacrifice and unwavering perseverance, maximizing the sales price of the business should be a priority. For a majority of business owners, this will be the single most important financial transaction in their lifetime.

If an exit strategy was not implemented on the first day of operations, it is imperative to put one into action. There is no time like the present to sit down with a trusted advisor and develop a strategy that fits a business owner’s needs. Two to four years is ample time to identify the businesses value drivers, establish metrics, implement a tactical plan and transform the business into a highly saleable, A+ Middle Market business.

There are emergency exits; however, there are no excuses for exits without planning.


Companies driven by growth strategies need to consider mergers and acquisitions, especially when the following motivations exist:

  • To capture operational synergies
  • To grow market share or access to distribution channels, markets or products
  • To provide new capabilities, technologies or talent

Opportunities exist when “targets” provide:

  • Increase scale
  • Broadened product and service offerings
  • Geographic expansion
  • New capabilities
  • Enhanced brand management
  • Improve positioning in the value chain and/or
  • Customer experience

Opportunity meets need (i.e. timing), when strategically fit targets are available, when market conditions are favorable, and when financing is accessible to fill the growth strategy of an enterprise. There are many drivers in the sale of middle market companies; unfortunately, few business owners have the available luxury of determining the right time to sell their business at its maximum value. Timing a sale should not be entirely out of the question for business owners with the help of their trusted advisors.


Congratulations to Allston Advisory Group’s Senior Managing Director, Nolan K. Kapp, for being selected as a 2015 NACVA 40 Under 40 Honoree!!

NACVA and the CTI are founded on excellence, superior quality, and the spirit of pioneering. They have a rich history of partnering with visionary leaders across all spectrums of the accounting and financial consulting professions regardless of affiliation with NACVA and the CTI. Simply put, they want the best of the best among their group of subject matter experts and leaders.

They are thrilled to recognize these professionals for their accomplishments to the profession and their communities and for their contributions yet to come.

Throughout 2015, these rising stars will be featured in a series of press releases, profiles in The Value ExaminerQuickReadBuzz Blog, NACVA’s Association News, and through other distributions.