Malt & Company

PE Relies on “Bolt-On” Growth

maltco — Wed, 11 Apr 2012 15:51:00 +0000

According to Pitchbook, more than half of the private equity deals in Q1 2012 were add-on acquisitions to existing portfolio companies. This may suggest that the PE companies are relying ever more heavily on acquisitions to grow their platform companies…perhaps finding organic growth more challenging in the current economic environment.

In any event, the trend has been continuing for some time, and seems unlikely to abate anytime soon. It also suggests that timing one’s sale is even more critical than ever, as the opportunity to “bolt-on” to existing private equity platform companies offers the chance for a more lucrative exit.

A professional adviser can help business owners navigate these waters effectively. Knowing how and when to exit is a critical decision process that shouldn’t be taken lightly.

2012 Update: $1 Trillion in “Dry Powder” Fuels Competition for Deals

maltco — Thu, 29 Mar 2012 15:40:45 +0000

The current low interest rate environment is attracting lots of capital to private equity, with the intent of realizing higher yields. Earlier this month, Bain & Company put out a report detailing the extent of the Private Equity’s biggest problem….too much capital chasing too few deals. While it seems counterintuitive to have too much money at one’s disposal…nearly a trillion dollars industrywide, the fact is that investors in private equity expect that their money will be put to work. Unfortunately for investors in private equity and the private equity firms themselves, much of this “dry powder” has been sitting on the sidelines for a relatively long time, and must be used soon. If this investment capital can’t be put to work, it must be returned to the investor…a result that is anathema to private equity firms.

One person’s problem is another person’s opportunity…and opportunity is knocking for owners of middle market enterprises. Of course, opportunity knocks loudest for those who are the most prepared.

Expert Warns Small Business Owners — Your Golden Years Will Turn Into Lead

maltco — Tue, 06 Mar 2012 16:21:51 +0000

According to recent research by The American University, the nation’s largest non-profit educational institution devoted to financial services, the vast majority of small business owners are completely unprepared to transfer (sell) their businesses upon retirement. Of the small business owners surveyed, only 1 in 10 women (10 percent) and one in five men (20 percent) have a written plan to transition their business upon retirement…even though most of the respondents are very or completely dependent upon the sale of their businesses to fund their retirement.

American College’s Mary Quist-Newins warned, “Small business owners need to do more now if they hope to achieve financial security in later life. Without adequate preparation, they could see their ‘golden’ years turn into lead.”

Exit planning can help business owners plan for retirement, and avoid the prospect of having one’s golden years turn into lead.

The No-Plan Plan

maltco — Thu, 01 Mar 2012 03:00:59 +0000

An average of 80 hours were spent preparing a business plan, while only 6 hours were spent planning a business exit, according to a 2007 study of 500 business owners in the United States and Canada.

This is a bit surprising…surprising that the numbers weren’t closer to 100 and 0. Unfortunately, the vast majority of business owners spend no time planning their own exits, and typically exit under either a crisis scenario or by dealing with a single buyer from a position of weakness. In either case, the final result is financially and emotionally disappointing for the owner, reflecting the lack of proper exit planning.

The return on investment for exit planning can be exceptionally high, protecting (and even enhancing) value that has been carefully grown over many years or even decades. The only requirement is a qualified exit planning adviser, and a business owner who understands the value of good advice.

Private Equity Leverage Improves In 2011

maltco — Fri, 17 Feb 2012 02:45:25 +0000

Private equity funds were able to borrow more easily to finance acquisitions in 2011. Across all size categories, debt leverage increased. Total Debt/EBITDA increased from 3.0 in 2010, to 3.3 in 2011. This also marks the second straight year of increases for all transactions under $100 million.

Pension Funds Seek Yield, Look To Private Equity

maltco — Mon, 13 Feb 2012 21:39:58 +0000

Pension funds are searching for yield in a low-yield environment. It’s a tough task for sure. However, many are turning to private equity. Private equity funds offer the potential for much higher yields…a necessity to close the gap between the yield pension funds are currently getting and the yield they need to meet their goals. While many pension funds already allocate a small percentage to private equity, most of these pension funds have already increased or are considering increasing their private equity allocation.

While this is good news for the private equity industry, it is even better news for business owners looking to sell. Simply put…there is more money chasing fewer businesses. It is basic supply and demand. And the better news is that the current low-yield environment looks like it is here to stay…at least for 2 or 3 more years.

More money to invest, and lower acceptable yields, mean private equity can afford to pay more for privately-held businesses. Business owners would be wise to take advantage of these circumstances while they last.

Long Sickness, Sure Death

maltco — Mon, 13 Feb 2012 19:19:19 +0000

Over 25 years ago, my father told me “long sickness, sure death.” He was talking about deals…any kind of deal…business or personal. The longer a negotiation drags on, he said, the less likely it is to close.

Regarding the sale of a business, no truer words were spoken. Negotiations that linger on, almost never result in a completed sale. And for those few that do, it is typically because the seller/owner has made substantial concessions to maintain the buyer’s interest. This is no way to sell a business.

The key to getting to the closing table is dealing with “problems” before going to market…and fixing them (or at least mitigating the ones that can’t be fixed). This is where detailed exit planning can be most beneficial to a business owner. Problems are identified and dealt with in a deliberate manner….not in “crisis mode” during the due diligence period.

Unfortunately, too many business owners learn this lesson the hard way. No business sale ever goes completely smoothly, but the best way to make it to the closing table, on your terms, is to plan it that way.

“Buffett Rule” Would Double Taxes On Many Business Sales

maltco — Mon, 13 Feb 2012 18:35:57 +0000

The current version of the “Buffett Rule”, as proposed by the Obama Administration today, would create a minimum tax of 30% on individuals with income over $1 million. The long term capital gain tax rate is 15% (for most individuals). This is the rate paid on most of the income that a business owner receives when they sell their business. If the proposed “Buffett Rule” becomes law, this would be an effective doubling of taxes paid upon the sale of a businesses over $1 million.

This should be a wake-up call for all small and medium-sized business owners. While there is no guaranty the “Buffett Rule” will become law this year, even if it doesn’t, it will certainly continue to be brought up as a “solution” to raise more revenue for a federal government that can’t pay its bills. Someone once said, “It’s not what you make…it’s what you keep.” Properly timing your sale can mean keeping more of your hard-earned money.

Almost Half a Trillion of Dry Powder

maltco — Tue, 17 May 2011 15:20:20 +0000

Private equity has nearly half a trillion dollars looking for businesses to buy now.

Private Equity Comeback

maltco — Fri, 06 May 2011 15:34:09 +0000

Improved PE returns signal an improved environment for business owners looking to sell in 2011.