We lead off this M&A Digest with compelling insights from insiders. First, a panel of private equity professionals discuss how they go about finding the right company to add to their portfolio. Then, a professional who recently acquired another company reveals the mistake he made during the deal process. All that and more. Click on the headline to read the full piece.

How Private Equity Firms Engage Sellers

A panel of professionals that work for private equity firms and companies that specialize in sourcing deals for PE provide an insider’s view.

Post-Acquisition Insights – An Insider’s View

Sometimes the best lessons in life are the ones we learn from others. Ian Fergusson, who recently acquired another business, shares an important lesson about post-merger or post-acquisition success.

What Are Due Diligence Tests?

Carl Doerksen drills into the due diligence process and looks at one of the many tests buyers are now requiring before a deal actually closes.

Due Diligence Tests – The Legal Side

The legal side of due diligence can be tricky if you don’t have M&A experience. Take a peek at part of a document a potential buyer sent to one of our dealmakers.

An Example Of Private Equity In Action

When private equity firms acquire a majority of a company, what are their plans? A look at a recent acquisition by BV Investment Partners sheds some light.

Generational Equity Reaches Major Milestone

The headline sums up the amazing fact that Generational Equity, a prominent M&A advisory firm in North America, reached an industry-leading 500th closed transaction at the end of June.

Copyright © 2016 Generational Equity, LLC. All Rights Reserved.

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What can you do today so that your business will be appealing to buyers when you want to sell it? Learn when you download a free copy of Building and Exiting a Desirable Business today.

This week we explore only three topics: important lessons to learn from M&A deals that reach completion, is the time right for family-owned businesses to explore selling, and the latest numbers about how much capital private equity firms have to invest. Click on the headline to read the full piece.

What We Can Learn from M&A Deals That Fail

“A wise man once told me that sometimes the best lessons in life are our failures. We learn more from our mistakes than our successes; sadly, most folks spend more time basking in their triumphs than analyzing their failures.

This can also be said from M&A transactions. Sometimes the deals that fall through can be our best tutors because they teach us what to avoid. Generational Equity deal makers have ages of combined, sometimes painful experience from deals that fell apart. In fact, the old saying in the deal making world is that a deal is not a deal until it falls apart three times.”

The Time is Right for Families to Sell Their Businesses

“Recently Mergers & Acquisitions magazine met with Mike Taylor of Midwest Growth Partners (MGP) to discuss current market conditions. The gist of the interview drilled into current trends not just in M&A in general but specifically in the lower middle market (LMM), which is usually defined as deals valued below $100 million.

And in his view, the time is right for family firms to sell.”

Private Equity Dry Powder Update – August 2016

Private equity firms are sitting on a cash pile of over $800 billion, according to Prequin.

Copyright © 2016 Generational Equity, LLC. All Rights Reserved.

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What can you do today so that your business will be appealing to buyers when you want to sell it? Learn when you download a free copy of Building and Exiting a Desirable Business today.

It’s been a dark year for U.S. airline travelers, with Delta Air Lines, Southwest Airlines, American Airlines and United Continental all experiencing significant business disruptions due to computer system failures.

In each case, a technology failure led to thousands of flight delays and trip cancellations, costing these companies millions in extra costs, drops in share prices and brand damage.

Could your business be poised for a similar disaster?

Last summer United Airlines problems were caused by a single network router. An estimated 4,900 flights were affected worldwide.

American Airlines has remained cagey about the exact cause of what were widely described as ‘network connectivity’ issues last fall. But, in addition to grounded flights, customers had trouble accessing frequent flyer accounts and checking in at airport kiosks.

It’s thought that Delta’s woes were caused when the airline’s switch gear, a device that distributes energy throughout a building, failed in the middle of the night and computer operations shut down. All business computer systems and electric power should have failsafe backups, agree experts.

As Bob Mann, president of aviation consultant R.W. Mann & Co. and a former airline executive, told Bloomberg:

“Any high-level central site ought to have not only a fail-over power system, but they ought to be testing it regularly to make sure it actually works as designed and anticipated.”

Let the airline industry’s recent experience be a lesson for your company. Make sure your IT team tests your back-up systems regularly. Invest continually in IT infrastructure rather than relying on patchwork systems. Business investors are examining IT and cyber security when they perform due diligence, because they know the company they’re backing is only as strong as the weakest link. If you merge your business with another, remain vigilant in resolving mismatched computer networks and databases.

Otherwise, your business could face epic failures similar to the ones plaguing the U.S. airline industry.

© 2016 Generational Equity, LLC. All Rights Reserved.

What can you do today so that your business will be appealing to buyers when you want to sell it? Learn when you download a free copy of Building and Exiting a Desirable Business today.

In today’s M&A Digest, we learn the keys to post-acquisition success, how private equity firms thrive and what they offer businesses and that buyers are keen on acquiring family-owned companies right now, and more.As usual, click on the headline for the full article.

First, we continue our exit planning mistake series with the fourth and fifth installations:

• Exit Planning Mistake No. 4: Not Knowing What the Buyer is Buying
• Exit Planning Mistake No. 5: Selling at the Wrong Time

The Time is Right for Families to Sell Their Businesses

Buyers are active in the lower middle market, looking for family-owned businesses to purchase, says Mike Taylor of private equity firm Midwest Growth Partners.

Keys to Post-Acquisition Success

A business owner’s legacy often plays into their decision about who to sell the company to. Here are strategic steps to look for in a buyer’s plan for post-acquisition success.

How Do Private Equity Firms Thrive? What You Need to Know About PE

Business owners might be wondering why private equity firms invest in smaller companies and how they make money for their investors. Here’s what you need to know.

IT Due Diligence: An Important Item to Prepare For

“[T]he costs of data breaches now are estimated to run as high at $4 million on average based on a recent survey conducted by IBM.”

Copyright © 2016 Generational Equity, LLC. All Rights Reserved.

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What can you do today so that your business will be appealing to buyers when you want to sell it? Learn when you download a free copy of Building and Exiting a Desirable Business today.

Now may be a good time to revisit your company’s safety training. Not just for the wellbeing of employees but for the health of your business.

The reason: The U.S. Occupational Safety and Health Administration (OSHA) has been busy in 2016, undergoing the first major overhaul of its regulations and penalties. The goal is to modernize its systems and make it easier to identify hazards at specific companies.

The new federal requirements take effect August 10, 2016.

It pays to stay safe

Penalties for safety violations are rising dramatically. After remaining the same since 1990, the ceiling for serious, other-than-serious and failure-to-abate violations increase from $7,000 to $12,471 per violation. A willful or repeat citation rises from $70,000 to $124,709.

These penalties are now tied to the Consumer Price Index, so charges will continue to increase with inflation rates. What’s more, state OSHA agencies are required to adopt maximum penalties at least as severe as the federal agency’s.

Recordkeeping guidelines have changed

Businesses that fall under OSHA requirements, such as construction companies, will be required to submit their safety data electronically. When this requirement goes into effect depends on the size of the business.

The new rules require all businesses with 250+ workers in industries covered by the recordkeeping regulation to electronically submit injury and illness information on three OSHA documents, Forms 300, 300A, and 301. When these forms are due varies.

Organizations with 20-249 employees in certain high-risk industries must electronically submit information from OSHA Form 300A. The time to file their forms also varies.

These new regulations apply mainly to non-white collar companies. Find out if your company is exempt from these new rules by visiting the OSHA website.

Retaliation rules strengthened

OSHA’s new rules outline the behavior it expects from companies if an employee reports an injury or illness due to work. Plus, OSHA may cite an employer for retaliation without an employee making this specific complaint. These rules become effective Nov. 1, 2016, and state that:

• Employers cannot discourage workers who wish to report an injury or illness.
• Companies must inform employees of their right to report work-related injuries and illnesses free from retaliation.
• A company’s procedures for reporting work-related injuries and illnesses must be reasonable and not deter or discourage employees from reporting.
• Includes existing regulations on retaliation against employees who report or have work-related injuries or illnesses.

Placing OSHA posters in break rooms and other high-traffic areas would be one easy way to meet this requirement.

According to Dr. David Michaels, assistant secretary of labor for occupational safety and health, “Our new rule will ‘nudge’ employers to prevent work injuries to show investors, job seekers, customers and the public they operate safe and well-managed facilities. Access to injury data will also help OSHA better target compliance assistance and enforcement resources, and enable ‘big data’ researchers to apply their skills to making workplaces safer.”

From the buyer’s perspective

A business with solid record keeping and strong safety culture makes an attractive purchase to potential buyers.

In most cases, a focus on safety and OSHA issues is now part of standard due diligence practices. This means any violations in your company’s past need to be disclosed. You must also communicate any plans you put in place to prevent future events. This requires thorough documentation.

The importance of safety standards applies to all companies, not just those in manufacturing-related industries. Buyers of all types of businesses are concerned about post-transaction liabilities related to OSHA violations. So, take the time to update your procedures and prepare for the new OSHA requirements.

© 2016 Generational Equity, LLC. All Rights Reserved.

What can you do today so that your business will be appealing to buyers when you want to sell it? Learn when you download a free copy of Building and Exiting a Desirable Business today.

In this week’s digest, we explore mistakes business owners commonly make when exiting their companies, provide tips about how entrepreneurs can develop relationships with private equity firms and explain what a platform acquisition. 

First up, we have three pieces in our exit planning mistakes series:

• Exit Planning Mistake No. 1: Losing Focus
• Exit Planning Mistake No. 2: Going Alone
• Exit Planning Mistake No. 3: One Buyer is No Buyer

Building a Buyer-Ready Business – Good Financial Management is Vital

Focus on these two things now so that your business is buyer-ready when the time comes to exit your company.

How to Develop a Relationship with a Private Equity Firm

We review 4 questions you should ask before you select the private equity who will invest in your business, based on advice from Brett Holcomb of PE firm Prospect Partners.

What is a Platform Acquisition?

We explore what a platform company is and why private equity firms invest in them using a real world example from PE firm Pfingsten.

Another Private Equity Success Story

Private equity firm Clearview Capital closed its 100th acquisition, which speaks more about the lower middle market and the opportunity for private business owners than just the company’s achievement.

Copyright © 2016 Generational Equity, LLC. All Rights Reserved.

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What can you do today so that your business will be appealing to buyers when you want to sell it? Learn when you download a free copy of Building and Exiting a Desirable Business today.

Recent events in Dallas, Orlando and Baton Rouge have left many managers wondering what to say or do while at work. Tragedy, whether due to a natural disaster or manmade, creates an aftermath that affects everyone, everywhere, including the workplace.

Ignoring how employees are feeling after such events is not a good option. Employees will be talking about the event, with or without you. This is your chance to make sure the conversation doesn’t distract from productivity long-term.

What can and should company leaders do? The good news is plenty of options exist.

Talk to HR beforehand

Especially if the events involve situations that tend to ramp up emotions, schedule time with your human resources advisor before you talk to employees. It is important to think through what you’ll say and how you’ll say it. Your goal is to calm emotions, reassure those who are feeling unsteady and let employees know you care.

In the case of smaller offices, consider holding a brown bag lunch, a breakfast meeting or some other opportunity for employees to gather and share their feelings and experiences.

You can also use such meetings as an opportunity to educate employees about recognizing and reporting suspicious activity, employee assistance programs (EAP) resources and other support your company may offer.

If an event occurred in close proximity to your business, consider bringing in a counselor to talk to employees in groups or individually. Grief counseling may be needed if your office has experienced a team member’s suicide or a loss due to natural disaster.

Review safety procedures

Particularly after a violent incident takes place in a similar business, employees may come to work worried about their safety. Now is the time to remind employees of your company’s security procedures.

This is especially important if an event occurred geographically close to your business or in a similar type of business. For example, if you own a chain of nightclubs, the shooting in Orlando probably hit your employees hard.

If you don’t have official safety processes in place, it’s time to build some. The U.S. Department of Labor offers a comprehensive guide to preventing workplace violence and warning signs of danger in the workplace.

Also, consider asking your local police department to run a workshop on what to do in the event of an active shooter situation. For liability reasons, this should not be a workshop you run yourself.

Plan for less productivity – for a time

Think back to 9/11 and how much work you got done that day. It’s important to recognize that in the immediate aftermath of a significant event your employees probably won’t be terribly productive.

The overwhelming feelings of sadness and worry that follow such occurrences distract us all and make us less productive at work.

Your job as a leader is to give employees time to process their emotions and then get back to work. Depending on the incident and your company, that may be one day or a week. Consider whether you need to move deadlines or let employees go home to be with family. You also could allow employees to gather around televisions or live stream emerging events.

Ask for input

Assume that your employees are acutely aware of what is and isn’t safe about their workplace. One excellent way to remedy security issues is to ask what employees would change. If you ask, you’ll have to implement changes but you’ll also get a safer work environment for your efforts.

You and your employees are also likely to want to do something. Support those who want to hold a food drive, clothing drive or other fundraiser, but make sure employees don’t feel compelled to participate or give money.

Unfortunately, it seems that tragic events are becoming more frequent. Company leaders can make a positive difference in helping employees cope with the myriad emotions generated by such incidents.

Photo by John McStravick courtesy of CC BY 2.0.

© 2016 Generational Equity, LLC. All Rights Reserved.

This M&A Digest features a three-part series that breaks down the selling process into three steps. Then, we examine data for M&A activity in the lower middle market and what types of buyers are purchasing these LMM businesses.

First up, three pieces in our “How do I sell my business?” series:

• Preparing the Company
• Preparing the Documents
• Finding Buyers

2016 Lower Middle-Market M&A Activity

How hot is the lower middle market? Well, more equity firms are moving downstream to focus on investing in what has been historically largely ignored by PE buyers.

Who is Buying Smaller Companies in 2016?

What types of buyers are acquiring smaller companies in 2016 – employees, corporate strategics, private equity firms, wealthy individuals? Data from CMF Associates provides insight.

Copyright © 2016 Generational Equity, LLC. All Rights Reserved.

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What can you do today so that your business will be appealing to buyers when you want to sell it? Learn when you download a free copy of Building and Exiting a Desirable Business today.

It may seem obvious, but setting quotas for the sales team is the best way to grow your company’s revenue. Yet less than 50 percent of middle market companies establish quotas and compensate accordingly, says the National Center for the Middle Market (NCMM) at Ohio State University.

The center found that companies with sales quotas produced revenue gains by more than 10% compared to slower-growing organizations.

While you, the entrepreneurial head of the company, may dread the thought of committing to a sales structure, your salespeople will perform better if expectations are set and clearly communicated. This requires not only sales quotas but also a well-designed compensation program.

Here are some tips on getting sales quotas and sales compensation right.

Involve the right people. Sales managers are the most common people to set up sales quotas in any company. But evidence from the NCMM suggests that the most highly effective sales compensation plans include a broader group, including the CEO and the sales people themselves. This ensures you have a fuller understanding of the organization’s goals as well as market conditions.

Reward the right things. Make sure your sales quotas reward the kind of activity the company needs most. Do you need larger accounts to grow revenue? Grab market share by increasing the number of customers in a certain territory? Reduce sales expenses? You may also want to pay for profits, types of products sold, timely reporting or customer satisfaction metrics.

Balance fairness with aggression. You want your salesforce motivated to meet stretch goals, not discouraged of ever meeting the targets set. Depending on your structure, this may mean you need to create different sales goals for different job descriptions, says Kaushik Maitra at Unimrkt Research. For instance, a junior account person may have different responsibilities than a senior key account executive or sales vice president.

Make objectives measurable. The best sales compensation structures contain measurable targets. Obvious targets include number of sales calls made by telephone or in person, and sales volume achieved by certain dates. Don’t forget to measure necessary non-sales activities, such as meeting paperwork deadlines and attendance at training sessions.

Consider all of the parts of compensation. Salary, commission and bonuses are only part of the compensation package. Sales contests for short-term goals, extra training and promotions into management can also motivate sales team members.

Align your compensation package with your industry. Compensation plans that combine salary with commissions and bonuses remain by far the most popular type of reward structure across industries. However, certain industries may tend to offer larger commissions as a percent of total compensation. To avoid the risk of losing good salespeople, always check to make sure your compensation package aligns with the rest of your industry.

Inspect what you expect. No matter what system you set up, you must also conduct regular reviews to ensure benchmarks are met. The worst thing you can do is fail to follow up to see if those metrics have been met, and hopefully exceeded. The history of sales management is littered with companies that created fantastic sales compensation methods and then did nothing to ensure salespeople met those goals.

From the buyer’s perspective

Far too many privately held companies become complacent about customer concentration, letting the organization become dependent on a limited number of customers. Frequently the culprit is a compensation plan that fails to incentivize the sales force to bring in new business.

Poor customer concentration can be a major deal killer when you wish to sell your company. Buyers usually will be concerned if your company generates 20 percent or more of revenue from any one client. Avoid this situation by creating a sales compensation program the drives your team to continually find new clients.

Suggested reading

Learn more about building effective sales compensation plans that truly motivate your salespeople.

• The Force Is With You: Building a Highly Effective Sales Organization
• Why Sales Ops Is So Hard to Get Right
• How to Develop a Top-Notch Workforce That Will Accelerate Your Business

Copyright © 2016 Generational Equity, LLC. All Rights Reserved.

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What can you do today so that your business will be appealing to buyers when you want to sell it? Learn when you download a free copy of Building and Exiting a Desirable Business today.

Are Buyers Interested in Smaller Companies?

Data from the first quarter of 2016 compiled by CMF Associates provides a clear answer as to whether buyers have any interest in smaller businesses.

What is the Average Size Transaction for a Private Equity Firm?

PitchBook data helps us gain insight into the company size that private equity firms are investing in the most.

The Middle Market and Economic Growth

Middle market C-level executives are optimistic about the economy and where it is heading, according to a survey from the National Center for the Middle Market.

Are Private Equity Firms Actively Acquiring in 2016?

We examine data revealing how active private equity firms have been so far in 2016, specifically the top investors by deal count.

The Importance of Hiring an M&A Advisor for Your Transaction

M&A attorney Brad Whitlock explains the ideal time to hire your M&A team, as well as what you can gain from having your M&A, legal and accounting advisors on the same page.

Copyright © 2016 Generational Equity, LLC. All Rights Reserved.

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What can you do today so that your business will be appealing to buyers when you want to sell it? Learn when you download a free copy of Building and Exiting a Desirable Business today.