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Mergers & Acquisitions Q&A
With various factors affecting this year’s market, 2017 may provide a better environment for mergers and acquisitions to take place. Thus far, data is showing M&A activity is, indeed, strengthening. For business owners who were contemplating a sale but held off back in 2014 or 2015, it may be wise to reconsider those plans — whether that means selling your business entirely, or selling just a portion and taking on investors or equity partners.
If you’re thinking this could be a good time to sell your company, or even a portion of your business, it’s essential to carefully explore and weigh the different options available to you as a business owner in terms of the pros and cons of such arrangements. It’s also important to consult with qualified experts in structuring such a deal. You may want to consider that taking on a true equity partner can provide you not only with additional funds, but with strategic advice, as well.
Q: I own my own business and would like to sell some equity, but don’t want to give up control. What are my options?
A: You might consider looking for a private equity group that’s open to making a minority investment.
Bringing in a minority (i.e., non-changeof- control) equity investor can help you accomplish multiple objectives. First, you can obtain capital for growth, buying out other shareholders, or personal liquidity. Second, you can benefit from the experience and connections of an established equity investor like Huron Capital and its Strategy & Operations Group — a network of more than 40 seasoned executives from a variety of industries. This can be far more powerful than obtaining capital from a passive investor or lender.
While most equity groups will look to own a majority of your equity, Huron Capital has a flexible approach that can be tailored to fit your needs.
Huron Capital Partners
Doug Sutton
500 Griswold, Ste. 2700
Detroit, MI 48226
P: 313-962-5805
www.huroncapital.com
Q: What is one key advantage of selling my company to a private equity investor?
A: Private Equity (PE) firms and other financial buyers continue to be active participants in the M&A market. When faced with the option to investigate a possible sale to an interested PE or an interested strategic buyer (a competitor, for example), it would be wise for the target to consider the legal, tax, economic, and business implications of each arrangement.
One option most PEs offer (and sometimes mandate) is the ability for the current owner(s) to reinvest or “roll over” some of their existing ownership interest. Typically this is anywhere from 10 to 30 percent and has a few advantages a seller won’t generally find with a strategic buyer. If an owner is able to roll over 10 to 30 percent of his equity, it can lead to a “second bite of the apple” when the company sells or recapitalizes again three to six years later. Rollovers can often be structured on a tax-deferred basis, as well.
A rollover transaction also provides the PE with certain benefits, including knowing that management is aligned with the majority owner. The PE won’t have to pay additional cash at closing, which is especially attractive if the purchase price is based on a strong enterprise value.
Clark Hill, PLC
Kevin DiDio
500 Woodward Ave., Ste. 3500
Detroit, MI 48226
P: 313-309-9461
www.clarkhill.com
KDiDio@clarkhill.com
Q: How favorable are current market conditions, should I decide to sell my business this year?
A: If you review M&A activity in 2014 and 2015, there was an increase in both activity and valuation. In 2016, activity declined in terms of deal value, as lending standards began to tighten compared to prior years. However, in 2017 we’re starting to see a rebound in M&A activity. This is probably due to the expected tax cuts under a new administration, as well as the reduction in financial regulations.
The factor of abundant liquidity also remains, whether with private equity firms or corporate. The overall heightened optimism and a loosening in lending standards actually appear to have offset the rate hike, which should yield higher valuations. It is believed that M&A valuations and activity have rebounded to the extent that owners who may have missed opportunities in 2014 and 2015 and are looking to divest or sell their businesses should consider the possibility of doing so in 2017.
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