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CEO Advisor® Newsletter
June 2018

What CEOs Need to Know about Mergers and Acquisitions

1. EBITDA and EBITDA Multiples Drive Deal Prices. 
Many deals are valued off of financial metrics and completed deal comparables. EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, is the key metric for applying a multiple to derive the value of a company. Typically, the EBITDA is based on the trailing twelve months (TTM) when determining the value of the company.

Corporate M&A departments (strategic buyers) and financial buyers value deals based on EBITDA multiples that increase or decrease depending on the company's Type, Industry, Size of the Market, Revenue Growth Rate, Gross Profit Margin, Management Team, Recurring Revenue, EBITDA, EBITDA Growth Rate and other factors. The amount of the multiple (4X, 6X, 10X, etc.) depends on the above factors and other like size of the company, etc.

2. Acquiring Companies Don't Buy Low or No-Growth Companies. 
A ten year old company that is growing 10% per year is of no interest to larger strategic buyers. A financial buyer, such as a Private Equity firm, may be interested as a tuck-in acquisition for a porfolio company if a strong fit, but at a less than optimal valuation. It is critical to fix your deficiencies and excel in all aspects of your business to optimize your value and attract buyers.


3. Companies Don't Buy Start­ups or Small Companies. 

There are 1,000 companies that Apple, IBM, Google, Salesforce or Facebook could buy and all could make strategic sense. But that's not how M&A deals happen. It's when a CEO sees a strategic gap, or a SVP sees a gap in what he/she can get done in the next 12­-18 months - and fills that gap with an acquisition. In the end, corporate M&A departments have limited time and a specific M&A strategy. Smaller companies clearly enter the radar screens of buyers when they are $10+ million in sales and growing rapidly.


Your goal is to reach $10 million in sales in a profitable manner as soon as possible through organic growth or acquiring a company. The great majority of the time, M&A deals actually happen when a CEO, president or business owner has an experienced team of advisors behind him/her working extremely hard for 6+ months to get a transaction to closing.


4. You Have to Stay On. 

M&A isn't a one­-time cash­-out, at least not anymore. Most deals have a 2­-3 year retention, seller notes and potentially a 2-­3 year Earn Out. Assume if you get acquired, you're committing to a minimum of 24­ months with the acquiring company in a specific role.


5. Knowing the "Value Drivers" is Critical. 

The acquirer will spend a huge amount of Due Diligence effort to identify the sources of value (Revenues, Gross Profit, Gross Profit Margin, Recurring Revenue, Technology and other Intellectual Properties, Management and Personnel, Brand, EBITDA, EBITDA Growth), as well as, deficiencies from the deal. It is essential for you to maximize these value drivers and present them to potential acquirers clearly and distinctly.


CEO Advisor, Inc. provides mergers and acquisitions advisory services and business consulting services to CEOs, presidents and business owners of small and mid-size companies. We address your specific needs with hands-on action, expertise and seasoned advice. Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. at (949) 629-2520, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.

10 Reasons to Explore Capital Growth

All businesses need capital to operate. Growth capital enables the CEO or business owner to grow sales, profits and value in the business for an optimal exit in the future. Below are 10 reasons why CEOs should explore growth capital.

Growth capital, different from seed or venture capital, is typically in the form of an equity investment from a Private Equity firm. The best time to start seeking growth capital is when your business is at $10 million or higher in revenue, and the business is profitable or growing 25% and breakeven or a small loss.

Here are 10 reasons why CEOs desire growth capital:
 
1. Growth capital enables a CEO or business owner to plan, grow and invest in their business vs. worrying about using his/her "personal money" or continually being constrained by cash flow issues.
 
2. Growth capital can provide flexibility and enable you to personally take some money off the table to secure your financial situation today, while pushing for a much larger exit in the future.

3. Growth capital takes you out of the rut of growing 10% - 20% per year and working 70 - 80 hours per week in a company that is not sellable to becoming a high growth, highly valued business with the funding you need to progress into a highly sought out, valuable company positioned for a large future exit.

4. Growth capital enables you to hire the management team and employees you need to realize your true potential as a company.

5. Growth capital enables you to invest in product development, a larger sales team, marketing and new equipment.

6. Growth capital provides both short-term and long-term growth and expansion for your business.

7. Growth capital enables you to properly capitalize your business, while providing the peace of mind in case of a temporary downturn in the business or a downturn in the economy.

8. Growth capital includes business and finance savvy investors who can be integral and helpful in growing your business with you.

9. Growth capital enables you to sell a portion of your company at today's extremely high valuations, while holding onto a large portion of your company for a substantially larger exit in the future.

10. Growth capital positions you and your company for a large exit in 4 - 5 years enabling you to realize your life's dream of an optimal sale of your business and a secure retirement.

Contact CEO Advisor, Inc. today for a No Cost, Initial Consultation on Growth, Growth 
Capital and Exit Strategy/Sale of Your Company

CEO Advisor, Inc. has more than tripled our clients' sales, substantially increased their profits, raised millions of dollars for growth capital and turned unsellable companies into sought out, extremely valuable companies worth many tens of millions of dollars.

Call for a growth capital consultation with the President of CEO Advisor, Inc. Contact Mark Hartsell, MBA, today at (949) 629-2520, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.

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Whether it is growing a business to the next level, turning a distressed company around or preparing a company for an exit, Mark's firm, CEO Advisor, Inc, provides a broad range of services and Mark is there for the CEO every step of the way."

 


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Words of Wisdom


"Yesterday does not equal tomorrow. Forget the past and move towards your goals."
  
Tony Robbins
Motivational Speaker


Prime Minister of the U.K.