News Update: Middle Market M&A Brokers Get Relief with New Legislation

An important update on the new federal law which goes into effect at the end of this month from FarellFritz Attorneys. Read the full article HERE.

A new federal law goes into effect March 29, 2023 that conditionally exempts from broker-dealer registration persons who solely intermediate small, private company M&A deals.

Persons who intermediate larger private company M&A transactions will not be eligible for the new exemption and will need to continue to rely on the SEC’s 2014 no-action letter.  

The new Federal legislation also does not preempt the states, so M&A intermediaries will need to continue to be mindful of state registration requirements.

Background

Most brokers are required to register with the SEC and join a “self-regulatory organization” such as FINRA.  Section 3(a)(4)(A) of the Securities Exchange Act generally defines a “broker” broadly as any person engaged in the business of effecting transactions in securities for the account of others.

Ordinarily, it’s fairly easy to determine whether someone is a broker.  A person who executes transactions for others on a securities exchange is clearly a broker.  

Less clear is whether a person who intermediates only private M&A transactions, often structured as acquisitions of stock or as mergers in which securities get converted, is also a broker and required to register.

When you look at the general rationale for regulating broker dealers, it’s tough to justify applying such regulation on private company M&A brokers. Broker-dealer regulation is generally designed to prevent abuses involving high pressure selling tactics and custody of funds, two features that typically don’t apply to private company M&A deals.

In a typical M&A transaction, unlike a stock trade, the acquiror usually engages in its own exhaustive due diligence of the target, and the intermediary does not typically custody funds. Nevertheless, the U.S. Supreme Court in 1985 opined that an M&A transaction involving a target’s stock is deemed to be a securities transaction. Consequently, many M&A advisors began registering with the SEC as broker dealers following the 1985 opinion.

2014 No-Action Letter

Since 2014, M&A brokers have sought to rely on an SEC no-action letter (the “NAL”), in which the SEC’s Division of Trading and Markets stated that it would not recommend enforcement action to the SEC if the M&A broker who requested the letter were to intermediate the transfer of ownership of privately-held companies and refrain from engaging in certain activities identified in the NAL.

The NAL listed a bunch of deal activities that would make the relief unavailable, however, including providing financing for the deal, custodying funds or securities, arranging for a group of buyers and intermediating a sale to a “passive” buyer.  All buyers would be required to control and actively operate the company or the business conducted with the assets of the acquired business. 

But reliance on SEC no-action letters generally has risks.  No-action relief is provided to the requester based on the specific facts and circumstances set forth in the request.  

In some cases, the SEC staff may permit parties other than the requestor to rely on the no-action relief to the extent that the third party’s facts and circumstances are substantially similar to those described in the underlying request, but the SEC staff always reserves the right to change the positions reflected in prior no-action letters.

NASAA Model Rule

The NAL also did not preempt state regulation, however, and in 2015 (the year after the NAL was issued) the North American Securities Administrators Association adopted a model state rule intended to codify the NAL.  Only a handful of states have adopted the model rule, while a few others have enacted exclusions from the broker definition for brokers who transact solely with institutional investors or with a de minimis number of annual transactions.

New Federal Exemption

The new Federal exemption appears on page 1080 of the Consolidated Appropriations Act.  It amends Section 15(b) of the Securities Exchange Act by providing an exemption for “M&A brokers”.

M&A Brokers

M&A broker is defined as a broker engaged in the business of effecting securities transactions solely in connection with the transfer of ownership of an “eligible privately held company”.  

Accordingly, a broker who intermediates private company M&A deals as well as other types of strategic transactions involving securities would not qualify.

The broker also has to reasonably believe that, as required in the NAL, the buyer in each intermediated transaction will “control” and “actively manage” the acquired company or business.  

Finally, in any transaction in which the seller receives securities of the buyer as acquisition currency, the broker must reasonably believe that the seller receives, or has reasonable access to, mandated financial information of the buyer.

Control and Active Management

Exempt M&A brokers must reasonably believe the seller in each intermediated transaction will control and actively manage the target post-closing. Control is defined as the power to direct the management or policies of a company, whether through ownership, by contract or otherwise.  

There is a presumption of control if the buyer has the right to vote or sell 25% or more of a class of the target’s voting securities, or in the case of a partnership or LLC, the right to receive 25% or more of the capital upon dissolution.  

Although not defined, “active management” can be established if the buyer elects officers, approves the annual budget or serves as an officer.

Eligible Privately Held Company

To qualify for the exemption, brokers may only intermediate acquisitions of “eligible privately held companies”.  To qualify, the privately held company must not have any class of securities registered, or be required to file periodic reports, with the SEC.  

Also, in the fiscal year ending immediately before the fiscal year in which the broker was engaged, the company must either have EBITDA of less than $25 million or gross revenues of less than $250 million.  

This EBITDA and gross revenue cap is the most significant difference between the new statutory exemption and the NAL, which did not have a size of company test.  The dollar caps are subject to an inflation adjustment every five years.

Excluded Activities

To qualify and maintain the exemption, an M&A broker has to avoid engaging in each of the following activities, any of which would lead to forfeiture of the exemption: taking custody of funds, participating in a public offering of securities, engaging in a transaction involving a shell company (other than acquisition vehicles), providing acquisition financing, arranging for acquisition financing without complying with applicable regulations or disclosing compensation therefor, representing both buyer and seller in a transaction without written consent from each, facilitating the formation of a buyer group, intermediating a transfer to a passive buyer or binding a party to a transaction.

Primary Takeaways

The new federal exemption is welcome relief for middle market M&A dealmakers.  It removes the uncertainty associated with reliance on the NAL.

But the federal exemption’s utility is unfortunately somewhat limited by the arbitrary size of target limitation, which will limit the range of transactions an M&A broker will be permitted to intermediate without forfeiting exemption eligibility.  

Eligible M&A brokers will also need to continue to be mindful of state registration requirements.

Read the full article HERE.

What To Expect From your Engagement With A Business Broker

If you're considering selling your business, engaging a business broker can provide valuable expertise and guidance throughout the process. But what should you expect from your engagement with a broker?

Here's a guide to help you understand what to expect and how to make the most of your partnership.

A thorough evaluation of your business

Before putting your business on the market, a broker will conduct a thorough evaluation to determine its value and potential sale price. This evaluation may include an analysis of your financial statements, customer base, market position, and industry trends.

The broker will also identify any potential areas of improvement or concern that may affect the sale.

Marketing and promotion

Once your business is ready for sale, the broker will develop a comprehensive marketing plan to promote it to potential buyers. This may include listing the business on relevant websites, creating targeted advertising campaigns, and reaching out to their network of buyers and investors.

The broker will also handle inquiries and screening potential buyers to ensure that they are qualified and serious about purchasing the business.

Negotiation and closing

Once a potential buyer is identified, the broker will facilitate the negotiation process to ensure that the terms of the sale are fair and satisfactory for both parties. The broker will also assist with due diligence, financing, and legal requirements to ensure a smooth and successful closing.

A TIMELINE

A good business broker will provide you with a timeline for the transaction. This timeline should include key milestones, such as when the business will be listed, when offers are expected, and when due diligence will occur.

While the timeline may be subject to change based on market conditions or other factors, it should give you a general idea of how long the process will take.

Ongoing communication and support

Throughout the engagement, a good broker will provide ongoing communication and support to ensure that you are informed and comfortable with the process. They should be responsive to your questions and concerns, and provide regular updates on the status of the sale.

It's important to note that engaging a broker does not guarantee a sale. However, by working closely with a broker and following their advice, you can maximize your chances of a successful transaction.

Here are a few tips to help you make the most of your engagement:

• Be transparent and honest about your business and its financials

• Listen to your broker's advice and recommendations

• Stay involved in the process and ask questions when needed

• Be patient and flexible throughout the process

Engaging a business broker can provide valuable expertise and support throughout the process of selling your business. Do your research and be clear on the expectations you have for the relationship. If you understand what to expect and are effective in communicating with your broker, you will maximize your chances of a successful transaction.

Industrials and Manufacturing Add-Ons Continue to Lead

Middle-market dealmakers continue to focus on add-on transactions this week with deals largely focused on industrials and manufacturing. Elsewhere, the energy market saw a $2 billion exit, while private equity platform investments in the food sector signals continued strength for some pockets of the consumer goods market.

ICV Forms Desi Fresh Foods with Platform Investment. ICV Partners, a lower middle-market investment firm targeting the business services, consumer goods and services, food and beverage, and healthcare spaces, has announced the formation of food brand Desi Fresh Foods. The launch of the platform company follows ICV’s acquisition of Desi Natural and Noga brands from Raymundo’s Food Group, a portfolio company of AUA Private Equity Partners. Desi Fresh Foods produces South Asian food products including dahi and lassi. “We think there is considerable opportunity to bring Desi Fresh Foods products to more grocers in America,” said ICV managing director Qian Elmore in a statement.

How Long Should you Expect your Engagement with a Business Broker to Last?

When it comes to buying or selling a business, enlisting the services of a business broker can be invaluable. They have the expertise and resources to guide you through the process and ensure a successful transaction.

However, one question that often comes up is how long you should expect your engagement with a business broker to last.

In this article we’ll discuss some of the factors that will affect the length of your engagement with a business broker depending on your unique situation.

Size of the business

The size of your business can also affect the length of your engagement with a broker. Larger businesses often have more complex financials and operations, which can take longer to analyze and present to potential buyers. The due diligence process may also be more involved for a larger business, which can prolong the transaction.

Negotiations

Negotiations between the buyer and seller can also impact the length of the engagement with a broker. If there are disagreements over the terms of the deal, it may take longer to come to an agreement. In some cases, negotiations can break down entirely, which can prolong the transaction or even cause it to fall through.

Financing

Financing can also be a factor in how long it takes to complete a transaction. If the buyer needs to secure financing, it can take time to go through the application process and get approved. If the seller is willing to provide financing, there may be negotiations around the terms of the loan, which can prolong the transaction.

Legal and regulatory requirements

Depending on the type of business and the location of the transaction, there may be legal and regulatory requirements that need to be met. For example, certain industries may require specific licenses or permits. The broker will need to ensure that all necessary requirements are met, which can add time to the transaction.

Market conditions

Market conditions can also affect the length of your engagement with a business broker. If the market is favorable and there is a high demand for businesses like yours, the process may be quicker. However, if the market is slow, it may take longer to find the right buyer or seller.

Due diligence

Due diligence is an essential part of the process, and it can also be a factor in how long the engagement with a broker lasts. The buyer will need to thoroughly examine the business's financials, operations, and legal history to ensure that there are no hidden issues. This can be a time-consuming process, but it's essential to ensure that the buyer is making an informed decision.

Remember that selling your business is a significant decision, and it's essential to work with a broker who understands your goals and can guide you through the process.

By carefully selecting a broker and establishing clear expectations, you can ensure that your engagement is productive, efficient, and ultimately results in a successful sale.

Everything you need to know about setting up a corporate development program

Corporate development is the process of building the future of a company. It involves exploring new opportunities, deal origination and creating strategies for using them to grow.

A corporate development team consists of people who are involved with the process of identifying, evaluating, and managing growth opportunities. The team usually includes:

• Management from various areas within the company

• Strategists who can help create a vision for growth

• Finance professionals who can help assess potential investments

Corporate development should not be confused with mergers and acquisitions (M&A). M&A refers to buying other companies or merging with them, whereas corporate development strategy involves growing an existing company through internal processes.

The first step in corporate development is to identify potential opportunities for growth. These opportunities may come from within the company itself (such as acquiring another company), or they may come from outside sources (such as finding a new supplier).

Once opportunities have been identified, they need to be evaluated based on their potential value to the company. Then they need to be prioritized based on how likely they are to succeed and how much effort it will take to implement them.

There are several stages involved when implementing corporate development projects: feasibility studies; due diligence; integration planning; implementation; post-implementation review; financial analysis; exit strategies.

What is corporate development?

Corporate development is the process of acquiring and integrating new companies into your company. In this process, you are looking for ways to make your company more profitable through mergers and acquisitions (M&A).

Who is on a corporate development team?

The team consists of people from a variety of different departments within your company. The primary job of these people is to analyze and evaluate potential acquisition targets. They will then present their findings to the board of directors, who will make the final decision on whether or not to acquire a particular target.

Corporate development teams are responsible for identifying potential acquisition targets and then making those acquisitions happen by negotiating with sellers in order to secure a deal on favorable terms for the buyer. They'll also work closely with the legal team to ensure everything goes according to plan once an acquisition has been agreed upon.

What are the stages of corporate development?

There are three primary stages in M&A: identifying potential targets, evaluating those targets against one another, and negotiating with sellers.

The stages of corporate development are:

1. Preparation - The first step in any acquisition is preparation. In this stage, a team researches competitors, potential partners, and other relevant information about the company being acquired. They will also work to put together an offer that is attractive to both parties involved in order to increase the likelihood of a successful deal.

2. Due Diligence - In this stage, all aspects of the deal must be reviewed with great care and detail to ensure that there are no surprises when it comes time for closing. This includes reviewing financial records and meeting with senior executives from both companies involved in the acquisition so that they can answer any questions about their organization's history or future plans for growth/expansion into new markets/products/services...etc).

3. Closing/Closing Process - Once everything has been thoroughly vetted by both parties and all questions have been answered satisfactorily.

Corporate development is the process of creating a business plan, acquiring new companies and assets, and coordinating mergers and acquisitions. It is a process that is often misunderstood as just "buying stuff," but it's much more than that.

It's also one of the most important functions within a company—even more important than sales, marketing, or operations. Why? Because corporate development is what allows your company to grow in terms of revenue and profit potential, which will ultimately determine whether or not it thrives over time.

Wading Through the Data of M&A Forecasts

Every January, the industry is flooded with research and analysis trying to predict what the coming year holds for middle-market M&A. 2023 is no different, and if anything, people may be paying closer attention than usual in the midst of broad market uncertainty and a unique economic environment.

Rather than have you peruse each report on your own, we’ve gathered research from leading firms and interviewed three experts to get to the heart of the matter. Here we share the dominant economic trends, key challenges for dealmakers, which industries could see the most activity and the effects of the continued rise of ESG on the dealmaking process.

2022’s M&A activity closed out not with a bang, but with a whimper. According to analysis from Greenwich Capital Group, transaction volume was slightly higher in the fourth quarter than in the second and third quarters of 2022, but still down significantly from the same time frame in 2021.

Exit Planning 101: What are the Best ways to Choose your Exit Options?

As a business owner, you've worked tirelessly to build your company from the ground up. But now, as you approach retirement age or simply want to move on to your next adventure, it's time to start thinking about your exit strategy.

Exit planning is a crucial step for any business owner, regardless of the size or industry of your company. A well-thought-out exit plan can help you maximize the value of your business, ensure a smooth transition for your employees, and help you achieve your personal and financial goals.

But with so many options available, choosing the right exit strategy can be daunting.

To help you navigate this important decision, we've put together some key factors to consider when choosing your exit option.

Your Personal Goals:

Your exit strategy should align with your personal goals. Are you looking to retire comfortably, start a new venture, or simply take a break? Do you want to maintain some involvement in your business after you leave, or are you looking for a complete break?

Understanding your goals will help you choose the right exit option.

Financial Goals:

Your financial goals will also play a significant role in your exit strategy. Do you need to maximize the value of your business to achieve your financial goals, or are you willing to sacrifice some value for a smoother transition? Do you have any debt or obligations that need to be considered?

Market Conditions:

The current market conditions will also impact your exit strategy. Are there potential buyers or investors in your industry? Is your business in a growth phase or a mature phase?

Understanding the market conditions will help you choose the right time and method to exit.

Employee Considerations:

Your employees are an essential part of your business, and you'll want to consider their needs when choosing your exit option.

Will they be retained by the new owner, or will they be laid off? Will they be given a chance to purchase the business themselves?

Tax Implications:

Taxes can have a significant impact on your exit strategy. Depending on the type of business entity you have, you may be subject to different tax rules when you sell or transfer your business. Working with a tax professional can help you minimize your tax liabilities and maximize your financial gain.

Now that you have a better understanding of the key factors to consider when choosing your exit option, let's take a look at some of the most popular exit strategies.

Selling to a Third Party:

Selling your business to a third party is one of the most common exit strategies. You can sell to a strategic buyer, such as a competitor or a company in a related industry, or to a financial buyer, such as a private equity firm or a group of investors.

Selling to a third party can provide a significant cash payout, but it can also be a complex process that requires careful planning and preparation.

Management Buyout:

If you have a strong management team in place, a management buyout can be an excellent option. Your management team will purchase the business from you, allowing you to maintain some involvement while transitioning to retirement or your next venture.

Family Succession:

If you have family members who are interested in taking over the business, family succession can be a viable option. This can be a great way to keep the business in the family while providing for your retirement and ensuring a smooth transition.

Initial Public Offering (IPO):

If your business is in a growth phase and has a strong financial track record, an IPO may be an option. Going public can provide significant liquidity, but it can also be a complex and expensive process that requires a high level of expertise.

Choosing the right exit option is a critical decision for any business owner. By considering your personal and financial goals, market conditions, employee considerations, and tax implications, you’ll be able to make the best decision to gracefully and profitably pass on your business.

The M&A Deal Origination Process From Start To Finish

Mergers and acquisitions (M&A) deal origination is the process of identifying, evaluating, and approaching potential target companies for acquisition.

The process can be a long and complex one, but with a well-defined strategy and a thorough understanding of the market and the target company, it can lead to successful M&A transactions. In this blog post, we will walk through the process of M&A deal origination from start to finish.

The process of M&A deal origination begins with defining the acquisition strategy, conducting market research, identifying potential targets, initial contact and negotiations, due diligence, negotiating the purchase agreement, closing the deal and finally integration.

Defining the acquisition strategy

The first step in the process of M&A deal origination is to define the acquisition strategy. This includes identifying the buyer's goals and objectives, such as growth, diversification, or cost savings. The acquisition strategy should also include the industries, regions, and company size that the buyer is interested in. This will help to narrow down the pool of potential target companies and make the identification process more efficient.

Market research

Once the acquisition strategy is defined, the next step is to conduct market research. This includes analyzing the industry and economic trends, identifying potential target companies, and evaluating the competitive landscape. The research should also include a review of the target company's financials, management team, and any potential liabilities or risks.

Identifying potential targets

After the market research is completed, the next step is to identify potential target companies that align with the buyer's acquisition strategy. This may involve networking with industry professionals, consulting with M&A advisors, or using databases and other resources to identify potential targets.

Initial contact and negotiations

Once potential targets have been identified, the buyer will make initial contact and begin negotiations. This may involve drafting a letter of intent, conducting due diligence, and finalizing the terms of the acquisition. During this phase, the buyer should also consider the cultural fit between the target company and the acquiring company, as this can have a significant impact on the success of the transaction.

Due Diligence

Due diligence is a critical step in the M&A process as it provides the buyer with a detailed understanding of the target company's financial, legal, and operational aspects. This includes reviewing financial statements, evaluating the target company's management team, and assessing any potential liabilities or risks. Due diligence should also include assessing the target company's intellectual property and any regulatory compliance issues.

Negotiating the purchase agreement

After due diligence is completed, the next step is to negotiate the purchase agreement. This includes the finalization of the purchase price, the terms of the transaction, and the representations and warranties made by the seller. The buyer should also consider the terms of the purchase agreement in light of any potential contingencies or conditions that must be met before the deal can proceed.

Closing the deal

After the purchase agreement is signed, the next step is to close the deal. This includes transferring ownership of the target company and completing any necessary regulatory filings.

Integration

The final step in the M&A process is the integration of the target company into the acquiring company. This includes the integration of the target company's operations, culture, and employees into the acquiring company. This step is critical to the success of the transaction, and it is important to have a well-defined integration plan in place.

In conclusion, M&A deal origination is a complex process that requires careful planning and execution. By understanding the key stages of the process, buyers can increase their chances of success and minimize the risks associated with acquiring a business.

How to Pick the Best M&A Business Broker for Your Business

Selling your business can be a complex and time-consuming process, especially if you are not familiar with the M&A process. That's why many business owners turn to business brokers for help.

A good business broker can provide valuable guidance and support throughout the M&A process, including finding potential buyers, negotiating deals, and ensuring a smooth transition.

But how do you pick the best business broker for your business?

In this article, we'll provide you with a complete guide to help you make the right choice.

Step 1: Determine Your UNIQUE NEEDS

Before you start your search for a business broker, you need to determine your needs. This involves assessing the size and complexity of your business, your goals for the sale, and your budget for the broker's services.

You should also consider the type of buyer you are looking for, the industry you operate in, and any specific requirements you may have.

Step 2: DO YOUR HOMEWORK

Once you have determined your needs, you can begin researching business brokers. Start by looking for brokers who specialize in your industry or have experience in selling businesses similar to yours. You can also ask for referrals from other business owners who have gone through the M&A process.

STEP 3: GET THE OPINION OF AN M&A ADVISOR

While a business broker can provide valuable guidance and support, it's also beneficial to consult an M&A advisor when choosing your business broker. M&A advisors have specialized knowledge and experience in the M&A process. They have a deeper understanding of the complexities and nuances of the process, including valuation, deal structure, due diligence, and legal and regulatory requirements. This expertise can be invaluable when selecting a business broker, as it ensures that you have a broker who understands the intricacies of the M&A process and can guide you through it successfully.

Step 4: Evaluate Experience and Credentials

When evaluating potential business brokers, it's essential to consider their experience and credentials. Look for brokers who have a track record of successful deals in your industry and who have been in business for a significant amount of time. You should also consider their professional credentials, such as certifications, licenses, and memberships in professional organizations.

Step 5: Assess Communication and Compatibility

The M&A process can be lengthy and complex, so it's important to work with a business broker who you feel comfortable communicating with and who is compatible with your business culture. You should look for brokers who are responsive, communicative, and willing to take the time to understand your business and your goals for the sale.

Step 6: Evaluate Marketing and Sales Strategies

One of the key roles of a business broker is to market your business and find potential buyers. Therefore, it's important to evaluate the marketing and sales strategies of potential brokers. Look for brokers who have a comprehensive marketing plan, including advertising, networking, and outreach to potential buyers. You should also consider their approach to negotiations and their ability to get the best possible deal for you.

Step 7: Evaluate Fees and Services

Finally, it's important to consider the fees and services offered by potential business brokers. Look for brokers who offer transparent and reasonable fees and who provide a detailed breakdown of their services. You should also consider any additional services or resources that may be provided, such as legal and financial advice.

Picking the right business broker is critical to the success of your M&A process - make an informed decision and find a broker who is the right fit for your business. Remember that the M&A process can be challenging, but with the right broker by your side, you can navigate it successfully and achieve your goals.

Mergers & Acquisitions Outlook for AV Integrators

What do you see as the overall trend of mergers and acquisitions for commercial AV companies this year?

We expect that the mergers and acquisitions market (M&A) for commercial AV businesses, as well as the broader workplace-technology solutions category, will continue to show strength and activity (despite the macroeconomic pressures we continue to hear about), says Ari Fuchs.

There are many factors pointing in this direction: We know the companies that made it through the pandemic, did so with a newfound resilience, strong balance sheets and more experienced leadership. On a micro-level, more of these players have upbeat expectations for their businesses and continue to experience strong billings and backlog. These factors, when combined, make these companies ideal candidates for acquisition from both strategic and private-equity buyers that are looking to achieve inorganic growth or to enter this industry. That’s especially true if we end up in a slower-growth environment.

M&A Focuses on the Digital Enterprise

In a high-inflationary and uncertain economic environment, private equity investors with dry powder to deploy are seeking recession-proof acquisition targets. 

That strategy is exemplified this week as dealmakers turned their attention to tech-enabled business services and products, with many M&A transactions driving digitization of the enterprise: digital infrastructure and data center training, ERP solutions, and B2B solutions targeting e-commerce sellers all saw recent deal activity, for example.

Other M&A transactions targeted energy, infrastructure, manufacturing, healthcare and more. Plus, firms closed new funds to target middle-market businesses, and a new business development firm made its debut. Explore the latest in middle-market dealmaking below.

How to Buy a Business in the Evolving M&A Middle-Market

Are you considering buying a business in today's rapidly evolving M&A middle market?

It can be a daunting task, but with a strategic, educated approach, you can successfully navigate the process and create a brand-new thriving enterprise.

Here are some tips to help you navigate the process:

Work with a Business Broker

One of the most critical decisions you will make when buying a business is selecting a reliable business broker. A broker can help you find businesses that match your investment criteria and provide valuable insights into the local market.

They can also help you navigate the negotiation process and ensure that you get the best possible deal.

Consider Corporate Development

Corporate development involves the strategic planning and execution of mergers and acquisitions, and it can be a valuable resource for anyone looking to buy a business.

Corporate development teams can help you identify potential acquisition targets, evaluate their potential, and navigate the deal origination process. They can also help you secure financing for the acquisition, making it easier to obtain a loan to buy a business.

Secure Financing

One of the biggest challenges you may face when buying a business is securing financing. Fortunately, there are several options available to you, including traditional bank loans, SBA loans, and alternative financing sources like crowdfunding.

Working with an experienced M&A advisor can help you find the right financing solution for your needs.

Conduct Thorough Due Diligence

Before you make an offer to buy a business, it's essential to conduct thorough due diligence. This means reviewing the company's financial statements, legal and tax documents, and any other relevant information.

It's also important to evaluate the market and competitive landscape to ensure that the business has a solid growth potential.

Work with an Experienced M&A Advisor

An experienced M&A advisor can provide valuable insights and guidance throughout the buying process. They can help you evaluate potential acquisition targets, negotiate the deal, and ensure that the transaction is completed successfully.

An advisor can also help you navigate any legal or regulatory issues that may arise during the acquisition process.

The key to a successful transaction is to be diligent, researched and proactive. Work closely with your business broker, corporate development team, M&A advisor, and other professionals to ensure that you are making informed decisions throughout the buying process.

By doing so, you will be well on your way to finding the perfect investment opportunity and building a successful enterprise that you can be proud of for years to come.

The most common terms negotiated in an M&A transaction when buying a business

Mergers and acquisitions (M&A) transactions are complex and involve the negotiation of various terms between the buyer and the seller. Understanding the most common terms negotiated in an M&A transaction is essential for a successful outcome.

In this blog post, we will provide an overview of the most common terms negotiated in an M&A transaction when buying a business.

Purchase price

The purchase price is one of the most important terms negotiated in an M&A transaction. It is the amount of money the buyer will pay to the seller for the business. The purchase price can be determined through various methods such as an earnings multiple, discounted cash flow analysis, or a combination of both. The purchase price can also be structured in different ways, including cash, stock, or a combination of both. It is important for the buyer to conduct a thorough valuation of the target company to ensure that the purchase price is fair and reasonable.

Earn-out

An earn-out is a provision that allows the seller to earn additional compensation based on the performance of the business after the acquisition. It is often used as a mechanism to bridge the gap between the buyer's and the seller's expectations of the business's future performance. Earn-outs can be structured in various ways, such as a percentage of revenues or profits.

Representations and warranties

Representations and warranties are statements made by the seller regarding the condition of the business. These statements provide assurance to the buyer that the business is in the condition represented by the seller. Representations and warranties are typically included in the purchase agreement and are used to allocate risk between the buyer and the seller.

Covenants

Covenants are promises made by the seller to the buyer regarding the operation of the business. These promises are designed to protect the buyer's interests and can include promises to maintain the business's operations, to not compete with the business, or to maintain the business's books and records.

Indemnification

Indemnification is a provision that requires the seller to reimburse the buyer for any losses suffered as a result of a breach of the representations and warranties. Indemnification is a common term in M&A transactions and is used to allocate risk between the buyer and the seller.

Closing conditions

Closing conditions are the conditions that must be met before the transaction can close. These conditions can include the completion of due diligence, the approval of the target company's board of directors, or the receipt of regulatory approvals.

Non-compete and non-solicitation

Non-compete and non-solicitation provisions are used to prevent the seller from competing with the business or soliciting customers for a specified period of time after the transaction. These provisions are designed to protect the buyer's interests and ensure the success of the business.

Escrow

Escrow is a mechanism used to hold funds or assets in trust until certain conditions are met. Escrow is often used in M&A transactions to ensure that the seller will fulfill their obligations under the purchase agreement.

Closing and post-closing adjustments

Closing and post-closing adjustments are adjustments made to the purchase price after the transaction has closed. These adjustments can include adjustments for working capital, inventory, or other assets.

Termination

Termination is a provision that allows either the buyer or the seller to terminate the transaction if certain conditions are not met. This can include the failure to meet closing conditions or the inability to obtain regulatory approvals.

In conclusion, M&A transactions are complex and involve the negotiation of various terms between the buyer and the seller.

Understanding the most common terms negotiated in an M&A transaction is essential for any entrepreneur to land a successful acquisition.

Cross-Border M&A: 10 Key Trends From Across the Pond

It will come as no surprise that cross-border M&A is impacted by the world we live in, with geopolitical tensions, rising inflation and interest rates, currency fluctuations, and increased regulatory scrutiny all playing their part in making deals more challenging to execute. 

That said, cross-border M&A remained largely resilient in 2022, with a return to healthy pre-pandemic levels, and while the types of deals we see in 2023 may evolve, many observers believe that deal volume will remain buoyant throughout the year.

This post highlights 10 key trends that shaped global M&A market activity in 2022 – and will likely continue to impact deals into 2023.

The Complete Guide to Successful M&A Succession Planning in 2023

Thinking that you should probably have a succession plan for your business but not sure how to go about it?

A succession plan is a strategic process that organizations use to identify and develop potential successors for critical roles within the company.

During the M&A process, significant changes in leadership, organizational structure, and company culture can occur, all of which can impact the performance and success of the new entity. This is why it’s essential to have a solid succession plan in place beforehand to ensure that the right people are in the right positions at the right time.

In this article, we will provide you with a complete guide to successful succession planning in 2023.

Step 1: Identify the Critical Roles and Skills

The first step in successful succession planning during M&A is to identify the critical roles and skills required for the new entity's success. Start by conducting a comprehensive analysis of the current organizational structure and talent pool of both the acquiring and acquired companies.

This analysis should include an evaluation of key positions, their responsibilities, and the skills required to perform them successfully. Once you have identified the critical roles and skills, you can begin the succession planning process.

Step 2: Assess the Current Talent Pool

The next step is to assess the current talent pool of both companies. This involves evaluating the skills and potential of existing employees who may be potential successors for the critical roles. You should consider their performance, skills, experience, and potential for growth.

It's essential to assess not only the technical abilities of employees but also their leadership potential and cultural fit with the new entity.

Step 3: Develop a Talent Pipeline

Once you have assessed the current talent pool, you can begin developing a talent pipeline for the critical roles. This involves identifying high-potential employees and providing them with opportunities to develop their skills and gain experience in different roles.

You should create a comprehensive development plan that includes mentorship programs, training and development programs, job shadowing, and stretch assignments. The goal is to ensure that you have a pool of qualified candidates ready to step into critical roles when the need arises.

Step 4: Create a Succession Plan

Once you have identified potential successors, the next step is to create a succession plan. This involves outlining the process for transitioning critical roles and identifying the specific roles and responsibilities of the successor.

You should also consider the training and development needs of the successor and provide support to ensure a smooth transition. The succession plan should include a timeline for the transition and contingencies in case of unforeseen events.

Step 5: Communicate the Succession Plan

During M&A, communication is critical to ensure a smooth transition. Once you have created the succession plan, you should communicate it clearly and effectively to all stakeholders, including employees, shareholders, and other key stakeholders. You should also address any concerns or questions that may arise and provide regular updates on the progress of the plan.

Step 6: Monitor and Evaluate the Succession Plan

Finally, it's essential to monitor and evaluate the succession plan regularly. This involves assessing the progress of potential successors and making any necessary adjustments to the plan. You should also review the plan regularly to ensure that it is still aligned with the needs of the new entity and the changing business environment.

Remember that succession planning is an ongoing process and requires continuous attention and investment. With the right approach and execution, your organization can successfully navigate the complexities of M&A and emerge stronger than ever.

How Multi Family Offices Approach Direct Investing

If you’re a high net worth individual looking for greater control over your investments, one of the best ways to achieve this is by establishing a multi family office.

A multi family office is a wealth management firm that serves multiple families or individuals with high net worth. Unlike traditional wealth management firms - which may offer standardized investment portfolios and financial advice to a broad client base - multi family offices typically offer highly customized services tailored to the specific needs of each family or individual they serve.

In this article, we will explore how multi family offices approach direct investing.

OFFER VALUE

First and foremost, multi family offices approach direct investing in M&A with a focus on value creation. They are not simply looking to invest in a company and sit back and wait for a return.

Instead, they take an active role in the M&A process, providing strategic guidance and support to help the company achieve its growth potential. This can include helping the company identify new markets, developing new products or services, and implementing operational efficiencies.

IN IT FOR THE LONG RUN

In addition, multi family offices have the advantage of being able to take a long-term view of their investments. They are not beholden to quarterly earnings reports or the whims of public markets.

Instead, they can take a patient approach and wait for their investments to bear fruit. This is particularly important in M&A, where the true value of a deal may not be realized for several years.

MORE FLEXIBILITY

Multi family offices also have the advantage of being able to make investments that traditional fund managers cannot. This is because they have more flexibility in their investment approach, and can invest in smaller companies or industries that are not typically covered by fund managers.

This allows them to uncover unique M&A opportunities and achieve higher returns.

However, multi family offices are not without their challenges when it comes to direct investing in M&A. One of the biggest challenges is finding the right opportunities. M&A is a highly competitive field, and it can be difficult to identify undervalued companies or deals that will provide attractive returns.

Another challenge is managing risk. M&A can be a risky business, especially when investing in private companies or deals that are not yet profitable. Multi family offices must be prepared to accept the possibility of loss, and have strategies in place to manage risk and diversify their portfolio.

Thinking that multi family office could be the best move for your business? Approach direct investing with a focus on value creation, a long-term view, and a focus on unique investment opportunities.

As the world of M&A continues to evolve, we can no doubt expect to see more multi family offices turning to direct investing as a way to gain exposure to this exciting and dynamic field.

How to Find the Best M&A Advisor for Your Transaction

M&A can be a complex and daunting transactions, especially for companies with limited experience in these areas. The stakes are high, and the risks can be significant.

This is where it’s crucial to have the right guidance and support to navigate the M&A process successfully. A competent M&A advisor can be the difference between an okay transaction or a hitting it out of the ball park.

RESEARCH THEIR TRACK RECORD

When considering an M&A advisor, it is essential to evaluate their expertise and experience carefully. They should have verifiable experience with succession planning, deal origination, corporate development and exit planning.

You should also seek an advisor with a proven track record of successful M&A transactions specific to your industry or niche.

For example, if you are a technology company, find an advisor who specializes in technology M&A transactions. Someone who already has experience in tech will have deep industry knowledge, contacts, and insights that will be invaluable in navigating your specific deal.

WHAT’S THEIR TEAM LIKE?

In addition to specialized expertise, it is critical to assess the advisor's team. M&A transactions involve many moving parts, and the success of the transaction depends largely on the quality of the advisory team.

Look for an advisor with a strong team of financial analysts, legal experts, business brokers, and industry specialists who can work collaboratively to execute the transaction. The team should have a strong track record of successful M&A transactions and be able to tailor their approach to meet your specific needs.

ARE THEY EASY TO COMMUNICATE WITH?

Look for an advisor who has strong communication skills and is committed to keeping clients informed throughout the M&A process.

A transparent fee structure is also essential. Make sure your advisor provides you with a clear and transparent fee structure, explaining the costs associated with the transaction.

Your advisor should be able to communicate complex financial and legal concepts clearly and concisely. It goes without saying that they also be easily accessible and responsive to your needs.

CULTURAL FIT

Finally, cultural fit is crucial when selecting an M&A advisor. M&A transactions can be emotionally charged, and having an advisor who understands your company's culture and values is crucial.

Look for an M&A advisor who is compatible with your company's culture and has a collaborative approach to working with clients. This will ensure a smoother transaction process and help mitigate any potential conflicts.

Selecting the right M&A advisor is essential to the success of any M&A transaction. By carefully evaluating their expertise, team, communication skills, fee structure, and cultural fit, you can find an advisor who can help you navigate the complexities of the transaction and achieve your strategic objectives. With the right advisor in place, you can confidently move forward with your M&A plans and achieve success.

New law eases M&A registration restrictions

New legislation will bring some clarity to the mergers and acquisitions process for transactions with private companies.

President Joe Biden recently signed an omnibus bill package for fiscal year 2023, which included the Small Business Mergers, Acquisitions and Brokerage Simplification. This legislation provides an exemption for M&A advisers and business brokers from the U.S. Securities and Exchange Commission (SEC) broker-dealer registration when serving private company buyers and sellers.

The new exemption is an amendment to the Securities Exchange Act of 1934 and seeks to correct the existing regulatory regime by acknowledging the difference in M&A transactions for public companies versus private companies.

“The purpose for this whole effort started with the ambiguity created when our ‘one-size-fits-all’ federal system of securities regulation is applied to private company merger and acquisitions transactions,” said Shane Hansen, partner at Warner Norcross + Judd.

Top Exit Planning Strategies in 2023

Looking to capitalize on the resurgence in M&A activity expected in 2023?

You’re not alone - it is likely that many business owners will be considering exit planning strategies to capitalize on the anticipated favorable market conditions this year.

Whether you’re considering a sale, merger, or other exit strategy, it is important to have a solid plan in place to maximize the value of your business.

AN EARN-OUT

An earn-out is a type of agreement that allows the seller to receive additional payments based on the future performance of the business.

This is a powerful tool for sellers who believe that their business has significant growth potential as it allows them to capture some of that value even after the sale.

Earn-outs, however, can be complex and require careful planning and negotiation to ensure that the terms are favorable to both the buyer and seller.

A STRATEGIC BUYER

A strategic buyer is a company that is interested in acquiring your business because it complements their existing operations or expands their market reach.

Strategic buyers are often willing to pay a premium for a business that fits well with their strategic objectives and they often also offer other benefits, such as access to resources or expertise.

Working with a strategic buyer can be a win-win situation for both parties, but it is important to identify the right buyer and negotiate favorable terms.

A Leveraged buyer (LBO)

An LBO is a type of acquisition in which the buyer uses a combination of equity and debt to purchase the business. This can be a good option for sellers who are looking for a quick exit and want to minimize their ongoing involvement in the business.

However, LBOs can also be risky for buyers, as they often involve taking on a significant amount of debt. It is important to work with experienced advisors to structure the deal in a way that is fair and reasonable for both parties.

Regardless of the strategy you choose, it’s important to start your exit planning well in advance. Taking steps to maximize the value of your business by improving your financial performance, strengthening your management team, and building strategic relationships will all help increase the value of your business.

Starting to exit planning early will also give you time to identify potential buyers or partners and negotiate favorable terms.

It’s important to work with experienced M&A advisors and legal professionals throughout this process. These individuals can help navigate the complex process of selling a business, and ensure that all parties are satisfied with the final outcome.

Start planning early and be prepared to negotiate carefully to ensure a successful exit to maximize the value of your business,

Bank M&A activity hits five-year low

According to data from S&P Global Market Intelligence, banking sector mergers and acquisitions activity reached its lowest level in the past five years in 2022, even lower than pandemic-affected 2020.

North America, which accounts for the highest number of bank M&A, had a 24.6 percent decline in the number of deals in 2022.

“U.S. banks stayed on the sidelines as heightened regulatory scrutiny and delayed closing timelines became major obstacles in M&A activities during the year,” the report stated.

Canadian institutions were heavily involved in some of the largest bank deals in 2022, with involvement in three of the five largest banking deals in North America. Toronto-Dominion Bank’s pending acquisition of Memphis, Tenn.-based First Horizon Corp. in an all-cash transaction valued at $13.67 billion was the largest bank M&A deal of 2022 and the fifth-largest U.S. bank M&A transaction in the last 15 years.