January 2024 - MPL Law Firm

Price is What You Pay, Value is What You Get

The next in our M&A process series is valuation. If you are the Seller, do you know what your business is worth? If you are the Buyer, do you know what you are willing to pay? Business valuation is tough enough in the public spectrum and those companies provide you with information. In the private arena, it can feel like the wild west. However, there are professionals in this space that can certainly provide valuable insight. Below are a few of the methods that are employed:

Asset Method – a simple, yet very objective method where you take the difference between the asset value of a company and its liabilities; this method is good if the true value lies in the assets and not so much in their income generating capabilities (a good example of this would be a purchase of a business because of the equipment, land and/or real estate);
Income Method – in this method, the value of the company is based on the present value of its discounted future cash flows (i.e., what you think the company can give you in cash over a certain number of years discounted back to today’s dollars; this method is often used for high growth and/or consistent cash flow businesses);
Market Method – the value of the business is driven by the value paid for comparable companies; multiples (Price/Sales, Price/EBITDA) from these transactions are calculated and then applied to your business financials; if you ever talk with someone from private equity, you will hear some version of this method discussed;

Typically, a combination of the methods above will be used by valuation professionals to help you get a sense of the value. Below are some articles that may provide more insight.

I would highly recommend that you engage with a professional (CPA, certified business valuation expert, business attorney, financial advisor) to help you get a sense for the value of a business.

“What a company is worth depends on who wants to buy it.”
Michael Price, value investor

Here are a few other things that may be of interest:

Bipartisan Tax Deal Extensions and Eliminations – ERC (eisneramper.com)
The Latest from David Barnitt @ Attract Capital
- How to Improve Your Deal Selection Skills
- Nailing the Right Amount of Acquisition Financing | (attractcapital.com)

As always, please don’t hesitate to email myself (jsanders@mpl-law.com), Andy Miller (amiller@mpl-law.com), Christian Miller (cmiller@mpl-law.com), Erik Spurlin (espurlin@mpl-law.com), Brad Leber (bleber@mpl-law.com) or anyone in our office with questions or comments.  

Please see all of our prior updates at this link or if you would like to be added to our email list, please click here.

Time to Polish the Rails and Get the Band Warmed Up!

After working on numerous deals, both for my own businesses and for my clients, one of the biggest hurdles is getting ready to either buy or sell. Outside of annual tax returns and payroll records, many times I am confronted with a hodgepodge of financial, operating and governing documents for companies that are looking to acquire another business or getting ready to sell. These three categories are what I call the “Big Three” of asks whether it is from a lender, a buyer or whoever is on the other side of the transactions. Below are examples of what I am talking about:

Financial (at least three historical years and the year to date)
- Annual, Quarterly and Monthly P&L, Balance Sheet and Cash Flow Statements
- Monthly bank statements and reconciliations
- Accounts Receivable, Accounts Payable and Inventory
- Client List w/ at least the revenue amount
- Vendor List w/ the annual spend
- Loans outstanding w/ lender information
- Tangible and Intangible Asset List
Operational
- Key contracts (typically where you have a commitment of at least a year)
- Business locations w/ current leases
- Employee lists w/ pay, executed agreements and benefits included
- Any Company employee handbooks or operating manuals
Governing Documents
- Formation documents
- Annual and special meeting minutes
- Company ownership w/ cap table
- Fictitious name filings
- Any foreign entity registrations in other states

These are just a few of the items that need to be prepared if you are looking to sell or you should be prepared to look for if you are buying a business. Also, if you are on the buy side and looking to finance the acquisition, you should be prepared to provide as much detail about your financial background as possible.

If this seems overwhelming, I can assure you that working with professional business advisors (attorneys, accountants, financial advisors, business brokers) to get prepared will pay off when the “Big Party” starts and you ultimately execute on the transaction.

Below are some articles that may be helpful as well:

“Before anything else, preparation is the key to success.”
Alexander Graham Bell

Here are a few other things that may be of interest:

Please see all of our prior updates at this link or if you would like to be added to our email list, please click here.

M&A – The Buy and Sell Process

Earnings season for publicly traded companies started in earnest last week. Some bank analysts made comments that investment banking should be a good contributor to bank earnings this year as M&A picks up with rates seeming to stabilize. If that’s the case, I thought it would be a good idea to revisit the M&A process.

Over the next several weeks, I will be discussing the high-level components of a typical Buy/Sell process from both the Seller’s and Purchaser’s perspective. If you or your firm focus on any of the steps below, please feel free to share your articles or blogs and I will try to include it on my weekly email. Below are the topics:

Buy/Sell Plan – Whether you are looking to buy or sell, you should formulate a plan. If you are the buyer, identity why you are doing an acquisition and what the goals will be. If you are the Seller, see if your business is ready to be sold, list out likely acquirors and think through your post-sale plans.
Valuation – If you are the buyer, get a good understanding of your spending parameters and what your business can handle. If you are the Seller, engaging a skilled business valuation expert can help you understand what the market is saying about your business.
Negotiations/LOI – Once you have a sense of your spending ability or the value of your business, see if there is interest in the market. If there is interest and you find that Seller or Buyer, begin negotiations with a goal of getting to a signed Letter of Intent (“LOI”).
Due Diligence – Once that LOI is signed, its time to get into the details. What are the key decision factors and hurdles that you want to learn about if you are the Buyer. If you are the Seller, can you provide that due diligence information and what can you commit to in a purchase agreement.
Purchase/Sales Agreement – If due diligence goes as planned, the next step is executing the Purchase/Sales Agreement. This critical component formalizes the key terms agreed to in the LOI and provides the roadmap for the closing.
Closing / Post Deal Commitments – The purchase/sale is finalized and the post-deal work begins. Trust me, this is where you truly find out how well you conducted all the pre-closing steps.

At the end of the day, think of the M&A process much in the same way you think about getting married. Successful deals, like marriages, are ones where there is true commitment from both sides. I think Warren Buffet said it best:

“As in the case with marriage, business acquisitions often deliver surprise after the ‘I do’s’”

Here are a few other things that may be of interest:

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Can I Still Say Happy New Year, Or Did the Statute of Limitations Run Out?

Can I still say Happy New Year or did the Statute of Limitations run out? I trust your 2024 is off to a good start. I wanted to circle back on the new FinCen reporting requirements for entities. The report submission site is active and new updates have been provided. I will try to make this as quick and painless as possible, but like anything else it’s a government program. Here are three key things to look at:

Are you subject to the filing requirements (i.e., are you a reporting company)?

The answer here is a bit in depth. However, here is the link to the relevant section of the FAQ.

If I am a reporting company, when do I have to file?

A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial BOI report.
A reporting company created or registered in 2024 will have 90 calendar days to file after receiving actual or public notice that its creation or registration is effective.
A reporting company created or registered on or after January 1, 2025, will have 30 calendar days to file after receiving actual or public notice that its creation or registration is effective.

Where do I file this information?

Filing Portal
Filing Portal Instructions

We also put together a quick memo for you to reference. If you have any questions about this topic, please make sure you reach out to your professional business advisors for assistance (business attorney, business accountant, business financial advisor, etc.).

We look forward to speaking more with you as the year progresses.

Here are a few other items of interest:

Please see all of our prior updates at this link or if you would like to be added to our email list, please click here.