05/16/2023
Private Capital Expands the Financial Solution Set and Options for Private Companies
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Thought Leadership
This is your source for fresh perspectives and expert insights in investment banking. Whether we’re publishing original articles or being featured in leading publications, this is where bold ideas meet practical solutions. Explore in-depth analysis, emerging trends, and strategies from our team that is shaping the future of the field.
01/16/2023
Is Staple Financing the Answer for Sellers in a Disrupted M&A Market?
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12/07/2022
The Importance – and Sudden Scarcity – of Independent and Unconflicted Advice
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10/31/2022
Maximizing Value: 14 Tips to Get Top Dollar for Your Distribution Company
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10/20/2022
Why It’s More Important Than Ever for Companies to Have Strong Financial Leadership
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12/01/2021
11 Differences Between Business Brokers and Investment Bankers
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11/30/2021
How to Get Top Dollar for Your BPO Company
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11/22/2021
How to Empower the Next Generation of Female Leaders in Finance
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10/22/2021
Planning for an Expansion or Exit: Tips for Trucking & Logistics Companies
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09/07/2021
3 Ways to Achieve Liquidity Without Selling Your Company
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09/06/2021
Get to Know the 6 Potential Buyers for Privately-owned Companies
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08/24/2021
How to Maximize the Value of Your Staffing Company
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08/23/2021
How Our Core Values Lead to Successful Client Outcomes
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08/19/2021
14 Questions to Ask Your Investment Banker
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07/13/2021
Software M&A Activity in 2021
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06/22/2021
What Makes an IT Services Company Attractive for Acquisition?
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03/25/2021
What Business Owners Should Know About SPACs
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03/24/2021
2021 Outlook: M&A and Capital Markets
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2021 Outlook: M&A and Capital Markets
After the uncertainty and challenges presented by the pandemic in 2020, M&A and capital markets activity is beginning to ramp back up. Get the 2021 outlook from Bridgepoint Founder and CEO Matt Plooster in the short video below, and read on to find out the four major factors influencing M&A activity and the capital markets this year.
Funders Have Capital to Use. Dry powder, or the liquid assets available for use by private equity firms and other funding sources, is at an all-time high. Dry powder has been building up over the last ten years, creating an overhang of capital ready to be invested. The pandemic further accelerated this build-up, and funding sources are eager to put this capital to use.
Valuations Are Holding Steady. Though valuations were thought to be down due to the pandemic, valuations are actually holding steady. In fact, valuations are even exceeding pre-pandemic levels for some companies that showed resilience in the face of COVID.
Potential Changes to the Tax Structure. If you’ve been considering selling your company, it’s important to realize that this is a one-shot opportunity to maximize the value of your life’s work. With the new presidential administration, several potential changes to tax policy have been proposed. Learn more about the proposed changes to the U.S. tax policy in our latest whitepaper here.
Capital Markets Have Reopened. Though the capital markets largely went away during Q2 and Q3 2020, the fourth quarter was extremely busy as uncertainty began to recede and activity accelerated. The availability of aggressive capital structure is back, and companies should get their capital structure in order in 2021. There is expected to be a flurry of M&A activity this year.
These four major factors are expected to combine into a “perfect storm” in 2021, and all signs point to a record year for capital raising and M&A activity.
To learn more about how the 2021 climate may impact the decision to sell your company, download our free whitepaper here.
If you’re considering raising capital or selling your business in 2021, it’s imperative to engage a team of M&A experts that will guide you with unconflicted advice you can trust. Bridgepoint Investment Banking can help you maximize the timing and drivers in the market to create the best outcome for you. Contact Bridgepoint today and let us help you navigate the process of selling or capitalizing your company in 2021.
What Business Owners Should Know About SPACs
SPACs are all over the headlines, but they’re not as new as you may expect. SPACs have been around for years but have recently gained popularity as a method of going public and raising capital.
While the headlines have focused on the wildfire growth in the number of SPACs, the amount of funding behind them, and which celebrities have invested in them, Bridgepoint believes it is important for company owners to understand how they work and how your company may be able to leverage SPACs for growth and liquidity.
Below, we explain what SPACs are, how they work, and how that impacts family- and founder-owned companies in the middle market.
Watch our short video for highlights from Bridgepoint Founder and CEO Matt Plooster, then read on below.
What is a SPAC?
A SPAC, or “special purpose acquisition company,” is a non-operating, publicly listed company whose purpose is to identify and acquire a private company, which allows the acquisition target to have publicly listed stock. Also referred to as “blank check companies,” SPACs are a vehicle for raising money to purchase a company, which takes that company public during the process of being acquired.
SPACs may attract a diverse pool of investors ranging from well-known private equity funds to the general public.
SPACs are generally formed to pursue companies within certain industries or sectors, though they may have a more general interest in companies that span many sectors.
How do SPACs work?
SPACs combine investors’ capital with founders’ capital into a bundled unit of stocks and warrants, which represent shares of an entity that goes public via an IPO. The purpose of this entity is to find a private company to acquire within two years.
If a suitable company is not found within that time frame, the money is returned to shareholders. If a suitable acquisition is found, the SPAC performs due diligence, arranges terms, and announces the deal to the public.
The proposed acquisition must then pass a vote by the SPAC’s shareholders. Upon doing so, the additional debt and equity funding necessary to complete the acquisition must be arranged, as SPACs typically target companies valued at two to four times the amount raised in the SPAC’s IPO. At the end of the process, the acquired firm becomes publicly listed on the stock exchange.
Why do SPACs matter to business owners of private companies?
SPACs offer another option for liquidity. SPACs offer another liquidity option for private companies that are on the larger end of the middle market. Going public via a SPAC provides access to capital for aggressive growth plans, and founders can get more liquidity from the “reverse merger” process of a SPAC than they may receive through an IPO. It can also be a more flexible, less burdensome, and oftentimes faster way to take a private company public. Because the company must only pitch to the acquiring SPAC, the company can avoid the complex and lengthy process of carrying out an “IPO roadshow” to drum up interest, as they would in a traditional IPO. Private company owners can also receive earn-outs, or newly issued shares in the combined entity, allowing owners to avoid the mandatory lock-up period for selling newly public shares that occurs during an IPO.
This method of going public also tends to offer a more predictable value to the business owner. Merging with a SPAC reduces the risk posed to the IPO’s value by the sentiment of the broader market. Unlike an IPO, negotiations happen privately at a set price, making the deal more immune to market volatility and public sentiment.SPACs increase competitive tension. The abundance and popularity of SPACs, all working to find a suitable acquisition target within a strict deadline, add another layer of competitive tension to a process seeking the outcomes of liquidity and access to capital.
SPACs generally have a period of about two years to find an acquisition target. The presence of this “due date” for SPACs to find an acquisition target may influence valuations in a favorable manner. The closer the SPAC is to its deadline, the more motivated it may be to make a deal to avoid having to return its money to shareholders.SPACs can offer strategic value. SPACs are led by a “management team,” also known as the SPAC’s “sponsors.” These sponsors may offer industry expertise and connections that complement the management team of the acquired company, particularly when the SPAC was formed with specific industries or sectors in mind.
How can business owners take advantage of the rise in SPACs?
For private companies on the larger end of the middle market, SPACs may be another option that can be leveraged for growth capital or liquidity. Merging with a SPAC is just one option for capital in a vast array of creative solutions available to company owners that work with Bridgepoint Investment Banking’s team of capital raising and M&A experts. No matter your goals, engaging an unconflicted team of experts is essential to making sure you receive the right advice for your unique company.
Contact Bridgepoint today to discuss your goals and options for liquidity, access to capital and more.
What Makes an IT Services Company Attractive for Acquisition?
How IT Services Companies Can Best Position Themselves to be Acquired
The market for IT services companies is hot. Across the board, companies offering IT services – ranging from systems integration, data warehousing and cybersecurity to ERP implementation, IT consulting and other IT services – are in high demand by both strategic and financial buyers.
Many of these buyers are looking to execute roll-up strategies, the process of acquiring and merging smaller companies in an industry into a larger firm. This roll-up strategy can provide many benefits, including:
Lower operating costs
Increased buying power
Larger geographic footprint
Expanded portfolio of product and service offerings
Better operational efficiencies
Faster expansion (buy vs. build)
Increased revenue
“The M&A market for IT services companies continues to be very active with many buyers executing on roll-up strategies,” according to Bridgepoint Director and IT Services sector lead, Chad Gardiner.
In this diverse and highly-fragmented space, the opportunity for growth via acquisition is more attractive than ever. And during this uniquely favorable M&A climate, IT services companies are finding it’s a great time to be a seller.
If you’re exploring the sale of your IT services company to take advantage of this seller’s market and the explosive appetite for roll-ups, it’s important to position your company to achieve the best possible result. Here are 5 factors that can position your company for a successful sale:
Consistent, sustainable growth in revenues
A reocurring revenue model with high retention
Significant service differentiation
Strong gross margins
If project-based revenue model, a large salesforce and strong ability to convert initial projects into ancillary services
Every IT services company is different, so the list above is not comprehensive. When you’re ready to sell, it’s important to enlist the help of trusted M&A experts who have direct experience in your industry. Bridgepoint has experience helping IT services companies acquire other firms, sell to strategic acquirers and even raise capital for additional growth.
In fact, Bridgepoint recently conducted three value-maximizing transactions for IT services leader Data Migration Resources (DMR), representing them with both buy-side and sell-side advisory. Learn how we created value for DMR here.
Curious about the M&A market for IT services companies like yours? Find valuable insights in our complimentary IT Services M&A Update, published quarterly. You’ll find the latest information regarding M&A transaction volume, recent and notable transactions, buyer statistics, EBITDA multiples and more – download it here.
Software M&A Activity in 2021
As technology adoption and digital transformation continue to increase among consumers and companies alike, the technology sector is an active space for investors. Within the technology sector, the software industry is buzzing with M&A activity.
Bridgepoint has compiled a recap of M&A activity in the US software market so far in 2021. Through the first half of 2021, there have been 429 M&A transactions. We’ve summarized the top transactions in the following verticals:
Enterprise Software
Internet Software
Security Software
Application Hosting Services
Office and Home Productivity Software
Multimedia Software
Drawing and Imaging Software
Automation Products and Services
Personal Mobile Applications
Development Tools
Collaboration Tools
Software Research
Maintenance Software
Banking System Software
Performance Monitoring and Analysis Software
Backup and Recovery Software
Check out the top M&A transactions in these verticals below, and download our H1-2021 Software M&A Deal Recap Report here.
Enterprise Software
CoConstruct, LLC has been acquired by BuilderTREND Solutions, Inc. and Serent Capital
Insent, Inc. has been acquired by ZoomInfo Technologies, Inc. (NasdaqGS:ZI)
Innovyze, Inc. has been acquired by Autodesk, Inc. (NasdaqGS:ADSK)
Internet Software
ViralSpace, Inc. has been acquired by Smartly.io, Inc.
Cybeats Technologies, Inc. has been acquired by Relay Medical Corp. (CNSX:RELA)
LeadsBridge, Inc. has been acquired by ActiveProspect, Inc.
Security Software
InteliSecure, Inc. has been acquired by Proofpoint, Inc. (NasdaqGS:PFPT)
Kount Inc. has been acquired by Equifax, Inc. (NYSE:EFX)
ReFirm Labs, Inc. has been acquired by Microsoft Corporation (NasdaqGS:MSFT)
Application Hosting Services
Cortera, Inc. has been acquired by Moody’s Corporation (NYSE:MCO)
DocSend, Inc. has been acquired by Dropbox, Inc. (NasdaqGS:DBX)
Returnly Technologies, Inc. has been acquired by Affirm Holdings, Inc. (NasdaqGS:AFRM)
Office and Home Productivity Software
Glide Labs, Inc. has been acquired by Compass, Inc. (NYSE:COMP)
Evident Point Software Corp. has been acquired by NewspaperDirect, Inc.
Multimedia Software
Primer Supply, Inc. has been acquired by Shopify (NYSE:SHOP)
Threedy.ai, Inc. has been acquired by NexTech AR Solutions Corp. (OTCPK:NEXC.F)
Fyusion, Inc. has been acquired by Cox Automotive, Inc.
Drawing and Imaging Software
rideOS, Inc. has been acquired by GoBrands, Inc.
Pointwise, Inc. has been acquired by Cadence Design Systems, Inc. (NasdaqGS:CDNS)
Chart.io, Inc. has been acquired by Atlassian Pty Ltd.
Automation Products and Services
Pheonix Integration, Inc. has been acquired by ANSYS, Inc. (NasdaqGS:ANSS)
CloudPassage, Inc. has been acquired by Fidelis Cybersecurity, Inc.
SCOTTTECH, LLC has been acquired by Alta Equipment Group, Inc. (NYSE:ALTG)
Personal Mobile Applications
Live, Give, Save, Inc. has been acquired by Reseda Group, LLC
Holo3D Technologies, Inc. has been acquired by ePlay Digital Inc. (CNSX:EPY)
Breaker, Inc. has been acquired by Twitter, Inc. (NYSE:TWTR)
Development Tools
TreSensa Technologies, Inc. has been acquired by Vungle, Inc.
Stackify, LLC has been acquired by Netreo, Inc.
Rohuma, LLC has been acquired by TraqIQ, Inc. (OTCPK:TRIQ)
Collaboration Tools
Reshuffle has been acquired by Twitter, Inc. (NYSE:TWTR)
GreenZone Solutions, Inc. has been acquired by Ambit Group, LLC
Global Mentoring Solutions has been acquired by SherWeb, Inc.
Software Research
Nuviation, LLC has been acquired by Jet Support Services, Inc.
AIPARC, Inc. has been acquired by 100co.
x.ai, Inc. has been acquired by Bizzabo Ltd.
Maintenance Software
HyTrust, Inc. has been acquired by Entrust Datacard Corporation
Banking System Software
Kona has been acquired by Technisys S.A.
Performance Monitoring and Analysis Software
Determined AI has been acquired by Hewlett Packard Enterprise COmpany (NYSE:HPE)
Backup and Recovery Software
StorageCraft Technology Corporation has been acquired by Arcserve (USA), LLC
If you’re a software company owner, contact Bridgepoint today to learn about your options for capital raising and M&A advisory. With our M&A expertise and connectivity to the capital markets, we’re here to help you achieve your company’s goals. Contact our software M&A experts today.
14 Questions to Ask Your Investment Banker
Tips to Ensure You Get the Best Outcome & Experience
So you’ve (smartly) decided to work with an investment banker on your capital raising or M&A endeavors. What’s next? Before choosing an investment banker, it’s important to make sure that your priorities and values align and that they have the bandwidth and expertise to provide you the outcome and experience you deserve. Before signing an engagement agreement, be sure to ask your potential investment banker(s) these questions.
Does this investment bank have capacity to take on my deal? Depending on market conditions, some investment banks may have more capacity than others to work on your transaction. Before signing on with an investment bank, make sure your deal team has the capacity to provide you with a timely, professional, efficient and effective process that will give your transaction the best probability of success. There’s nothing worse than signing an engagement agreement, paying a retainer, then finding out your transaction won’t get the attention it deserves. Some investment banks purposely take on more engagements than they should, knowing that service level can only suffer. Your transaction deserves better.
Is your deal team personally accountable for the success of my transaction? Once you’ve signed an engagement agreement, will the communication and attention to detail continue? How easy will it be to contact your investment banker to ask questions or request updates on your process? Is your investment banker located near you? Do they seem passionate and personally invested in the success of your deal?
Is this investment banker driven by fee or by principle? When challenges come up along the way, can you trust your investment banker to give you advice that’s right for you? Effective investment bankers should be comfortable handling the difficult conversations that may come up throughout a process, and their advice should be guided by principles and values that align with yours – not by maximizing their success fee. When challenges arise in a process, it will be important to have a deal team that prioritizes honesty and integrity when they’re going to bat for you.
What is the continuity of your deal team? In other words, how long have the members of your deal team worked at this specific firm, and how long are they expected to stay? Investment banking is an extremely high-turnover field where the average tenure at any given firm is only around 12-18 months. When the average M&A and capital raising transactions can take 6-12 months, there’s a good chance that there will be turnover on your deal team during your process. This can hinder your chances of a successful outcome when precious time is spent getting new members up to speed on the intricacies of your transaction. This turnover also does not lend itself well to the long-term relationship your company should have with its investment banker in order to get the best outcomes and solutions throughout your company’s corporate lifecycle. Firms who are committed to their culture, values and mission tend to have much lower turnover, but they are few and far between throughout the field of investment banking. Bridgepoint is proud to maintain one of the lowest turnover rates in the industry, which is one more factor that can set your transaction up for success.
Does this investment banking team have any conflicts of interest? What portion of this investment bank’s deals represent my potential buyers? Many investment banks work with sponsors, or financial buyers such as private equity firms, on a repeated basis. This can lead to conflicts of interest, as investment banks may sacrifice some of your upside in order to give their sponsor relationships a better deal. This is a more common practice than you might expect, and it can negatively impact the success of your transaction. Seek out unconflicted investment banks such as Bridgepoint who are unequivocally dedicated to working exclusively with founders and owners, not sponsors. You’ll likely be surprised there aren’t many of these.
Does this investment banker have experience working with family-owned and founder-led companies like mine? Many investment banks do not discern between working with family-owned companies and sponsor-backed companies, but there are many unique challenges that may arise during the sale or capitalization of a family-owned company. Few middle-market investment banks work and communicate exclusively with founders, entrepreneurs and families, and possess the skills necessary to guide families and owners through the complex – and often emotional – process of selling your company or raising capital. Bridgepoint is proud to be one of the few investment banking firms who exclusively serves family-owned and founder-led companies.
How customized will the buyer messaging and process design be? Some sell-side M&A transactions involve a “spray and pray” approach which offers minimal customization in order to reach potential buyers en masse. This approach can lead to decent performance when appealing solely to financial buyers, but when your ideal acquiror might be a strategic buyer, tailored messaging is crucial. Customized messaging to strategics takes much more time, thoughtfulness and research but it can lead to much better results – so make sure you know upfront whether your prospective investment banker is willing to put in the extra effort.
Does this investment banker offer capital raising / leveraged finance solutions? Most middle-market investment banks only offer M&A advisory services, but many transactions benefit from the optionality of creative financing solutions. Choose an investment bank that can offer many liquidity options, exit alternatives and financing solutions beyond sell-side M&A. This gives you the flexibility to be nimble while your deal is in market and maximizes your chance for a successful outcome. Capital raising / leveraged finance solutions and connectivity also help drive value on your M&A deal.
If they don’t offer leveraged finance solutions, does the investment team have leveraged finance experience? Even if the firm doesn’t offer leveraged finance / capital solutions, your deal team should have experience with leveraged finance and understand how much leverage a buyer could reasonably use to purchase your company.
How involved will the senior investment banker be in the execution of my transaction? Who will be making calls to the buyers? The success of your transaction can be influenced by whether the senior investment banker is focused more on originating your transaction and then redirecting their attention to the next deal, or on seeing your transaction through to the finish line. It’s important to understand upfront how involved the senior investment banker will be in the strategy, execution, communication, buyer outreach and other aspects of your process.
How involved in the transaction process will my investment banker and deal team be after the LOI phase? Once a company receives an LOI (letter of intent), some senior bankers start to divert their attention away from the transaction and focus on their next one. In reality, the post-LOI phase is when a large portion of diligence occurs and the highest retrade risk, or risk of the deal falling apart, occurs. You will want an investment banker and deal team that will be committed to your process all the way to the end.
How many deals has the team completed? Investment bankers learn how to be more effective with each deal they complete. It’s important to have an accurate understanding of how many deals the senior investment banker and their deal team have completed. You may also want to ask on how many deals the deal team has worked together, which can be an indicator of how effectively they communicate and work as a team to accomplish your goals.
Does this investment banking team have relevant experience in my sector? Every industry and sector differs when it comes to valuation drivers and multiples, market trends and other factors that influence the unique process and potential outcome of a transaction. It’s important to know whether your prospective deal team has completed any transactions in similar or adjacent industries and you should determine how relevant this experience is to your company’s goals and objectives. Evidence of sector experience could include client testimonials (ideally on video), client reference checks, published reports and thought leadership relevant to your sector.
Does your firm have references I can contact? An investment bank that is committed to their client’s success will have a strong reputation in its community and among its clients and referral sources. Ask for a list of recent clients and/or referral sources that can be contacted and ask them candid, detailed questions about their experience working with your prospective investment banker.
No matter which investment bank you choose to work with, asking these questions before entering an engagement will help ensure your goals and priorities align so that you get the outcome and client experience you deserve. It’s not all just about tombstones. Trust, accountability and expertise will greatly impact your ultimate satisfaction with your transaction’s outcome.
To keep this list of questions handy, download them as a printable PDF here.
How Our Core Values Lead to Successful Client Outcomes
Bridgepoint was founded in 2010 with the purpose of doing investment banking differently. After our founders spent years working in traditional large investment banking firms, they took a critical look at an industry where maximizing fees was prioritized over the client’s goals and outcomes and where firms experienced extremely high employee burnout and turnover.
Bridgepoint Investment Banking was founded with a set of core values that truly serve as guiding principles throughout every conversation, decision and recommendation. We believe our core values should do much more than hang on a wall in our office; instead, we strive to live them out on a daily basis and hold those around us accountable for doing the same.
In this post, we want to share our core values, why they are so important to everyone at Bridgepoint, and how this commitment to our core values leads to successful outcomes for our clients.
Honesty and Integrity Always
Honesty and Integrity Always comes first in our set of core values because we believe it is the foundation of how we run our firm. In an industry driven by maximizing fees rather than client outcomes, our focus on honesty and integrity sets us apart. We strive to lead every relationship and conversation – internally and externally – with honesty and integrity. This builds trust among our team and ensures that our clients receive the “right advice” always, regardless of what it means for our firm or our fee.
Passionate Pursuit of Excellence
The Bridgepoint team is constantly striving for excellence in everything we do. This pursuit of excellence means that our clients can expect nothing less than excellence throughout their experience working with Bridgepoint – from diligence and analysis to top-quality marketing materials to legal review and closing, Bridgepoint clients get relentless attention to detail every step of the way – regardless of fee or deal size.
Tenacity
Every capital raising and M&A transaction involves navigating its own set of challenges. Working with a tenacious team means we’ll fight every battle on behalf of our client and pursue optimal outcomes with persistence. Time kills deals and limits competitive tension which benefits our clients. We are tenacious in our pursuit of deal momentum, creative solutions and optimal client outcomes regardless of the circumstances.
Continuous Self-improvement
Every member of the Bridgepoint team is committed to continuously improving ourselves, the firm’s service and the work we do. We’re constantly staying on top of trends, educating ourselves and improving the quality and effectiveness of our work – which means our clients get the best version of Bridgepoint at all times.
Respect
Bridgepoint’s culture is built upon mutual respect for our fellow team members, clients and communities. We believe in communicating respectfully, caring for our communities and respecting our clients and their goals by giving our all during every process we run.
Purpose-driven
Bridgepoint was founded to bring meaning and impaact to the investment banking industry. To us, investment banking goes beyond executing capital raising and M&A transactions. We go deeper, looking for the true impact of each process we run. Knowing that our work helps family-owned companies grow, continue their legacies and impact their communities is the reason we get up every morning and do our best work on behalf of our clients.
Bridgepoint’s commitment to our core values and our culture creates better outcomes for our clients. We are proud to have a tight-knit team that respects and challenges each other to improve every day. This has led to one of the highest employee retention rates in the investment banking industry, which means our clients can feel confident in the quality of our work and the longevity of their relationship with Bridgepoint.
To get in touch with our team of trusted advisors, contact us today. We’re eager to give you a top-quality experience that will help you reach your company’s goals.
How to Maximize the Value of Your Staffing Company
14 Characteristics That Staffing Companies & Employment Agencies Should Have to Be Attractive to Buyers
In the highly fragmented staffing industry, companies offering staffing and placement services are in high demand by buyers. If you’re considering the sale of your staffing company, it’s important to understand the characteristics that influence valuation.
Whether you own a company that focuses on healthcare staffing, IT staffing, clerical and administrative staffing, finance and accounting staffing, legal staffing, engineering staffing, industrial staffing or other forms of talent placement, consider how your company performs in regards to the following characteristics in order to maximize the potential valuation of your staffing firm.
Customer diversity: When evaluating staffing companies, buyers generally like to see low customer concentration. Generally, no single customer should contribute to more than 10-15% of total revenue.
EBITDA: In order to be a good acquisition target for many buyers, your staffing company should have at least $5m of EBITDA. In general, higher EBITDA also contributes to higher valuation multiples.
Long-term customer relationships: Long-term customer relationships are an indicator of customer satisfaction and the quality of your company’s service offerings, two important factors to buyers interested in staffing companies.
Revenue growth: To maximize your staffing company’s potential sale price, your company should have both a history of revenue growth as well as further revenue growth anticipated in the future.
Low employee churn: Employee retention is a good sign of a thriving culture and productive employee base.
Differentiating value proposition: Like every industry, having a unique value proposition that resonates with customers is imperative to making your company stand out in the M&A market.
Strong brand reputation: A strong, recognizable and respected brand that resonates with both enterprise customers and recruited candidates can further differentiate your staffing company in the eyes of potential buyers.
Effective use of technology and data: Staffing companies that have robust databases and embrace technology, data and automation in order to improve their processes and increase margins are more attractive to potential buyers.
Ability to capitalize on market trends: Staffing firms that demonstrate an ability to capitalize on shifting trends, customer preferences and emerging technologies and processes will likely garner higher valuations.
Customer mix: A customer base which includes enterprise customers and customers who have high credit ratings leads to lower repayment risk, which is attractive to buyers.
Contribution margin by recruiter: Contribution margin, a measure of profit after subtracting variable costs, is an important metric to understand and demonstrate when selling a staffing company.
Gross profit margins: Healthy gross profit margins, relative to the type(s) of staffing services provided, is another important financial metric considered by potential buyers.
G&A costs: General and administrative costs, which usually includes some expenses such as rent, utilities, insurance, certain salaries and benefits, office supplies, and other administrative costs, should be at a reasonable and controlled level in proportion to revenue and EBITDA margins.
Working capital: Your company should measure and be able to demonstrate working capital metrics such as days sales outstanding (DSO) and days payable outstanding (DPO).
“The staffing market will continue to see large, traditional staffing firms buying up smaller competitors. When clients can demonstrate these characteristics, it can have a profound impact on their proceeds from a sale,” explains Chad Gardiner, Bridgepoint Director and Staffing Sector Lead.
In the highly-fragmented world of staffing, several companies are executing on roll-up strategies. Combined with select interest from financial buyers and the uniquely favorable M&A climate, now may be the perfect time to sell your staffing company. If you are exploring the sale of your staffing company, it’s important to consider how your company performs in regards to these characteristics.
Every staffing company is different, so the list above is not comprehensive. When you’re ready to sell your staffing company, it’s important to have deeply-connected staffing M&A advisors advocating for your company. Bridgepoint has extensive experience helping staffing firms grow and sell their companies. You can learn about our most recent staffing experience arranging growth capital for healthcare staffing firm Atlas MedStaff here.
To stay up to date on the latest staffing M&A news, download our latest Staffing M&A Quarterly Update here. Bridgepoint also publishes a free Staffing M&A News and Market Outlook email newsletter, to which you can subscribe in the footer of our website.
Get to Know the 6 Potential Buyers for Privately-owned Companies
If you’re considering an exit, it’s easy to assume that your competitor may be the most logical buyer. However, depending on the size and stage of your company and your goals for continuity, valuation, transaction structure and other factors, your company may be highly sought-after by a wide range of buyer types.
One of the advantages of enlisting the help of a trusted investment banker is our ability to market your company to the full universe of potential buyers. Having multiple options drives competitive tension and gives you the flexibility to choose the transaction structure, valuation and other terms that help you accomplish your goals during the sale of your company. Explore six potential buyers for your privately-owned, middle-market company below.
Strategic Buyers
When company owners consider potential buyers for their company, they often think of strategic buyers. A strategic buyer is an operating company in the same or adjacent industry that purchases a company in order to capture synergies and/or for other strategic reasons. Strategic buyers may or may not be a competitor to your company.
Because of their ability to capitalize on shared synergies, strategic buyers may value their target company at a premium compared to other types of buyers. To best position your company to sell to a strategic, consider what value your company would offer in terms of new product offerings, enhanced geographic footprint, additional customer verticals and segments and the buyer’s increased ability to pursue expansion strategies. A qualified M&A advisor like Bridgepoint can craft the story that best positions your company to communicate those synergies to strategic buyers.
Financial Buyers
Many company owners do not realize that their ideal buyer might instead be a financial buyer, not a strategic. Financial buyers, which generally include private equity groups and family offices, are primarily interested in the financial return that can be achieved by purchasing, growing and later exiting the company by selling to a strategic, selling to another financial buyer or taking it public.
Depending on the company owner’s priorities and goals, private equity groups can make a great partner or buyer for privately-owned, middle-market companies and they may be open to a variety of outcomes ranging from a partial sale (such as a minority or majority recapitalization) to a complete sale.
Family
Depending on the size of your company and the dynamics and skill sets within your family, a family member may be a great potential buyer for family-owned companies. Selling your company to a family member offers a succession plan that continues its legacy by keeping the company within the family. Often, however, this results in less than full payment/liquidity at closing, and often a need for seller financing.
Employees
For some companies, your company’s employees might be the perfect buyer. Two common ways to sell your company to your employees include ESOPs and MBOs.
ESOP: An ESOP, or employee stock ownership plan, gives employees ownership interest in a company. This method creates shareholder liquidity, a succession plan and alignment between the employees’ and company’s interests.
MBO: An MBO, or management buyout, occurs when members of the company’s management team purchases the company’s assets and operations. This creates shareholder liquidity and allows management team members to exert more control over the company and reap the rewards from their efforts in the future.
SPACs
A SPAC, or special purpose acquisition company, is another liquidity option available for some companies on the larger, more established end of the middle market. SPACs (also called blank-check companies) are non-operating, publicly-listed companies whose sole purpose is to identify and acquire a private company with whom they merge, taking the acquisition target public in the process. SPACs may be a potential buyer for larger private companies who are not yet large enough to do an IPO. Learn more about SPACs and how they ay benefit middle-market companies here.
Public Investors
Larger, more established private companies may be able to sell their company to public investors via an IPO. An IPO, or initial public offering, raises capital and/or creates partial liquidity for the company’s ownership and investors.
Not sure if you want to sell your company? Explore 3 ways to get liquidity from your company without selling it in our blog post here. For more information about liquidity and exit alternatives, download our complimentary guide for company owners here.
3 Ways to Achieve Liquidity Without Selling Your Company
Exploring the Options and Benefits of Recapitalization
When it’s time to cash out of your company, you may think that selling your company is the only way to achieve personal liquidity. Fortunately, you actually have several options depending on how much ownership control you would like to retain.
Read on to explore three effective ways to achieve personal liquidity while still retaining your desired level of ownership.
Majority Recapitalization
A majority recapitalization is a partial liquidity option, also known as a “partial sale”, in which the company owner sells a majority stake in the company but still retains some material ownership. In a majority recapitalization, the company owner may still continue to run the company but will now have access to the financial and operational support of the private equity group that invests in the majority stake.
To understand why a majority recapitalization can be a win-win situation for both the company owner and the buyer, it’s important to understand the goals of the buyer (usually a private equity group). When private equity groups purchase a majority stake in a middle-market company, they are doing so with the intention of growing the company and later selling it at a higher price to either a strategic buyer or another private equity firm. When this later sale occurs, the company owner receives what is known as a “second bite of the apple.” In other words, the company owner receives liquidity at the initial investment, and because you retain some ownership stake in the company, you receive additional liquidity at the later sale of the company – often at a higher valuation (and therefore, higher proceeds).
If your goal is to maximize liquidity while retaining some ownership control, consider pursuing a majority recapitalization.
Minority Recapitalization
Similar to a majority recapitalization, a minority recapitalization is a partial sale in which the company owner sells a minority stake (usually 20-49%) in the company and retains majority ownership control. Minority recapitalizations can be an excellent source of both liquidity and capital to support the company’s future growth.
Just like a majority recapitalization, private equity groups generally purchase a minority stake in the company with the intention of growing the company and pursuing a future liquidity event (generally a sale to a strategic buyer or a different private equity group). Minority recapitalizations give you liquidity at the initial investment and again at the later sale of the company.
If your goal is to get some liquidity while retaining more ownership control, a minority recapitalization might be the ideal liquidity option for you.
Debt Dividend Recapitalization
A debt dividend recapitalization is a lesser-known liquidity option that can be thought of as giving a company owner an advance on future earnings. This liquidity option allows the owner to pull cash out of the company by issuing new debt, allowing the owner to maintain their current level of control.
Debt dividend recapitalizations provide near-term liquidity and can establish lender relationships that can be leveraged in the future for additional capital needs and desires. Additionally, debt dividend recaps generally allow owners to avoid active equity investor input and governance in the operations and strategy of their company. However, the additional debt service requirements placed on the company and the potential loss of flexibility in the event of a future downturn should be carefully considered when evaluating this liquidity option.
If your goal is to achieve liquidity while retaining your current level of ownership control, a debt dividend recapitalization could be the creative liquidity option you’re looking for.
Compare the potential effects on liquidity and ownership control below.
At Bridgepoint, we’re passionate about educating company owners about the numerous options they have to achieve their goals for growth, ownership and continuity. No matter your goals, we are here to help you understand the possibilities and we’re relentlessly focused on creating a successful outcome for you.
Contact us today to learn more about growing or selling your company. We’re here to help you achieve your goals.
Planning for an Expansion or Exit: Tips for Trucking & Logistics Companies
Demand for transportation services is at an all-time high, and market demand shows no signs of slowing down in the near term. To meet this demand, trucking and logistics companies are growing via acquisition and by infusing growth capital to meet their goals for recruiting, retention, operations and expansion.
Whether you are planning to expand your trucking and logistics company and need access to capital to achieve your goals, or you are contemplating the potential sale of your company, the factors considered by acquirors and financial partners are similar. These factors, which are referred to as value drivers, will be considered by financial partners including commercial banks, private equity firms and family office investors. Strategic acquirors, who are the most common buyer type for companies in the trucking industry so far in 2021, will also consider these factors during their evaluation of potential targets.
No matter your planning horizon, understanding these value drivers is crucial to successfully raising capital or finding an acquisition partner. The key value drivers for transportation companies include:
Strong, stable and consistent financials
Diversified revenue streams and services offered
Long-standing customer relationships
A diversified customer base with low customer concentration
A consistent track record of high customer service levels and on-time delivery
A history of good safety records throughout the company
A diversified commodity/load mix of freight hauled
An emphasis on company culture which impacts both drivers and support staff
A well-developed, focused and effective driver recruitment and retention plan
An updated fleet and comprehensive fleet analysis, including a breakdown between company-owned equipment and owner-operators, the number of power units, trailers and ancillary equipment, including age, miles and condition
A comprehensive, anonymous review of driver information, including years of experience, safety records and whether they are company employees or owner-operators
A well-thought-out geographic footprint and number of terminals (or established plans to fill in the blanks if looking to expand)
A well-established, committed management team interested in remaining with the company after a potential sale or capital raise
Utilization of available and current technologies throughout the organization
Minimal capital expenditures needed for required maintenance and rolling fleet turnover
While these are not the only factors a financial partner or acquiror will consider, our experience demonstrates that understanding and addressing these value drivers will best position a company to attract the type of attention and interest you are seeking in the market.
Interested in exploring the sale of your trucking company? Learn more about the factors impacting M&A activity among transportation companies by downloading Bridgepoint’s complimentary Transportation M&A Update here, published quarterly.
Want to understand the types of funding available to privately-owned companies? Download our latest guide, Beyond the Bank: A Guide to Funding Sources and Types of Capital for Company Owners here.
To schedule a complimentary consultation to discuss your M&A or capital needs, contact Bridgepoint’s Transportation Sector Lead, Wm. Lee Merritt, here.
How to Empower the Next Generation of Female Leaders in Finance
As an organization that is passionate about advancing diversity and inclusion and creating opportunities for women in finance, Bridgepoint Investment Banking was honored to be included in a recent opportunity to educate the business community about this important mission.
Bridgepoint COO, Natasha Plooster, recently spoke on a panel of high-performing female leaders in finance for members of ACG Nebraska. This incredible panel of women offered many valuable perspectives and actionable tips that can enhance the diversity, inclusion and overall performance of companies across any sector.
This panel was comprised of four finance professionals, moderated by Gallup President and COO, Jane Miller:
Natasha Plooster, Chief Operating Officer of Bridgepoint Investment Banking
Suzanne Yoon, Founder and Managing Partner of Kinzie Capital
Megan Belcher, Chief Legal & External Affairs Officer, Corporate Secretary & Board Member of Scoular
Donna Walsh, Operating Principal of Panorama Point Partners
Below we’ve compiled some of the top themes, tips and advice from this insightful panel.
On the competitive nature of high-performing women in leadership
“Inclusion and success is a team sport. Don’t try to be a star player, work together to win championships by utilizing everyone’s strengths.” – Suzanne Yoon
“The pursuit of excellence should bring others with you, not be to the detriment of others.” – Megan Belcher
“Self-awareness about your strengths and weaknesses is imperative to ascending to positions of leadership.” – Megan Belcher
“Differentiate competitive from cutthroat. It’s not worth it to win at any cost.” – Donna Walsh
“You don’t have to be the smartest person in the room; you should be open to what everyone brings to the table.” – Donna Walsh
On the importance of diversity and inclusion, and how to embrace it
“There’s no magic or shortcut to diversity and inclusion. It’s openness, being intentional and taking small steps.” – Natasha Plooster
“Diversity in hiring is more than just hiring. It is also about making space for them and helping the team embrace them and mesh with others.” – Megan Belcher
“Representation is key to building a pipeline that supports your DEI efforts.” – Suzanne Yoon
On the balance of career and family life for high-performing women
“When you have values, you have priorities. In all things, know what your priority is.” – Megan Belcher
“If you can’t give a big quantity of time, focus on making that time high-quality.” – Suzanne Yoon
“Know that no one is doing it all by themselves.” – Megan Belcher
“Surround yourself with a village; trying to do it all leads to burnout. Find what works for you and embrace it. Be present in whatever you do. Celebrate every success in order to refill your energy.” – Natasha Plooster
Practical tips for empowering women to become leaders
“Making change in your organization doesn’t have to be overwhelming and complicated to be impactful – but it does have to be intentional. Think about the small steps you can take, and take them consistently.” – Megan Belcher
“It’s the responsibility of a company’s leadership to ensure equity within the company.” – Suzanne Yoon
“Build inclusive teams and be an ally. Unlocking others’ potential unlocks your own potential.” – Megan Belcher
“Women need allies in their careers who are supportive and appreciative of what women bring to the table.” – Natasha Plooster
“Men can make room for women at the table and encourage us to speak up about our ideas.” – Donna Walsh
“When aiming for sponsorship and mentorship of women in leadership, leverage your power to take the most expansive view as possible.” – Megan Belcher
“Look at everyone through the lens of looking for their best potential.” – Natasha Plooster
Bridgepoint Investment Banking is proudly committed to furthering the leadership and inclusion of women in finance. We hope this article has inspired you and given you practical steps that can be taken to empower the next generation of female leaders.
How to Get Top Dollar for Your BPO Company
The BPO industry is growing and evolving quickly as companies adapt to talent shortages, technological innovations and emerging talent pools. As the industry grows, it is attracting strong interest from financial and strategic acquirors alike. Bridgepoint has compiled this new resource to help owners and leaders of BPO companies understand the current market and how to capitalize on it.
What is BPO?
BPO, or business process outsourcing, refers to the growing industry of companies that help other companies augment their staff. The BPO industry is comprised of call centers, telemarketing companies, data entry services, survey services, collection agencies, document management companies, equipment management services and other business activities that are outsourced.
Market Outlook for BPO Companies
The market for BPO companies is strong. With revenue in the industry expected to grow beyond $55 billion in 2022 and an expected CAGR of 8.5%, the outlook for the growth of BPO companies is positive. The appetite for M&A among these companies is growing too, as both financial acquirors and strategics are active in the space to capitalize on synergies, disrupt the market, accelerate innovation and increase market share.
What’s Driving the Boom in BPO Transactions?
According to Bridgepoint’s latest BPO M&A Quarterly Update, financial sponsors are actively seeking BPO companies in niche subsectors who have the potential to disrupt a market that is increasingly becoming dominated by specialization and consolidation. By comparison, strategic acquirors are looking to deploy cash to capture synergies and achieve economies of scale.
“The Business Process Outsourcing industry is constantly changing and evolving,” says Bridgepoint Director and BPO Sector Lead, Chad Gardiner. “We continue to see large strategic companies acquire unique, high growth targets to diversify their service offering, to capture market share and drive innovation. Bridgepoint expects deal volume in the BPO sector to be near record highs as many middle-market BPO owners are looking to capture strong valuations and de-risk their personal balance sheets.”
What Makes a BPO Company Attractive for Acquisition?
In order to best position your BPO company for a sale at its maximum value, your company should have the following characteristics:
History of revenue growth and strong gross margins
Strong near-term and long-term growth opportunities for the company
Strong, unique value proposition which differentiates your company from the competition
EBITDA of $5 million or more
Strong KPI performance when benchmarked against peers (as dictated by customers’ KPI preferences)
Customer diversity/lack of customer concentration: no one customer should contribute to more than 10-15% of your total revenue
Long-term customer relationships (3-5 year contracts with customers is ideal)
Large enterprise customers
Strong track record of winning RFPs (requests for proposals)
High customer contract renewal rates
Robust pipeline of prospective customers
Low customer churn
Low employee churn at the supervisor level and above
While this list of valuation drivers for BPO companies is thorough, it may not be comprehensive. Bridgepoint’s BPO experts can give you the most relevant and up-to-date advice and market insights when you are ready to sell or raise capital for your BPO company.
If you lead a successful BPO company and you’re exploring a sale or capital raise, contact Bridgepoint’s BPO experts for a complimentary consultation to discuss your company and the current market. Bridgepoint’s experts have guided numerous BPO companies to a successful outcome, and we welcome the opportunity to give you honest, unconflicted advice.
To explore recent market insights in the BPO industry, download Bridgepoint’s complimentary BPO M&A Quarterly Update.
11 Differences Between Business Brokers and Investment Bankers
How to Find the Right Advisor to Sell Your Company
When it’s time to monetize your life’s work by selling your company, don’t go it alone. While no one knows your unique company better than you, selling a company is much different than growing and running one. Selling a company involves an overwhelming amount of financial experience, diligence, analysis, marketing, communication and expertise — not to mention the complexities of navigating the legal, securities and tax implications.
In order to get the best valuation and terms when selling your company, it’s crucial to have the right advisor on your side.
There are two main types of advisors that specialize in selling companies: business brokers and investment bankers, also referred to as M&A advisors. While they may seem similar (and their titles are sometimes used interchangeably at the smaller end of the market), business brokers and investment bankers vary greatly in the expertise and services they provide and the experience and solutions they offer to company owners.
Below, we explore the difference between business brokers and investment bankers across several categories in order to help you determine which advisor is right for your M&A transaction.
Optionality
Business brokers have one objective: publicly listing your company for sale, waiting for offers and helping you close the deal. However, the process of getting top dollar for your founder-owned company should include a full suite of confidential options. Qualified investment bankers and M&A advisors can provide other options, confidentiality and services related to the sale of your company, including partial sale options such as minority or majority recapitalizations, management buyouts, employee stock ownership plans (ESOPs) and other specialized ways to sell your company.
A select group of investment banks like Bridgepoint Investment Banking can also raise capital and arrange financing and structured liquidity options that may be crucial to the successful sale of your company or to help you pursue other alternatives to an exit.
Transaction Complexity
Business brokers are best suited for straightforward, 100%, widely-marketed transactions involving smaller companies, generally for less than $10 million of total enterprise value. For anything larger and more complex, company owners should engage investment bankers and M&A advisors. These advisors can better appeal to buyers by making stronger, more specialized cases for potential acquisitions. They are capable of more advanced diligence and analysis, more complex valuations, appropriate buyer relationships and leverage and showcasing the unique features of your company.
Service Level
Working with a business broker requires more involvement from the company owner. Business brokers provide minimal analysis, consulting and advice. In fact, the analysis of financials and preparation of relevant deal marketing materials are often done by the seller, which can result in extensive effort, increased liabilities to the buyer and seller and a greater risk of the transaction falling through.
Investment bankers and M&A advisors take a more advice-driven, consultative, white-glove approach that includes higher levels of diligence, analysis and preparation with minimal effort required from the seller. Investment bankers and M&A advisors will maximize the outcome of the process by performing professional analysis and creating effective marketing materials for your transaction. Selling your company with the help of an investment bank or M&A advisor will include extensive market research, the use of multiple valuation methods and modeling scenarios, professional marketing tactics and proactive buyer outreach, strong and objective negotiations, and improved anticipation and removal of barriers to closing the deal. These advisors may also provide additional services such as valuation opinions, deal structuring advice and advanced analysis.
Client Profile
Investment bankers and M&A advisors are specialized in assisting companies with annual revenues of $10 million or more, EBITDA of $3 million or more and/or an enterprise value of $10 million or more. For smaller companies whose EBITDA is within the range of $500,000 to $2 million, a business broker may be a better fit.
Buyer Profile
Investment bankers and M&A advisors are well-connected with corporate and institutional buyers, including strategic buyers, private equity firms and family offices, whereas business brokers are generally limited to buyers who are individuals.
Learn more about the potential buyers for privately-owned companies who choose to work with an investment bank here.
Buyer Connectivity
When it comes to the pool of potential buyers, optionality is key — this applies to both the amount and types of potential buyers. Business brokers are generally limited to local and regional buyers and wait for offers to roll in after posting the company. In contrast, investment bankers and M&A advisors have access to local, regional, national and even global buyers and take a more proactive approach to soliciting offers from optimal buyers. Investment bankers and M&A advisors tend to have deep industry expertise rather than being generalist, which helps them to better understand the nuances and differences between appealing to the unique value drivers and approaches of selling to financial buyers compared to selling to strategic buyers.
Outreach Approach
Business brokers tend to take a “spray and pray” approach to buyer outreach, similar to that of a real estate agent. Like a real estate transaction, business brokers will post a specific listing price for the business, which can impede a maximum outcome. Selling a company takes more than simply listing your business and waiting for offers. Investment bankers and M&A advisors take a more proactive, selective, strategic and targeted approach to buyer outreach. The targeted nature of this approach helps prioritize confidentiality, a crucial element in a successful sale process. Further, investment bankers guide a competitve auction, forcing buyers to provide value indications as opposed to offering a list price. Competitive tension drives value.
Another important factor is timing: time kills deals, and the efficient and proactive nature of a process run by investment bankers and M&A advisors gives your transaction a better chance of success. Qualified investment bankers and M&A advisors know how to enter the market with the advance preparation and strategy required to maximize the success of your transaction.
Market Knowledge
Investment bankers and M&A advisors are in tune with market trends, macroeconomic factors, industry dynamics, valuation trends and drivers, potential tax impacts and other factors that influence the sale of your company. Business brokers tend to be limited when it comes to industry specialization and advanced knowledge of the market, valuation drivers, macroeconomic trends and tax-related factors. In contrast, investment banks tend to bring deep industry expertise that can directly impact the terms of a transaction.
Valuation Methods
Business brokers specialize in valuing companies that are relatively simple and straightforward to value and their valuation methods generally rely only on components such as current location and basic financial metrics like sales and profit.
For companies that are more complex to value, investment bankers and M&A advisors are skilled at using valuation methods which can factor in metrics beyond the basic financial metrics. These factors include intellectual property, future potential growth, value drivers that may appeal to specific strategic buyers and other valuation methods.
Investment bankers and M&A advisors can tell your company’s story in a much more holistic manner so that buyers understand the true value of acquiring your company.
Relationship
Your relationship with a business broker will likely begin and end with the sale process. In contrast, your relationship with an investment banker or M&A advisor will be a long-term relationship focused on providing strategic advisory and accomplishing your unique goals beyond the sale process. A relationship with a trusted M&A advisor will be more active, consultative, strategic and driven by giving you the right advice.
Licensure & Qualifications
Business brokers are less likely to be licensed with FINRA than investment bankers and M&A advisors. While FINRA licensure may not be required to complete your transaction, working with a licensed and registered investment banker can protect you and your company from risks associated with the sale of your company.
Finding the Right Advisor to Sell Your Company
When you’re ready to sell your company, give your company the best chance of success by working with a trusted investment banker.
Bridgepoint would appreciate the opportunity to find the right buyer for your founder-owned company, maximize your proceeds and carry on your company’s legacy.
Explore your options by contacting us today.
Not sure if you are ready to sell? Check out our complimentary guide to exit alternatives and other ways to gain personal liquidity without selling your company.
Why It’s More Important Than Ever for Companies to Have Strong Financial Leadership
October 2022 CEO Minute by Matt Plooster, CEO—CEOs have always relied on the strength of their financial teams. And in these times of market tightening due to a confluence of disruptions, the ability to fund and forecast your company is critically dependent upon not only having a solid grasp of financials, but the finance function as a whole. CEOs should view their internal accounting and finance departments as value creators versus just an overhead cost center.
The quality of your financial reporting directly impacts your capacity to pay back debt or provide a return to investors. Private equity firms, private debt funds and family offices – the people who we interact with on behalf of our clients – base their investments on the operational expertise of financial leadership and verifiable reports of real growth and real profitability.
The primary reason we see deals fall apart is due to poor financial controls and unreliable reporting methods. Another common reason is the financial team lacks a true understanding of how the business works in terms of debt and leverage. Even if a deal does manage to go through in these situations, the cost to your company could be in the tens of millions.
For example, the average business sells for approximately 10x EBITDA. Let’s say the CFO miscalculates payroll by $200K. The impact on enterprise value (the selling price) will be 10x that amount, and ownership will lose $2M on the deal. This is a conservative example reflecting a small miscalculation – the stakes are often much higher.
So what should you look for when hiring a CFO? If your company is valued at $25M or more, it’s important to choose someone with public company experience, preferably in your sector of industry. Public companies are held to a higher standard of internal controls and are experienced in MDNA (management discussion and analysis).
A CFO with public company expertise also increases the likelihood that he or she knows how to interact with institutional partners, capital providers and/or an investment bank. This experience enables the CFO to bring more options to the table for your board and ownership to consider – and it helps to expedite any deals you may want to pursue. Conversely, having an inadequate CFO can delay a transaction indefinitely.
Remember that successful CFOs and accounting teams do not work in Excel or QuickBooks. They take a more comprehensive approach and have a role in overall business operations. This integration allows them to see the full financial picture, explain the strategy behind decisions, forecast what’s ahead and understand what levers your management team can pull to meet company goals.
A typical transaction can take six to nine months to complete, during which potential buyers will evaluate a company’s ability to accurately forecast, meet projections and manage through obstacles. This is especially true in a highly dynamic market and business environment. Regardless of a transaction, we advise companies to spend the resources to install KPI tracking systems to feed a detailed financial projection that utilizes a bottom up or top down approach.
In this era of “high data,” it all comes down to your financial team’s grasp of information. All financial recordings must be supported by trackable, historical and statistical evidence. This means investing in the right software for your sector, be it ERP (enterprise resource planning) or CRM (customer relationship management). Your team needs access to the most credible data and functionalities for executing strategy and developing accurate financial records. And it’s what potential investors demand.
Here’s the reality of what the right system can mean for your company. A client we are currently working with invested in a sophisticated ERP system. At the time it was a financial stretch that required him to take out a $17,000 loan, but as we get ready to sell his company, we estimate that this ERP system accounted for $25M of the $40M value he realized. His foresight and investment more than paid off.
Being in a strong financial position doesn’t begin and end with an impressive CFO or the right system. It involves having a broader team in place that provides your company with outside checks and balances. This means building trusted relationships with your banker, an attorney who is experienced in transactions, and an investment banker who understands your capital structure and has a full suite of services to handle any situation that empowers you to meet your goals.
Bottom line, it’s not just “you get what you pay for.” It could be you get back 10x what you pay for – and I’d say that’s a pretty good investment.
Maximizing Value: 14 Tips to Get Top Dollar for Your Distribution Company
As one of the many industries experiencing intense fragmentation, the demand for distribution companies is on the rise among strategic and financial buyers.
If you’ve built a successful distribution company and you’re considering an exit, now may be the perfect time to sell: both financial and strategic buyers have pent-up demand for M&A after deals stalled during the COVID-19 pandemic, strategic buyers are especially well-capitalized heading into a potential recession and are positioned to pay top dollar to acquire firms that are complementary and offer opportunity for cost synergies. Distribution focused models remain a favorite of financial buyers (such as private equity firms) who are eager to deploy uninvested capital that accumulated during the pandemic (also known as “dry powder”).
If you are exploring the sale of your distribution company, it is important to understand the specific factors that drive value among the buyer universe. Below, we have identified 14 value drivers for you to focus on.
To learn more about these value drivers and discuss your options for an exit, contact our distribution M&A experts here.
Financial Value Drivers for Distribution Companies
EBITDA: Buyers generally like and value the distribution business model. They tend to look for opportunities with the potential to scale and they tend to aggressively seek targets with more than $4mm of EBITDA. Generally, higher levels of EBITDA present opportunities for scale and growth, which often contribute to higher valuation multiples.
Margin, Margin, Margin: Buyers will focus on both gross- and EBITDA margin to gain comfort with the business model and opportunity for growth. EBITDA margins in excess of 10% indicate “value-add” and will differentiate your company in the marketplace.
Product-Level Margin & Historical/Projected Trend: Buyers will do a deep dive into product-level performance and will seek to understand historical and projected gross margin by product. Are margins eroding? Are there opportunities for margin expansion? How does anticipated margin drive a shift in product mix? Are there new products you could bring on to drive margin improvement? Is a disproportionate percentage of revenue tied to one product or a select few?
Other Characteristics That Maximize the Value of Distributors
Established Supply Chain: Buyers will seek out distribution platforms with an established and efficient supply chain with the ability to meet customer demands. Sole sourced suppliers in China or other politically-volatile countries will be diligenced heavily.
End-Market Opportunity: How large is the end market you are serving? Is the end market growing? Are there opportunities to expand the end market through the addition of new products or services?
Value-Added Offering: When evaluating a distributor, buyers will seek to understand the opportunities to maximize profitability and customer retention through value-added ancillary services. Do you provide additional services to improve profitability and retention? Can you introduce value-added offerings to improve customer relationships? Do you have a service component to your business that requires additional follow-up? Can you leverage technology to maximize efficiency and customer experience?
Product Diversity: Does your company offer a broad range of products with multiple SKU options? Are sales concentrated into one product or product category? Diversification helps potential buyers feel confident in the sustainability of cash flow, therefore product diversification is critical to maximizing value.
Customer Diversity: Buyers will want to see low customer concentration – if any customer contributes more than 15% of total revenue, buyers will want to understand the potential switching risk and sustainability of that customers revenue stream.
Opportunities to Add New Products/Services: Can your company easily add new complementary products or services to fortify the offering? Has your company identified acquisition opportunities or roll-up opportunities in the sector? Have you successfully acquired a company in the past?
Recurring Revenue: Buyers seek out revenue streams that are recurring and frequent in nature. Do you offer consumable products that need to be replaced? Can you offer subscription-based models to drive predictability of revenue? Recurring and re-occuring revenue streams are a highly sought after component and can translate to valuation premiums.
Management: The quality of your management team will be a critical component in the final valuation of your business. Does your company have an established and experienced management team? Is the second layer of management qualified and prepared to take the company forward? If the company’s ownership is looking to exit and/or retire, have you developed a team to drive performance in the future? How are those managers incented and have you established long-term alignment with your growth objectives?
Size & Infrastructure of Sales Force: Buyers will seek out companies with a large and effective sales team. Is your sales team stretched too thin? Are metrics in place to measure performance? Do you manage your sales team to a set of KPIs designed to produce growth? Do you compensate them appropriately to drive growth and performance?
Availability of Data: Buyers will look to “dive in” on product-level trends and performance. Understanding price and volume trends as well as profitability by product will be instrumental during valuation discussions. Do you have a CRM in place? What technology are you utilizing to help drive data availability and growth?
Working Capital: Buyers of distribution assets will require a base of working capital to be left in the business. Inventory planning is critical when considering a sale and a lack of inventory can negatively impact your final valuation. Working capital is often overlooked by Sellers who focus solely on headline purchase price. In many cases buyers will utilize the net working capital adjustment to extract additional value and most sellers are unaware or uneducated on the process.
Curious about the M&A market for your distribution company? If you aren’t looking to sell, but would rather stay with the business and grow it, are you aware of the capital options that can help you achieve your goals?
Contact us today to schedule a complimentary consultation with our distribution experts. Bridgepoint has valuable experience helping distribution companies and value-added distributors find the right buyer or growth capital partner so you can grow or sell your business with confidence.
The Importance – and Sudden Scarcity – of Independent and Unconflicted Advice
December 2022 CEO Minute by Matt Plooster, CEO—Independent investment banks have become a rarity these days.
Many have been acquired by financial institutions, CPA firms and wealth advisors. In other cases, corporations like these have started their own investment banking divisions as a way to increase profitability and expand their product lines for cross-selling to customers. Meanwhile the old-school, high-profile bulge bracket investment banks remain less entrepreneurial and flexible, and more like utilities than trusted advisors in today’s market.
The upshot of these industry trends is that it has become very difficult to find independent and unconflicted advice. And in the dynamic market we are now in, the value of independent and unconflicted advice has never been higher. Company stakeholders looking to raise capital or undergo M&A activity often end up with advisors who are more beholden to the bottom line of a large institution or private equity firm than to the outcome of their transaction. Without governance over the integrity of advice, the stakeholders can lose tens of millions in the deal and not even know it.
Full disclosure: As CEO of Bridgepoint, one of the remaining independent boutique investment banks in the nation, I have strong opinions on this topic. Our team remains passionate about our core values. Providing unconflicted advice, the right advice. Having checks and balances around the deal table. All for the ultimate good of the client. Every transaction we conduct includes other advisors who also are independent (legal counsel, CPAs, wealth managers, etc.). Beyond that deal, we are not contracted or obligated to work with any of these entities, so their profits are never our concern. Our sole focus is giving our clients the right advice that will result in the best transaction for them, and them alone.
I think this gives us a unique perspective on what questions private company founders should ask when seeking a truly independent and unconflicted investment bank.
Find out how much of the investment bank’s experience is conflicted by working for private equity firms (the likely counterparty in your deal) versus working for private companies.
Ask the advisor who makes the ultimate decisions for their investment bank, and how they think about providing advice.
Inquire about service line depth and experience to confirm its legitimacy as an investment bank.
See if there’s a culture of turnover or one of retention by asking how long the team has worked together and how many deals they’ve done collectively.
The answers to these questions matter, and here’s why: Private company owners have one chance to sell their company and achieve their monetary goals. The outcome of that transaction will shape their financial futures, probably for generations to come, as well as the legacy of their company and its people. They deserve a client-focused partner who shares their values and has their best interests in mind. On the other hand, if their advisor is conflicted and tied into a large financial institution or private equity firm, that advisor isn’t going to negotiate against his or her interests with your counterparty or teammates providing other services. But an independent and unconflicted investment bank like Bridgepoint will – and we’ll push hard to increase the valuation by a significant amount, which can mean millions of incremental dollars, cash in hand, for the ownership of your company.
While the industry trend has been toward acquisition and consolidation, I still believe independent investment banks are the future – growth and market share will inevitably flow to investment banks who aren’t beholden to conflicting forces, but can be trusted to add value.
Is Staple Financing the Answer for Sellers in a Disrupted M&A Market?
January 2023 CEO Minute by Matt Plooster, CEO—The disruption of the credit markets in the second half of 2022 directly impacted many M&A deals – causing several company owners to lose material personal wealth in lost valuation, or to lose their deal altogether.
Many deals fell apart completely and were put on hold due to credit market disruption. Buyers – particularly private equity firms – often used this credit market dislocation in their favor to extend closing diligence, reduce both purchase price and cash at close.
There is a differentiator in our transaction process, however. Buyers do not need to hold this power over the sellers. The lack of available financing for the seller can be mitigated. And it is where unique M&A advisors with leverage experience and deep lending relationships, like Bridgepoint, can help clients avoid broken processes with staple financing for their M&A transactions. Interestingly, it is a service most boutique investment banks do not offer to their clients in the middle market. However, it is something we see as a critical step in the transaction process, and one that allows us to increase certainly to close, accelerates timelines and drives valuation for our clients.
Here is how it works: Our role as investment bankers is to source prearranged financing packages from several competitive lending sources on behalf of our client who wants to sell his or her company. The most favorable staple financing packages are then offered to prospective buyers to complete their acquisition bid and structures. This arrangement can help facilitate the completion of the deal, increase valuation and benefits both the buyer and seller.
To start, staple financing can accelerate the transaction process. Before the bid deadline, select lenders will review the acquisition opportunity and submit, to the investment bank, leverage terms they are comfortable with funding at close with a potential buyer. The most favorable terms will be presented by the investment bank to the potential buyers who indicate that they will be submitting an initial acquisition bid. Connecting lenders who have performed diligence on the opportunity with potential buyers will accelerate the closing process and significantly reduce financing risk, thus increasing the certainty to close.
Perhaps the most attractive aspect of staple financing for sellers is that it can help maximize the purchase price. Staple financing removes an element of risk for potential buyers and promotes competitive bidding. This competition will drive increased valuation for our clients resulting in substantially more net proceeds at close. Buyers are able to further maximize the valuation by contributing equity in addition to the staple financing bid while achieving their targeted returns.
Staple financing has proved to be a win-win for the buyer, who can complete the deal, and the seller, who can increase their bottom line from the sale. From our perspective as the investment bank that facilitated the deal, this is extremely rewarding. Bridgepoint has the unique ability to understand and source available debt structures during complex M&A market conditions. Our deep connectivity with lenders, ability to structure complex transactions, and Wall-Street-quality-process are all competitive advantages for our clients as they seek to monetize their life’s work and create generational wealth for their family. In the end, it’s a win-win all around.
Staple financing. Don’t do any M&A deal in today’s market without it.
Private Capital Expands the Financial Solution Set and Options for Private Companies
May 2023 CEO Minute by Matt Plooster, CEO—
Raising capital has always been a crucial, but often difficult process for private companies. Historically, there have been two main options for companies looking to raise capital. The first is to use debt capital or commercial lending capital through banks. While it can certainly be the right method in many contexts, banks tend to be very conservative with their lending policies – and rightfully so given their return expectations. They generally want to give out as much they can get back safely and quickly. For private companies looking to acquire larger amounts of capital to fund operations or growth, acquisition, shareholder liquidity or other initiatives, traditional bank lending options may not completely satisfy their needs.
The alternative to bank lending in the lower and middle market historically has been private equity, where funds pay to buy equity in a company, typically with an expectation of a 30% annual return or more. While this can provide a larger infusion of capital relative to what a traditional bank may offer, it also usually results in the company’s existing ownership losing at least some control over their company.
Banks and private equity sit at the opposite ends of a large spectrum of ways in which business owners can raise capital for their company. Private capital exists to fill that middle ground. While it is similar to private equity in that private funds or institutions provide capital to businesses to fund growth and operations, private capital can allow companies to acquire funding amounts in excess of capital available from the bank universe without relinquishing any control, something we often call “non-dilutive capital.”
The availability of private capital has grown as the capital ecosystem has become more efficient over time. Now, what I call Main Street companies – successful private companies that are smaller than, for example, the Fortune 500 companies of the world – can access the same 5 to 20% capital those large private and public companies have always had. Simply put, private capital expands the financial solution set and options for private company owners.
This is especially useful right now, when we’re at a place in the financial cycle where there’s lots of talk and fear about recession, and public markets have been less predictable. This has led banks to actively limit their exposure by lending less, since they are beholden to regulations that force them to be very safe regarding the risk they take on. On the private capital side, private investors are seeking out new channels for investment beyond the public markets, and are able to price risk at any rate they want. That opens up unique opportunities for private companies to take on more capital and/or use capital for less traditional objectives than banks typically prefer.
From our perspective as investment bankers, the increasing efficiency and prevalence of the private capital ecosystem is exciting, as it provides us with even more ways to help our clients achieve their goals. If a client tells us, “I’ve been doing this for 30 years. I’ve been personally guaranteed. I’ve never been able to save any money because it all goes back into the business. I don’t want to sell the business. I’d love to keep it and keep the people that I love and care about and keep working towards our mission,” private capital may be the best way to help the business grow while not diluting the ownership’s ability to control the direction of the company. We’re able to work with a wider set of solutions to help our clients achieve goals like this.
Private capital can eliminate personal guarantees for private owners, limit amortization, and provide more capital to accomplish things that banks generally don’t support and private equity holders might push back against. It’s an option that has existed for the largest public companies for decades, but is now becoming more available to those private, Main Street companies.
The most important thing for private company owners is to know their options. That can mean working with an investment bank, like Bridgepoint, that can listen to your wants and needs and provide various options to accomplish specific goals that are tailor-made for your company. If a client tells us they want to sell their family business, we can take a step back and figure out if that’s what they actually want to do or if they think that’s the only option they have to achieve personal liquidity. We’ll listen, learn and work together in order to find the ideal solution that fits your goals. That’s what we do best and it’s an extremely rewarding part of our process.