There are four primary ways middle-market companies are valued:

(1) comparable companies analysis, which uses stock trading prices for public companies discounted for the size of the selling company;

(2) discount cash flow (DCF) analysis based on projections,

(3) asset-based valuation based on book-value, and

(4) precedent transactions for the multiple of earnings method

It the most prominent valuation methodology is the multiple of earnings method, where earnings is defined as EBITDA.

So what is EBITDA? Earnings Before Interest, Taxes, Depreciation, and Amortization

Most M&A deals are priced on a cash-free, debt-free basis. What does that mean?

That means that the purchase price is determined on the basis that the target company will be delivered without cash or debt on its balance sheet.

Under generally accepted accounting principles or GAAP, working capital is defined as the difference between a company's current assets and current liabilities.

It represents the short-term liquidity available to a business and is a measure of its ability to cover its short-term obligations.

One thing for sellers to understand is that that they generally will not receive the top-line purchase price at closing.

So, what usually comes off the so-called closing waterfall before the balance is sent to the seller:

Debt, whether assumed or paid off (remember, the purchase price was likely calculated on debt-free basis.

Strategic buyers like competitors are often great fits, as they are often willing to pay a premium for synergies between the current business and yours and because they perceive less risk in a familiar industry.

As current industry participants, they can have the capital, infrastructure, and experience to fuel post-closing growth, retain your employees, and safeguard your legacy

Selling a construction business involves several unique considerations due to the industry’s specific characteristics, such as project-based work, cyclicality, and heavy reliance on skilled labor and client relationships. An M&A advisory firm like Sierra Pacific Partners can help get your transaction to closing.

Selling a manufacturing business in a merger and acquisition (M&A) context involves several unique factors that reflect the specific operational, financial, and market dynamics of the manufacturing sector.

Selling a trucking and logistics business in a merger and acquisition (M&A) context presents unique considerations linked to the industry's operational characteristics, regulatory environment, and market dynamics. 

Selling an HVAC business involves unique considerations due to the specialized nature of the industry and the technical expertise required. 

Selling a distribution business involves a unique set of considerations due to the operational complexities, market dynamics, and relationships with suppliers and customers that characterize the industry.

Selling a materials business, which may involve the production, processing, and distribution of raw materials or finished goods, requires careful consideration of several unique factors.

The first step in any sell-side M&A engagement is clearly understanding our client’s goals.

What type of transaction is the seller seeking? For example, a sale of the entire business to an unaffiliated third-party, a recapitalization, an intrafamily transfer, or something else?

Before embarking on an M&A process, many sellers think an investment banker or M&A advisor’s primary role is to find a buyer.

In fact, post-closing surveys of sellers repeatedly show the opposite-- that sellers view buyer sourcing as the least important part of what advisors do.

There are a number of ways to sell a company depending on client goals and circumstances.

At one of the spectrum is the negotiated sale. In a negotiated sale, the seller and its banker negotiate with one suitor. It’s a one-on-one process.

Both prior to and following engagement, we’ll need information from the seller to assist with valuation, marketing, and diligence.

Once engaged, Sierra Pacific Partners conducts a market study using proprietary databases to assess the company’s value, determine active buyers in the industry, and talk to those buyers to uncover how they view and weigh various value drivers.

We use the information gleaned from the company and the market study to prepare marketing materials to position the company, tell its story, and address issues up front where appropriate.

In some instances, we work to obtain a pre-arranged financing package for potential buyers.

A limited auction targets a group of around 50-100 potential buyers (typically around 50) on a confidential basis, and usually involves controlled bidding involving specific stages and timelines designed to create competition and move the process forward.

With the buyer list in hand and cleared by the client, it’s time to go live with the process.

If overall interest from buyers in a transaction is high, we utilize a two-stage bid process, beginning with a deadline for submitting indications of interest (IOIs).

The bid-process instructions provided to buyers will set a deadline for them to submit letters of intent (LOIs)

With an LOI partner chosen, negotiations then take place to finalize the terms of the transaction while buyer diligence continues.

Once terms are agreed upon, the purchase and other definitive transaction documents are signed.

Selling a business can be a complex and time-consuming process. Proper preparation will make your business more attractive to potential buyers and maximize its value. Here are some steps to help you prepare your business for sale

Letters of Intent (LOIs) are important in M&A transactions for several reasons:

The due diligence process in a small M&A transaction involves a thorough investigation and review of the target company's business, financials, operations, legal, and regulatory compliance.

The goal is to identify potential risks, liabilities , and opportunities associated with the transaction. While the process can vary depending on the size and complexity of the deal, it generally consists of several key steps:

Some common deal killers include:

• Valuation disagreements:

• Due diligence issues: things like financial discrepancies,

legal problems, operational challenges, or undisclosed liabilities. Significant concerns can cause a buyer to renegotiate the deal terms or walk away altogether

As with most things in life, the best time to sell your business is when you don’t have to. Being forced to sell at the wrong time means not realizing the best purchase price, while selling on your own timing can set you up for a retirement enjoying the things you love with the people you love.