M&A/FAQ’s 2013


Frequently Asked Questions

When is the best time to sell, merge or recapitalize a premier private company?
What are the principal benefits that flow from a timely sale of a premier private business today?
Why would an acquirer be interested in my business today?
Can I get a premium value for my business?
What about my management team and employees?
Aren’t sale and recapitalization transactions for extremely large or publicly listed companies?
Is there a difference between a “purchase”, “sale” or “acquisition” of a business? Should I be thinking about selling stock or selling assets? What’s a “recapitalization”?
What about foreign acquirers?
How would I go about valuing my company today?
What can Etkin & Company do for me?


When is the best time to sell, merge or recapitalize a premier private company?

The best time to sell, merge or recapitalize any company is when business is good, profits are rising, a solid management organization is in place and future prospects are bright and exciting. That is when the business will be most attractive and appealing to prospective acquirers, and when its owners are in the best position to maximize their value and opportunity.

Very fortunate is the owner whose company enjoys these attributes when the M&A market is robust and the best capitalized and most experienced acquirers are actively seeking to acquire premier businesses. Wise is the owner who considers leveraging these powerful forces by entering the M&A marketplace when they are aligned, as they are today.

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What are the principal benefits that flow from a timely sale of a premier private business today?

Owners, management and employees and the business itself  all benefit from a properly timed and executed sale or recapitalization transaction.

Owners realize the benefit of increased liquidity; the opportunity to diversify assets and reduce or eliminate personal risk and exposure to investment in a disproportionately large singe asset; the opportunity to thoughtfully plan one’s estate and provide for heirs not in the business; the opportunity to save on taxes; the opportunity to direct the transition of company ownership and the luxury of additional free time to spend on other personal, business and non-business interests, among other benefits.

Management and employees realize greater opportunities for advancement in a larger, global organization: increased wealth through direct stock ownership; participation in enhanced incentive and equity option plans; increased financial security and elimination of the risk inherent in concentrated family ownership of a substantial business entity and the uncertainty that inevitably follows the unexpected death or disability of a founding entrepreneur or principal owner, among other benefits.  

The business benefits from access to new products and cutting edge technologies, expanded global markets and channels of distribution, institutional growth capital to facilitate the construction of new plants, fund strategic acquisitions in the U.S. and abroad and accelerate growth and expansion, among the many other benefits previously enumerated in our research report. 

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Why would an acquirer be interested in my business today?

To strategic acquirers, your company may represent an exciting opportunity to improve global competitiveness; strengthen, expand and leverage existing core business operations; add experienced, entrepreneurial management teams, proprietary technologies and niche product and services; move into a higher growth business; enter new markets and territories, expand product lines; access new distribution channels; add brand names and introduce compelling new platforms for growth into the future.

To financial acquirers, your company could represent an opportunity to put fresh capital to work in a business with a history of profitability and success, supported by an experienced, entrepreneurial management team with a personal economic interest in its future success. Private equity and hedge fund partnerships currently have over $1 trillion of equity capital (enough capital to conclude over $3 trillion of deals) sitting idle that must either be invested or returned to investors. With so much capital on the sidelines many financial acquirers are ignoring traditional valuation norms and paying super premium values for the best private businesses with the strongest management teams and the most exciting prospects for the future.

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Can I get a premium value for my business?

That depends upon the particular attributes of your business and the decisions you make.

For owners of premier private companies whose businesses enjoy the attributes that make a company appealing today the answer is most definitively “yes.” Why? Because fierce competition among strategic and financial acquirers today for the best businesses and opportunities is propelling valuations higher and creating ‘perfect storm’ conditions for owners of premier businesses.

In fact, competition is so fierce today that median EBITDA multiples for privately-held business valued between $100 million and $500 million – Etkin & Company’s typical client size – are increasing to their highest levels in years, as reflected in the following illustration:

And Etkin & Company expects this momentum to continue into 2014.

Sound planning, careful timing and professional, entrepreneurial transaction execution remain the keys to driving opportunity, benefit and, ultimately, value in any M&A transaction. Unfortunately, according to a recent study less than 25% of all owners take full advantage of what is oftentimes a once-in-a-lifetime value creating opportunity – the sale, merger or recapitalization of their private company. Don’t let that happen to you.

Selling or Recapitalizing a Premier Private Company in 2013, Etkin & Company’s research report (available on our website or in hard copy by calling Allyson at 212.888.7500) discusses the forces driving today’s robust M&A market, the attributes that make a company maximally attractive today, the benefits and opportunities that flow from transacting when strong operating performance coincides with strong M&A market activity and the critical importance of passionate, professional transaction execution.

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What about my management team and employees?

Experienced acquirers know that the management and employees of a premier business are among its most valuable assets, if not its very most valuable asset. In fact, most sophisticated acquirers will not consider a transaction unless the existing management team is committed to remaining in place and continuing to grow the business following the transaction. As a result, managers and key employees typically realize many personal and professional benefits from a successful sale or recapitalization transaction, including direct financial ownership and significant performance incentives that can greatly increase their personal wealth and expanded opportunities for professional advancement as a key component of a more global organization.

Worthy of note is the fact the more appealing the business opportunity and the more robust the M&A marketplace, the better the deal that can be developed for managers, employees and, in the case of a recapitalization, continuing shareholders going forward.

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Aren’t sale and recapitalization transactions for extremely large or publicly listed companies?

No. In fact, successful, middle-market businesses are particularly attractive because they typically provide access to experienced, entrepreneurial management teams, and desirable niche markets, products and services. In addition, private transactions can be completed more quickly, efficiently and with greater confidentiality than public transactions and with the vastly reduced legal and regulatory requirements.

As a result, and contrary to a misconception that sale and recapitalization transactions are only suitable for publicly listed companies or extremely large private enterprises, the vast majority of transactions occurring today are valued between $100 million and $500 million, as illustrated below:

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Is there a difference between a “purchase”, “sale” or “acquisition” of a business? Should I be thinking about selling stock or selling assets? What’s a “recapitalization”? 

The terms “purchase,” “sale,” and “acquisition” are often used interchangeably to describe a variety of different transactions through which a business is sold. Assuming that the business being sold is a corporation, two basic transactions can occur: a purchase and sale of assets or a purchase and sale of stock.

Stock v. Asset Sale: A purchase of stock typically involves the acquisition of a corporation’s stock directly from its shareholders. In a purchase of stock, the acquirer steps directly into the shoes of the seller and takes on all of the acquired company’s assets, and assumes all of its known, and absent more, its unknown liabilities as well. The acquirer can either maintain the acquired corporation as a wholly owned subsidiary, or it can effect a merger or consolidation. In the case of a merger, the former corporation would cease to exist, and the latter’s corporate existence would continue as the surviving entity. In the case of a consolidation, the two individual corporations would cease to exist and a new consolidated corporation would emerge.

In a sale of assets, the corporation typically sells substantially all of its operating assets to an acquirer, without transferring ownership of the actual corporation. The acquirer will typically also assume the selling companies operating liabilities, and, depending on the circumstances may, or may not, assume certain known or unknown liabilities and operating or other debt. An asset sale usually requires approval of the corporation’s shareholders, and is typically followed by the dissolution of the corporation and a distribution of remaining assets, including the proceeds of the asset sale, directly to the shareholders.

Owners typically prefer to sell stock for the tax benefits they realize and because corporate liabilities will have been transferred to the acquirer, subject to the terms of the stock purchase agreement. .Acquirers usually prefer to acquire assets for the attendant cash flow and tax benefits that result from increased depreciation and amortization expenses, and because it provides a line of defense against responsibility for unknown, continuing or contingent liabilities.

But every transaction is different, and one parties benefit could lead to the other’s detriment, which is why competition among acquirers, an experienced banker and a carefully planned and executed transaction process are the keys to driving the most successful outcome.

Financial Acquirer Recapitalizations: A recapitalization is a type of transaction that is frequently desirable where current ownership wishes to sell in order to achieve all of the many benefits of a successful sale transaction, but where current ownership also seeks to remain involved in the business and maintain and/or have his management team maintain a sizable, sometimes controlling, stake in the business going forward. Recapitalizations also present a great mechanism for owners who wish to bring top and middle management into company ownership at a very favorable valuation.

Recapitalizations are usually undertaken with a private equity firm, hedge fund or other type of financial sponsor that contributes equity and debt, or contributes equity and arranges for a lender or lenders to provide debt to the recapitalized entity. Recapitalizations can be developed and structured in an unlimited number of ways to suit the unique needs and wishes of the business owner.

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What about foreign acquirers?

Today’s low interest rates and low foreign exchange value of the dollar are combining with the need to have a relevant operating presence in the U.S. and the fear of losing out on the best and most compelling strategic opportunities in an active U.S. market to attract foreign strategic acquirers back to the U.S. M&A market in unprecedented numbers. Foreign acquirers typically pay premium values to acquire premier private businesses with experienced, entrepreneurial management teams that will provide a solid foundation and springboard for growth in U.S. and North American markets.

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How would I go about valuing my company today?

Valuing a premier private business is a highly subjective undertaking.

Unlike in the public company context where there may be thousands or tens of thousands of buyers standing at the ready to buy or sell, no such market exists for a private company. There is no mathematical calculation or business valuation model, or combination of calculations and models that can begin to account for the unique, often intangible value that a great company will represent to the right strategic or financial acquirer.

For all of these reasons it is not unusual for enterprise valuations developed by different acquirers to vary by more than 100%.

And that’s where the opportunity lies.

Identifying the strongest potential acquirers, correctly assessing the value and relevance of the business to each acquirer and thereafter demonstrating to each acquirer why the opportunity justifies a record setting value are the keys to driving value, opportunity and results for the seller.

That’s where Etkin & Company comes in.

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What can Etkin & Company do for me?

Etkin & Company has been developing, executing and concluding successful sale, merger and recapitalization transactions for owners of premier private companies since 1987. Over the last 25 years we have generated industry-record valuations and created billions of dollars of value and liquid wealth for owners of many of America’s leading and most respected private companies.

Our unique approach to creating value combines a comprehensive understanding of each client’s business and goals with extensive transaction and tactical expertise, unparalleled personal engagement and proactive, professional execution to deliver results that routinely exceed client expectations.  Former clients routinely attribute the success of their transaction to Etkin & Company’s strategic, entrepreneurial thinking, tactical expertise, personal engagement and proactive, professional execution.

Etkin & Company would be happy to provide you with a confidential, professional assessment of the value of your company and its prospects in today’s M&A marketplace without cost or commitment of any kind. We’ve been providing this service to owners of premier privately held companies since we opened our doors for business. Call Bill Etkin on his direct line: (212) 888-7812 or email him at betkin@etkincompany.com to get the conversation started.

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