SPOTLIGHT: BANKING/ “Being a business appraiser, we can’t operate in a
vacuum. We have to utilize what we know, but also
what we don’t know. And what we don’t know, we
need to get assistance.” – Michael Saccomanno, partner, Friedman LLP
By the numbers
sale price 79
In selling a business, rms seek validity Closed business sale
BY KEN TARBOUS transactions
usiness valuations often are the ﬁrst step in the process of
selling a company, and according to one business appraiser,
there’s been an evolution in the client base hiring ﬁrms to
ﬁnd out what companies are worth.
“Traditionally, we would get engaged by mergers-and-acquisi-
tions ﬁrms, and now, moreso, we’re getting approached by sellers
and buyers that are trying to either sell their business or looking for
a better opportunity to buy a business,” said Michael Saccomanno,
a partner at Friedman LLP who values small to midsize companies.
Many aspects of the valuation process help owners become
more prepared for a sale, but because the entire process can take
months, or even years — from thinking about selling a business to Average percentage
closing a transaction — starting the planning sooner, rather than
later, is money well spent, said Thomas W. Farrell, a ﬁnancial ad-
of owners’ asking
viser at RegentAtlantic Capital LLC, in Morristown, who helps price paid by
companies sell their businesses. business buyers
“As a seller, you’re going to have an asking price, so if you’re
dealing with one or multiple buyers, you want to be able to justify
your sales price — and to be able to do that, you need to have done
all the due diligence up front,” Farrell said.
And engaging the right team of professionals, such as attor-
neys and accountants, for example, helps ensure the company’s re-
cords and documents, like contracts and leases, are in proper order,
> See SALE on page 16
Average times revenue
paid by business
Times cash ﬂow that
business buyers paid
When dealing with multiple
buyers, sellers need to be
able to show a justi cation
of their sale price, says Thomas All numbers re ect rst-quarter 2012 transac-
W. Farrell, nancial adviser at tions in New Jersey reported by participating
RegentAtlantic Capital LLC. Source: BizBuySell.com
www.njbiz.com NJBIZ June 11, 2012 15
Valuations not meeting owners’ high expectations
BY KEN TARBOUS everybody thinks that they can just go in seen a change in the attitudes of owners dles per year.
n the days before the most recent re- and buy a business for a discount. They who want to sell their businesses. Saccomanno said expectations rather
cession, owners found themselves want to do a ﬁre sale, similar to the real es- “I think everybody out in the market than the reality of a business’ value can
ﬂush with high valuations of their tate market,” said Michael Saccomanno, recognizes it’s not going to go back to the cause problems for ﬁnancing a sale.
businesses, but in the 2012 marketplace, a partner at accounting ﬁrm Friedman crazy days of 2007,” Neumann said. “You can have a buyer and a seller ne-
companies aren’t fetching what they used LLP, who does business evaluations for Neumann said that he only sees sig- gotiate the purchase price, and then go to
to, according to a business appraiser who both buyers and sellers. niﬁcant disagreement between the owner’s the bank for ﬁnancing, and the ﬁnancing
works with small- to middle-market com- Achim Neumann, president of Atlan- expectations and the established fair mar- doesn’t come through,” Saccomanno said.
panies across many industries. tic Highlands-based business brokerage A. ket valuation in less than 5 percent of the E-mail to: firstname.lastname@example.org
“The buy-side is interesting, because Neumann & Associates LLC, said he has approximately 50 business sales he han- On Twitter: @KenTarbous
GROW. WISELY. Achim Neumann, president of
A. Neumann & Associates LLC, says
the preparatory period would reveal any
obstacles to the valuation process.
> Continued from page 15
Everyone wants to grow. But grow how? In which
Having those experts on board, who
markets? At what cost? To grow wisely, you need an know the details of a business, provides re-
sources for the outside consultants doing
advisor who really knows your business...and knows the valuations, said Saccomanno, who is
based in his ﬁrm’s Marlton ofﬁce.
you. Who can deliver tailored solutions that create “Being a business appraiser, we can’t
operate in a vacuum. We have to utilize
opportunities, maximize efﬁciency and build business. what we know, but also what we don’t
know. And what we don’t know, we need
EisnerAmper is that advisor. We roll up our sleeves Charles Weinstein to get assistance,” Saccomanno said.
Chief Executive Ofﬁcer The preparation phase can also ex-
pose a company’s weaknesses early in the
to get to the bottom of your toughest challenges so 212.949.8700
process, so they can be dealt with, said
Achim Neumann, president of Atlantic
you get the advice and strategies you need to create Highlands-based business brokerage A.
Neumann & Associates LLC.
sustainable growth. Chairman
“The preparatory time period serves
the purpose to discover red ﬂags that ulti-
Let’s get down to business. mately the buyer is going to see,” said Neu-
mann, who specializes in middle-market
mergers and acquisitions. “These are ulti-
EisnerAmper LLP mately all tumbling spots an owner’s going
Accountants & Advisors to trip over in any type of deal.”
Neumann said he discovers obstacles
Independent Member of PKF International doing two types of valuations:
A strategic valuation determines a fair
market value and establishes the key driv-
ers of the company’s value, even though
the owner has no immediate intent of sell-
NEW YORK | NEW JERSEY | PENNSYLVANIA | CALIFORNIA | CAYMAN ISLANDS ing the company, Neumann said. A trans-
actional valuation is done when an owner
> See SALE on page 18
16 June 11, 2012 NJBIZ www.njbiz.com
After-close agreements help keep business as usual
BY KEN TARBOUS ner at accounting ﬁrm Friedman LLP. W. Farrell, a ﬁnancial adviser at RegentAt- And how a deal is structured is impor-
s part of the process of selling a Saccomanno said employment agree- lantic Capital LLC, in Morristown. tant on both the buy and sell sides, Farrell
company, owners need to make ments for sellers typically run for three to Farrell emphasized the importance said. Asset sales are more popular with buy-
plans for what they’re going to do ﬁve years. In the ﬁrst couple years after the of having ﬁnancial goals for sale pro- ers, since they are able to allocate the pur-
after the closing, according to a business sale, as customers start to get to know and ceeds, as well as deciding on potential chase price and depreciate the assets while
appraiser who works with small- to mid- trust the new management team, and both asset classes, and who and how is going avoiding any liabilities the seller might still
dle-market companies. the buyer and the seller are comfortable to manage that money. have. On the sell side, stock sales are pre-
“There has to be a transitional pe- with the situation, they often renegotiate Farrell said advisers can run simula- ferred because they are typically taxed at
riod, and during that transitional period, the deal, with a buyout of the balance of tion analyses to determine how much long-term capital gains rates, he said.
the buyer of the business is attempting to the employment agreement. money a seller needs to exit their invest- “Taxes permeate everything,” Far-
transfer the goodwill from the owner of That employment agreement gives the ment and make a success out of their next rell said.
the business to the new buyer of the busi- seller a guaranteed income stream for sev- step — whether it’s retirement, consulting E-mail to: email@example.com
ness,” said Michael Saccomanno, a part- eral years following the sale, said Thomas or starting another business. On Twitter: @KenTarbous
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> Continued from page 16 Engaging the right team of
attorneys and nancial advis-
wants to sell within 12 months, he said. ers can help ensure a company’s
As part of the numbers’ process, Sacco- records and documents are in
manno said, appraisers do preliminary re- order ahead of time, says Thomas
views of ﬁnancial documents to familiarize W. Farrell, nancial adviser at
themselves with a company. RegentAtlantic Capital LLC.
But then, Saccomanno said, the inter-
view process begins, as the appraiser meets
with owners, management and key employ-
ees, and tours the company facilities.
“What we stress to people is that even
though we are the experts in giving values
to businesses, the management and the
“What we stress to peo-
ple is that even though
we are the experts in
giving values to busi-
nesses, the manage-
ment and the owners
are the experts in that
Michael Saccomanno, partner, Friedman
owners are the experts in that particular
business. So we have to gain background
through their eyes to be able to value that
business correctly,” Saccomanno said.
That’s when the “down and dirty
work” begins, he said. Financial statements
from the preceding three to ﬁve years are
scrutinized to determine the ﬁnancial state
> See SALE on page 19
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> Continued from page 18 Achim Neumann, presi-
dent of A. Neumann & As-
of a business. Since cash ﬂow is the most sociates LLC, says rms need
important element of a business for buyers to prepare for the valuation
and sellers, the income statements and bal- ahead of time, so red ags can
ance sheets are analyzed, with particularly be taken care of before the
close attention paid to collectibles and re- buyer is involved.
ceivables, to see if the company is collecting
its money and paying its bills on time.
Saccomanno said he has run into situ-
ations — usually only with family-owned
or closely held companies — where records
haven’t been kept properly, or taxes haven’t
been ﬁled for some time, presenting prob-
lems for appraisers.
“The reliability of the ﬁnancial state-
ments directly impacts the valuation of any
business,” Saccomanno said.
When a private business is involved,
Saccomanno said, he uses databases of pri-
vate company sales transactions to compare
the subject company to similar businesses
in their industry, and weigh the pros and
cons to see where the particular business
ﬁts. In addition to ﬁnances, appraisers look
at goodwill and, in some circumstances, key
people and their impact.
Part of the valuation process is deter-
mining a discount rate, which assimilates
all the risk factors of owning a business
and evaluating key personnel, reliance on
management — and reliance on a single nesses might often have fewer layers of “If you remove a partner of a major ac- you have to assume a good portion of the
key person, a signiﬁcant risk factor, Sacco- management, or heavy dependence on counting ﬁrm, how do we know the clients business will leave, as well.”
manno said. one individual who carries much of the are going to continue to come?” Saccoman- E-mail to: firstname.lastname@example.org
Closely held and family-owned busi- goodwill. no said. “If you remove that key person, On Twitter: @KenTarbous
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19 June 11, 2012 NJBIZ www.njbiz.com