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					  SPOTLIGHT: BANKING/                                                           “Being a business appraiser, we can’t operate in a


  FINANCE
                                                                                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




                                                                                                                   Christina Mazza
            Justifying a
                                                                                                                                      By the numbers


             sale price                                                                                                                              79
     In selling a business, rms seek validity                                                                                        Closed business sale
                               BY KEN TARBOUS                                                                                            transactions

     B
             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



                                                                                                                                                     87
     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,
     Farrell said.



                                                                                                                                              0.70
                                                      > See SALE on page 16




                                                                                                                                     Average times revenue
                                                                                                                                       paid by business
                                                                                                                                            buyers




                                                                                                                                              2.85
                                                                                                                                     Times cash flow that
                                                                                                                                     business buyers paid
                                                                                                                                          on average
                                                                               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
                                                                                                                                                    business brokers.
                                                                                    RegentAtlantic Capital LLC.                                  Source: BizBuySell.com




www.njbiz.com                                                                                                                                NJBIZ         June 11, 2012 15
        ®   SPOTLIGHT

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.



I
    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: ktarbous@njbiz.com
     “The buy-side is interesting, because   Neumann & Associates LLC, said he has            approximately 50 business sales he han-                                        On Twitter: @KenTarbous




                                                                                                                                            Christina Mazza
                           GROW. WISELY.                                                                                                                         Achim Neumann, president of
                                                                                                                                                               A. Neumann & Associates LLC, says
                                                                                                                                                              the preparatory period would reveal any
                                                                                                                                                                 obstacles to the valuation process.


                                                                                                                                                          SALE
                                                                                                                                                          > 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
                                                                                              charles.weinstein@eisneramper.com
                                                                                                                                                          Achim Neumann, president of Atlantic
       you get the advice and strategies you need to create                                                                                               Highlands-based business brokerage A.
                                                                                              Howard Cohen
                                                                                                                                                          Neumann & Associates LLC.
       sustainable growth.                                                                    Chairman
                                                                                                                                                               “The preparatory time period serves
                                                                                              732.287.1000
                                                                                                                                                          the purpose to discover red flags that ulti-
                                              TM                                              howard.cohen@eisneramper.com
       Let’s get down to business.                                                                                                                        mately the buyer is going to see,” said Neu-
                                                                                                                                                          mann, who specializes in middle-market
                                                                                              www.eisneramper.com
                                                                                                                                                          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-
                                                                                              Follow us:
                                                                                                                                                          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
        ®   SPOTLIGHT




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-



A
        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: ktarbous@njbiz.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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www.njbiz.com                                                                                                                                             NJBIZ        June 11, 2012 17
         ®   SPOTLIGHT
SALE




                                                              Christina Mazza
> 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
                        particular business.”
                      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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www.njbiz.com                                                                                                                                 NJBIZ        June 11, 2012 18
         ®   SPOTLIGHT
SALE




                                                 Christina Mazza
> 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: ktarbous@njbiz.com
     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

				
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