In this special Thanksgiving episode, host, Domenic Rinaldi, reviews the results from a recent survey with prospective sellers and buyers. Domenic looks back on the importance of preparation for both buyers and sellers prior to pulling the trigger. For sellers, Domenic talks about the opportunities they learned from the survey from a preparation standpoint or the lack thereof. On the side of buyers, he digs deeper into the importance of having an acquisition plan and an integration plan. Lastly, Domenic talks about upcoming programs and services in 2020 to better prepare for your M&A transaction.

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Survey Review And Happy Thanksgiving!

Welcome to a special Thanksgiving episode. I’m going to do something a little bit different. I’m going to review the results from a survey that we conducted with prospective sellers and prospective buyers and I’m going to share the results of those surveys. What you’re going to know is something that you’ve heard a lot, which is the need for preparation. It’s important. Some of the feedback that we had gotten and some of the information that we distilled from the surveys highlighted for us, how important is it for buyers and sellers to prepare? What’s great about that is it’s the reason we started this show. We were hoping to move the needle in helping buyers and sellers be better prepared for their acquisitions or their sales.

I’m appreciative and grateful for all of the readers, the traction the show is getting and the growing audience. This Thanksgiving is a better time to be thankful. I’m wishing you and your family or whoever you celebrate Thanksgiving with an awesome holiday. It’s a big holiday for us. It’s my wife’s favorite holiday and we have family descending on our home from various parts of the country coming in a plane, train and automobile. We have people coming from everywhere. It’s going to be a lot of fun. We have a lot of people that are going to be at the house and looking forward to an awesome Thanksgiving.

Let me get into the results of this survey. We sent out a survey to our entire database of buyers and sellers and got back some great information. It solidified the need for us to build a new program for buyers and sellers where we’re going to help them better prepare for their acquisitions or sales. We are going to be launching a new service in 2020 where we’re going to help people get prepared well ahead of an event. Let me start with the sellers. We sent out a survey and we probably asked more than twenty questions of sellers. What was interesting to us is 54% of the respondents said that they were preparing to sell their businesses in the next two years. If we push that out to within the next five years, that number will be 84%.

When you think about it, it’s a staggering percentage and it’s in line with one of the macroeconomic trends that we’ve been tracking for a long time, which is the Baby Boomer generation. Everybody’s been talking about the Baby Boomers and how many of the privately-held companies they own in the United States and when they’re going to be ready to sell. It looks like that wave is starting to hit and more empirical evidence of that is what we’ve seen in the last couple of years in our own M&A practice. More owners are coming to us every day, every week looking to understand if now’s the right time to sell. We’re certainly seeing that with these numbers.

We started then to peel back the onion as we got further into the portion of the survey where we had the a-ha moment about, “People are looking to sell, but there’s a huge opportunity for people to be better prepared.” The evidence of that is we asked a question around how many of the respondents understood the value of their businesses today and 85% had no idea what the current value of their businesses was. Eighty-four percent want to sell in the next five years and 54% want to sell in the next two years, yet 85% don’t know what it’s worth nowadays. I say this often to people that run a business. We’ve heard that in a person’s business, they always want to know how their portfolio is doing. What’s the value? Is it moving in the right direction?

Even if it’s not their largest asset within their top three assets they hold, like any other asset that you own, your home, portfolio and investment portfolio. It’s the same thing with your home. Generally, people check-in and they visit home for sales sites. They talk to the realtors in their market and they have a general sense of what their home is worth, but it seems like when it comes to people’s business, they put their heads down and they work on their businesses hard. They don’t take the time and come up for a breath of air to understand in a detailed way what the business is truly worth. There’s a real opportunity there.

The next thing that we asked was in the category of, “You’re looking to sell. What are you looking to do after the sale?” A whopping 64% of people had no idea what they were going to do after the sale. This is concerning because we got our hands on another survey that we saw the results, which is 75% of owners were remorseful after the sale of their business and not remorseful in a financial way. Many of them were perfectly fine and satisfied with the financial number that they pulled out. What they realized is they had nothing to do next and they didn’t know what the next thing was going to be.

The result was they felt remorse and lost. Their purpose was gone and they were struggling to figure this out. I have a close friend of mine who sold his business a number of years ago and he’s been struggling with this issue because he didn’t have the next thing to do. He hasn’t found it yet and he will because he’s that person. I can imagine for him that it’s a little unsettling to be going through this. It’s important to think through what you are going to do next. What’s pulling you out of your business?

Buyer And Seller Survey: When you build a business that’s operating at maximum value and it’s self-managing, you know that you’re always prepared should something pop up.

The next category that we moved to was, “Do you understand what your tax ramifications of a sale would be and what your net would be? Do you know how to minimize those taxes for not only yourself but for the next generation, assuming that you’re looking to pass along the wealth to another generation?” Fifty percent had no idea how to calculate the taxes on a sale and 80% had no discussions with professionals around how to minimize the tax impacts. There’s a massive opportunity here for owners because there are many strategies to be deployed in the sale of a business that will help you minimize not only your tax but inheritance tax and the way that wealth gets transferred.

There were lots of other data points in this survey, but some of these key ones are highlighted for us. There’s a massive opportunity for people to be better prepared when they’re looking not to sell, but how they operate their business every day. The date on the calendar in which you’re going to sell or exit the business may not always be of your choosing. Why not run the business every day so that you know if an unscheduled event happens and you are prepared?

Let’s move over to the buyer side. Buyers fared a little better on the preparation side, but there were some things that we pulled out of the survey that were concerning opportunities. Eighty-two percent of the respondents planned to make an acquisition within the next two years. You’ve got a lot of buyers potentially coming to the market and a lot of sellers that are looking to make acquisitions in a short period of time. Certainly, what we’ve seen in the marketplace as far as activity goes, on the concerning side and the opportunity for buyers is over 60% had no acquisition plan, not even in an informal acquisition plan.

The opportunity here on the acquisition plan side is understanding the profile of the company that you want to target and the attributes of that business. What geographies are you willing to look at and sizes of business that you’re willing to go after? If you make an acquisition, how are you going to integrate that whole business into yours? Think about culture and all of the things that go into creating a good acquisition plan so that when you’re ready to go to the market and look for things or when something comes your way, you know exactly how to analyze that deal. You’ll understand whether you should put it in your pipeline or tick it out.

Seventy-five percent of the people that responded were looking to either do an add-on to their existing business or they completely wanted to diversify from what they were doing today and it was split 50/50. Fifty percent of those people were looking for an add-on and the 50% wanting to diversify. What we’re seeing in our M&A practice is consistent as far as buyers and what they’re looking to do. The next opportunity was how you’re going to finance a transaction and close to 54% of the people that responded didn’t have an idea of how they would finance a transaction or their options.

What’s available out there in the way of debt financing or alternative financing? This is key because when you think about making an acquisition, one of the important things to consider is, “What’s your return on investment targets? How much leverage are you willing to put on a new business? How quickly do you want to earn your money back?” Understand that financing options help you pull together that picture so you have clear targets that you’re going after.

On the buyer side, we asked many more questions, but these were a couple of the things that popped up that’s highlighted for us. It’s a big opportunity for buyers also to improve their acquisition value and how to maximize that approach. The problem is clear. With a little more preparation, people can ensure a better return on their investment, which is why we have been working on developing some new programs for owners of businesses. It helps them maximize the value of their businesses, whether they’re looking to sell now, five years from now or twenty years from now.

When you build a business that’s operating at maximum value and it’s self-managing, you know that you’re always prepared should something pop up that you need to respond to. Chances are you’re going to have a lot more fun running a business that is self-managing. It allows you to get out of the weeds of the company, get to a different level, think more around strategy, how you can move the needle. You could be away from the business for good periods of time and not have to worry that the business isn’t going to continue to operate without you.

On the buyer side, we’re working on a program that would help you put together an acquisition plan in detail and get educated on the phases of acquisition and how to be prepared for each phase of an acquisition. It helps buyers pull together all of the elements and what makes for a good acquisition. It’s maximizing your return on that investment. We’re hoping that sometime in early Q1 that we’ll be ready to go to market with those. I’ll have more that we’ll bring to you. We appreciate it so much and we’re grateful for all of the people that have become loyal readers of M&A Unplugged. We hope that you enjoy the content that we bring to you every week. We’re wishing you an awesome Thanksgiving and we’ll see you on the next episode of M&A Unplugged. Thank you.

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