Business Owners Protect Employees selling business
The most recent 2017 Market Pulse Report found that over 70% of business owners looking to sell their companies responded that taking care of their employees is an important consideration when evaluating potential buyers.
First and foremost—as one would expect—is financial compensation, but the next concern of business owners in a transaction is ensuring that employees are protected.
The Q1 2017 Market Pulse Report found that business owners also value exiting their business quickly and leaving a legacy when selling.
“When it comes to selling a business, owners care about more than just money”
The Report, published by the International Business Brokers Association (IBBA), M&A Source, and the Pepperdine Private Capital Market Project, says that the results show that few sellers are interested in employment contracts or other types of deal structures that would have them remain active in the business after the sale.
“When it comes to selling a business, owners care about more than just money,” said Lou Vescio, CBI, M&AMI, principal, Coastal Business Intermediaries, Inc., IBBA chair. “I’ve seen situations where a business owner agrees to less money in order to sell to a buyer whom they believe will protect employees’ jobs and maintain a positive workplace culture.”
“Both buyers and sellers are increasingly recognizing the high value of human capital.”
The most recent report shows that 77% of respondents say that deal structure is a critical component in the negotiation of most transactions. The next factor is the negotiations over a closing date, then an employment contract or non-compete contract for the seller. Business owners mentioned both the timing of their exit and maintaining the legacy of the business at 58%.
“Both buyers and sellers are increasingly recognizing the high value of human capital”, said Craig Everett, PhD, director of the Pepperdine Private Capital Markets Project. “Negotiating the deal structure often includes protections for employees, such as keeping the company in its current location or agreeing not to reduce the workforce.”
Other Q1 2017 Market Pulse Report Highlights
In other findings from the Q1 2017 Market Pulse Report, respondents stated that strategic buyers (competitors, industry participants) account for a minority of buyers at all transaction value levels (33%). In addition, the time to close from LOI date to close date was two to three months for 67% in the $2-$5 million transaction value, with 30% over three months. Larger deals take longer to complete: the Lower Middle Market ($5-$50 million value) transactions see only 36% completed in two to three months, with 59% taking more than three months. The larger transactions create greater complexity in due diligence, as well as in financing and the deal structure.
The average sellers’ cash at close was approximately 80% for transactions from $2 to $50 million
The Report also noted that buyers frequently aren’t local. In transaction values between $2 and $5 million, 59% of buyers were located over 50 miles away. And in the $5-$50 million segment, the results were nearly the same (62%).
The results also reflected that private equity group (PEG) purchases in the $2-$5 million sector increased from only 5% of buyers last year to roughly 24% in Q1 2017. The authors of the report believe that this is due to PEGs seeking to deploy capital and investigating growth roll-up strategies with smaller companies. The average sellers’ cash at close was approximately 80% for transactions from $2 to $50 million.
About the Market Pulse Report
The Market Pulse Report compares conditions for businesses being sold on Main Street (values of $0-$2MM) to those being sold in the Lower Middle Market (values of $2 – $50MM). The Q1 2017 survey was completed April 1-17, by 315 business brokers and M&A advisors representing 37 states.
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Sacramento business advisor Andrew Rogerson is a member of the International Business Brokers Association with a CBI credential. He specializes in helping business owners and their businesses. This includes business valuation, marketing strategies, and coordinating all phases of sales transactions.
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