I often have found small business owners unaware of the myriad ways to sell all or a part of their business. In advising business owners, it is important to explore these options in order to create the best opportunities. Here are eight structures for sellers to consider when contemplating a sale of their business. There are more, but these are the most common ways for lower middle market companies to “exit”.
1. Sell to Strategic Buyer
Strategic buyers are companies already in your industry. The goals of a strategic buyer in acquiring your company can vary. For example, a strategic buyer may be able to institute cost cutting measures and consolidation to achieve greater EBITDA. A strategic buyer may be looking to expand geographically, add a product line, eliminate a competitor, add talent or “roll up” its industry. A strategic buyer usually, but always, pays the highest price, but most likely will restructure your company.
2. Sell to a Financial Buyer
Financial buyers can be individual investors or a firm with experience and capital, like a private equity firm, looking to buy a company, grow it and sell at a substantial profit. Financial buyers look for opportunities to acquire companies in which they can generate a substantial IRR before selling, usually in the 5-7 year timeframe. Here, typically debt is used in the financing of the deal and, often in smaller deals, the buyer is expected to take back a note to support the deal and assist in the financing.
3. Management Buyout (MBO)
An MBO is where a current manager (or a group of managers) of a business raise capital and arrange debt to acquire all or part of your company. Challenges include the ability of the group to raise the equity level required by the banks and the right mix of managers to acquire the firm.
4. Sell A Product Line or Division
This method and structure is often overlooked by business owners. Rather than sell your entire business, it may make sense to “peel off” a product line or division and sell it first. Owners may contemplate this approach when market conditions do not support a favorable sale of their entire business but growth capital is needed and debt is not available.
5. Recapitalization
In a “recap”, the company raises money (via debt or equity) and buys back shares from the owners of those shares. This method can be used to buy off a disgruntled (or troublesome) shareholder. Of course, the ability to use debt to effectuate a recap depends on strong EBITDA and the company’s ability to borrow additional funds from lending institutions.
6. License With An Option
Entering into license agreements with larger companies often can be a fruitful way to generate growth and an ultimate exit. This is a hybrid approach consisting of providing a larger company with (1) a license of your technology and (2) an option to purchase your company down the road. This approach is gaining in popularity, especially in the life sciences sector given the large risks associated with drug development and the like.
7. Private Placement of Equity for Family Owned Businesses
There are investment firms in the US which specialize in buying significant stakes in successful private or family owned firms. These firms link IRR to the achievement of financial goals and work in concert with you to grow the company with an eye toward selling the business within 3-7 years.
8. Initial Public Offering or Self-Registration
There are a few alternatives available in the public markets for middle-market firms to go public, including self-registration, reverse merger and, occasionally, initial public offerings. The benefit of these structures is increased liquidity for the remaining shares and cash for the shares sold. Business owners are wise to evaluate these alternatives carefully, making sure the future performance and growth of the company is projected to be strong and that the market can support the stock.

John Hallal is a Adjunct Lecturer at Babson Business School where he teaches Mergers & Acquisitions for Entrepreneurs, a business attorney and advisor to lower middle market business owners. http://www.accelerationlaw.com


By John Hallal

About the Author: John Hallal, a Partner at the Andover, Massachusetts-based Acceleration Law Group, also serves the business consulting firm Network Blue, Inc., as Managing Director and Babson College as an Adjunct Lecturer. Mr. Hallal ranks John Irving, Dennis Lehane, and Stephen King among his favorite authors.

One of my favorite stories is a novella called Rita Hayworth and the Shawshank Redemption, which was subsequently made into a very popular movie, The Shawshank Redemption. The story of a banker wrongly convicted of the murder of his wife and her lover and sentenced to two life terms, it explores a number of issues, including friendship, the depths to which some people will sink in taking advantage of others, and man’s indomitable will to survive. The author of the novella, Stephen King, is well-known worldwide as a prolific writer of stories of horror and the supernatural.

Almost three dozen of his works have been made into movies, including such classics as The Shining, Carrie, Misery, and The Green Mile. King authored Rita Hayworth and the Shawshank Redemption in 1982 as part of a collection of four stories titled Different Seasons. In an unusual departure from King’s regular style, none of the four tales are horror stories, although one, The Breathing Method, employs a supernatural twist at the end.

Two of the book’s other stories also were made into movies, The Body (under the title Stand By Me), and Apt Pupil. Rita Hayworth and the Shawshank Redemption, like the movie it was made into, received overwhelming critical acclaim; some critics hailed the story as King’s “greatest work,” and the movie was nominated for seven Academy Awards. The story centers on Andy, a banker who enters prison as a relatively young man and befriends another prisoner, Red, also sentenced to life. As their friendship develops over the years, Andy uses his impressive knowledge of tax code and accounting to make himself a valuable resource to the guards and the corrupt warden.

When evidence surfaces proving Andy’s innocence, the warden squelches it, determined to keep Andy in prison as his unwilling accountant. Andy’s escape after decades in prison through a hole laboriously carved in a stone wall that was concealed through the years by posters of famous actresses, starting with Rita Hayworth, is a testimony to the value of patience and determination. It perfectly illustrates one of my favorite quotes by Winston Churchill: “If you’re going through hell, keep going.”

Little League World Series

January 21, 2011

A baseball enthusiast, John Hallal currently serves as a Coach with the Andover Little League, in Massachusetts. Little League teams participate in competitions across the United States with the hope of reaching the championship tournament, called the Little League World Series. Before the start of the tournament in August, Little Leagues across the globe form All-Star teams to represent the league in a district tournament. Winning teams advance through divisional and regional rounds until each state crowns a champion. Due to their size and geographical diversity, large states, such as California and Texas, send two teams to the next qualifying round. State champions then compete in additional regional tournaments to determine which eight teams will compete in the Little League World Series, which is held in Williamsport, Pennsylvania.

The tournament itself contains 16 participants: 8 teams from the United States and 8 from other countries around the world. The competitors are split into the United States Bracket and the International Bracket. Both brackets contain two groups of four teams, which compete in a round robin format to determine a group winner and a runner-up. The first-place team from one pool plays the second-place finisher from the other pool in a bracket semi-final that precedes either the United States or International Final. The winners of these semi-final matches play each other to determine the best in each bracket, and then the International champion and the United States champion play in the Little League World Series Championship Game.

The all-time series between American and international teams is currently square at 32 victories apiece. California leads all states with six championships, followed closely by Connecticut, New Jersey, and Pennsylvania, which each have four. The Republic of China, also known as Taiwan, has experienced the most success out of all the international teams, capturing 17 total championships. A number of famous athletes have participated in the Little League World Series, including NFL quarterback Matt Cassell, MLB star Gary Sheffield, and 2004 MLB National League Rookie of the Year Jason Bay.

High-growth Sectors

January 3, 2011

by John Hallal

As founder and Principal of Acceleration Law Group in Andover, Massachusetts, I focus on meeting the needs of early-stage firms in high-growth sectors such as information technology, software, biotechnology, and pharmaceuticals. Understanding the needs of emerging businesses in these sectors, I provide aggressive legal counsel on an affordable basis.

My experience in the high-growth and start-up sector is extensive. I spent seven years as an Associate and four as a Partner with Gadsby Hannah, LLP (now McCarter English LLP), handling business disputes, employment issues, and mergers. In 2005, I participated in establishing a start-up company, co-founding Orthosupply Management, LLP. This gave me firsthand experience in many aspects of early-stage business management, from raising money via a hedge fund to designing effective employee compensation structures. In my current practice, I translate this knowledge into focused, no-nonsense legal advice.

Acceleration Law Group represents growth companies in all phases of their life cycles, including business plan development, incorporation, seed capital financing, and venture capital acquisition. We focus on intellectual property protection, employment structures, business partnership strategies, licensing deals, and initial public offerings. Additionally, we offer experience in the sectors in which venture capital funds invest, and we understand the dynamics allowing start-ups to achieve substantial capital investment. We also work with company principals in structuring key employment relationships, arranging equity deals among founders and new employees that offer fair compensation and incentives for growth.

I work extensively with young firms in valuing patents, weighing licensing options, and negotiating deals that benefit them in both the short and long term. In many cases, I work with technology transfer companies as well, crafting viable business strategies.

For further information on how Acceleration Law Group can assist your firm through expertly negotiated and structured venture finance arrangements, carefully managed intellectual property assets, and well-designed employment structure and compensation packages, visit our website at www.accelerationlaw.com.

Little League Baseball Quiz

December 16, 2010

by John Hallal

1. Who founded Little League Baseball?
a. Babe Ruth, who spoke on baseball’s valuable influence in his youth
b. Lumberyard clerk and enthusiastic uncle Carl Stotz
c. President Franklin D. Roosevelt, who saw the game as a way to promote community despite bleak economics
d. Big Brothers founder Ernest Coulter

2. Where was the first Little League game played?
a. Williamsport, Pennsylvania
b. Shreveport, Louisiana
c. Albuquerque, New Mexico
d. Fayetteville, Arkansas

3. In which year did Little League Baseball grow to include female players?
a. 1953
b. 1944
c. 1974
d. None of the above. Little League Baseball only offers membership to males.

4. Which of the following was NOT a name of one of the first Little League teams?
a. Lycoming Dairy
b. Jumbo Pretzel
c. Funham Flapjacks
d. Lundy Lumber

5. True or False:
Baseball player Jackie Robinson acted as a community advocate for Little League Baseball and organized a number of fundraisers between 1940 and 1945.

6. True or False:
Joey Jay, who played Little League Baseball as a child, was the first participant to make it to the major leagues when he joined the Milwaukee Braves.

7. True or False:
The length between the Little League home plate and the pitcher’s mound is nearly 15 feet shorter than in the major leagues.

8. True or False:
In 1955, Little League fought against racial prejudice by barring more than 60 South Carolina teams from play because they would not share the field with African Americans.

Answers: 1.b 2.a 3.c 4.c 5.F 6.T 7.T 8.T