One Way to Avoid Overpaying for M&A

Last month E&Y reported a near 50% drop in global M&A from $4Trillion in 2007 to $2Trillion last year, and while that may not be a fair comparison as M&A crawls back from the depths, the perennial fear and anxiety buyers have of overpaying for mergers and acquisitions has probably never been higher. Often missing is the acquirer’s ability to accurately measure the value of the Seller’s customer base and its recurring revenue streams.

The reason for the error according to Walker Research, an Indianapolis based customer research firm, is the acquirer’s inability to properly survey the top 80% of the Seller’s customer base and categorize them into 4 Key Value groups:

Properly identifying the “customer type” and matching it up with the likelihood that those customers will stick around can help avoid overpaying for an M&A target sometimes by $millions. The simple rule of thumb or takeaway is to recognize when you the CEO of the acquiring company may need to hire a 3rd party to re-evaluate and re-value the Seller’s customer base more closely in a riskier transaction.

Walker Research recently gave members of the ACG (Association for Corporate Growth) an informative webinar explaining the importance of Advanced Customer Due Diligence – which is now available to the public.

Should you be Crowd Funding in 2013?

Ladies and Gentlemen, our first New Year’s present has arrived.

It’s another gift from our kids; a generation feverishly bent on serious change. And this time they’re re-engineering the perennial landscape of small business financing. It’s the Internet meets Crowd Funding part 2, courtesy of the Jobs Act in Washington. You’ve heard of it, Crowd Funding, where budding entrepreneurs raise money on the internet for new sticky-wand hair removers and degravitizing dust particle vacuums, right? There is that. But what if, as well, it was soon to become the most measureable small business economic payoff from Social Media of all time? Would that get more attention?

Until now, for most of my clients (and me) crowd funding has been little more than a mere curiosity. Most business owners I know still think to raise money the old fashioned way, they borrow it, from a bank, with thick walls and a vault. But what if that were not the right way anymore? Enter the rise of the CFPs (crowd funding platforms) in 2013. That is when under the Jobs Act crowd funding platforms are expecting to expand beyond facilitating donations and rewards. The new options which include debt and equity raises may begin to ruffle old feathers. Why? Think of it. One company has already seen over $10 million in crowd funds pledged for their product line! That’s serious coin. But how is that possible without Gangnam Style you wonder??

In business school we all learned about how innovations like Facebook can dramatically disrupt an industry’s rate of change. Well, perhaps on some smaller level it’s proper to say, like it or not here we go again. This time, it’s not brick and mortar bookstores going down, it’s brick and mortar banks. Especially small local banks, they better watch out. Is that a stretch? Maybe. But at some point the key question becomes obvious: why would anyone (like a small company) let a local bank have all the fun (so to speak) when you can now tap into a growing planet of online users (you don’t even know) to help finance your company’s next big thing?

Well, 2013 could be just that bell ringing, and the year this thing takes off. According to there are already over 500 CFPs (crowd funding platforms) worldwide. Most are in the US where new rules have been written, lessons have been learned, and it’s where over $800mil in crowd funds were raised in 2011. So maybe it’s time to get more familiar with it and in what better way than by using a recent SCORE Crowd Funding webinar to spread the word. It’s a 1-hour moderated prerecorded online webinar from SCORE.ORG (where I too am a proud Business workshop instructor). The program is a moderated slide show discussion between two crowd funding companies, Indiegogo and Somolend, who (like Kickstarter) facilitate specific crowd fund-raising processes for a fee of about 4%, although pricing varies.

They use a few simple real-life case studies to explain exactly how crowd funding successes are achieved… start to finish. I would consider the info an early 2013 heads up present for small business owners, and it’s free: You’ll quickly learn:

  • What      is Crowd Funding & How it Works
  • Types      of CF: new Debt/Equity option vs Donation/Reward
  • Why      the 30-Day Campaign is a big hit
  • Best      Practice Case Studies & Tips for Success
  • SEC      and FINRA views and rules

Is it a global tide change for small business lending; a disruptive evolution in the making? It could be that. But on the face of it, do I see crowd funding platforms replacing Wall Street bankers anytime soon? Not really. But then $10 million isn’t play money either.

About the author: Rick Andrade is a Managing Director and investment banker in Los Angeles. He represents active sellers and buyers of middle market companies. Rick has his BA and MBA from UCLA along with his Series 7, 63 & 79 FINRA securities licenses. He is also a Real Estate Broker, a volunteer SBA/SCORE instructor, published writer and blogger at for issues important to middle market business owners. You can reach him at

2013: Is Your Company Fit for Growth?

Alas… the chance at a new beginning once more for all of us in the U.S. And at what better time is there than now to re-focus on what’s important going forward. As a writer and business banker I often listen specifically for a client’s go-forward growth strategy, whether it’s global expansion, or in their own backyard. What’s key to remember is in fact the title of this well done article at CEO Magazine Is Your Company Fit for Growth? 

As a strategist I help many CEOs figure this question out. As a buy/sell business banker I insist on having a specific growth plan because having one opens the doors wider for bank financing and investment interest. Your growth plan is part of the language we bankers’ speak… and for those business owners who make the adjustments, the future can be very bright. Have a look at the article and you can tell me if You’re Fit for Growth in 2013 or not.

It’s Year End: When Financial Services Professionals Call

Here it comes… the last weeks before year end 2012, and what a year. From a financial point of view, it’s the most active time as wealth managers and business owners re-think their strategies and plan ahead.  Meanwhile, a historic hurricane, a historic Election, and a looming Fiscal Cliff and it’s enough to make you dizzy.  So what can we top that with as we wrap up 2012?


Well as it turns out nothing as exciting. Because as year end comes to a close it brings forth waves of financial services professionals from all walks of life to your doorstep. Some of these professionals work at major banking institutions, while others work for smaller firms. Most will tend to focus on a specific market segments and/or wealth concentration areas, such as middle market business owners.

These days, however, there seems to be quite the proliferation of new certifications along with their associated acronyms from A to Z covering every conceivable financial service twice over. And on the one hand that’s good, as industry professionals seek to be recognized and stand out more. But on the other hand, when even I can’t follow the number of new 3-letter acronyms I see on business cards these days, something has to give, no?

That’s why as year end approaches and the time comes to hire experts to get your financial house in order, it’s a good time to recognize what you’re getting for your money… And while most business owners know the importance of having a CPA on their management team for accounting and tax issues, beyond that designation, the increasing number of new acronym credentials spreading like wild fire is confusing clients. This is why I am here to help.

A good rule of thumb is to start with the most widely recognized certifications and licenses, like a Certified Public Accountant (CPA), the name says it all right up front.  Or you may run across a Certified Financial Planner (CFP), a top drawer professional designation for financial analysis. But what if you’re looking for someone more specific to help you with estate planning, retirement planning, insurance planning, etc? If that’s the case then you need to know more about which certifications, education, and professional licensing to look for.

Enter a great article here at Investopedia (the online wiki-library resource of financial terms)  which tries to sort it out. You should read it, because the author clearly identifies which key Licenses and Certifications such as a ‘Series 7’ for investment bankers like me who advise business owners on how and when to sell their business, are important.  And it’s not a long list of 3-letter acronyms either, in part because the time, effort, and advanced education coursework required to attain, and maintain these best of breed credentials sort the wheat from the chaff for you.

So be sure to read the article before year end 2012. This way, the next time you get a call from an MBA, CPA, CFP, CBB, ABC or XYZ  professional looking to help you with the most important decisions in your life,  you won’t have to worry about which Certifications and Licenses they have  matter most, and which don’t…


Want to know the One thing that can sink a CEO faster than an Obama victory?

Not all my CEOs are in perfect shape. These are tough times. Executive leaders I know are juggling quite a bit of uncertainty to say the least this cycle. And while most can take a pounding and snap back… many others won’t.

Remember the old Dale Carnegie words of wisdom that one should try to “live in ‘day-tight’ compartments?” Well what happens if you never read Dale Carnegie?Read my article at CEO Magazine

The Fiscal Cliff: How will it affect your business?

As I have written before and in my recent article  Top 10 Middle Market Merger and Acquisition Drivers in 2012 (selected by Vistage International for its 15,000+ global CEO Newsletter). In it I break down the impact of the Fiscal Cliff (as it’s become best known), and its affects on CEOs in the Board Room.

The Fiscal Cliff,  is essentially a combination of expiring Bush tax cuts, Obama tax increases, and mandated congressional budget cuts known as Sequestration, from the Budget Control Act, all hitting the books roughly at the same time. A bad time for taxes to be going up on small businesses. And, given the nature of a too-close-to-call upcoming election, no one really knows if this impending fiscal train wreck will be avoided by a new act of Congress or not. One thing is certain, though, nothing will happen before election day, which makes the stakes even higher if something isn’t done. So what should you do next Monday Morning at 9:00am?

I suggest all CEOs call together all significant senior execs and/or Board members to a Special Emergency Planning meeting. In it you will define strategic what-if scenarios and plan for their outcomes just in case. This analysis may result in no action. Or, it could be a call to arms or one to build an economic moat around your business.  Counsel from Venable LLC attorneys says to remain or become “transactionally nimble.” Either way,  just remember not only are there winners and losers in troubled times, but also hunters and prey…

Link to Venable LLC Fiscal Cliff webinar white paper:





Selling Your Business – How to Increase the Value of Your Business

Finally after what seemed like years overdue, NFIB published an excellent article about how best to prepare a business for sale, including lining up an investment banker among others in advance to help sell your business when the time comes.

Read the article and then get in touch with me if you have any questions.

What I like most about this article is how owners can increase the value of a business by adding BONUS valuation points incrementally. For instance:

Start with an Initial Valuation and add the following if you don’t already have:

1) Add 2% for creating an Owner’s Manual

2) Add 3% if the business has evolved beyond the owner’s reputation and daily activity

3) Add 4% for diverse revenue channels (more than one sector)

4) Add 6% for a diversified customer base (low levels of Customer Concentration)

5) Add 9% for a top-rated website

6) Add 10% for audited financial statements

In my years I have not seen such a breakdown of how to increase the value of your business incrementally but I agree in principle. I would caution that these figures are very subjective on a case by case basis. Still, as a national article this one helps me get the word out to middle market business owners.

Again, if you have any questions please call.


keywords: Mergers, acquisitions, selling my business, business broker, investment banker for my business

How Should Wealth Mgmt Professionals Advise Business Sellers in 2012?

It’s mid summer 2012, and you’re thinking about doing a private banking client portfolio review, when suddenly the phone rings. It’s a long time client, Ted Hillman, in business for over 25 years, very profitable, loves your advice. He’s frantic, and asks for your opinion if he should sell his business now, before the “Tax Cliff” everyone’s talking about in January kills him. How do you respond?

How about; “Okay Ted, but let’s first take a breath, maybe ratchet down the media hype and get more facts. Then we can act; at least before we start jumping off cliffs, sound good?” Ted agrees, and you decide to set up an appointment, and hang up. Now ask yourself as you read this. You’re a pro. How ready for that call were you? What if other business owners and clients call to ask if they should sell now or wait for better times? You won’t be caught flat-footed if you read this quick primer.

Let’s start with:


  • What is Ted really reacting to? Should he really sell his business before year end? I always ask for at least 3 reasons why a client may be considering a sale. Tax issues may be just one from a longer list, right? Be sure. Ask, who is on the advisory team? And how will sale proceeds be distributed and when?


  • What is the definition of the “Tax Cliff?” If you don’t know already, call your research team and find out. In short, the “tax cliff,” aka: “taxamaggedon,” or “fiscal cliff,” etc is not any one thing. Read my article at Vistage International: The Top 10 M&A Drivers for 2012, featured in their May 2012 global Newsletter. Needless to say, in Jan 2013, certain tax and spending measures (laws) will expire, and taxes on payroll, capital gains, dividends, and income will be going up, unless Congress makes a move. Some tax changes will directly increase Ted’s tax bite. For example if taxes on Investment & Capital Gains for long term assets increase from 15% to 24% on January 1st 2013, all other things being equal, Ted’s tax bite could increase $100,000 for every million in proceeds. Wow! I’m thinking he should probably know that one? In fact, this alone can cause a change in deal structure, and how and when proceeds should be distributed to minimize the tax hit. Still, it’s a good idea to get permission to call your client’s CPA or tax advisor directly and compare notes.


  • How will the current economic and tax environments actually impact Ted’s long term financial plans & goals after the business is sold? How should the portfolio mix change before and after the sale? Is it better to pull the trigger and structure a deal now?
  • Depending on how good you are in this arena, with the help of a tax advisor you can put together a specific proforma impact analysis. Think “scenario planning.” Lay out Best, Middle and Worse case scenarios such as; what if Ted can defer a portion of the sales proceeds over time, or what if the business doesn’t sell this year, then what? What’s plan B look like?


  • Next calculate and add Ted’s expectations for a range of sale prices and compute them in financial terms. You may already know his dreams for family and friends. But how suitable will his investment choices be post sale? In other words, what would the new right balance of risk vs safety look like after the sale? It’s amazing how easy it is to get caught off guard by this one, preferring to wait until a deal closes before planning. A huge mistake. Rather, it makes more sense to guide the advance needs for income now, especially when dealing with more complex Estate Planning, and Charitable Giving issues for private banking clients who own businesses.


  • Finally, as one of my favorite business school professors used to say: “Great strategy Rick, but what should each of us be doing next Monday morning at 9:00am?” This means you should define and align your step by step process with Ted’s expectations asap. He will likely appreciate this pro-active strategy.
  •  If it makes sense to move ahead with a 2012 sale, the first step should be to call Ted’s investment banker and gather some high level input. Discuss potential sale-price ranges, current market trends, and maybe learn what’s up with Private Equity transactions these days as a few examples.  
  • Then reach out to Ted’s business transaction attorney and CPA. Together with these 4 key specialists; you, his CPA, his attorney, and investment banker you can all help formulate and execute a plan that anticipates the many broader issues clients like Ted face when selling their business. So much so, that after the business is sold, the team gets even more client referrals calling for help.

So before you meet with Ted again, get prepared. Whether the impending Tax Cliff coming January 2013 should translate into a sale this year or not, no advisor should be caught flat-footed with a “let me get back to you” answer. You agree? I say better to be prepared in advance, so you won’t have to guess how best to talk Ted off the ledge of a big tax increase abyss he can still avoid before year end. And if you need more, I’m happy to help anytime

Is your Board of Directors Obsolete?

So much media coverage these days about CEOs and BoDs in the hot seat, it makes sense to share a little insight from hundreds of other CEOs at a recent CEO Governance Conference in Los Angeles.  Let’s then quickly compare public vs private Boards, who should be on your Board, and whether you should dump yours and start over…

CEO’s Getting Mixed M&A signals in 2012

Check out my recent CEO Vistage blog post.

In this article I outline the opposing sides that CEOs considering an M&A deal are faced with in this dynamic macro economic market. I call it a Tug of War Room in the corner office. So what should a CEO thinking about doing a deal this year be thinking? Take a look, and send me your views…