M&A Advisor

The Importance of Business Documentation

April 16, 2018 By Dr John Binkley - Generational Equity

If it’s not in writing, it doesn’t exist.

These words stand true in most aspects of life in the eyes of Dr. John Binkley. When you fail to note your ideas, beliefs, processes and more on paper, they are lost to the world in your absence.

Indeed, Dr. Binkley’s commitment to this saying was a driving factor behind writing his book, Character is King. He urges everyone reading this to write their own book or keep a journal, so your unique experiences and thoughts are kept alive, whether they are left just for your loved ones or preserved for the world to discover.

However, the importance of documentation increases exponentially for business owners, particularly when you are preparing to exit. If you want to achieve the optimal value for your company, keeping up-to-date documentation of its most important aspects will present an accurate reflection of your company’s worth, highlight instances where its value can be enhanced, and ensure your business is “buyer ready.”

In this blog post, Dr. Binkley expands on how documentation plays a fundamental role in your business sale, provides three key examples of M&A documentation, and the explains the significance of other documents that outline your business processes.

Documentation that makes your business “buyer ready”

It is important to establish immediately what documentation is essential to becoming “buyer ready.” No matter what, it is critical that you start documenting this data as early as possible, so you are in a position to exit your company when the timing is right, and not due to circumstances beyond your control.

Before you even present any information to a prospective buyer, this documentation plays a key role in an M&A advisor determining the true value of your business. Unless you have a background in finances, it is unlikely your immediate assessment of your company’s worth will reflect its true value. For Dr. John Binkley and the team at Generational Equity, this is the first step towards an optimal exit strategy.

Without a comprehensive collection of your finances, equipment, facilities, and other valuable data, it is impossible to provide an accurate reflection of your company’s value. This means you could risk leaving money on the table at exit, or you could have unrealistic value expectations and expect a higher value than the market will bear.

So, by starting to document this information early, long before you are ready to exit, it will speed up the process for an M&A advisor to determine your magic number, allowing you to enter the market as soon as possible and take advantage of favorable market conditions.

It sounds like a no-brainer, but you would be surprised at how many business owners are lacking the necessary information when they decide to exit, wasting valuable time to accrue this before it can be presented to professional buyers. Findings published in 2016 by the Association for Information and Image Management (AIIM) discovered that less than 25 percent of organizations capture data from paper directly into their business processes.

Professional buyers are going to want to see your financials, both historical and projections for the future, information about your customer and supplier base, current operations, staff details, a history of your company, etc. These will be required as standard and are essential to securing any realistic transaction with a buyer.

But, there is documentation that could prove extremely valuable in helping your business stand out against competitors. Remember – professional buyers examine hundreds upon thousands of prospective targets every year. In order to motivate them to pursue your business in a crowded field, it is highly encouraged you go beyond the minimum expectations when compiling your business documentation.

What’s an example of valuable documents that are often missed? One that springs to mind immediately is your off-balance sheet assets, also known as intangible assets. These will not be featured in your earnings and other financial records, but they have a significant bearing on your value in the eyes of certain buyers.

Ask yourself – do you have written records, statistics or proof of your company’s:

Patents, Trademarks and Copyrights;
Brand Value and Reputation;
Subscriptions and Service Contracts;
Software;
Video and Audiovisual Material;
Internet Presence?

Keeping a comprehensive catalog of your intangible assets can pay dividends when selling your business. Just because their value can’t be quantified in the same way as your earnings or equipment, you should not neglect them. Your ideal buyer will likely recognize more value in these intangible assets than others, enhancing your return on investment.

3 Essential M&A Documents

Dr. John Binkley’s experience with Generational Equity has familiarized him with the vast number of documents that are required to complete a transaction, especially when you want to ensure you are exiting for the optimal value. Here are three of the critical documents that you will certainly encounter when you engage in M&A activity.

Confidentiality Agreement

First and foremost, before transferring any key documentation to a prospective buyer, it is critical to have a Confidentiality Agreement drafted, preferably by an attorney who is familiar with the M&A process. If you reveal this information to a buyer without this being signed, you open your business up to a world of risks that can easily be prevented. This is a necessary expense to protecting your business during this process.

Offering Memorandum

Your Offering Memorandum is the comprehensive package that displays to buyers the factors that make your company a viable acquisition target. Usually ranging between 40 and 60 pages, depending on the unique conditions of your business, this will play a key role in convincing buyers to proceed with negotiations and pursue the most beneficial offer. Elements that will feature in your Offering Memorandum will likely include:

Three years of historical financials
Five years of projected financials
A full description of the company, including a complete history, its current operations, and future growth opportunities
A SWOT analysis on the business (strength, weakness, opportunities and threats)
Analysis of the projected growth of your industry
An examination of key clients and suppliers
Full disclosure of significant contractual relationships with suppliers/customers
An organizational chart with a focus on critical employees and their relationship with the company
A full list of off-balance sheet assets that make the company unique and successful

With this quantity of data, you can see why it pays dividends to start the documentation as early as possible. Furthermore, it is crucial that all information contained within your Offering Memorandum is accurate and truthful. The temptation to inflate numbers to entice a better offer might feel worthwhile in the short-term, but the due diligence performed by professional buyers will discover any discrepancies, which could significantly damage the trust between both parties.

Letter of Intent

Last, but undoubtedly not least, is the Letter of Intent (LOI). You may be unaware of this unless you have experienced an M&A transaction – it is essentially a neutral document that is designed to protect both parties during the deal, and ensures any breaks in this can be settled without one side being unfairly disadvantaged.

For instance, as the business owner, you will want to ensure time isn’t wasted compiling documents or negotiating with a buyer that isn’t committed to seeing the deal through, or is keeping an eye on other opportunities. In the same vein, a buyer may want exclusivity in negotiations and not have to enter a bidding war with another acquirer at the 11^th hour.

Through Letters of Intent, the interests of all parties are protected throughout the M&A process. The support of an experienced dealmaker in agreeing to the terms of an LOI can be invaluable in keeping deal negotiations flowing and ensure that your side of the equation is completely fair.

Diligent Business Documentation

In conclusion, Dr. Binkley hopes this article gives you an insight into how important writing and frequently updating your important business documentation can be to exiting for the optimal value. By tracking your key financial details, as well as often-missed intangible assets, you take massive strides in building a “buyer ready” company – one that is primed to enter the market when time is of the essence, rather than hurriedly preparing due to unforeseen circumstances.

Of course, the documentation mentioned above is just a taste of the documentation you should be keeping to ensure the effective operation of your business. Examples like business continuity plans and company hierarchies not only reduce the responsibility of running the business on your shoulders, as others can quickly be made aware of the required processes, but also demonstrate to buyers that your company is effectively prepared for all eventualities. This could be a valuable advantage in the pursuit of the right deal.

For more information on the kind of business documentation you should establish in your company, Generational Equity’s regularly updated insights include several articles dedicated to prominent M&A documentation and how they impact your sales value.

Alternatively, you can download their whitepaper entitled “Make Your Company Buyer Ready” to discover what documentation, among other things, helps to build your business with your preferred buyer in mind.

If you’d like to learn more about Dr. John Binkley, you can read more about his life and experience on his website.

Why Middle Market Businesses Should Capitalize on M&A in 2018

February 9, 2018 By Dr John Binkley - Generational Equity

You are probably well aware that 2017 was a strong year for the middle market, both in regards to company growth and mergers and acquisitions (M&A). Dr. John Binkley was fortunate to witness this up close in his role as Chairman of Generational Equity, an M&A advisory firm that enjoyed a record-setting year for deals completed.

However, you might be unsure if this positivity will continue into this year. Fortunately, Dr. Binkley firmly believes 2018 will not only maintain this growth for middle market businesses, but has the potential to improve it.

Here, you will understand why this year will be an excellent one for middle market companies, and how effective use of M&A will help owners reap the full benefits of this buoyant period.

Why It’s Great to be a Middle Market Business Owner in 2018

“For the middle market, 2017 can be summed up as a year of strong growth in both revenue and employment.” – National Center for the Middle Market

In their quarterly Middle Market Indicator (MMI), the National Center for the Middle Market outlined the growth and optimism within this vital segment of the U.S. economy. Favorable conditions in 2017 encouraged growth across all industries, both with regards to revenue, employment and confidence:

Companies ended 2017 with year-over-year revenue growth of 7.6% (second-highest rate in MMI’s history)
A 5.2% increase in headcount among businesses, with over half of all middle market firms adding to their ranks
Local economy confidence at 88%, with national economy confidence close behind at 86%

The fruits of 2017, combined with the pivotal tax reforms confirmed in the year’s final months, mean middle market leaders are increasingly confident for 2018. Dr. John Binkley has met with owners who have reached out to Generational Equity, sharing this optimism. In summary, the middle market is booming right now.

Of course, when conditions are this good, it is all too easy to rest on your laurels. So, it is especially exciting that this confidence has encouraged business owners in the middle market to invest rather than save:

“The proportion of firms that would invest extra money as opposed to hold it remains near peak levels.” – National Center for the Middle Market

Dr. Binkley sees this as great news as, despite the overwhelming confidence among business owners, there are certainly areas of concern that need to be addressed. Talent management and market competition remain key challenges that middle market owners are trying to overcome.

This is where strategic investment in M&A activity, with the right advisors behind you, can help entrepreneurs benefit to the absolute fullest.

Utilizing M&A Activity in the Middle Market

The most recent Citizens Commercial Banking Middle Market M&A Outlook has indicated an increasing interest among middle market business owners for M&A. 56% of sellers are either currently involved in or open to M&A activity in 2018, which coincides with a boost in buyer confidence.

If there’s one thing Dr. John Binkley was certain to include in the M&A advice that Generational Equity offers to middle market owners, it’s that good timing is essential.

That’s why the firm encourages that you always build your business with a buyer in mind – it allows you to capitalize when the market is thriving (like right now) – and not miss out on an optimal deal.

What makes 2018 such a great time to consider M&A activity in the middle market? As previously mentioned, buyer confidence is extremely high, with investors sitting on a record amount of dry powder that is just waiting to be invested.

All these facts combined means buyers are on the lookout for opportunities – if your business is prepared, you have a better chance of receiving a premium offer for your company.

In addition, the pro-growth provisions contained within the recent tax reforms will undoubtedly encourage investment:

“There is tremendous sentiment that M&A activity in the middle market will surpass 2017 levels this year. Both the size of deals and the quantity of those deals will likely be much higher, as both sellers and acquirers look to take advantage of the act’s pro-growth provisions. It is important to realize all of the benefits and potential hurdles the act contains so that all parties will benefit from their transactions.” – Gary Wallace, Mergers & Acquisitions

As Dr. Binkley and the team at Generational Equity regularly remind company owners, M&A activity does not necessarily mean the definitive sale of your business. On the contrary, the sale of certain assets or introduction of investors could be the key to securing the capital to combat the challenges of talent management and industry competition, which as mentioned earlier are prevalent problems facing middle market companies.

Of course, if you are ready to sell your business, these conditions are equally ideal. With confidence high and capital available, your middle market company could fetch a premium price from interested investors.

To ensure that end result is achieved, Dr. Binkley encourages you to reach out to experienced M&A advisors, such as Generational Equity. Good timing is essential, but without the knowledge or tools to locate buyers and build your business valuation, you are less likely to receive the optimal return on investment for the years spent growing your company.

What will 2018 mean for your Middle Market Business?

On the whole, Dr. John Binkley predicts 2018 will be a great year for business owners in the middle market. The optimism in the national and global economies, combined with exceptional company growth in 2017 and new tax legislation, has led to a consensus of positivity.

This will be especially true for middle market business owners who make effective use of M&A over the next 12 months, either to generate capital to invest in growth, or exit their company for a return that secures their – and their family’s – financial legacy.

If your business operates in the middle market, Dr. Binkley hopes these projections prove to be true, allowing your company to grow and unlock its true potential.

Would you like to learn more about how to approach middle market M&A? Generational Equity has many articles on the subject, providing you with an insight into what you need to consider in order to sell for the optimal price. In a year such as this, information like this will prove invaluable to your business’ growth.

You can also read more of Dr. John Binkley’s views and advice on M&A, business leadership and spiritual growth on his website.

Generational Equity in 2017

December 14, 2017 By Dr John Binkley - Generational Equity

As 2017 draws to a close, it is a good time to reflect on what has been a remarkable year, especially in the M&A industry. As Chairman of Generational Equity, Dr. John Binkley has kept a close eye on undoubtedly one of the strongest seller’s markets in history, which has been driven by several factors, including:

Excess capital chasing too few deals
More baby boomer business looking to sell their companies
Greater confidence in the economy
Increased private equity fundraising

This was particularly present in the middle market, which helped make 2017 a memorable year for Generational Equity. Dr. Binkley is delighted with the firm’s growth over the past 12 months, where records were broken, awards were won, and strong relationships with clients were forged. It is a testament to the dedication of its skilled team of M&A professionals since Dr. Binkley founded the firm, now established as one of the leading firms in North America.

A Year of Recognition for Generational Equity

One of the highlights for Dr. John Binkley was unquestionably being able to attend the 16th M&A Advisor Awards ceremony in November at the Manhattan Club in New York City. It has been a regular fixture for Generational Equity’s team in recent years, but it is always an event the company is extremely grateful to be part of. For the second year in a row, Generational Equity was named Investment Banking Firm of the Year. This was the showpiece of four awards won on the night, as well as the awarding of the inaugural Thomas Farrell Memorial Award in memory of a friend and key member of Generational Equity’s development.

While this event was a great moment for the firm, what Dr. Binkley was principally proud of was Generational Equity’s consistent support for clients all year round. This resulted in the conclusion of the firm’s 600th deal at the end of June, and set up the firm to surpass their record number of deals completed in a calendar year. As such, Dr. Binkley is confident Thomson Reuters will once again rank Generational Equity as one of their leading M&A firms in January, marking the ninth year in a row.

That is not all, as the firm is also closing in on $4 billion in wealth generated for clients; a remarkable feat for firms exclusively serving the lower middle market. In the years since establishing Generational Equity, Dr. Binkley is very grateful for the support of its team in pursuit of this milestone.

2017 and Beyond for Dr. John Binkley

Dr. John Binkley was thankful for the opportunity to spread God’s Word throughout 2017 in a variety of settings. Dr. Binkley had the chance to travel to several countries, including Tanzania as part of Here’s Life Africa, as well as participate in its first Grace Works Conference in October. He was also pleased to perform sermons at his son Ryan’s services at Create Church in Richardson, Texas.

So, what does the future hold for 2018? Dr. Binkley shares the confidence of other M&A analysts that the strong market will continue into the new year. This bodes well for Generational Equity’s sustained development, and opens more opportunities for business owners that are interested in exiting for maximum value. Hopefully, this vibrant seller’s market lasts for the foreseeable future, giving Generational Equity the chance to fulfill the financial ambitions of more and more entrepreneurs.

If you’d like to learn more about Generational Equity’s services for business owners in the lower middle market, visit their website. You can also read more about Dr. John Binkley in his “About” section.