| p>When preparing to sell a privately held business, | | | | determine how your business should be treated. |
| it is important to determine which category the | | | | Main Street: |
| business falls in - Main Street or Middle Market. | | | | Business Revenue: Less than $3,000,000 |
| The classification of a business will determine | | | | Business Earnings: Less than $1,000,000 |
| several important strategic decisions including: How | | | | Type of Sale: Asset Sale |
| it should be valued, how to market the enterprise | | | | Buyers: Entrepreneurs or Displaced Corporate |
| for sale, the type of buyer likely to be interested, | | | | Executives |
| and the business intermediary firm appropriate to | | | | Business Valuation: Based on Sellers |
| engage for assistance. The goal of this article is to | | | | Discretionary Earnings (SDE) |
| highlight the distinguishing features of Main Street | | | | Financial Statements: Owner, CPA Compiled |
| and Middle Market businesses and to review the | | | | Business Management: Acquirer is buying a job. |
| major differences in the sales methodology. | | | | Existing management is less critical. |
| Main Street & Middle Market transactions are | | | | Complexity: Transaction can often be |
| most often delineated by the size of the business | | | | accomplished with less complicated "boiler plate" |
| either in terms of revenue or earnings. There is | | | | agreements. |
| not a universally accepted definition of size and, | | | | Confidential Marketing: Marketing to a very |
| most often, a business intermediary firm will | | | | broad buyer base. |
| adopt a specialty formula. The majority of lower | | | | Marketing Package: Confidential Business |
| middle market companies fall in an area where | | | | Review |
| they are too small for investment banks and too | | | | Pricing: Marketed with a specific asking price. |
| large for the average business broker. Engaging a | | | | Broker/M&A Fee Structure: 10-12% |
| business intermediary firm who has the capabilities | | | | Retainers: Minimal Retainer |
| to properly represent your company will be critical. | | | | Lower Middle Market: |
| Often the business size is not the only | | | | Business Revenue: $3,000,000 - $75,000,000 |
| distinguishing characteristic defining Main Street | | | | Business Earnings: Greater than $1,000,000 |
| from Middle Market businesses. The industry, the | | | | Type of Sale: Asset Sale or Stock Sale |
| complexity of the transaction, the depth & | | | | Buyers: Corporate Buyer or Private Equity |
| breadth of management, the presence of | | | | Group (PEG) |
| intellectual propriety or private brands, as well as | | | | Business Valuation: Based on EBITDA |
| the type of buyer that is targeted will also have | | | | Financial Statements: Reviewed or Audited |
| an impact on the methods used to package the | | | | Financials |
| business for sale. The chart below details some of | | | | Business Management: Current management is |
| the typical differences in how the two types of | | | | often a key driver to the acquisition |
| businesses are defined, valued, packaged for sale, | | | | Complexity: Deal structure can be very |
| and confidentially marketed. It is important to | | | | complex requiring customized legal documents. |
| note that the chart is only a guideline as many | | | | Confidential Marketing: Highly targeted direct |
| businesses will reflect similar attributes. Please | | | | marketing to strategic & financial buyers. |
| consult with your local business intermediary to | | | | |