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