Posts made in December 2015

More businesses are for sale than ever but 8 things can dog a deal

PROOF IMAGE - SDR Ventures executive headshot session Feb. 7, 2015. (copyright Mark T. Osler. ALL RIGHTS RESERVED.

The Denver Post


By Gary Miller, GEM Strategy Management, Inc.

Posted 11/15/2015 | 12:01 AM MST

Many business owners are jumping on the bandwagon to sell their companies, trying to take advantage of the current hot market and the frothy multiples being paid by buyers. Combined with the baby boomer tsunami, more businesses are for sale today than ever before.

This trend creates a competitive environment in which buyers anxious to grow their businesses through acquisitions, as well as organic growth, are looking more closely at the quality and price-value relationship of any potential acquisition.

However, 80 percent of owners who put their businesses up for sale never close the transaction. Over years of observation, I have found there are eight basic reasons deals fall apart:

Value expectations too high. The top reason deals fail to close is a seller’s unrealistic expectations about value.

Many business owners read and hear about companies or competitors selling their companies for very high sums and believe that their businesses are worth the same.

Unclear story elements. Business owners need to think like buyers. Attracting a buyer is like preparing for a beauty contest. Companies that show best win. Often, because of poor strategic planning, the business owner cannot articulate clearly the company’s competitive advantages, its growth opportunities, its revenue potential, and its ability to produce significant returns on invested capital.

Quality of earnings. Audited financial statements confirm financial accuracy and help validate forecasted performance. Lack of clarity about key business drivers, sales pipeline backlogs, back office operations, and the consistency of growth and earnings inhibit a buyer’s enthusiasm.

Length of time. Every deal has its own momentum and a life of its own. But time is the enemy of all deals. As the deal process drags on, buyers and sellers start to lose interest.

Material changes. Material changes in the business’s operations can occur at any time. While these changes may be completely out of the seller’s control — recession, loss of a large client, loss of a key employee — these changes can stop a deal from closing. However, if a material change occurs, the seller must disclose it promptly and fully to the potential buyer. Nothing will destroy a buyer’s trust more quickly than the seller failing to be upfront about a material change in the business.

Renegotiating terms of the deal. Renegotiating the terms, conditions, structure, representations and warranties of a settled deal can be a deal killer. At the very least, backtracking components that have been previously agreed to kills momentum, adds time and causes deal fatigue. Worse, it fosters distrust and can call into question all other components of the deal structure previously negotiated.

Reaching for the last dollar. It is completely understandable that sellers who have put everything into their businesses want to get every dollar out. Often, the owner traps herself mentally by fixating on a specific price. Multimillion-dollar deals have been lost over a few thousand dollars. I recommend to clients that they should examine all components of the deal’s structure — not just the final offering price.

Inadequate advisers. Selecting a quality deal team is critical. In my experience, owners who are very good at building successful businesses, often stumble in a sale.

Selling a business is a once-in-a-lifetime event for most owners. But most also have never sold a business and do not have the skills to complete a deal on their own, which increases the likelihood that they’ll leave money on the table.

Gathering a team of skilled advisers can help. These aids should include an experienced mergers and acquisitions consultant to lead the transaction team; a skilled wealth management firm to help owners preserve their proceeds and to minimize tax obligations; a law firm with significant transaction experience; an accounting firm familiar with the tax implications of various deal structures; and a strong investment banking firm with deep industry experience, solid valuation expertise and keen negotiating and closing skills to get the deal done.

Gary Miller is founder and CEO, GEM Strategy Management, Inc. an M&A management consulting firm specializing in middle market privately-held companies. Gary’s team provides advisor services on M&A planning, exit planning, business transfers, preparing companies to raise capital, or owners to sell their companies, due diligence, valuations, and merger integrations.  You can reach Gary at 970.390.4441 or


Goals of strategic vs. financial buyers

PROOF IMAGE - SDR Ventures executive headshot session Feb. 7, 2015. (copyright Mark T. Osler. ALL RIGHTS RESERVED.

Gary Miller, Founder and CEO, GEM Strategy Management, Inc.


Business Sunday, OCTOBER 25, 2015

I work with business owners who need to raise capital or want to sell their companies. Most are unprepared to do either. There are many reasons for this, but three of the most important ones are: (1) They lack a well thought-out business plan; (2) They do not know whether to raise debt or equity; and (3) They do not understand which kind of buyer/investor to reach out to – either a strategic buyer or a financial buyer. Knowing the key differences between how these two groups think can help you improve your chances of a successful outcome.

Strategic buyers/investors are operating companies that sell products and/or services. Some may be your competitors, suppliers or customers. Others could be unrelated to your company’s specific business, but are looking to grow in your market space to diversify their revenue sources.

 Financial buyers/investors are private equity firms (also known as “financial sponsors”), venture capital firms, hedge funds, family investment offices and ultra-high net worth individuals (UHNWIs). These firms and individuals make investments in companies expecting a significant return on their investments (ROI). They identify privately owned companies with solid growth records, consistent earnings, strong management teams, attractive future growth opportunities and sustainable competitive advantages.

Strategic and financial buyers have fundamentally different goals. Therefore, the way they approach a business purchase or investment can differ significantly. Here are six major ways that these two groups differ when considering a potential purchase or investment.

  • Strategic buyers evaluate acquisitions largely in the context of how the business will “fit in” with their existing companies and business units. For example, as part of their due diligence and analysis, strategic acquirers will focus on to whom products or services are sold. They will examine market segments, economies of scale in your manufacturing processes and your intellectual property that could give them a competitive advantage.
  • Conversely, financial buyers won’t be integrating your business into a larger company, so they generally evaluate an opportunity as a stand-alone business. In addition, they often buy businesses with debt, which causes them to scrutinize the business’s capacity to generate cash flow to service the debt and to ensure that the company can generate an acceptable ROI. While both buyer groups will carefully evaluate your business, strategic buyers focus heavily on synergies and integration capabilities whereas financial buyers focus heavily on standalone cash-generating capability and earnings growth capacity.
  • Strategic buyers are usually more “up to speed” on your industry, its competitive landscape and current trends. They will spend less time deciding on the attractiveness of the overall industry and more time on how your business fits in with their corporate strategy. Conversely, financial buyers typically build a comprehensive macro view of the industry and a micro view of your company within the industry. This macro view analysis, might ultimately determine that they do not want to invest in any company in a given industry. This risk is usually not present with a strategic buyer that is already operating in the industry.
  • Strategic buyers focus less on the strength of your company’s existing “back-office” infrastructure as these functions will often be eliminated during the post-transaction integration phase. Since financial buyers will need this “back-office” infrastructure to endure post-transaction, they will scrutinize it during the due diligence process and often seek to strengthen such infrastructure post-acquisition.
  • Strategic buyers often intend to own an acquired business indefinitely. Therefore, they fully integrate the company into their existing business. Financial buyers typically have an investment time horizon from four to seven years, at which point they seek to sell/exit the acquired business. Financial buyers will be more sensitive to business cycle risk than strategic buyers. Financial buyers/investors will be thinking about various exit strategies well before investing in or buying your company.
  • Financial buyers are in the business of making acquisitions. It is one of their core competencies to execute deals in a timely and efficient fashion. Strategic buyers may not have a dedicated M&A team. Therefore, a strategic buyer may be encumbered by slow-moving boards of directors, bureaucratic committees, and conflicts with senior management.

From my experience, the factors and processes that strategic buyers employ can often take longer than with financial buyers. Regardless of which buyer category you choose, be prepared for a six to twelve month thorough preparation process BEFORE you decide to sell.

Gary Miller is founder and CEO, GEM Strategy Management, Inc. an M&A management consulting firm specializing in middle market privately-held companies. Gary’s team provides advisory services on M&A planning, exit planning, business transfers, preparing companies to raise capital, or owners to sell their companies, due diligence, valuations, and merger integrations.  You can reach Gary at 970.390.4441 or