Tuesday, June 26, 2018

Enough is Enough

The image of a crying two-year baby while her young mother is handcuffed at the border is enough to bring tears to your eyes. The “zero tolerance” policy of the Trump junta is cruel, inhumane and counter to the principles that built America into a great country. Instead of “Making America Great Again”, Trump is bringing ruin and destruction to the moral authority that is the foundation of our greatness as a nation. 

America has experienced long periods in our history where the behavior and acquiescence of our government ran counter to the principles outlined in the soaring documents of freedom and liberty penned by the Founding Fathers. Our 250 years of African slavery remains the biggest blemish that continues to have profound consequences for American society today. But this recent surge of arrest of migrants from Central America at our southern border, and the separation of children from their parents is an act of historic malevolence.  

We cannot let this stand. I am proud of the Republican Governor from Massachusetts, Charlie Baker, who I had the honor of working with while I was President and CEO of the Greater New England Minority Supplier Development Council, for standing up to President Trump and refusing to allow National Guard troops from Massachusetts play any role in this fiasco at the border. I am also proud of the Democratic Governor from Colorado, John Hickenlooper for issuing an executive order banning any of the resources of Colorado from being used in these shameful acts.

It is now time for Corporate America, to stand up and demand an immediate stop to this and return these children to their parents. A Trump junta official after the G7 meeting stated there is a "special place in hell" for our friend and neighbor, Justin Trudeau the Prime Minister of Canada for having the blasphemous audacity of standing up to Trump. Well, this phrase is much more appropriate for those officials who condone the separation of babies from their mothers. We can and should have a political debate about immigration. We can even pursue policies that strengthen our borders. But there is no need to incarcerate two-year old children while simultaneously separating them from their parents. Our jails are already too full from the consequences of poverty and neglect.

There is a line in the Hamilton play where they sing “history is watching.” We will look back at this episode along with the president’s remarks after Charlottesville, his remarks about the inability of an American judge of Mexican descent to judge him fairly because of his ethnicity, his attempted Muslim ban, his remarks to our friends at the G7 meetings in Canada, and his constant calumny and dishonesty about all subjects and ask: “Where were we and what were we doing about it?”

I believe that corporate supplier diversity is something that brings out the best in all Americans, when done well. We have proven over the past 30 years that we can build significant and mutually beneficial relationships between the great-great grandchildren of former slaves and the leaders of industry. It is this same spirit that we desperately need now. But more than spirit, the time for action is now. We can support lawyers who are defending these immigrants. We can call our Congressmen and Congresswomen and demand that they take legislative action curbing the cruelty of this administration. We can register to vote and encourage others to do the same. We can even send an email to the White House. We must not, we cannot stand idly by. Enough is Enough!

In your service,

Dr. Fred


Tuesday, May 8, 2018

Why Wouldn’t I Sell My Company On My Own?

 RKJ Partners: 
Sell-Side M&A Newsletter
Volume 1, Article 2 

RKJ Partners, LLC is an Atlanta, Georgia based investment banking firm designed to specifically assist dynamic, lower middle market growth companies in executing transactions less than $100MM.                                    
RKJ Partners, LLC 4514 Chamblee Dunwoody Rd.,  Suite 170 Atlanta, Georgia  30338 p. 404.424.9580 www.rkjpartners.com     

 March 2018
Can you see around corners? Of course not! Not a month goes by where we don’t hear:

“Bob wasted months negotiating with a buyer who couldn’t come up with the cash to buy his company. All his employees found out and some quit. Worse, a customer found out and switched providers.”

“John sold his company for a very low price with a bad structure and got hit with a big tax bill and an IRS audit.”

An investment banker can help you predict and prepare for these scenarios as well as what’s around each corner in the business sale process.

The Need for an Investment Banker.
Handling the sale of your business is akin to being your own lawyer. In the same way that a highly skilled advocate fights for your success against another well prepared legal team, an investment banker stacks your odds on achieving your goals.

Most business owners are focused on the day-to-day challenges and activities of running their company but are not experienced in the business sale process which is often a once-in-a-lifetime event. Handling your sale alone can lead to critical mistakes that can be avoided. The time to experience the learning curve is not when selling one of your most valuable assets. Lack of proper preparation and not utilizing a highly skilled investment banker team can lead to a less than desirable outcome.

Achieving the best net financial reward requires a carefully planned and structured process. Each step must be handled correctly the first time. Owners are experts at running their companies, but few are prepared to navigate this complex process; putting them at a distinct disadvantage. An investment banker provides invaluable advice, support and representation – most importantly, the benefit of experience that can make the difference between a successful transaction and a missed opportunity.

Access to Interested & Qualified Buyers.
All too often business owners will focus on prospects they already know – vendors, customers, employees, or competitors. Buyers such as these frequently lack the means and motivation to pay what a company is really worth compared to buyers who have strategic acquisition goals and are willing to pay accordingly. Some of the most qualified buyers are often the most unforeseen. For many, private equity groups are among the most desirable potential buyers. A business owner is not typically intimate with these markets and therefore may miss out on an opportunity to maximize the transaction. In the end, identifying the “right” acquirer strongly influences market value.

What to Expect from Your Investment Banker.
An intermediary will manage the business sale process from inception to completion. Initially, an intermediary provides feedback as to likely valuation range and transaction structure alternatives. This will confirm whether the expectation of value and yield is in line with your goals. You will then be better positioned to determine whether it makes sense to pursue an exit strategy now, or prepare the Company for a sale in a future period.
Once you determine if pursuing a sale or other business transaction is the right move, you will benefit from these additional aspects in which an investment banker’s expertise will play a significant role in achieving your goals:
  • Provide total confidentiality
  • Negotiate every aspect of your deal on your behalf
  • Provide a realistic and likely value of your business
  • Identify and locate the best buyer
  • Package, present and market your business to optimize value
  • Qualify buyers
  • Establish the most beneficial transaction structure
  • Draft and negotiate Term Sheets / Letters of Intent
  • Navigate through due diligence
  • Contract negotiations
  • Manage and maximize the probability of a successful sale

The Real Question.
If it’s time for you to consider selling your business, maybe your next question shouldn’t be, “Why wouldn’t I sell my company on my own?”, but rather, “How do I assemble the right team to ensure nothing is left on the table?”
RKJ Partners can assist you in the process of selling your company.  We look forward to speaking with you.

About RKJ Partners, LLC

RKJ Partners, formed in 2008, is an established advisor to leading lower middle-market growth companies. We provide our clients with experienced-based solutions and unbiased advice. Our comprehensive array of strategic advisory and execution capabilities allows us to meet the needs of our clients and provide an outstanding level of service in connection with a variety of transaction processes, including:

      • CAPITAL ADVISORY: RKJ possesses substantial expertise in assisting lower middle-market clients raise capital to fund growth strategies.  Whether the capital source is senior debt, mezzanine/subordinated debt, private equity, or venture capital, RKJ has both extensive and relevant relationships within the capital community to enable the deployment of optimal solutions for our clients.

      • MERGERS & ACQUISITIONS: RKJ serves as a trusted advisor in executing merger and acquisition transactions for lower middle-market clients. In addition to our significant investment banking transactional experience, RKJ’s bankers have owned businesses and have served in interim CFO roles for clients.  As a result of our experiences as business owners and senior level managers, RKJ’s bankers are able to bring a unique perspective to the mergers and acquisitions process.  RKJ’s mergers and acquisitions services include: 

  • Buy-side and Sell-side Advisory
  • Divestitures 
  • Leveraged & Management Buyouts

    • STRATEGIC ADVISORY: RKJ provides financial advisory services to owners, management, shareholders and their boards to assist in the evaluation strategic alternatives and options for extending and/or maximizing shareholder value.  RKJ’s advisory services include: 

  • Business Valuations
  • Capital Structuring & Planning
  • Negotiating Joint Ventures 
  • Strategic Business Development

Thursday, April 5, 2018

Sell-Side M&A

RKJ Partners, LLC is an Atlanta, Georgia based investment banking firm designed to specifically assist dynamic, lower middle market growth companies in executing transactions less than $100MM.
 Part 1

All Revenue Is Not Created Equal

April 2018

A business owner should always have a realistic understanding of the factors that increase or detract from business value, regardless of their intention and timing of selling the business. A common misconception is that someone can estimate the value of a business based upon a formula that is tied to gross revenue; however, experienced buyers and valuators appreciate that all gross revenue is not created equally and the factors that impact quality of revenue play a significant role in the value of a company. Fact: Business value typically has very little or nothing to do with gross revenue.
Which company would you value higher: 1) A company generating $12 million in revenue and $400,000 in earnings, or 2) A business generating $7 million in revenue with $1.5 million in earnings? With all other factors being equal, the company producing $5 million less revenue but yielding 21.4% return is worth substantially more than its larger counterpart that only yields earnings of 3.3%.
Sophisticated acquirers understand that it is profitability rather than revenue that drives value. Revenue can typically be increased if there is no concern for the profit margin associated with the increased revenue, and customers will do business with you if you are willing to “give your products or services away”. Differences in profitability have an unmistakable impact on value and marketability. Factors that lead to differences in predictability and sustainability of revenue are harder to identify and quantify. The more predictable and sustainable the revenue stream, the higher the associated value. Conversely, the greater the uncertainty that particular revenue streams will continue going forward, the lower the value. The following risk factors and value drivers are primary determinants impacting predictability and sustainability of revenue:
  • Customer Concentration: Revenue concentration is a major factor impacting value. There could be two companies that have identical sales and earnings; however, if one company has three customers that represent over half of the total revenue and the other company has no client representing greater than ten percent of total revenue, then second company, with a more diversified customer base, will generally command significantly higher value and provide the acquirer with a greater comfort level. When there is revenue concentration, one event that leads to a loss of a major customer can significantly impact a company’s earnings overnight.

  • Past Performance Mirroring Anticipated Future Results: Someone buying or valuing a business will rely on historical financial information only to the extent that they consider historical performance is indicative of what is likely to transpire going forward. For example, if 50% of a company’s revenue is tied to a product line that has a questionable future due to changes in technology, little or no weight will be applied to its historical performance. This would be the case for a company such as a compact disc manufacturer that may have had substantial historical earnings; however, changes in technology and electronic media cast doubt on future demand for these products.

  • Legislative Changes: Government policy and regulation are other elements that impact various industries. A good example is companies that rely on third party reimbursement such as health care companies who depend on Medicare and Medicaid reimbursement educational companies who need federal and state student funding; or businesses impacted by international trade regulations and restrictions. The less reliant a company is on third party influences, the less they are subject to being impacted by changes in areas that are out of the company’s control.

  • Repeat Customer Base: There is a considerable difference in revenue quality between a company that generates the majority of its revenue from repeat business with established customers compared to “one and done” type of companies with few repeat orders. Repeat business creates predictability and stability. Even if the end users are different, cases whereby a company’s sales originate from relationships with established referral sources, lead to the ability to accurately forecast future revenue streams and ultimately earnings. The more these repeat relationships are likely to impact future revenue, the greater the associated goodwill value. Furthermore, the greater the barriers of exit that exists for customers to make a change, the more predictable the revenue stream. For example, in manufacturing and pharmaceutical packaging, if changing vendors requires that a company incur significant costs and delay in new tooling or government agency approval, it will deter changing suppliers.

  • Bidding vs. Direct Purchase: As a general rule, less value is placed on a company whose revenue is heavily reliant on a bidding process. Many think of this as only acquiring a company’s reputation and its right to bid on future business. Construction companies face challenges in this area impacting value and marketability since most of their revenue is obtained on a bid basis and is therefore not predictable. It follows that the more you can differentiate your offering and offer proprietary based products or services, the greater the perceived value. Bidding can also be mitigated by longevity on contracts and number of historical contract renewals.

  • Customer Relationships: Relationships can play a major role in predictability of revenue and ultimately earnings. If the business owner controls or is the key point of contact for critical customer relationships, then there is an inherent dependency on the Shareholder’s active involvement and management of the customer. The ability to transition these relationships and create multiple points of contact within an organization to manage and retain the relationship, all increase comfort level, the ability of an owner to exit in a timely fashion post-sale, and ultimately overall value received. An acquirer will be wary if the sustainability of a revenue stream is completely dependent upon an existing owner. Relationships with key employees hold the same risk. For instance, a company who has a salesperson that controls 80% of the revenue is highly susceptible to the risk of them leaving with these customer relationships. Ideally a company should strive to have multiple points of contacts within its own organization as well within the customer’s organization. If there is one key player in the company that the business channels through and that one person was to leave, it is likely that the business would follow. This can be mitigated by the seller incentivizing the employee in the sale and/or paying them a retention bonus at the end of each of the first two or three years that they remain with an acquirer.

The aforementioned factors have a major impact on the value that potential acquirers place on a company’s revenue stream. Whether your intent is to pursue a sale of your company in the near future on hold onto your business for the long term, paying attention to the factors discussed above will enhance your company’s value, decrease risk, and provide increased options and opportunity.
About RKJ Partners, LLC

RKJ Partners, formed in 2008, is an established advisor to leading lower middle-market growth companies. We provide our clients with experienced-based solutions and unbiased advice. Our comprehensive array of strategic advisory and execution capabilities allows us to meet the needs of our clients and provide an outstanding level of service in connection with a variety of transaction processes, including:

Founder & Managing Partner

Managing Partner

Managing Director

Vice President

Senior Associate