- April 01, 2014
Register now for the 2014 IBBA Spring Conference, to be held June 2 – 7 at the Cosmopolitan of Las Vegas. Enjoy a brand new format of interactive discussions centered around increasing your deal pipeline and attracting better clients. In addition to the new Mastermind Sessions, take one of ten educational courses taught by veterans of the industry, attend traditional workshops on subjects of deal case studies and tax updates, experience entertaining keynote presentations, and interact with industry service providers in the Main Street Marketplace. Reserve your hotel room by May 5 and register by May 21 for the best possible rates!
“Membership in our association is not for everyone. Only those dedicated to delivering the highest levels of professional service and ensuring that business owners and buyers receive the greatest benefits from, what is for most, a life-changing event. You are one of those people.”
– Steve Wain, IBBA Chair
Steve Wain, CBI, M&AMI
Earning More? Here’s How.
I have many discussions, phone calls and meetings all the time in order to increase my business opportunities. I consistently have to balance the effort of client time, prospect time, professional development time and personal time. I’m guessing each of you do the same. The Holy Grail is the search for that optimal mix. I’ll save you some time—the magical answer isn’t found at the end of this article!
What I do have are ways to move the balance more in your favor. You’ve heard me state on a number of
occasions that when I joined the IBBA years ago I had a hope that the association would provide a number of benefits, such as:
I was in awe at my first conference at the amount of information sharing and cooperative spirit exhibited by the many people I met who were not only taking courses like I was, but who were attending these conferences for years and years before me. It was great. So, I added the “Networking” requirement to my list of benefits I hoped to get. That made four!
So, here’s a report card on those initiatives as we sit in 2014:
What are those improvements? How do they impact you and your practice? Here’s a hint—come to the Las Vegas and Austin conferences and learn about the new benefits and why these are more than just a weak array of words.
Yes, we plan on announcing some new benefits that will impact your ability to earn more money, separate yourself from the crowd, and make your ability to succeed even greater.
What areas are these? Without giving away the ending, we will be showing you and launching new
initiatives that involve:
There’s more, but that’s just a beginning. Your Board of Directors are ensuring that proper ends policies are being pursued to help you get value from your membership each and every day. Our management company, led by Karl Kirsch and Kay Ciesla, are working hard along with other staff members to provide these benefits and initiatives to help move the pendulum once and for all in your favor, and to give you even more reason to acknowledge the value of your IBBA membership.
Membership in our association is not for everyone. Only those dedicated to delivering the highest levels of professional service and ensuring that business owners and buyers receive the greatest benefits from, what is for most, a life-changing event. You are one of those people.
Do you work in an office where others are not a part of the IBBA? Why not? Between the benefits we introduce, the advocacy of the CBI and IBBA membership and the differentiator between representation of a good business or buyer, you should convince others who are serious to this profession to get involved and learn how to be a better business broker. They, too, should come to our conferences and understand how it will help them.
The details we will announce at the conference are only part of the benefit. For the first time, we are having a best practices-oriented conference (the IBBA MasterMind Sessions) that will give you a wealth of ideas and knowledge that will assist you in ensuring that you can implement proven and successful methods and steer clear of those that don’t work. You will learn how to enhance your personal capacity for success, and even work with others in education classes that give you a chance to test how well you understand the information you’ve learned and present your professional services.
The Conference Planning and Education Committees (led by Scott Bushkie and Len Krick, respectively), have worked very hard to ensure that the Spring Las Vegas Conference and the Fall Austin Conference is going to be an event to remember.
Want to save money? Then come to Las Vegas! Want to learn how to earn an extra $100,000? Then come to Las Vegas! Want to get first-hand knowledge on how to add real functions to your everyday practice that will enhance your exposure and give you a material way to increase your professional income? Then come to Las Vegas!
There is no excuse for you to sit on the sidelines. That Holy Grail that I mentioned earlier is swinging more in your favor. Will you let others take advantage and learn how to use it to their advantage? The cost of doing business is something we all face.But your association is now, and will be even more so shortly, providing you specific ways to earn even more. Don’t be left behind.
Come to Las Vegas – Earn More!
Welcome to the new IBBA!
A recent article on Forbes.com highlighted the IBBA’s Market Pulse Survey results from the fourth quarter of 2013. Check out “Three Ways to Sell Your Business for Top Dollar“!
Jeff MacAdam, CBI
We haveWe have all been there before—you are cruising along with some great momentum, on the verge of putting a deal together, until suddenly the buyer thinks they should be allowed to meet and speak with employees prior to the closing. This can sometimes stop a deal in its tracks, but in my opinion, it never should. This article will focus on how to deal with this issue and cite a real life example to demonstrate why meeting employees ahead of time is a bad idea for both the seller and the buyer.
As intermediaries, we always look to protect our clients. When a buyer wants access to employees before closing, the risks to the seller are numerous and obvious (loss of confidentiality, disruption to the business, concerned employees, etc.). However, if these are the only arguments made when representing a seller, the buyer may not see the entire picture and perhaps even feel that some of their concerns are being validated. The key is to express to the buyer why it is not in their own interest to let the cat out of the bag prior to closing.
Now, there may be some exceptions, such as a key employee, manager or member of a bona fide executive management team (rare for a small business). Even in these instances, you will want to carefully consider the timing and nature of bringing others into the fold. Also, please note this advice pertains primarily to main street transactions and some at the low end of the lower middle market.
During a typical sell-side engagement (if there is such a thing), when a buyer suggests the notion of meeting with the employees prior to closing, my reply is rather straight-forward. While I do explain the reasons mentioned above that would be harmful to the seller, I also go on to explain why it could be harmful to the buyer after they buy the business. Specifically, if an announcement is made that the business is for sale a few weeks or so prior to the closing, you are in effect giving the employees a reason and a head start to find another job. I explain that most of these people do not have the slightest idea of what it means to buy or sell a small business and they may associate a negative connotation or at least some uncertainty with the sale. Those living paycheck-to-paycheck will undoubtedly be concerned. They have all seen the headlines about public company megamergers and the layoffs that will sometimes result. But they have no frame of reference for a small privately-held business transaction because it’s just that – private.
Chances are that the buyer had not considered these concepts and will want to know how to mitigate employee concern, even if an announcement is made after the closing. Now they are moving into the right mindset. I explain that the message is to be nothing but positive and reassuring; “rah-rah”, so to speak. The buyer will want to explain that nothing is to change and that they intend to keep everyone employed. Further, since there is usually a transition period with the seller, they will explain that their “beloved” boss is not going anywhere for a while and remaining with the business. So, while there may be some initial shock from the employees, seeing the seller and buyer working together every day post-closing and seeing that nothing has changed from a job security or quality of working life perspective usually keeps the status quo. Before long, it’s business as usual. The unknown is what causes employees to look elsewhere, which is exactly what a buyer creates by exposing the truth early and then showing up at some point in the future to begin running the business.
The “case study” that I would like to share concerns a deal that I managed where the buyer was allowed to meet with employees prior to the closing. However, this was a transaction where I represented the buyer, not the seller. My firm does quite a bit of buy-side representation, which can be grueling at times. But that is a different article for a different day.
We were still a month or so out from the target closing date and my client wanted to meet with the employees. Naturally, I discussed the reasons why it may not be a good idea. However, despite my advice, this was something they really wanted to do and the seller did not object. The meeting seemed to go fine and everyone was happy. Subsequently, the deal dragged on for the all too familiar challenges that we face as intermediaries—hoops to jump through with the bank, negotiating the definitive agreement, and the seller and their CPA deciding they want to defer closing into the new year for tax purposes. But we eventually got the deal done and again, everyone was happy—or so we thought. Less than six weeks after the closing, one of the lead technicians left to work for a competitor. This is a specialized business and experienced people can be hard to find. My client learned that this was not something that was put into play after the fact, but that this person had looked for another once learning the business was being sold. Apparently, the grass was indeed greener for this individual, who I firmly believe would never have left had they not had some time to wonder what it would be like to work for a new owner. This did sting a bit for my client, especially as they were still getting acclimated to the new business. But luckily, it was not catastrophic and they have since rebounded. I can only imagine that others have not been as fortunate.
The point here is simple. Seller and buyer have aligned interests when it comes to this delicate matter. This is not mere rhetoric when we are protecting our sellers but good, practical advice that any buyer must also consider. Deals are always about balancing the risk with reward and in my experience, most buyers are not properly assessing their own risks when asking to meet with employees prior to closing.
Strategic Issues Task Force
Bailey McCann and Matthias Knab have graciously allowed us to share Bailey’s recent articles on regulatory and legislative initiatives affecting everyone in our profession that were recently published in Opalesque e-news.
Part 1 contains comments from Faith Colish, the attorney whose letter to the SEC on M&A broker activities resulted in the January 31, 2014 SEC M&A Broker No Action Letter Response.
Part II includes an interview with Shane Hansen, the Warner Norcross & Judd attorney whose help has been instrumental and critically important in achieving our industry’s M&A broker exemption progress to date. The Campaign for Clarity championed H.R. 2274, which passed in the House by a unanimous vote of 422-0. The companion bill to H.R. 2274, S. 1923, is currently under consideration in the Senate Banking, Housing and Urban Affairs Committee.
SEC Allows Some M&A brokers to Operate without SEC Registration (Part 1)
There may be a glimmer of hope for investment firms when it comes to new financial regulations. In February, the SEC released a significant no-action letter for M&A brokers and the investment management industry. The letter effectively permits an M&A broker who complies with all applicable conditions to receive transaction-based compensation for facilitating mergers, acquisitions, business sales, and business combinations between sellers and buyers of privately-held companies without registering as a broker with the SEC, regardless of the size of the transaction.
The change is notable, as many of these activities were previously covered under a more restrictive, “country business” rule which limited both the activities of an M&A broker as well as the size of the transactions. “This is new because the SEC was unequivocal that being involved in a transaction in this way would make you a broker and require for you to register,” explains Faith Colish, Counsel with Carter Ledyard & Milburn LLP, to Opalesque. Carter Ledyard was one of the leading firms involved in the no-action letter. “Previously, there were some allowances under the Country Business no-action letter, but this new M&A Broker letter goes much further.”
“This has broadened Country Business which was a no-action letter issued by the SEC in late 2006. Country Business is extremely restrictive. The intermediary is permitted to engage only in limited activities and the companies that are the subject of the transactions the intermediary can participate in are also limited in size, as defined by the SBA. The new no-action letter gives the M&A broker fewer restrictions on the types of services it can perform and also does not limit the size of the company that is the subject of the transaction,” adds Ethan L. Silver, Partner, Carter Ledyard.
Also significant, is that the letter appears to be the first in a series of moves happening within financial regulators to deal with brokers oriented toward specific types of transactions (M&A, corporate finance, etc) and make regulation more responsive to those activities. FINRA recently examined a proposal that looks at corporate finance brokers, and there are credible rumors that the SEC is considering guidance on capital raising for hedge funds this year.
“The JOBS Act has enabled regulators to think outside the box and realize that there are categories of brokers, like M&A, crowdfunding, and angel investors that need a slightly different regulation. This could lead to a better type of regulation for private placement finders – a subset of which is the M&A intermediary,” says Colish.
That said, the letter does contain some limitations. Specifically, M&A transactions must involve a privately-held company. This company must also be an operating company that is a going concern and not a shell company. Once completed, the buyers in the transaction must have control and actively operate the company or the business conducted with the assets of the acquired company. In addition, while the M&A broker can arrange financing, that does not mean they can provide that financing.
It is also important to note that the letter only extends so far as a transaction-by-transaction level, as long as a broker meets all of the conditions of the letter then the exemption will exist for that transaction. The specificity of the scope could have implications for firms whether they are already registered with the SEC or not. Still, Colish says “the letter could provide a pattern for other limited-purpose brokers to advance their goals with regulators.” In part two we’ll take a closer look at a bill currently working its way through the US congress that may be further supported by the existence of this no-action letter.
M&A Broker See Regulatory Relief (Part II)
In the first part of this series we covered a recent No-Action Letter issued by the SEC, which relaxed some of the rules around transaction size and fees that can be collected on a transaction. There is also a coordinated effort to make this relief binding by changing the federal laws around M&A brokers.
The Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act (S. 1923 and H.R. 2274) would effectively simplify and cut costs around federal securities regulation of business brokerage services in privately negotiated business mergers, acquisitions, and sales of small and mid-sized businesses. Brokers would see relief on registration requirements and would also have clearer guidelines on how and when they can charge fees for service.
The current law offers a one-size-fits-all approach and in practice this means that the big transactions, handled by Wall Street’s brand name brokers, are the only ones that really meet all of the criteria. For small businesses and their M&A advisors rules are less clear. Transaction sizes are smaller, services are different and little guidance is available on what to do when your deal falls into this bucket. Buyers and sellers also feel an additional burden with steep transaction fees resulting from compliance requirements that make them act like the biggest firms in order to close a small deal.
“I think with the No-Action Letter, and conversations the SEC has had at its annual Small Business Forum, they understand that some relief is necessary but letters are not legally binding so that creates a layer of uncertainty unless you change the law,” explains Shane Hansen, Partner at Warner Norcross & Judd. Hansen has been working on what is now federal legislation since the early 2000s. “We first tried to go through the rulemaking process. And you can see that the letter borrows sections directly from the legislation, there are still some differences given legislative realities but we’re looking at functionally the same thing.”
Those legislative realities amount to slight differences in the transaction size allowances. But Hansen notes that having the No-Action Letter out there gives the bill added support because it shows that the law is already in-line with the SEC’s enforcement position.
Looking over the history of the bill’s path through Congress is almost like watching National Geographic footage of an extinct species in the wild. It has bipartisan sponsors in both chambers and saw a unanimous vote for passage in the House. The bill is working its way through the Senate, which is slower but sponsors include heavyweights like Manchin, Chambliss, and Coburn. “We’ve seen a big slowdown getting the bill through the Senate, but what other bill has passed the House with a unanimous vote in recent memory?” Hansen says. “We’re hopeful that means something in the Senate and that the bill will move forward.”
Coordinating efforts are also underway at the state government level. “We understand that changing the federal law isn’t the only part to this. Every state is different in terms of how it handles M&A brokerage, transactions, and registration. We’re also trying to implement uniform rules for states. We’ve already seen some positive efforts, I think state governments understand the issues here and want to find a way through, but it’s a learning process,” he adds.
FINRA for its part, has opened a public comment period on a similar rulemaking proposal focused on corporate finance brokers, which we mentioned in Part 1. If the FINRA proposal is successful a new category of brokers would be created known as “Limited Corporate Financing Brokers.” Registration would be required, but compliance milestones would be sized appropriately for what M&A Brokers and Corporate Finance Brokers actually do. The relief would be aimed at firms that focus solely on these areas – including boutique investment banks, and wouldn’t necessarily apply to say the M&A arm of a huge brokerage firm. If adopted, it would also permit investment banking boutiques to represent and advise both public and privately held companies and funds. The comment period is open until April 28.
According to Hansen, the rule changes are part of a broader shift at SEC. “I think since the JOBS Act mandated that the SEC start taking a look at some of these things like crowdfunding, and other niche operations you’ve seen real movement toward providing guidance. We didn’t see that necessarily before when you had these issues come up at forums year after year.” Hansen estimates that $10 trillion in privately held businesses will be sold or closed as baby boomers retire, that kind of figure and the role of business brokers in those transactions should get the attention of the SEC even if they’re still up in the air about crowdfunding.
“It’s certainly a process that we will be involved in for some time to come,” Hansen says. “These successes give us the opportunity to keep building.”
By Bailey McCann
Bailey McCann, Opalesque: ([email protected])
Matthias Knab, Opalesque: www.opalesque.com
How Can You Help?
You are in a key place right now to facilitate passing a federal securities exemption removing red tape, diminishing obstacles, reducing risks, and decreasing costs in selling a business when a partial interest, stock, seller’s carry-back or a payout over time is part of the transaction.
Please act now using the link Email your US Senators NOW! Contact your Senators, or message your Senators the best ways you know how, with your strongest contact.
This is the time to have the most impact. Decisions will be made in the near future. We have a very short window of attention. If M&A Brokers do not succeed now, our opportunity may not be presented again. Contacting your Senators which will take less than five minutes!
Linda J. Purcell
John C. Johnson
Co-Chairs, Strategic Issues Task Force
Charles was passionate in his support of the International Business Brokers Association and served for six years as a member of our Board of Directors. In 1998, the IBBA acknowledged Charles’ contributions by naming him as the third recipient of the prestigious Tom West Award and bestowing upon him the Fellow of the IBBA designation.
The Tom West Award, named for one of the IBBA’s founders, is the IBBA’s highest award. Its criteria are outstanding communication and promotion of the goals and ethics of business brokering and the enhancement of the public image of the business brokerage profession. The Fellow of the IBBA award was designed to celebrate the contributions of loyal, long-time members of the IBBA like Charles.
Charles was a graduate of Rutgers University’s College of Pharmacy. He enlisted and spent three years as a United States Marine Corp Infantry Officer during and after the Korean War.
Charles established his business brokerage and business appraisal firm in Sarasota, Florida in 1978. He was active in the business, as well as litigation support, up until the time of his death.
He also held memberships in the Institute of Business Appraisers, American Society of Appraisers, Veteran for Foreign Wars, American Legion, United States Marine Corps League and Rotary. Charles was a charter member of the Sarasota University Club and served on the Board of Jerry Lewis Cinemas. He was an usher and member of Incarnation Church in Sarasota.
Charles is survived by his “purpose for living” wife of fifty-nine years, Janet and four children – Leslie Strange and her husband Charlie of Tampa, Florida, Kimberly Bald and her husband Doug, Stacy Alario and her husband Rob, Chip Alario and his wife Robin, all of Sarasota, Florida. Charles also leaves seven grandchildren and a great-granddaughter. Pre-deceased Charles in 2003 was his old buddy Sam – a retired Labrador retriever guide dog.
Service was held at Church of the Incarnation in Sarasota, FL on Tuesday April 1st at 9:30 AM.
May 15 Course #421 (Casa Grande, AZ)
May 19-20 Course #301 & #345 (Clearwater, FL)
Jun. 2-7 IBBA Spring Conference (Las Vegas, NV)
Sep. 8-12 IBBA Fall Educational Summit (Dallas, TX)
Sep. 30 Course #117 & #424 (Atlanta, GA)
Nov. 17-22 IBBA Fall Conference (Austin, TX)