IN THIS ISSUE: “Fall FORWARD” Letter from the 2022 IBBA Chair. Plus, The Beginning and Current Usages of Market Pulse, Similarities Between Show Business and Business Brokerage, Affiliate Spotlight Articles, Interest Rates and SBA Fees, Legislative Updates, and more!
Main Street News September 2015
Letter From The Chair
It is hard to believe that summer is soon coming to an end! I hope you are all taking opportunities to soak it in by experiencing new travels, taking time to relax, and/or spending precious time with family and friends. As the season closes, I always personally find myself reflective and thankful for the gifts in my life, and most importantly, the people in my life.
As the IBBA’s Chair, this sense of gratitude also extends to my IBBA ‘family’ so I would like to take this opportunity to say “Thank You” to our Board, Committee Members, and all those who generously contribute their time and talents to the IBBA. I’ve had late night phone calls with many of you; we’ve worked on IBBA matters together over precious weekend time; you are the first responders when we need input and feedback to continuously improve the IBBA; you attend Committee calls while on vacations; we’ve agreed and disagreed with each other in the spirit of making the IBBA better and stronger. I sincerely appreciate and respect all those interactions and contributions.
The truth is, it is not me, or any Chair for that matter, that defines the IBBA. The IBBA is defined by the collective actions, decisions and inputs of many. Passionate people, committed to acting in the best interests of IBBA membership and the industry at large, are what will continue to drive this organization into the future. If you’ve been on the fence about getting engaged, I implore you to jump in.
In that vein, please also be sure to attend our Meet the Candidates Town Hall webinar on September 9th at 12pm Eastern, where you will be introduced to the Candidates for the 2016 Board of Directors. We have an exceptional roster of 6 individuals who all have the capacity to make valuable contributions. To the Candidates, I extend my ‘Thank You’ as well for your willingness to assume these important roles.
To conclude, my message this month is simple: Thank You.
Now, enjoy the rest of the summer while it lasts!
All the best,
Jeff Snell, August 25, 2015
How to Sell Related Commercial Property with Your Business Listings
Here’s the set up…
A business you have listed for sale is $900,000. The buyer has completed due diligence and it looks interesting – right industry, right location, right valuation – they’re thinking about making an offer.
The Seller also has the building that the business operates from for sale. The asking price is $1,100,000 and that seems reasonable considering the location, size and condition. The Buyer knows the commercial property will be sold based upon its actual current appraised value so the price isn’t so much the concern, but the impact on cash flow to service the additional debt (over double) seems daunting.
Before throwing your hands up consider the following. This is a situation where the art of the structure is actually a sales tool.
In most cases a commercial lender WANTS to loan on associated commercial property because it increases their collateral base increasing the Buyers chances for approval.
There is a lesser known program via the SBA that allows a commercial lenders financing the acquisition of a business and related commercial property to receive a term of 25 years – 15 years longer than a business only 7a loan If the real estate is 50% or more of the total loan amount. If the property is less than 50% of the combined loans the term is calculated from the relative price of the business vs. the commercial property.
So what does this mean? Well, an SBA 7a business only acquisition loan is amortized over a ten year term with 10% down at 6%. A $900,000 business acquisition transaction would carry a $8,992.66 monthly payment for ten years.
But, what if the Buyer purchased both the business and the commercial property which now requires a 25% total down payment (~10% of this amount Seller note on full stand-by for two years and 15% Buyer down payment – 5% more on the business loan). If the total project was $2,000,000 the payment based on a 25 year term at 6% would be $10,953.12 or $1,960.46 more per month. That intuitively seems like about $24,000 fewer dollar in your Buyers pocket over the next 25 years right?
Wrong. Because we haven’t considered the cost of renting if he doesn’t buy the building. There is going to be one or the other – rent or mortgage payment. We know what the incremental mortgage payment is ($1,960.46) but what would the rent likely be?
The answer is at an 8% CAP rate the rent would be $7,333.33 per month (ignoring CAM, taxes, insurance, maintenance, etc.) or a net $5,372.87 rent savings per month. That’s $1,611861.00 MORE in your Buyers pocket over the next 25 years not to mention the probably appreciation in value of the commercial property.
So, if the buyer can afford the $210,000 ($45,000 additional down payment for the business portion plus $165,000 for the building down payment in this example) in virtually all cases you can see that it more than makes sense to purchase associated commercial real estate when purchasing a business.
Not to mention the commission on a seven figure real estate transaction!
Town Hall “Meet The Candidates” Webinar
Join us for a Town Hall webinar on September 9, 2015 at 12:00pm Eastern, to meet your candidates for the 2016 IBBA Board of Directors. Now is the time to get engaged and make a difference!
IBBA University Announcement
Pratt’s Stats Private Deal Update, 3Q 2015
A quarterly publication analyzing private company acquisitions by private buyers from the pratt’s stats database.
The information provided below is excerpted from the Pratt’s Stats Private Deal Update: 3rd Quarter 2015, which is copyrighted by and available exclusively from Business Valuation Resources, LLC. Brokers who contribute transaction details to Pratt’s Stats on closed business sales receive the complete Private Deal Update plus three months of free access to the database for each deal included in Pratt’s Stats.
The quarterly Pratt’s Stats Private Deal Update (PDU) provides general trend information on valuation multiples and profit margins for transactions in the Pratt’s Stats database, available exclusively through Business Valuation Resources, LLC (BVR) at www .BVMarketData.com.
Financial advisors, merger and acquisition professionals, business appraisers, business brokers, investment bankers and many others use the Pratt’s Stats database to determine the value of their subject company by applying the market approach with comparable company data.
Pratt’s Stats is the premier source for private business purchase details and includes both private and public buyers with over 100 data points that highlight the financial and transactional details of the business sales. As of the publication date, the Pratt’s Stats database contains 16,291 transactions in which the buyer was a private party. The database includes over 23,295 transactions in which a privately held company was sold to either a private or public buyer.
The charts and graphs presented below display median values.
MVIC: Total consideration paid to the seller and includes any cash, notes and/or securities that were used as a form of payment plus any interest-bearing liabilities assumed by the buyer. The MVIC price includes the non-compete value and the assumption of interest-bearing liabilities and excludes (1) the real estate value and (2) any earn-outs (because they have not yet been earned, and they may not be earned) and (3) the employment/consulting agreement values.
International Business Brokers Association (IBBA)
Members who submit completed transaction information receive a three-month complimentary subscription to Pratt’s Stats, for each included deal, as well as a complimentary subscription to Pratt’s Stats Private Deal Update, a quarterly publication analyzing private company acquisitions from the Pratt’s Stats database. Pratt’s Stats collects private business transactions of main street businesses from business brokers, as well as from middle market M&A advisors where a public company purchases a private company. The Pratt’s Stats database is updated monthly with an average of 100 transactions. Pratt’s Stats users enjoy:
- Easy searching that identifies comparable transactions by keyword, revenue range, industry name, SIC code, profitability margins, company name, and more
- Hard-to-find data on how deals are structured including payment terms, purchase price allocations, employment agreements, non-compete agreements, private company financial statements, private company financial ratios
- Valuation multiples that point to the greatest value drivers
- The ability to track market pricing trends via Pratt’s Stats timely deal updates
- Access to payment term information including contingency payment and transaction fee details
- Asking price vs. selling price comparisons for spread analysis
- Listing date and selling date inclusions for time-on-market analysis
Pratt’s Stats Private Deal Update, 3Q 2015
As a key stakeholder in the transfers of private businesses, you know how crucial comparable business data is to pricing your clients’ companies. Pratt’s Stats, published by Business Valuation Resources (BVR) and featured in Inc. Magazine and the New York Times, contains detailed financial information on 23,290+ acquired private companies.
BVR invites you to submit your closed transaction details to Pratt’s Stats, the leading private company transaction database. In exchange you’ll receive complimentary access to: 1) all financial and transaction data in the Pratt’s Stats database, 2) a subscription to the Pratt’s Stats Private Deal UpdateTM, and 3) use of the new, time-saving tool, Pratt’s Stats AnalyzerTM. You can submit confidentially— we won’t disclose any information you do not wish to.
3 Easy Steps to Submit
- Register online at: bvmarketdata.com/contribute
- Gather your closed transaction deals and login
- Click on “Submit Deal” and complete the form (you can also submit closed transactions via fax/email). If you have a larger quantity of closed transactions to submit (100+), a BVR representative will travel to your
office (free of charge) to review and enter the deals!
Submit Your Closed Transaction Details and We’ll Give You:
- 3 months of FREE access to Pratt’s Stats for EACH closed transaction you submit that’s included in Pratt’s Stats
- Pratt’s Stats Private Deal Update – a quarterly analysis of private company acquisitions by private buyers from the Pratt’s Stats database
- Use of the Pratt’s Stats Analyzer – a time saving tool to help you more easily and quickly analyze the sales you find in your searches
- Listing in BVR’s referral directory – used by sellers and buyers searching for intermediaries
- Chance to win an iPad Mini for EACH closed transaction you submit that’s included in Pratt’s Stats. The more sold deals you submit, the more entries you receive into our quarterly drawing.
Don’t wait – submit your transactions today and reap the rewards!
For more information, please contact: Zac Cartwright or (971) 200-4840
IN THIS ISSUE: “Ladies and Gentlemen…it’s Half-Time”, Letter from the 2022 IBBA Chair. Plus, What Small Business Owners Need to Know About Succession Planning, Building Your Seller Prospect Pipeline, Staying True to a Single Vertical, Legislative Updates, and More!
The biggest wealth transfer in history is well underway, with baby Boomers exiting businesses every day – but we are only halfway thru the wave – there is a lot more to come. Good brokers are finding they need to provide more than just transactional advice and services. Owners need help to understand what their […]