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| Through years of business ownership and transaction management, the professionals of the Dillon Group have developed extraordinary advisory and intermediary skills. These skills cannot only be applied to transactions but also to business development and increasing value. Advisor – 1: To give advice to: counsel 2: caution, warn 3: recommend Intermediary -- 1: To intermediate. Function: adjective 2: acting as a mediator Webster's Dictionary Growth Services
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A distressed purchase is a business that has significant value in its tangible and intangible assets that exceed it earnings value or the ability to repurchase those assets. The most common distressed business is a highly leveraged business that is not able to pay its debt obligation. Another commonly distressed business is the 50 plus-year-old business where the company has had little to no debt in comparison to it assets and the earning are insufficient to service the debt if the assets were fully leveraged. A software company or a company that holds a patent that has not been monetized (producing earnings) would be another example of distressed intangible value. Distressed value is typically known as a liquidation value that exists somewhere between fair market value and the value of the asset at auction. A financial purchase is a business that will sell at fair market value of the earning stream. If one reads the definitions of fair market value the key words that will stand out are "The price for which property would change hands……. and neither being compelled to buy or sell." In other words, neither the buyer nor seller is overly motivated to complete a transaction. A financial purchase will typically be a transaction that, based on historic earnings, will sell for a price that can be returned to the buyer in 4 to 7 years excluding real estate property. This price is also known as the financial value. A strategic purchase is a purchase that is made by a person or company that has a strategy to leverage the company beyond its financial value. This could be a simple consolidation/reduction of expenses that creates an extra gain in earnings or a channel leveraging strategy. The channel strategy could work either way, the purchaser could have a product that did not have the desired market share in a particular channel or the company that had a channel of distribution in place and could add the seller's product line. In either scenario the strategic purchase is know as M&A math 1 + 1 = more than 2. Usually a company that is bought at a distressed value is in actuality a strategic purchase. 1+ a negative 1/2 = more than 1. The strategic value is where the buyer is willing to pay the seller for part or all of the expected strategic gain. An example would be: if 1 + 1 = and expect 4 then the buyer may pay 2 times or more the financial value for the business. Why would a buyer pay more than fair market value or financial value? The answer is usually because the Dillon Group has created a competitive market among multiple buyers that have strategic purposes in purchasing the Target Company. In reality there are very few true mergers. A true merger is when the stock of two companies is combined proportionately into one firm versus one company buying the other company with stock. For the sake of simplicity, these two concepts will be known as mergers. In both cases the owners should expect a strategic value increase once the companies are one. Likewise the control of the evolved company is now shared based upon the voting shareholders' votes. The biggest question to ask in the early stage is will both sets of shareholders be happy with who controls the business decisions of the evolved firm? When the answer is yes, this situation will be the best form of transaction. An alliance can take many shapes. It could be as simple as an agreement to purchase products with one or more companies or as complex as a merger without combining the ownership of the parties. Most of the alliances in the US today are either purchasing or marketing alliances. In either case, the participants gain a greater reach in the market place either for buying or selling their goods and services. The Dillon Group has constructed transactions that go beyond the typical leverage of buying or selling products. Dillon has played the intermediary role in bringing together, in most cases, competitors to operate and function together as if they had merged but without the shared ownership. This type of alliance creates a unique business model that can have two distinctly different visions and leadership groups yet share in buying power, internal resources and expense savings. Think about the following question; if two competitors were placed in the same building and shared a portion of their staff, equipment, proprietary processes; what fears would need to be removed before the parties could be comfortable with the arrangement? If this question can be fully answered then the benefits can equal the Strategic value of a merger 1 + 1 = more than 2. Exit Services Selling a business can be segmented into three different types: distressed sale, financial sale, and strategic sale. These terms also apply to the value or pricing of a business, profit center, or division: distressed value, financial value, strategic value. The type of transaction does not always align with the same type of value. A highly distressed business can, if managed properly, turn into a sale at a strategic value or vise versa. A Strategic acquisition may be sold at a financial or distressed value. These values are driven not just by the earnings of the company but also by simple supply and demand principles. If a business is in high demand (buyers competing to purchase) and funding is readily available, a distressed business will sell for more than a distressed price. A highly profitable well-run business can sell for less than a financial value if the market (buyer appetite and funding) has less than normal demand. A traditional Management Buy-Out is a transaction that takes place with the internal management buying out the ownership interest. The most critical part of a business is its' people and their management ability. A sound management team will attract the needed capital to buy the business and with a little sellers assistance, could complete a majority ownership transaction with little to no investment from management. This form of selling is somewhat unique to the Dillon Group. A large percent of business owners that contact the Dillon Group hope to receive much more than fair market value of their company. In most cases, the business can be tweaked to create greater efficiencies and profit. When an owner desires to include their employees in the improvement process there can be great rewards for all parties. Whether the existing management or new management is brought in from the outside, the focus becomes making the business more desirable, stable, and profitable. Once accomplished, the employees escrowed bonuses will typically provide the needed down payment to acquire 100% of the business without outside equity investors. Though the typical middle market business owner does not think of getting assistance to transfer their business to the next generation, it can be the most important decision of their entrepreneurial career. Far too many businesses fail when passed on to the next generation. Owners significantly improve their odds of success when the transfer is carefully planned and executed with a supportive team of advisors that includes Dillon Group. The most critical element in the transaction is usually the transfer of Leadership. This has little to do with ownership and more to do with the transferring generation knowing how and when to get out of the way. The next generation can not possibly have the depth of experience of their predecessors. This lack of experience combined with an emotional hesitation to ask Dad (or Mom) for help can create a recipe for disaster. By providing the business with a transition team of financial, operational, and market advisors, the next generation can far exceed the expectations of their family. Though going public has lost popularity over the last decade it still holds a place in the deployment of unique companies. If a company, its product/service niche, and management team qualify, this action can be one of the best ways to execute a growth business plan while creating liquidity for its shareholders. Dillon group can assist in qualifying companies and determining which markets US or abroad fit the business ventures financial needs. For those special companies, Dillon Group can document and complete the process with the integration of its Net Gain alliances. Financial Services The success of any transaction can fail before it ever gets started if the project is inadequately funded. The most important issue for buyers and sellers should be the creation of a fully funded operating model. This type model gives the ongoing business the needed capital to survive and thrive. Each of the following ideas could be part of the total financial picture, like baking a cake the ingredients will vary depending upon the flavor the baker is trying to achieve. Re-capitalization is a term that is usually used to describe transactions that involve a private equity group investing in a majority or minority position in a business. In most cases, the entire business is sold into a new entity and the balance sheet is "re-capitalized" within the new company. |
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913-888-8001
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Rick Dillon
913-322-0054
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Robert Evans
260-824-5514
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Dave Fahle
816-763-5979
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Larry Dillon
916-751-1855
Email Larry
Thomas J. McCoy
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