Ð michael saccomanno, partner, friedman llp justifying a … · 2020. 11. 18. · saccomanno said...

www.njbiz.com NJBIZ June 11, 2012 15

SPOTLIGHT: BANKING/

FINANCE“Being a business appraiser, we can’t operate in a vacuum. We have to utilize what we know, but also what we don’t know. And what we don’t know, we need to get assistance.” – Michael Saccomanno, partner, Friedman LLP

By the numbers

87 Average percentage of owners’ asking

price paid by business buyers

Closed business sale transactions

79

0.70 Average times revenue

paid by business buyers

2.85 Times cash flow that business buyers paid

on average

All numbers re!ect "rst-quarter 2012 transac-tions in New Jersey reported by participating

business brokers.Source: BizBuySell.com

Christina Mazza

BY KEN TARBOUS

Business valuations often are the first step in the process of selling a company, and according to one business appraiser, there’s been an evolution in the client base hiring firms to find out what companies are worth.

“Traditionally, we would get engaged by mergers-and-acquisi-tions firms, and now, moreso, we’re getting approached by sellers and buyers that are trying to either sell their business or looking for a better opportunity to buy a business,” said Michael Saccomanno, a partner at Friedman LLP who values small to midsize companies.

Many aspects of the valuation process help owners become more prepared for a sale, but because the entire process can take months, or even years — from thinking about selling a business to closing a transaction — starting the planning sooner, rather than later, is money well spent, said Thomas W. Farrell, a financial ad-viser at RegentAtlantic Capital LLC, in Morristown, who helps companies sell their businesses.

“As a seller, you’re going to have an asking price, so if you’re dealing with one or multiple buyers, you want to be able to justify your sales price — and to be able to do that, you need to have done all the due diligence up front,” Farrell said.

And engaging the right team of professionals, such as attor-neys and accountants, for example, helps ensure the company’s re-cords and documents, like contracts and leases, are in proper order, Farrell said.

Justifying a sale price

In selling a business, !rms seek validity

> See SALE on page 16

When dealing with multiple buyers, sellers need to be able to show a justi!cation

of their sale price, says Thomas W. Farrell, !nancial adviser at

RegentAtlantic Capital LLC.

16 June 11, 2012 NJBIZ www.njbiz.com

BY KEN TARBOUS

In the days before the most recent re-cession, owners found themselves flush with high valuations of their businesses, but in the 2012 marketplace, companies aren’t fetching what they used to, according to a business appraiser who works with small- to middle-market com-panies across many industries.

“The buy-side is interesting, because

everybody thinks that they can just go in and buy a business for a discount. They want to do a fire sale, similar to the real es-tate market,” said Michael Saccomanno, a partner at accounting firm Friedman LLP, who does business evaluations for both buyers and sellers.

Achim Neumann, president of Atlan-tic Highlands-based business brokerage A. Neumann & Associates LLC, said he has

seen a change in the attitudes of owners who want to sell their businesses.

“I think everybody out in the market recognizes it’s not going to go back to the crazy days of 2007,” Neumann said.

Neumann said that he only sees sig-nificant disagreement between the owner’s expectations and the established fair mar-ket valuation in less than 5 percent of the approximately 50 business sales he han-

dles per year.Saccomanno said expectations rather

than the reality of a business’ value can cause problems for financing a sale.

“You can have a buyer and a seller ne-gotiate the purchase price, and then go to the bank for financing, and the financing doesn’t come through,” Saccomanno said.

E-mail to: [email protected] Twitter: @KenTarbous

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SPOTLIGHT®

Having those experts on board, who know the details of a business, provides re-sources for the outside consultants doing the valuations, said Saccomanno, who is based in his firm’s Marlton office.

“Being a business appraiser, we can’t operate in a vacuum. We have to utilize what we know, but also what we don’t know. And what we don’t know, we need to get assistance,” Saccomanno said.

The preparation phase can also ex-pose a company’s weaknesses early in the process, so they can be dealt with, said Achim Neumann, president of Atlantic Highlands-based business brokerage A. Neumann & Associates LLC.

“The preparatory time period serves the purpose to discover red flags that ulti-mately the buyer is going to see,” said Neu-mann, who specializes in middle-market mergers and acquisitions. “These are ulti-mately all tumbling spots an owner’s going to trip over in any type of deal.”

Neumann said he discovers obstacles doing two types of valuations:

A strategic valuation determines a fair market value and establishes the key driv-ers of the company’s value, even though the owner has no immediate intent of sell-ing the company, Neumann said. A trans-actional valuation is done when an owner

SALE> Continued from page 15


Valuations not meeting owners’ high expectations

Chris

tina M

azza

Achim Neumann, president of A. Neumann & Associates LLC, says

the preparatory period would reveal any obstacles to the valuation process.


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BY KEN TARBOUS

As part of the process of selling a company, owners need to make plans for what they’re going to do after the closing, according to a business appraiser who works with small- to mid-dle-market companies.

“There has to be a transitional pe-riod, and during that transitional period, the buyer of the business is attempting to transfer the goodwill from the owner of the business to the new buyer of the busi-ness,” said Michael Saccomanno, a part-

ner at accounting firm Friedman LLP.Saccomanno said employment agree-

ments for sellers typically run for three to five years. In the first couple years after the sale, as customers start to get to know and trust the new management team, and both the buyer and the seller are comfortable with the situation, they often renegotiate the deal, with a buyout of the balance of the employment agreement.

That employment agreement gives the seller a guaranteed income stream for sev-eral years following the sale, said Thomas

W. Farrell, a financial adviser at RegentAt-lantic Capital LLC, in Morristown.

Farrell emphasized the importance of having financial goals for sale pro-ceeds, as well as deciding on potential asset classes, and who and how is going to manage that money.

Farrell said advisers can run simula-tion analyses to determine how much money a seller needs to exit their invest-ment and make a success out of their next step — whether it’s retirement, consulting or starting another business.

And how a deal is structured is impor-tant on both the buy and sell sides, Farrell said. Asset sales are more popular with buy-ers, since they are able to allocate the pur-chase price and depreciate the assets while avoiding any liabilities the seller might still have. On the sell side, stock sales are pre-ferred because they are typically taxed at long-term capital gains rates, he said.

“Taxes permeate everything,” Far-rell said.


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wants to sell within 12 months, he said.As part of the numbers’ process, Sacco-

manno said, appraisers do preliminary re-views of financial documents to familiarize themselves with a company.

But then, Saccomanno said, the inter-view process begins, as the appraiser meets with owners, management and key employ-ees, and tours the company facilities.

“What we stress to people is that even though we are the experts in giving values to businesses, the management and the

owners are the experts in that particular business. So we have to gain background through their eyes to be able to value that business correctly,” Saccomanno said.

That’s when the “down and dirty work” begins, he said. Financial statements from the preceding three to five years are scrutinized to determine the financial state


“What we stress to peo-ple is that even though we are the experts in giving values to busi-nesses, the manage-ment and the owners are the experts in that particular business.”

Michael Saccomanno, partner, Friedman


Chris

tina M

azza

Engaging the right team of attorneys and !nancial advis-ers can help ensure a company’s records and documents are in order ahead of time, says Thomas W. Farrell, !nancial adviser at RegentAtlantic Capital LLC.

19 June 11, 2012 NJBIZ www.njbiz.com

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SPOTLIGHT®

of a business. Since cash flow is the most important element of a business for buyers and sellers, the income statements and bal-ance sheets are analyzed, with particularly close attention paid to collectibles and re-ceivables, to see if the company is collecting its money and paying its bills on time.

Saccomanno said he has run into situ-ations — usually only with family-owned or closely held companies — where records haven’t been kept properly, or taxes haven’t been filed for some time, presenting prob-lems for appraisers.

“The reliability of the financial state-ments directly impacts the valuation of any business,” Saccomanno said.

When a private business is involved, Saccomanno said, he uses databases of pri-vate company sales transactions to compare the subject company to similar businesses in their industry, and weigh the pros and cons to see where the particular business fits. In addition to finances, appraisers look at goodwill and, in some circumstances, key people and their impact.

Part of the valuation process is deter-mining a discount rate, which assimilates all the risk factors of owning a business and evaluating key personnel, reliance on management — and reliance on a single key person, a significant risk factor, Sacco-manno said.

Closely held and family-owned busi-

nesses might often have fewer layers of management, or heavy dependence on one individual who carries much of the goodwill.

“If you remove a partner of a major ac-counting firm, how do we know the clients are going to continue to come?” Saccoman-no said. “If you remove that key person,

you have to assume a good portion of the business will leave, as well.”



Chris

tina M

azza

Achim Neumann, presi-dent of A. Neumann & As-

sociates LLC, says !rms need to prepare for the valuation

ahead of time, so red "ags can be taken care of before the

buyer is involved.

Ð michael saccomanno, partner, friedman llp justifying a … · 2020. 11. 18. · saccomanno said...

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