POSIWID Analysis of Mergers & Acquisitions Firms

Aug 20, 2024

POSIWID or the Purpose of a System is What it Does (https://thebasics.guide/posiwid/) is a methodology of assessing systems where the productivity of a system is evaluated based on the outcomes generated and not on its theoretical objectives. This analysis provides the ability to grade the functionality of a system and identify opportunities for improvement.

The successful sale of a privately held company by a mergers & acquisitions firm has five definitive stages.  Different levels of knowledge, experience, and ability possessed by the intermediary quarterbacking the transaction from start to finish impacts the systems and processes employed.

The first stage in most professionally facilitated business sale processes is to value the company to define seller side transactional objectives in terms of price and terms achievable from buyers in the marketplace.  A proper business valuation will incorporate assessments of company financials, performance & operational trends, tangible assets, intellectual property, market share, competition, industry conditions, geographic location, market demand, and availability of financing to support an acquisition in the analysis.  The purpose of this system, business valuation, is to arrive at a value of the company.  However, the figure provided only has value when it is assessed against the outcome, the price and terms achieved for the business when the sale is completed.  A prudent entrepreneur seeking to engage a business broker should inquire about the relationship between the sale prices achieved by the firm for their clients and the values the companies were offered for sale.  IBA prides itself on its ability to properly value privately held companies, family businesses, and their associated real estate. Annually, our composite difference between list and sale prices is less than 10%.  The following are three examples of transactions completed by IBA in 2024 where that acumen in valuation was verified with performance in the field.  Transaction #1, $5.15 million list price ($4,750,000 sale price) – 7.8% difference.  Transaction #2, $2.2 million list price ($2,100,000 sale price) – 4.5% difference.  Transaction #3, $2.85 million list price ($2,850,000 sale price) – no difference.  IBA offers a complimentary professional opinion of the market value of their business to any potential clients as a methodology of demonstrating our knowledge, experience, and customer service.  I have never identified a downside for a business owner of vetting more than one business brokerage firm and getting more than one professional opinion of value.

The second stage in most professionally facilitated business sale processes is to market the business to find potential buyers. This marketing process is different than almost any other product advertising because it is generally governed by the need to keep the information that the company is for sale confidential from customers, employees, vendors, and competitors. The purpose of this system is to create buyer demand and competition for the business in the marketplace.  How can this be quantified for a business owner looking to sell?  The performance of this system can be assessed by knowing the percentage of businesses listed that are sold and number of offers generated for an owner to consider as sale options.  IBA is commonly regarded as the most selective business brokerage firm in the Pacific Northwest.  We pass on 2 out of 3 representation opportunities annually on average.  That said, we annually sell 80 – 90% of our engagements with the small percentage that do not sell frequently being in a unique industry, rural location, or having something detrimental happen to the business post representation engagement (e.g., losing a significant customer).    

The third stage in most professionally facilitated business sale processes is getting parties to “YES” in the execution of a Letter of Intent (LOI).  The best business brokers know the companies they are representing for sale fluently, the motivational elements influencing the actions of the buyer & seller, and the primary, secondary, and tertiary business facets that need to be agreed to between the parties in a comprehensively negotiated deal.  Done correctly parties will reach agreement on a Letter of Intent in an environment of full disclosure where decisions are made from a foundation of knowledge. The performance of this system can be assessed by knowing the percentage of transactions that are successfully completed after agreement is reached on a LOI.  It is our experience at IBA that it is much better to walk slowly to Letter of Intent agreement with more communication and disclosure of information than to hastily reach agreement only to have the transaction fail for a reason that should have been known before the document was executed.  Broker Note:  Reaching rapid agreement on a LOI only benefits the buyer. Buyers want quick agreement to take a business off the market and eliminate competition.  A prudent business seller and broker, will want to create competition for the business and develop options for sale.  

The fourth stage in a professionally managed business sale is facilitation of the deal through due diligence, legal documentation, and other administrative aspects such as facility lease assignment/negotiation, tax allocation structuring, and vendor/customer contract assignment/negotiation.  It takes a village (Attorneys, CPA’s, Wealth Advisors, Etc.) to buy or sell a business.  A quality intermediary will open communication channels between these individuals and manage their work product. The performance of this system can be assessed by the number of professionals who want to work with a business brokerage firm and its intermediaries combined with the ability of the intermediary to bring in experts to support parties when needed. 

The fifth stage in a professionally facilitated business sale is securing financing for the transaction.  The strongest of desires to do a deal are worthless, if the money is not present to fund an acquisition.  A properly valued business has a higher probability of having its sale financed than one that cannot be justified.  A M&A intermediary and their sell side client should assess each potential buyer with the end objective of a completed sale with bank financing considered.  It is not an unrealistic expectation to require a buyer to deliver a term sheet from a lender conveying they have committed capital supporting their desired acquisition before an entrepreneur agrees to sign a Letter of Intent.  The performance of this system can be assessed by learning about a business broker’s ability to secure financing for buyers of their clients’ companies. 

One other item that should be evaluated when selecting a Mergers & Acquisitions firm for representation in the sale of your business is the system in place for their compensation.  Are they asking for fees upfront where they get paid regardless of future performance?  At its core, business brokerage is a BIG TICKET sales profession.  A top-tier sales professional should be sought who has confidence in their ability to get the job done.  Firms that ask for compensation up front are conveying their business model is not strong enough to support their representation activities between transactions.  IBA has employed a paid on performance business brokerage model since our inception in 1975. We only want to be paid by happy customers when we have successfully completed our delegated projects.  IBA has sold more businesses than any other firm, 4300+, in Washington, Oregon, Idaho, and Alaska than any other M&A firm in the region. Our systems and processes work.  We welcome the opportunity to meet with any entrepreneur thinking about selling their business in 2024, 2025, or 2026 and share information about our time tested and regularly calibrated strategies and techniques designed to sell companies at premium values in confidential environments employing best practices.  

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, legal, accounting, banking, and wealth management communities on subjects relevant to the purchase & sale of privately held companies and family businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.