Tuesday, September 11, 2012
Financial buyers have been big news lately—one in particular—but not because of deals they are doing to buy moderate-sized, privately held companies (read: human owned). In fact, financial buyers have been relatively quiet in that respect. Politics, not business, has put the spotlight on them.
Private equity funds, such as those run by Republican presidential nominee Mitt Romney’s Bain Capital, are financial buyers. My focus is how they operate, not the taxes they pay, because barring some major legal changes, private equity buyers are here to stay and one could well be the buyer of your business. Upwards of one trillion dollars is purportedly sitting in private equity funds, awaiting deployment as investments in other companies.
The financial buyer’s objective is to improve the target company’s performance so that it can sell the business (to a strategic buyer or another financial buyer) or take it public, in either case at a significant profit in three to five years. This focus means that financial buyer must be able to see a clear path to that result, it will not be swayed by the long-term potential of your business, and it will be very careful not to overpay for your company. This usually means the financial buyers will drive a harder bargain than the strategic buyers discussed in my first post in the series. This does not, however, mean that a deal from a financial buyer will ultimately be less desirable than that from a strategic. It only means that you and your financial and legal team have to work that much harder to evaluate the different offers.
The lesson I hope you learn here is two-fold. First, be sure your after-tax proceeds from the initial sale are sufficient to meet your minimum goals for a sale and don’t leave you overly reliant on the financial buyer’s management of your former company. Second, pick your financial buyer carefully. Follow the link to a good New York Times piece on the due diligence you need to do.
Monday, September 3, 2012
Summer's over. That's the bittersweet meaning most people put to this legal holiday. The confused part comes from the word "Labor." Beyond the oxymoron of a day off to celebrate work, many still associate the day with unions, when the focus is much broader: the work and workers that are the engine that powers our economy.
The U.S. Department of Labor tells us that Labor Day “is dedicated to the social and economic achievements of American workers. It constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.” The DOL doesn’t tell us that Labor Day was rushed through Congress by President Grover Cleveland to appease America’s labor movement a mere six days after his controversial use of federal troops forcibly ended the bloody Pullman strike that paralyzed rail traffic, and thus the country, during the summer of 1894.
Cleveland’s gesture didn’t work for him—his Democratic party was slaughtered in the 1894 midterm election—or help the labor movement that much either. Many needed reforms, such as reasonable working hours and safe working conditions, now taken for granted, would not be enacted for decades--decades that would include the infamous Triangle Factory fire and Colorado’s own Ludlow Massacre.
The Labor Day holiday illustrates that while the pace can be slow our country does eventually do what needs to be done. Election-year finger pointing aside, what if, instead, we focused on the changes We the People can create without the politicians?
There are over 30 million human-owned businesses in our America. If only five percent of us (that 5% includes you and me, right?) committed to hiring at least one new employee before New Year’s Eve, together we’ve created at least 1,500,000 new jobs. All those new jobs means more business for all of us. Then maybe the politicos and the rest of the country will get the message and follow along.
So enjoy a day off, and then get back to the labors that made America great.
I close with my traditional photographic farewell to summer.
|a blogger and his mom|
Posted by Jim Thomas at 8:03 AM