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A lower middle market update from Bob Goldsmith of BCMS Corporate

We had the opportunity to speak with Bob Goldsmith, President and CEO of BCMS Corporate at the AM&AA Winter Conference in New Orleans. Bob provided some great insight into what his investment bank is seeing from business owners, how BCMS Corporate is evolving along with the current M&A landscape, and where he sees opportunities for success.  

BCMS Corporate, an international M&A Advisory firm, specializes in sell-side advisory services for middle market business owners, and has sold over 250 privately held companies within the middle and lower middle market.  Originally based in the UK, BCMS Corporate now has offices in the USA, China, and Canada. 

What current drivers are pushing sellers to bring their company to market?

“Working through the recession has its wear and tear on a business owner,” says Bob Goldsmith, President and CEO of BCMS Corporate.  Additional drivers motivating sellers include family planning, retirement, resourcing, both financial and value add from strategic buyers, as well as the transition from entrepreneur to day to day manager of the business.

There are a number of drivers pushing sellers to take their business to market. Working through the recession has its wear and tear on the business owners. For some of them, the thinking is it has been a couple of years of really hard work and trying to do my own family planning, about whatever I’d be doing, how am I going to fund my retirement, and that’s the kind of the impetuous to take the business to market.

And then there are other business needs – the resourcing of the business, through mezzanine financing, through taking on of a PE partner, or just the understanding that the business with the resources that a larger organization could fulfill its potential. These are all drivers at work.

And then the traditional drivers which is just manager versus entrepreneur – are business owners and people that have created great products and services over a period of time, and you are dealing with more government regulation which certainly seems to add to less being the entrepreneur and working with the clients.

How has this M&A environment changed how you do business?

The M&A landscape has required firms to make changes to how they do business.  BCMS Corporate looks at the entire process and realizes that it is not a time to do things as they were.  Right now there is good pricing for the right companies that secures an advisor which can resource the transaction appropriately. 

Yes we do, and the strong selling point for us in our own business is the thoroughness of the process. This is not a time were you take your business to market and want to talk to 10-15 potential buyers. It’s a time when there is good pricing out there if you’ve great strategic fit, you have a good business, well run. But you know you need a group that is going to sign 6-7 bankers in the project, identify a lot of buyers, lots of meetings, and really fight in your corner all the way through the process.

What can a business owner do to better position their business for sale?

Business owners need to address two critical factors when preparing for the sale of their business.  The business must reduce the dependance on the business owner and build a management team that can focus on growing the business.  It is also important for business owners to understand working capital issues.  

Yes, I think there are a couple of key things that you should do with your business, that a business owner should do throughout the lifespan of the company. You want to reduce the dependency on the business owner when you take it to market. This is the time when you want some of those managers that the business owner has, you wanna make sure that they can sit in front of a potential buyer or demonstrate latent process of course, because of your confidentiality, don’t tell them early on, which demonstrates that they can help run the business if your intent is to move on other things yourself. That’s one of the things.

Another big issue – you should talk to your banker, and they can go on to this in greater detail, working capital type issues. You know if you are thinking about selling the business, you ought to think about the duration of the receivables, the inventory management, and the duration of the payables. These are things when someone’s looking at buying your business, will often find that the seller does not understand that you need to have working capital remain in the business. That’s something you very actively can affect and have an impact on a year before, and will literally change the amount of working capital you need to stay in. It’s also good business. You have to focus on running your business well.

Are you seeing an increase of activity from international buyers in the US?

BCMS Corporate is seeing increased activity from international buyers and feels their International presence is important to their continued success.  “Smaller international buyers are looking at US acquisitions to get closer to the consumers,” says Bob Goldsmith. 

We are always targeting international buyers, we got 150 people in the UK, we got a Chinese office, we got an office in Istanbul, in Scandinavia. We work closely together attracting overseas buyers. It’s a great time. Just last week we closed on a sale for one of our client businesses to Royal Philips — you know the major international industrial group.

But even smaller international buyers are looking at US businesses in order to get a toe-hold in the US market. Both because it cost a lot more for them to set it up greenfield – hire the people, train them, take the risk, figure out the legal environment and so forth. And because there is a real strategic fit, it’s a platform to bring their products here, and they can also buy interesting products here that they then re-introduce or introduce to their own marker.

Also I’ll just add there is great interest on behalf of the Chinese buyers, natural resources but also businesses that are closer to consumers. That’s a traditional development trend. They want to understand brands better, consumers better. So we’re getting interest from China as well.

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