Jim Cassel: Remember your priorities when selling your business

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By: James Cassel
June 16, 2013

Thinking about selling your business? Think first about your employees, customers or clients, and lenders. Many business owners don’t give these key constituents the upfront attention they need as they begin to position their businesses for sale, and they miss opportunities to derive the greatest values for their businesses and reduce the potential for problems.

Fact is, planning will enable you to avoid issues that are likely to arise as potential buyers evaluate considerations related to these stakeholders, who they may consider critical to the long-term success of the business. Here are some helpful considerations for middle-market business owners interested in successfully positioning their businesses for sale:

Employees. Although employees can be a major asset during the sale process, they can be a great cause of substantial angst as companies position themselves for sale. Potential buyers believe that employees are important assets playing a vital role in the long-term success of businesses. For this reason, it is important for business owners to plan ahead and consider:

At what point should we inform our employees of a possible sale?

What members of the leadership team should be informed and how early in the process?

In addition to a strong executive management team, do we have an effective middle-management team to help ensure a seamless transition when the business is sold? How should we portray this to potential buyers?

What new contracts should we put in place to help ensure that key employees stay with the company? Should they include stay bonuses?

What current employee contracts should be amended or terminated?

Do we have in place the non-compete, confidentiality and other agreements that are necessary to protect our company’s intellectual property, proprietary information and client roster?

Does our company have strong employee morale and loyalty and should we take any steps now to improve these areas to further strengthen the business?

What messages should we be sending to employees, and how?

What steps would we take if the word gets out before we had planned?

Should we be concerned about a mass exodus of employees if they hear rumors that the company will be positioned for sale, and what message should we begin sending now to employees related to the future of the company and their careers here?

Should we give bonuses to employees after the sale to thank them for their loyalty? Keep in mind that planning ahead can enable the company to pay these in the most tax advantaged way. Former City National Bank president Leonard Abess, Jr., made headlines as “the role model for corporate responsibility” when he doled out $60 million of his own money in bonuses to 471 employees and retirees, including everything from clerical staff members to executives, following the $927 million sale of the bank. 

Customers or clients. Potential buyers want to see that earnings are sustainable or growing and that the customer base is diverse enough to minimize the risk of losing customers who would flee along with the founders. Moreover, as potential buyers evaluate businesses, they consider not only revenues from customers or clients but also the types of clients and the nature of the client relationships. Some of them may know your clients and approach them to get their insights as part of their due-diligence, which can cause problems. Key considerations for business owners include:

Do we have the necessary contracts in place, or should we amend the agreements with terms that are more desirable to potential buyers? Are there change of control provisions?

Are most of our customers or clients happy and satisfied?

What percentage do we expect will continue doing business with us after the company is sold and what steps should we take now to help increase that number?

What percentage of our clients currently renew their agreements? What is the average longevity of contracts?

What types of changes in our current structure, such as A-level clients we should consider cultivating or C-level clients we should consider terminating, in order to better position the business?

What messages should we be sending clients as we position the business for sale?

How and when do we inform key customers of our plans to sell?

What do we do if the potential buyer wants to speak with our customers as part of the due diligence?

How do we respond when rumors get out about a possible sale?

How do we deal with customer concentration?

In the sale process, what do we do if a current customer wants to buy our business?

Lenders. It’s important to check relationships with your lenders and determine:

Can our existing loans be transferred to the new owners? Are there any terms in our existing loans that should be addressed before we can sell the business?

Are our loans in good standing? Are we in compliance with all of the covenants and conditions?

Are there prepayment penalties?

What loan modifications could help strengthen the business?

Are there any terms in our existing loans that could hinder a sale, and how should we address these issues? Are there change of control or due on sale provisions?

What collateral does the lender have?

Without doubt, in today’s competitive market, buyers are more skeptical and analyzing businesses more closely than ever. There is much that can be done to prepare for a sale and ensure a smoother process. Those who work with qualified advisors and plan ahead by considering their employees, customers and lenders are more likely to maximize the value of their businesses and minimize the number of headaches.

James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market companies. www.casselsalpeter.com

 

Jim Cassel: Remember your priorities when selling your business

To view original article click here.

By: James Cassel
June 16, 2013

Thinking about selling your business? Think first about your employees, customers or clients, and lenders. Many business owners don’t give these key constituents the upfront attention they need as they begin to position their businesses for sale, and they miss opportunities to derive the greatest values for their businesses and reduce the potential for problems.

Fact is, planning will enable you to avoid issues that are likely to arise as potential buyers evaluate considerations related to these stakeholders, who they may consider critical to the long-term success of the business. Here are some helpful considerations for middle-market business owners interested in successfully positioning their businesses for sale:

Employees. Although employees can be a major asset during the sale process, they can be a great cause of substantial angst as companies position themselves for sale. Potential buyers believe that employees are important assets playing a vital role in the long-term success of businesses. For this reason, it is important for business owners to plan ahead and consider:

At what point should we inform our employees of a possible sale?

What members of the leadership team should be informed and how early in the process?

In addition to a strong executive management team, do we have an effective middle-management team to help ensure a seamless transition when the business is sold? How should we portray this to potential buyers?

What new contracts should we put in place to help ensure that key employees stay with the company? Should they include stay bonuses?

What current employee contracts should be amended or terminated?

Do we have in place the non-compete, confidentiality and other agreements that are necessary to protect our company’s intellectual property, proprietary information and client roster?

Does our company have strong employee morale and loyalty and should we take any steps now to improve these areas to further strengthen the business?

What messages should we be sending to employees, and how?

What steps would we take if the word gets out before we had planned?

Should we be concerned about a mass exodus of employees if they hear rumors that the company will be positioned for sale, and what message should we begin sending now to employees related to the future of the company and their careers here?

Should we give bonuses to employees after the sale to thank them for their loyalty? Keep in mind that planning ahead can enable the company to pay these in the most tax advantaged way. Former City National Bank president Leonard Abess, Jr., made headlines as “the role model for corporate responsibility” when he doled out $60 million of his own money in bonuses to 471 employees and retirees, including everything from clerical staff members to executives, following the $927 million sale of the bank. 

Customers or clients. Potential buyers want to see that earnings are sustainable or growing and that the customer base is diverse enough to minimize the risk of losing customers who would flee along with the founders. Moreover, as potential buyers evaluate businesses, they consider not only revenues from customers or clients but also the types of clients and the nature of the client relationships. Some of them may know your clients and approach them to get their insights as part of their due-diligence, which can cause problems. Key considerations for business owners include:

Do we have the necessary contracts in place, or should we amend the agreements with terms that are more desirable to potential buyers? Are there change of control provisions?

Are most of our customers or clients happy and satisfied?

What percentage do we expect will continue doing business with us after the company is sold and what steps should we take now to help increase that number?

What percentage of our clients currently renew their agreements? What is the average longevity of contracts?

What types of changes in our current structure, such as A-level clients we should consider cultivating or C-level clients we should consider terminating, in order to better position the business?

What messages should we be sending clients as we position the business for sale?

How and when do we inform key customers of our plans to sell?

What do we do if the potential buyer wants to speak with our customers as part of the due diligence?

How do we respond when rumors get out about a possible sale?

How do we deal with customer concentration?

In the sale process, what do we do if a current customer wants to buy our business?

Lenders. It’s important to check relationships with your lenders and determine:

Can our existing loans be transferred to the new owners? Are there any terms in our existing loans that should be addressed before we can sell the business?

Are our loans in good standing? Are we in compliance with all of the covenants and conditions?

Are there prepayment penalties?

What loan modifications could help strengthen the business?

Are there any terms in our existing loans that could hinder a sale, and how should we address these issues? Are there change of control or due on sale provisions?

What collateral does the lender have?

Without doubt, in today’s competitive market, buyers are more skeptical and analyzing businesses more closely than ever. There is much that can be done to prepare for a sale and ensure a smoother process. Those who work with qualified advisors and plan ahead by considering their employees, customers and lenders are more likely to maximize the value of their businesses and minimize the number of headaches.

James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market companies. www.casselsalpeter.com

 

For City National, it’s Chile in Miami

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By Lindsey White
May 29, 2013

Bankia’s City National Bank of Florida franchise drew a great deal of buyer interest, months of speculation and ultimately a Chilean buyer eager to expand in the Miami market.

On May 24 Chile-based Banco de Credito e Inversiones SA, or Bci, announced plans to acquire Miami-based City National in a deal valued at $882.8 million.

During the past six months, several names emerged as potential suitors for City National. While many observers had speculated that a Latin American buyer was likely, Bci garnered less attention than companies like Brazil’sBanco do Brasil SA.

“This bank kind of emerged at the last hour,” Paula Johannsen, a managing director at Monroe Securities, said of Bci.

Bankia disclosed that, after initial contact with 31 entities, it received expressions of interest from 13 financial institutions that led to six nonbinding offers. The final negotiations revolved around three entities.

Observers say the Chilean buyer got a good deal. “I think they got an excellent franchise for the price that they paid,” said Thomas Rudkin, a managing director at Syndicated Capital Inc.

The price is less than the $927.0 million that Bankia’s Caja Madrid paid for an 83% stake in City National Bancshares Inc. in 2008. “This has proven that when City National’s Spanish parent bought the bank, they overpaid for it,” said James Cassel, chairman and co-founder of Miami-based investment banking firm Cassel Salpeter & Co. On the other hand, he said Bci is paying a fair price.

A press release from City National noted the deal carries a 1.5x book value, and a company spokesman later clarified that the ratio was based on tangible book value. Johannsen said that while 1.5x book would be on the low side in some geographies, in Florida that pricing is “definitely on the high side.”

This could be due to the scarcity of franchises with size and scale comparable to City National in Florida. The bank has $4.7 billion in assets, $3.5 billion in deposits and $2.5 billion in loans.

“If you look in South Florida, there are very few banks even near this size that are available,” Cassel said.

Raymond James analyst Michael Rose notes that there are only 19 Florida-based banks with more than $1 billion in assets. “[T]he scarcity value of those franchises with greater than $1 billion in assets will only increase on the heels of the CNB acquisition in our view,” Rose wrote in a May 28 report. “While predicting the timing can be difficult, we anticipate that the pace of M&A in Florida will increase in the short to intermediate term given increased regulatory burden and the still-challenged earnings outlook for many smaller banks despite an improving economic backdrop.”

Banco de Credito e Inversiones is the third-largest bank in Chile with total assets of over $38 billion. The City National transaction is part of Bci’s effort to expand its international operations by increasing its presence in South Florida, where it has had a branch since 1999.

Several factors drove Bci’s desire to expand in the Miami market. For starters, the city has a fast-growing population (up 11% between 2000 and 2010) that is 65% Hispanic, according to a company release.

Margins also attracted Bci to the deal: The Chilean bank said that net interest margins are 3.6% for banks based in Miami, compared to 3.2% in Chile.

The Miami economy presents Bci with a big potential for growth: The company said that Miami’s GDP is about $263 billion compared to a GDP of about $268 billion for Chile.

With the acquisition, Bci aims to diversify its sources of income and its loan portfolio, create cross-sell opportunities and capture the benefits of the business flow between Miami and Latin America. In a news release, Bci CEO Lionel Olavarría called the deal the next natural step in the Miami market. “[City National] is a bank prepared to benefit from the ongoing recovery in the U.S. economy,” Olavarría said.

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U.S. bank acquisitions with a Latin American buyer are few and far between. SNL Financial found just five such deals since 2000, including the City National sale. In two of these deals the buyer was based in Venezuela, while one was based in Mexico, one in Brazil, and one, Bci, was based in Chile. The targets in three of these deals were based in Florida.

Going forward, Johannsen thinks that the Miami market could see more Latin American players coming to the table, especially given how much interest the City National deal generated. “A few years ago it was the Spanish and some of the European-type banks,” she said. “Now we’re looking to South America.”

Gilman Ciocia merged with National Holdings Corporation

  • Background:  Headquartered in Poughkeepsie, New York, Gilman Ciocia provides financial planning, accounting, income tax preparation, and asset management services in the U.S. Specifically, the Company provides financial planning services to individual investors, tax preparation services to individuals in the middle and upper income tax brackets and accounting services to small and midsize companies.
  • Cassel Salpeter:
    • Served as financial advisor to the Company
    • Ran a competitive sales process, identifying and contacting over 70 strategic and financial parties
    • Issued a Fairness Opinion in connection with the transaction

Challenges:

    • Positioned a unique public company with formally combined financial planning and tax preparation services on the same premises
    • Maximized value and provided an exit for private equity investors and shareholders, while maintaining stability amongst financial planners and tax professionals
  • Outcome: In October 2013, Gilman Ciocia, Inc. merged with National Holdings Corporation, a financial services organization based in New York, NY.