FREQUENTLY ASKED QUESTIONS

Buying a Business

Why is due diligence important when buying a business?


Buying a business is a serious financial commitment that requires a systematic due diligence effort to ensure that you have thoroughly vetted all information provided by the seller and are paying a fair price. In many cases, buyers end up overpaying for the business, which can have a disastrous effect on financial returns.




What should I pay for the business I am buying?


Determining the fair market value of a company is an involved process that takes into account many variables. Best practice is to evaluate the business from a few different angles: a multiple of revenue or EBITDA, a Discounted Cash Flow analysis, and value versus market comparables. Even more important to evaluate is if there is a strategic value to the company that only the buyer can unlock (examples include changes in product bundling/pricing, marketing or sales synergies, the ability to cross-sell into the buyer’s existing customer base, etc.). Finally there are a number of other factors that should be considered in valuing the business, including management team, customer concentration, historical growth, margins and future cash flow projections.




What role do we play in the buying process?


Facilitator

Procrastination and delay are critical factors when structuring a deal. Therefore, we move the process forward with qualified buyers, financing resources, and affiliated parties to the deal such as accountants and attorneys.

Negotiator

We act on your behalf and will establish a strong negotiating position without compromising the goodwill and relationship between the principal parties. We will increase the opportunity to pay “the best price” for the business.

Resources

We have established relationships with professional practitioners and organizations within the automotive space. Quite often, these relationships prove to be extremely beneficial to the business buyers at critical points during the transaction.

Confidentiality

A buyer could experience disastrous results by “leaking” that they are pursuing a business acquisition. Employees, customers, suppliers and competitors' relationships could be damaged causing an adverse condition hurting the potential sale. We preserve the confidentiality of the buying company during the process and only share information on a “need to know” basis.

Advisor

We provide you with strategic information regarding market timing, market conditions, market price, financing options, structuring the transaction and other information.





Raising Money

Strategic vs Financial Investor


How do you decide between taking money from a Strategic vs. a Financial investor? Financial investors are interested in the return that they can get by buying a well-managed company. Strategic buyers are often bigger companies that are well capitalized, able to spend more, and less focused on whether a company can generate quick cash flow. Strategic buyers often offer stock, cash, or a combination of the two in payment of the purchase price. In short, the strategic buyer is buying the company in light of how it will enhance their existing operations.

Whether a strategic investor or a financial investor is right for your company depends largely on your goals., and varies widely on a case-by-case basis.




Debt vs. Equity?


Equity financing refers to funds generated by the sale of stock. Equity financing means the business raises money by selling a specific amount of shares in the business. Friends and family can provide the financing, but in the business world, it most often involves professional investors. The main benefit of equity financing is that funds need not be repaid. Since equity financing is a greater risk to the investor than debt financing is to the lender, the cost of equity is often higher than the cost of debt.

Debt financing simply means borrowing money from an outside source, with the money being paid back at an agreed date together with interest. The payment is often made in installments and the need to pay back doesn’t change depending on how much money the business makes. In addition to paying back the borrowed amount, businesses typically must also make interest payments, which are pre-agreed upon.




What type of Investment Instrument?


Startups often raise their seed round by selling convertible debt instead of equity because debt is simpler and cheaper. Seed stage convertible debt agreements are fairly simple, especially if your investors are angels. You should be more careful if your debt investors are VCs, but these debt financings are still much easier to negotiate than an equity financing. Later stage convertible debt can get complicated and adversarial. We know companies that took convertible debt from a corporate investor and couldn’t pay the debt back on time—which triggered the corporate investor’s right to take over the company. We can help you identify the right financing instrument, and ensure that you have all of the protections that are warranted.





Selling a Business

What is my business worth?


Determining the fair market value of a company is an involved process that takes into account many variables. Best practice is to evaluate the business from a few different angles: a multiple of revenue or EBITDA, a Discounted Cash Flow analysis, and versus market comparables. Even more important to evaluate is if there is a strategic value to the company that only the buyer can unlock (examples include changes in product bundling/pricing, marketing or sales synergies, the ability to cross-sell into the buyer’s existing customer base, etc.). Finally there are a number of other factors that should be considered in valuing the business, including management team, customer concentration, historical growth, margins and future cash flow projections.




What makes a business valuable?


  • Cash Flow
  • Strong Management Team
  • Clean Financials
  • Loyal Customer Base
  • Strong Growth Curve
  • Market Longevity/Tenure
  • Brand Name Recognition / Equity
  • Customer Engagement and Contact Lists
  • Diversified Revenue Streams




Should I sell to a Strategic or a Financial Buyer?


Selling to either a strategic buyer or a financial buyer depends largely on the seller’s goals.

Seller Wants the Highest Price Possible. If the only goal in the sale is achieving the highest price possible, regardless of what happens to the plant or employees, the open auction process is the best way to drive the price upward. And obviously, with highest price being the only goal, the strategic buyers will most likely be the best fit. That is not to say that financial buyers should not be considered in the process.

The Seller Wants a High Price, but Has Other Concerns. If the seller’s goal is a high price (not to be confused with “highest” price), but the seller wants to protect employees, a strategic buyer is still probably the most appropriate. However, the seller needs to realize that there will need to be concessions made from the highest price in order for the acquisition to work for the buyer.

The Seller Wants to Cash Out, But Would Like to Remain for a Few Years. In this situation, a financial buyer is probably most appropriate. The owner/manager is often times the most readily realizable synergy for a financial buyer. Strategic buyers generally have the expertise necessary to operate the business, and can eliminate the money that is being paid to top level management.

While a financial buyer may have the means to purchase a company, they do not necessarily have the expertise to run the business. As such, financial buyers will usually welcome management to stay and manage the business, and often they will require it as a component of the deal. More and more deals are being structured where part of the consideration paid is tied to an “earn-out” where the seller will receive additional money if certain, predetermined goals are achieved in the first few years following the sale.




What is the process of selling my business?


We pride ourselves on our structured and thorough sale process methodology that we have developed through years of experience. Our methodology maximizes our clients’ chances at a successful sale and helps them to achieve the best possible value for their business. The sale process steps typically include the following:

  1. Define Goals and Objectives: Meetings to determine the seller’s objectives so that we tailor our services and focus our efforts to the needs and goals of the seller.
  2. Collect Information: Prior to launching a sale process, our advisors will thoroughly analyze company business data and historical financials in order to gain an in-depth understanding of the operation. Proper preparation is crucial for the best presentation of the business to prospective buyers.
  3. Valuation: Based on the review of the financials and operation, as well as an evaluation of comparable transactions, we will work with the seller to determine an appropriate asking price. An appropriate valuation minimizes the risk of losing a timely sale by overpricing the business or of leaving money on the table by undervaluing the business.
  4. Marketing Material Preparation: We prepare a comprehensive set of marketing materials to share with prospective buyers. It is of the utmost importance that the business be properly packaged with all facts organized and consistently presented. This ensures presentation in the most favorable light while educating buyers and maximizing valuation.
  5. Buyer Identification, Listing and Outbound Marketing: We will determine the most likely type of strategic or financial buyer and best marketing strategy for the business. We confidentially reach out to pre-identified buyers in our network. Our goal is to provide the maximum exposure to qualified buyers while balancing confidentiality.
  6. Prospective Buyer Screening Process: We thoroughly screen all prospective buyers to ensure that they are qualified and execute confidentiality agreements with any buyer who wishes to receive additional information. We share and initial set of confidential marketing materials with qualified buyers and field all prospective follow-up questions and data requests.
  7. Deal Negotiation and Buyer Diligence: We negotiate key deal terms and ensure that they are formalized in a Letter of Intent (LOI) or Term Sheet. The buyer will usually have a due diligence period in which they verify the accuracy of the information provided by the seller. We manage the process of ensure that all diligence requests are satisfied.
  8. Deal Execution: We facilitate the necessary steps to ensure that the deal is successfully consummated, including contract drafting and negotiation. We ensure that all parties at the closing table are working together and keeping focused on timeline.
  9. Post-Closing Transition Period: The seller generally agrees to assist the buyer for a negotiated period of time in order to ensure a seamless transition.




What role do we play in the sale of your business?


Facilitator

Procrastination and delay are critical factors when structuring a deal. Therefore, we will continually move the process forward with qualified buyers, financing resources, and affiliated parties to the deal such as CPAs and attorneys.

Negotiator

We act on your behalf and will establish a strong negotiating position without compromising the goodwill and relationship between the principal parties. We will increase the opportunity to achieve “the best price” for the business.

Resources

We have established relationships with professional practitioners and organizations within the automotive space. Quite often, these relationships prove to be extremely beneficial to the business buyers at critical points during the transaction.

Confidentiality

An seller could experience disastrous results by “leaking” that they are pursuing a business divestiture. Employees, customers, suppliers and competitors' relationships could be damaged causing an adverse condition hurting the potential sale. We preserve the confidentiality of the selling company during the process and only share information on a “need to know” basis.

Advisor

We provide you with strategic information regarding market timing, market conditions, market price, financing options, structuring the transaction and other information.





Consulting Services

Defining Strategy


  • Identification of industry trends (what’s currently happening) and scenarios (what might happen in the future).

  • Identify your company’s core strengths/capabilities, and how those might be leveraged into adjacent areas.

  • Help company define their Purpose, Vision, Mission, and Brand Promise, to ensure they know where they will play and how they will win.

  • Define “guiding principles” to bring clarity and focus to the organization.




Defining Key Metrics


Based on company’s strategy and roadmap, definite of company objectives and key results to ensure progress towards this strategy.




Implementing Key Initiatives


Based on company’s strategy and roadmap, defining company initiatives and align with the company’s key metrics (in-year vs. long term).




Driving Collaboration & Accountability


Ensuring ownership and accountability for achieving key metrics associated with company initiatives.




Competitive Landscape


Market sizing and Total Addressable Market (TAM), Identification of key players, strengths/weaknesses of competitors, their marketing/sales approach, opportunity to differentiate. Company company’s product roadmap and marketing/sales strategy vs. competition to identify gaps.




Develop an exit strategy for your business


Every business owner will eventually exit their business. Even if you aren’t considering an exit of your business in the near term, it is important to begin thinking about an exit strategy now in order to maximize future value. We can help you evaluate various options for an eventual exit and help you prepare your company now so that you can position yourself for maximum success when the time comes to do so.





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We are passionate about the automotive technology ecosystem. We focus on advising high growth technology companies -- providing trusted advice and producing superior results.

Automotive Ventures advises founders, owners & CEOs on mergers, acquisitions and capital raises. These transactions are frequently the most pivotal financial event in the history of their business. We are committed to achieving superior results for our clients in their critical transactions.
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