PCB/PCBA M&A Top 10 FAQs（The second part）

6) What is the advantage of using a broker/intermediary?

The main advantages are attracting multiple buyers, negotiating on behalf of the seller, and developing professional materials.  One of the main reasons why deals die is because the business starts to decline, and using an intermediary allows the owner to focus on the business. Also, many owners have an exaggerated expectation of value, which an intermediary can help temper. A good M&A firm will review financials and perform sell-side due diligence, which can help uncover issues with the business. Finally, using an intermediary is a strong sign to buyers that the seller is serious.

7) What is due diligence?

Typically, full due diligence begins once a letter of intent (LOI) is signed. The buyer already has a lot of information prior to signing the LOI, and due diligence is used to confirm the information that has been received as well as to uncover any major issues with the business. DD usually takes 60−90 days; it can be shorter if the seller is prepared and the buyer is motivated, longer if any issues come up.

8) We just purchased new equipment; does this increase the purchase price?

It can, as everything is negotiable. A buyer might think that the company was under-invested before buying the equipment, and the purchase just got them up to speed. If the equipment is purchased to expand capacity or services, the benefit of which will mostly accrue to the buyer, then the seller should receive some credit for new equipment. Often with smaller shops, the owners have not been investing, which can be reflected in the purchase price. With larger shops, it is expected that the equipment be on par with the level of business, so the purchase price can be adjusted up or down accordingly.

9) What can we do to increase the value of our business?

Businesses that are profitable, growing, have updated equipment and facilities, a good management team, and are doing something ‘special’ generally have above average valuations. Some of the issues that can hurt valuation are key-person risk, customer concentration, outdated equipment, dirty/disorganized facilities, poor financial reporting, a large portion of plain vanilla products, and a lack of investment in training.

10) When is the best time to sell?

 Woody Allen said something like “80% of success is knowing when to show up, 20% is knowing when to leave.” An owner should always be prepared to sell in case a strong unsolicited buyer comes up. The best timing is when the business is doing well, the company is prepared, and the industry and economy are doing well. However, this generally means that others are selling too, and buyers are busy with their business and have a lot of sellers to choose from.

The owner must be prepared personally to sell. For example, the owner’s personal affairs and records must be in order, and key advisors should be consulted (corporate/estate attorney, CPA/tax advisor, wealth advisor). Other stakeholders, such as family, partners, and key employees, need to be on the same page. Also, it is usually a good idea to have a plan for post-closing/retirement activities, as a strong set of goals is good motivation for getting through the sale process.

Good advisors are always glad to further answer the above or other questions. Every business is different, so each owner should contact their own personal advisors.

Tom Kastner is the President of GP Ventures, an M&A advisory services firm focused on the tech and electronics industries. Securities transactions are conducted through StillPoint Capital, LLC, Tampa, FL member FINRA and SIPC. To read past columns or to contact Kastner, click here.