M & A transactions typically involve for businesses valued at more than $5 million, with adjusted EBITDA (Earnings Before Interest Depreciation and Amortization) of at least $2 million and $100 million. This size business will be attractive to strategic buyers, and they are generally too large for an individual buyer to purchase or finance through conventional methods. These transactions require a specialized focus and extensive client engagement through all phases of the process.
In a normal small business sale, we focus on Sellers Discretionary Earnings (SDE), while in an M & A transaction, the focus is on adjusted EBITDA (Earnings Before Interest Depreciation & Amortization). SDE refers to the income available to one owner operator, including salary, interest, depreciation, amortization, income, and all owner perks. Similarly, adjusted EBITDA considers many of the same accounts, but deducts a salary for a professional manager.
For a business sale transaction, we establish a justifiable asking price and go to market with a defined asking price, seeking buyers who will negotiate around that value. In an M & A transaction, we will prepare an evaluation of the expected sales price, but we will go to market without an asking price and create a bidding environment.
As part of the M & A effort, we will prepare a book containing the material that a buyer will expect to review prior to making a final offer. A “teaser” letter will be prepared and sent to potential strategic buyersand selected private equity groups, highlighting the essential features of the deal. This may be considered more of a “rifle” approach to locating a buyer as opposed to the “shotgun” approach of a normal business sale. If the candidate indicates an interest and signs our NDA, we will forward additional information on the deal.
Basically, the main objective of the process is to solicit more than one potential buyer and to create a bidding situation to drive up the price.
In addition to our in-house team, Rapt has an established relationship with a major M & A firm to assist us on these transactions.
We will be more than happy to meet with you and review our process in confidence with you to discuss if your deal fits the guidelines for an M & A transaction.
Should your deal meet our M&A guidelines, we will prepare a formal presentation for your review.