MARCH 2010
T H E P R I N C IP I U M G R OUP
MARCH 2010
EDITOR: RON EDMONDS Commentary:
In this issue: This month, we focus on strate-
gies that companies follow in
Commentary 1 making in making acquisitions,
even if they are considering an
acquisition because it presents
The Strategy Behind itself rather than being sought out
1
Business Acquisitions as part of a strategic plan. Strategy
When To Sell your
2
Business The Strategy Behind Business Acquisitions
About The Principium
2 Business acquisitions happen in
Group
many ways. In general, they can
Don’t Completely Rule either be the result of an opportu-
Out Seller Financing If nity that happens to come the
You Want to Get Your
3 buyer’s way or they can be the
Deal Done
result of a well thought-out, long-
range strategy for growing a busi-
ness with strategic acquisitions.
Connect with Us 4 You might think that the most
successful acquisitions result from
a well-developed strategy, but
that it isn’t always the case. In
“Business order to execute an acquisition
acquisitions can be strategy, there have to be business
owners willing to sell their busi-
opportunistic or the nesses, a phenomenon which is
impacted by many variables and
result of a long- cannot really be controlled by an
range acquisition acquiror. What is the case is that
business owners who complete
strategy” successful acquisitions do not
forget about addressing and per-
haps re-evaluating the business’s
long-term strategies in light of
business acquisition opportunities
that do arise. In addition, compa-
nies that have a strategic interest
in acquisitions must be ready to
act when opportunities do present
Leaders in Green Industry themselves.
Mergers & Acquisitions
After completing a strategic analy-
P.O. Box 414 sis of your business, including its
Cordova, TN 38088 strengths, weaknesses, opportuni-
888-229-5740 ties and threats, acquisitions can
www.PrincipiumGroup.com be considered as a way to capital-
Ron Edmonds ize on strengths, address weak-
Richard Helling • Chris Martin nesses, exploit opportunities and
Entire contents copyright  2010 The Principium Group, Inc. All rights reserved.
is key to successful acquisitions. It quirors know the answer.
is not uncommon for managers to The acquisition marketplace
ask themselves in the months and continues to recover and im-
years following an acquisition prove. We would welcome the
what they were thinking when opportunity to discuss your ac-
they made the decision to pursue quisition strategy.
an acquisition. Successful ac-
- Ron Edmonds
a defend against threats. In many ment can come from allowing the
ways, then, acquisitions can be a business to reach critical mass – a
key business strategy. level at which necessary overhead
The key strategic reasons for con- and marketing expenses can be
sidering acquisitions include sur- spread over a larger revenue base,
vival, defense, growth and profit- improving margins. Long-term
ability. profitability enhancement can
come from synergies that may
Survival. Survival is a key busi- take longer to realize, including
ness objective. An acquisition is such synergies as revenue en-
sometimes made to address an hancement from cross-selling and
issue that threatens the survivabil- leveraging buying power with
ity of a business. Some of the suppliers.
reasons that an acquisition might
contribute to survivability include Beyond the four key strategic
improving the business’s competi- reasons for considering acquisi-
tive standing, increasing the depth tions, acquisitions can be a realis-
of management talent, reaching tic way for a business to:
critical mass and profitability. * Increase its market share.
Defense. Acquisitions can fulfill * Expand its product line.
* Increase its territorial reach.
the objective of defense. In its
simplest sense, it may be an ap- * Eliminate a competitor.
propriate to make an acquisition * Add one or more desirable loca-
to keep a competitor from making tions.
the acquisition and gaining a com- * Add management depth or key
employees.
petitive advantage.
* Create an opportunity for cross-
Growth. Acquisitions can be an
selling.
approach to achieving the growth
* Create a more sustainable busi-
objectives of the acquiring busi-
ness
ness. When organic growth slows
Even if a business is considering
or becomes unsustainable, acqui-
an acquisition primarily because
sitions can help fill the gap.
the “opportunity happens to come
Profitability. Acquisitions can be its way,” it is wise for an acquirer
made for the purpose of enhanc- to address what strategic objec-
ing the short-term or long-term tives will be addressed through a
profitability of the business. potential acquisition along with
Short-term profitability improve- what the potential impact may be
 W h e n To S e l l Yo u r B u s i n e s s
The question is often asked: When is optimum time. You cannot
the best time to sell my business?
The answer is simple: the best time well your particular business is
“The best to sell your business is when both
your business and market conditions news is that over time, market
time to sell are strong. Selling your business at conditions for most aspects of
this time will allow you to realize the the green industry have re-
your business greatest value from the sale.
Market conditions are considered
is when both strong when there are more buyers
than sellers actively pursuing busi-
your business nesses similar to yours. De-
spite occasional negative conditions,
and market it is often the case that market condi-
tions are strong for the green indus-
conditions are tries. Two of the factors that most
influence market conditions
strong.” are availability of financing to busi-
ness buyers and the range of market
valuations which directly affect the
attitudes of potential buyers.
Without a doubt, the best time to
sell your business is when your busi-
ness is strong, growing and showing
good results. There is no question
that the combination of a strong mar-
ket and strong performance by a
seller will produce the best results in
a business sale.
Many, if not most, business sales
result from unplanned life events
and, therefore, may not occur at the
About The Pr incipium Group
“To put it simply: The Principium Group provides
mergers & acquisitions and business
we help people brokerage services to a variety of
middle market and small businesses,
buy and sell with a focus on the green industry.
Our professionals have assisted
green industry buyers and sellers in hundreds of
transactions.
businesses.” For buyers, Principium provides
assistance and counsel in strategic
planning, identifying potential ac-
PAGE 2 quisition targets, due diligence and
planning for successful integration
of acquisitions.
Entire contents copyright  2010 The Principium Group, Inc. All rights reserved.
control overall market condi-
tions, but you can influence how
positioned for sale. The good
mained strong.
Regardless of market conditions
or the situation with your par-
ticular business, one important
step is that when you make the
decision to pursue the sale of
your business, you can move
aggressively to put the best pos-
sible face on your busi- How to Sell Your Business: A
ness: Clean up the business,
literally and figuratively. Clean
Guide for Green Industry
Business Owners, written by
up your physical location, get Principium’s Ron Edmonds,
your books in order and push published in 2009 by FastPencil,
hard to keep the business run-
Inc. will soon be in its second
ning on all cylinders.
edition. The book, along with
quotes by Ron Edmonds has
been featured in national press
and marketing materials for Fast
Pencil’s Thought Leadership
book program.
Order your copy here:
Store.PrincipiumGroup.com
For sellers, Principium provides sources to serve you well.
assistance and counsel in evaluating
strategic alternatives, identifying
We understand that the decision to
buy or sell your business is a pro-
and negotiating with potential ac-
quirers and assisting with transac-
found one, and we pledge to work
with you in a professional and confi-
tions from due diligence through
the closing process.
dential manner while we help you
navigate this often confusing pro-
In order to provide the highest
quality service, we maintain rela-
cess.
Whether you have immediate plans
tionships with other professionals
to buy or sell a business or may
serving the green industry and can
sometime in the future, we would
access those professionals to supple-
welcome the opportunity to talk
ment our internal resources. No
with you about your business.
matter how large or small your
business may be, we have the re-

D o n ’t C o m p l e t e ly R u l e O u t S e l l e r
F i n an c i n g I f Yo u Wa n t To G e t Yo u r
Hardly any business sellers
start out planning on provid-
ing part or all of the financing
for the sale of a busi-
ness. However, seller financ-
ing is very common among
green industry and other small
businesses today.
Despite most sellers’ hesitance
to provide seller financing, it
is very common. In a recent
survey of business brokers,
brokers reported that sellers
provided over half of the fi-
nancing in 40% of the transac-
tions closed in the last year.
One reason that seller financ-
ing must be considered is that
it may affect the price that a
business will sell for as well as
the length of time it will take
to sell a business. The reason
is pretty straight forward. In
many cases, the inability of a
buyer to complete a transac-
tion is not due to a problem
with the business being sold,
but a problem with the ability
of the buyer to obtain ade-
quate financing for any of a
variety of reasons, particularly
during periods of “tight
credit.” The seller then is left
with the choice of letting a
potential sale get away or low-
ering the price until the pur-
chase becomes finance-
able. Structuring an element
of seller financing is often a
solution that preserves value.
Another factor that may cause
business sellers to consider a
component of seller financing
Entire contents copyright  2010 The Principium Group, Inc. All rights reserved.
is the fact that it may permit a
seller to take advantage of
more tax planning opportuni-
ties by permitting it to move
part of the gain on the sale of a
business into a later period,
deferring taxes while perhaps
generating a higher return
than the seller can get from
alternative investment oppor-
tunities. This often represents
a very real economic incentive
to consider seller financing.
In today’s lending environ-
ment, many lenders require
an element of seller financing
before they will consider mak-
ing a business acquisition
loan. For example, some
lenders will want the buyer to
make a 20% down payment
and the seller to finance 20%,
leaving 60% for the lender to
finance.
Specifically, loans guaranteed
under the U.S. Small Business
Administration’s 7(a) program
are a major source of small
business acquisition financ-
ing. While there is not an
absolute requirement that
there be seller financing for
such loans, that is the
norm. Under current re-
quirements, the SBA will gen-
erally require 25% “equity” in
a project, with the “equity”
including the buyer’s down
payment and qualifying seller
financing. In order for it to
qualify, seller financing can
have no required payments of
principal or interest during
MARCH 2010
the first two years. Interest
can still accrue during this “Hardly any
period. Based on these re-
quirements, some transac- business sellers
tions will be structured with
two different elements of
start out
seller financing, one which planning on
qualifies as “equity” under
SBA guidelines and one that providing all or
doesn’t.
There are many ways to
part of the
structure seller financing. A financing for
common structure would be
a note which is amortized the sale of a
over five to ten years, but
with a balloon payment due business.”
after two to five years. This
gives the buyer the time to
get the business going and,
perhaps, to refinance his ac-
quisition financing under
more favorable terms.
“Human
Another approach is to make
a portion of the purchase consideration
price payable under a for-
mula – a percentage of reve- and compassion
nues or earnings for example.
This structure is sometimes
can alleviate
called an “earn-out.” This has many of the
the advantage to the buyer of
matching the required pay- problems that
ments to its actual cash
flows. If the seller is confi-
dent of the future perform-
ance of the business, this kind
of a structure may be highly
desirable to both parties to
the transaction. A buyer will
often be willing to pay a
higher price with an earn-
PAGE 3
Concluded on Page 4
 Connect with us:
PrincipiumGroup.com/LinkedIn
P.O. Box 414 www.facebook.com/principium
Cordova, TN 38088
888-229-5740
www.PrincipiumGroup.com
@principium
info@principiumgroup.com Search for Principium in iTunes Store

Ron Edmonds · Richard Helling · Chris Martin PrincipiumGroup Channel

(coming soon)

Ron Edmonds
For up-to-date information on redmonds@principiumgroup.com
Green Industry Mergers & Acquisitions,
901-351-1510
visit www.linkedin.com/in/ronedmonds
SellMyGreenBusiness.com www.facebook.com/ronedmonds

The information included in this newsletter is derived from publicly Richard Helling
available sources. Our intent is to give a perspective on the industry rhelling@principiumgroup.com
taken as a whole. The inclusion of a transaction in this newsletter 901-603-2014
does not imply that The Principium Group acted as an advisor to www.linkedin.com/pub/richard-helling/8/190/566
either of the parties to the transaction. It is the policy of The Princip-
ium Group always to maintain the confidentiality of its client relation- Chris Martin
ships. For those transactions in which The Principium Group did play cmartin@principiumgroup.com
a role, the information included herein is still limited to that available
215-892-4302
through public sources. www.linkedin.com/in/yourguychrismartin

Washington News:

Don’t Completely Rule Out Seller Financing

Continued from Page 3

out. This is an approach that can be used to resolve a dis- · In a few cases, a seller may be in a better position if
agreement over business valuation. it provides all of the financing, preserving its security interest
and rights in the event of default.
Seller financing will generally be junior in security to third-
party financing, so it should be carefully structured to pro- While we usually think of seller financing as some thing that
duce the best result. The following are some considerations is primarily associated with one relatively small business ac-
which can improve the standing of seller financing: quiring another small business, many large corporate buyers
attempt to use seller financing for a variety of purposes, in-
· The seller financing can be secured by a specific as-
cluding maintaining credit lines, increasing returns on acquisi-
set. This is unusual, but if real estate is involved, for exam-
tions, giving substance to noncompetition agreements and
ple, the real estate may be structured as a separate transaction
reducing risks associated with acquisitions not working out as
with a security interest.
anticipated.
· Seller financing can be structured with balloon pay-
If carefully structured, an element of seller financing will
ments required within two-to-three years reducing the risk
often help a seller realize its objectives by increasing the
that holding paper over a longer period may produce.
valuation of the transaction and accelerating its timing, while
· Balloon payments may be required when certain limiting the risk that one would normally associate with pro-
pre-established performance measures are met. viding such financing.
· A requirement can sometimes be included that earn-
ings or cash flow over a certain level must be used to pay-off
the seller financing.

Entire contents copyright  2010 The Principium Group, Inc. All rights reserved.