Why You Should Think Twice About Paying Upfront Fees to an M&A Advisor or Business Broker
Deciding to pay upfront fees to an M&A advisor or business broker when selling your business is a significant financial commitment that warrants careful consideration. One major concern is the risk of non-performance. There’s no guarantee that your investment in an upfront fee will lead to a successful sale. If the advisor fails to deliver on their promises or the transaction doesn’t go through, you may not recover that cost. Many reputable M&A advisors and business brokers operate on a success fee basis, meaning they earn a percentage of the sale price only if the deal is completed. This aligns their interests with yours and may provide a safer financial pathway.
Cost considerations also play a crucial role in this decision. Upfront fees can be substantial, potentially impacting your cash flow, particularly if you’re already facing financial pressures. Additionally, other costs associated with the sale process—such as legal and accounting fees—can add up. It’s important to have a clear understanding of all potential expenses before committing to upfront payments. Moreover, paying upfront does not guarantee high-quality service; it’s vital to thoroughly vet any advisor to ensure they have a proven track record.
Lastly, the potential for misalignment in interests is another reason to be cautious about upfront fees. Advisors who receive large upfront payments might lack the motivation to secure the best possible sale terms for you, as their compensation is not directly tied to the transaction’s success. In contrast, advisors who work on a success fee basis are incentivized to maximize your sale price and terms. By exploring this option, you can maintain better negotiating leverage and ensure that your advisor is focused on achieving the best outcome for your business. Ultimately, conducting due diligence and understanding the full scope of services offered can help you make a more informed decision that aligns with your financial goals.
Navigating Purchase Price Allocation in Asset Sales
Negotiating a purchase price allocation in an asset sale is a pivotal step that can influence the financial outcomes for both buyers and sellers. One of the most critical aspects of these negotiations is understanding the tax implications. Different asset classes have unique depreciation and amortization schedules, which can significantly affect a buyer’s future tax deductions. Moreover, how goodwill is treated, often the residual amount after all identifiable assets are allocated, can vary based on accounting standards and tax regulations. Buyers typically aim for a higher allocation to depreciable assets to maximize tax benefits, while sellers might prefer a greater allocation to goodwill to reduce their taxable gains. Navigating these complex tax considerations is essential for both parties to achieve a favorable outcome.
Fair valuation of assets is another key factor in these negotiations. Accurate assessments, often conducted by professional appraisers, help ensure that the purchase price reflects the true value of the tangible and intangible assets involved. Establishing a clear methodology for valuation can mitigate potential disputes; incorporating mechanisms such as arbitration or third-party appraisals can streamline resolution if disagreements arise. Additionally, both parties must collaboratively determine how the purchase price will be allocated among various asset categories. This allocation not only impacts financial statements and tax consequences but also shapes the strategic integration plans post-acquisition.
Lastly, thorough documentation and compliance with accounting standards are crucial in securing a successful negotiation. A well-documented allocation schedule that justifies the distribution of purchase price across assets and liabilities can protect both parties during audits and future financial reporting. Engaging legal and tax advisors throughout the process is advisable, as their expertise can illuminate complex regulations and ensure compliance. Ultimately, clear communication and alignment of interests between the buyer and seller, coupled with an understanding of market conditions, can lead to a mutually beneficial agreement that supports the transaction’s overall success.
Have any questions regarding how to negotiate a favorable purchase price allocation for your business? We can help. Click here to get started.
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Keystone Marches into 2025 in Growth Mode
We are thrilled to announce that Derek Branch and Darryl Heller have joined Keystone Business Advisors bringing with them a wealth of experience and expertise that will greatly benefit our clients.
Derek Branch, M&A Advisor
Derek has over 20 years of experience in accounting, finance and business operations, working with small to mid-sized businesses across industries such as marketing/advertising, consumer packaged goods, wholesale distribution. and restaurant/hospitality.
Before transitioning into his role as an M&A Advisor, Derek served as a CFO, where he conducted due diligence on potential target companies for strategic acquisition. His keen ability to identify risks and opportunities during the due diligence process was instrumental in driving growth and value creation.
Derek’s deep understanding of financial statements and business operations allows him to uncover the true value proposition drivers of any business, providing his clients with strategic insights and guidance.
Darryl Heller, M&A Advisor
Darryl brings over three decades of leadership experience in the electronics and manufacturing industries, having held senior management roles in companies ranging from start-ups to large publicly traded corporations.
Most recently, Darryl served as Vice President of Operations & Engineering at a local custom architectural design manufacturer. In this role, he worked closely with the company’s owner and private equity partners to enhance performance and profitability.
With an MBA in Technology from San Jose State University and a Bachelor of Science in Chemical Engineering from the University of California, Santa Barbara, Darryl combines deep operational expertise with a broad industry background to provide clients with the confidence and support needed for successful transaction closings.
Please join us in welcoming Derek and Darryl to the Keystone team. We are confident their unique skill sets and extensive experience will play a vital role in achieving our mission of delivering exceptional results for our clients. You can reach them by clicking here
Read MoreHow does an election year impact M&A activity?
Election years often bring a unique set of uncertainties that can have a notable impact on mergers and acquisitions (M&A) activity. Here’s how election dynamics generally influence M&A trends:
- Uncertainty in Policy and Regulation
As elections approach, policy stances on taxation, trade, antitrust regulation, and industry-specific rules become focal points. Companies may hold off on M&A deals if they anticipate significant regulatory changes under a potential new administration. For example, if a candidate promises stricter antitrust enforcement, some businesses may hesitate to pursue mergers that could draw scrutiny. - Valuation Fluctuations Due to Market Volatility
Elections can cause stock market volatility as investors react to shifting political forecasts. This market fluctuation impacts company valuations, which can affect M&A. If prices become too uncertain or inflated, buyers might delay acquisitions, or sellers may decide to wait until valuations stabilize post-election. - Changes in Access to Capital
Election uncertainty can make lenders cautious, which impacts financing options for M&A. This is especially true in deals that rely heavily on borrowed capital, such as leveraged buyouts. If lenders anticipate economic instability, they may tighten credit standards, leading to higher costs for financing M&A transactions. - Industry-Specific Impacts
Some industries are more affected by potential election outcomes than others. Sectors like healthcare, energy, technology, and defense are especially sensitive to shifts in policy. For instance, potential changes in healthcare policy could delay deals in pharmaceuticals or insurance until there is more clarity on the regulatory outlook. - Cross-Border M&A Caution
Foreign companies may hold back on acquiring U.S. companies during election years due to concerns about trade policies, tariffs, and foreign investment restrictions that could change post-election. Similarly, U.S. firms may hesitate to pursue international acquisitions if there is uncertainty about foreign policy directions. - Opportunistic Buying
Some companies view election-related volatility as an opportunity, targeting undervalued assets or businesses with strategic advantages. Private equity in particular may become more active if they see an opportunity to acquire assets at lower valuations during market fluctuations.
Ultimately, M&A activity during an election year tends to reflect a balance between strategic goals and the level of risk companies are willing to take. Many deals do proceed, but firms are often more conservative in the timing, pricing, and structuring of transactions to manage election-related uncertainty. We’re happy to talk through this in more detail, contact us here
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Llamas Plastics, Inc. Acquired by Lee Aerospace
Llamas Plastics, Inc., a world-class manufacturer of aircraft transparencies, has been acquired by Lee Aerospace in a transaction facilitated by Keystone Business Advisors. This acquisition will provide Lee Aerospace with direct entrance into the military aerospace transparency markets, diversify its product line, and increase its capacity.
“When evaluating Llamas Plastics, we were very impressed that they had a family-oriented culture like Lee Aerospace,” said Jim Lee, President of Lee Aerospace. We both value our employees, and many have been with us for decades. In addition, by sharing technology and best practices, we will propel both companies forward by providing additional advanced offerings to the aerospace industry; be it general aviation, commercial, or military.”
Keystone Business Advisors served as the exclusive M&A advisor to Llamas Plastics, Inc. for this transaction. “We worked closely with the team at Llamas Plastics to understand their business and goals and used our expertise and network to find the perfect buyer for them,” said Dave Richards, Managing Partner of Keystone Business Advisors.
“Llamas Plastics, Inc. is ready to move to the next level and Lee Aerospace will take it there,” said Rick Llamas, President of Llamas Plastics, Inc. “We were impressed by their people, technical expertise and plans for the future. I’m confident with Lee’s leadership, Llamas Plastics will continue to achieve great things.”
Keystone Business Advisors has completed over 250 transactions and has considerable experience in most industries including manufacturing, wholesale/distribution, service, e-commerce, software, IT, logistics, professional services and healthcare. View recent transactions here.
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