Central Ohio Business Succession Services Panel Discussion Recap

We recently hosted an event in Central Ohio to provide insight into what an owner can expect when planning for the eventual transition/sale of their business. The primary focus was a panel discussion which provided the unique perspectives of three panelists. The panelists included:

• Jim Baich, founder of MAD Capital, a private company with operating and commercial real estate investments. Jim was formerly the COO for Advanced Drainage Systems and IGS Energy.
• Taylor Materna, Managing Director on First Financial’s Leveraged Finance team.
• Carter Ruml, Senior Estate and Financial Planner for Yellow Cardinal Advisory Group. Carter’s professional focus for over 19 years has been the trust, estate, business tax and financial planning issues facing private clients and closely held business owners.

It was a lively and interactive discussion including the panelists, the moderator (Steve Ford of our team), and members of the audience. Here are some of the key takeaways:

Planning for succession or sale

• Business owners should set a target “Retirement Zone” rather than a specific date. The specific time to exit will be influenced by a variety of factors including financial conditions, personal goals, health, and the performance of the business.
• Better to sell a year too early rather than a day too late!
• Deal flow has slowed on larger/Wall Street type deals.
• Business owners should understand the cash flow generated from operating the business will almost certainly be higher than the income derived from investing the proceeds realized from a sale. There is a higher risk/reward in owning the business.
• Many business owners underestimate the amount of personal cash flow the business provides (insurance, travel, automobiles, etc.).
• Start early!
• Don’t underestimate the emotional side of the process. What will life after a sale look like (both financially and personally)?

Important factors from an acquirer and lenders perspective

• How important is the owner and how will they be replaced.
• Understanding the future of the business is more important than the past.
• Culture matters!
• What does the next level of management look like? Are they engaged and can they take the company to the next level? A good operating team is key for most acquirers.
• Understanding customer concentrations is critical.
• Strongly prefer for the seller to retain some level of ownership in the business or associated real estate…..a 100% exit can be concerning.
• Prefer the seller to stay involved at some level for one year although this is not an absolute.
• Recurring revenue drives higher multiples than project focused income.

Market conditions

• Overall deal flow in the Middle Market is strong while Wall Street type deal flow is down.
• High quality companies remain in high demand… while the appetite for low performing or “storied” companies is limited.
• Multiple for high quality companies remain strong despite tighter credit markets and higher interest rates.
• Many business owners are “tired” (COVID, difficulty in hiring/retaining employees, etc.) which is driving their exit from businesses.
• More transactions include a Seller Note or Earn Out.

Engaging advisors

• Business owners can benefit from the experience/expertise of advisors as Succession Planning and the sale of a business is complex.
• Advisors to include on the team:
  • M&A advisor/Investment banker
  • Financial planner/Wealth advisor
  • Attorney
  • Accountant
• These advisors should be chosen based on knowledge/expertise rather than long term relationships the owner may already have.

Overall estate planning topics

• Estate tax threshold could change in 2025 so planning is more important than ever.
• Consider establishing residency in low- or no-income tax states PRIOR to a sale.
• There are many low-risk tax strategies that can provide significant advantages to a Seller and their families.