Martinka Consulting

425-576-1814 john@johnmartinka.com

Bad Loans and Buy-Sell Deals

Posted on by JohnM

The September 2011 issue of Mergers & Acquisitions (published by ACG) had an article that stated it is not the lenders who are holding up activity in the small deal space. They wrote that banks were out of the market for quite awhile (who could blame them in 2009?) and have a pent up demand.

Another factor is that there just aren’t that many loans to make (transaction and other types) so every potential deal is a priority. Of course, it has to be a good deal meaning stability, growth and adequate debt coverage (profit to debt payment ratio).

When I hear people say that banks won’t lend or, better yet, that it has to be a really good deal to get a loan, I smile and move on. Of course it has to be a really good deal because banks are in business to get paid back. I own stock in a community bank and I like it when they make good loans.

The biggest factor that will translate into more deals is for buyers and sellers to both realize three things:

  1. The current economy is what we will have for a few years. Don’t sit back waiting to ride the recovery wave.
  2. There aren’t as many buyers as one would expect in a down and turbulent economy. So, take what you can and take action.
  3. Banks will lend money for a good buy-sell transaction. It is not the banks holding down the activity.

“It’s always a good time to buy a business” Richard Parker

 

Businesses Need a Strong Foundation

Posted on by JohnM

On November 5, 2011 the University of Washington football team played their last game in Husky Stadium before a $250 million renovation, which has already started. They made a big deal about it, as they should have.

The game turned out as expected with the seventh ranked Oregon throttling the UW, especially in the second half. The Oregon team’s speed and quickness is phenomenal and this was pointed out by a Seattle Times columnist in the next day’s paper.

However, that was the superficial view. The Husky’s got beat because they got killed on both lines of scrimmage. The Oregon lines dominated, including a brutal quarterback sack on a two-man rush. The Oregon lines dominated and that led to huge holes, sacks, open receivers and mistakes.

Business is like football; you do better with a strong foundation. If you have a solid management team (the linemen), a strong competitive advantage (skill players) and a good plan coupled with good work habits (coaching staff and practice regime) your business will do great.

Football teams are built around strong lines. Businesses are built upon a strong foundation. Pay attention to the basics, offer value and you’ll win.

“One does not manage people. The task is to lead people” Peter Drucker

Tough to Fill Jobs; Tough to Sell Businesses

Posted on by JohnM

The Wall Street Journal reported on October 3, 2011 that even with high unemployment many jobs are hard to fill. In this era of specialization, technology and the need for more education we are at both ends of the spectrum simultaneously.

The lesson here for business owners to make the skills it takes to run the company as general as possible. Make the business as easy as possible to slide in new management or a buyer; so those people don’t need industry specific skills or narrow technological abilities.

When someone with good business sense can successfully run your company you have created value and that means a higher price when you exit. If it takes a person with a high level of industry knowledge you have a dependency, buyers will be cautious and not willing to pay as much, if they will even be willing to make an offer.

In addition, even if they do make an offer their chances of getting a bank acquisition loan are greatly reduced so you’ll finance more of the price (banks like a buyer to have industry experience unless the owner’s role is strictly general management).

“LIfe is the art of drawing without an eraser” John W. Gardner

Alternatives to Corporate Employment

Posted on by JohnM

The October 3, 2011 Minneapolis Star Tribune had a front-page business section article on how franchises are a viable alternative to a corporate job. For years one of my taglines has been, “I’m the guy who helps corporate execs buy their own business.”

Both franchise opportunities and buying an established (mature, profitable) company are viable options. Often there is a difference in scale. The article stated, “Franchises differ greatly by investment level, ownership role, industry and whether they serve other businesses or consumers. An owner can operate a franchise as a lifestyle business, with time for golf, kids or grandchildren or try to grow aggressively in pursuit of a six-figure income.”

Business buyers tend to not want a lifestyle business. They usually want something at which they can work hard, grow and see the results of their efforts. My clients, and I don’t speak for all buyers, want to walk into a solid six-figure income and they have the investment capital to do a deal that will allow for a six-figure income.

The article was 100% correct in saying there are alternatives to corporate employment. While some may perceive business ownership as riskier than employment, with high under-employment and unemployment, constant downsizing and the trend to replace high salaried people with lower salaried people the risk of being an employee isn’t different. In my opinion, buying a business is the least risky way to get your own business. Buy a mature, profitable company and avoid the risks of a startup.

“It’s ALWAYS a good time to buy a business” Richard Parker

 

Getting the Deal Done Breakfast Conference Summary – We Need some Stability

Posted on by JohnM

The Getting the Deal Done Breakfast Conference October 27, 2011 (sponsors listed below) was a roaring success with very positive feedback. Our special guest speaker was Christian Schiller with Cascadia Capital, the largest investment-banking firm in Washington. Christian’s comments were insightful and one comment in particular resonated with me.

Christian stated that 2012 should be a good year for middle market M&A and one of the major reasons is the uncertainty of what will happen with the election with tax law changes and other regulatory changes. He felt, however, that a good 2012 would be at the expense of the two to three following years as people accelerate their (M&A) activity to avoid the uncertainty.

Two weeks prior, one of my “Partner” On-Call Network associates, Jeff Smith in Indianapolis, called me to discuss an acquisition that a client of his is involved with. His client is concerned about budgeting for increasing health care costs and Obamacare. This is the kind of regulatory uncertainty Christian mentioned and that small business owners face. Will costs increase even more dramatically than they have? Will there be fines if businesses don’t contribute enough for employees medical insurance?

The October 29, 2011 Wall Street Journal had two interesting pieces related to this. First, one of their editorials discussed that the favorable view of the Affordable Care Act (Obamacare) is dropping, sharply. The numbers now suggest that it is not just partisans against this regulation; there must be independents and Democrats  also concerned about the burden this puts on employers (48% of Democrats are now not in favor).

In her weekly column, Peggy Noonan wrote, “…they [Occupy Wall Street protestors] seem as incapable of seeing government as part of the problem as Republicans seem of seeing business as part of the problem.” In other words, those of us reading this, at my event and just “doing business” every day are caught in the middle of disagreements between partisans (most of whom are simply looking to be reelected) and we simply want to know what the playing field will be before we make investments and take action.

Getting the Deal Done sponsors:

Greg Russell, Peterson Russell Kelly law firm

Marc Hutchinson, Bashey, Hutchinson & Walter CPA firm

Bill Barclay and Kit Gerwels, Columbia Bank

John Martinka, “Partner” On-Call Network

“It seems to me that the laws of the land are now so poorly written that almost no one knows what they mean. That is a government bureaucrat’s delight!” R. Emmett Tyree