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  • How does IEI perform a valuation?
    The industry standard is a multiple of earnings approach. It starts with making the industry appropriate expense adjustments (often also referred to as add-backs) to determine the adjusted earnings for the past three years. IEI then helps owners understand a likely multiple for their business based on numerous factors that industry buyers take into account. The adjusted earnings is then multiplied by the company specific valuation multiplier to determine the enterprise value. A working capital adjustment is then made to ensure the business transfers with an appropriate amount of working capital. Nearly all of our clients go through a cash free and debt free transaction so we add the cash in the business and subtract the debt on the balance sheet. Finally, we also ensure that owners are educated on the transaction fees. While transaction fees aren't often considered part of a valuation, we believe that owners should know sooner rather than later what their net proceeds are so they can plan accordingly. The entire equation is: ​ Earnings (EBITDA) + Adjustments (add-backs) = Adjusted Earnings ​ Industry Multiple Range + Company Specific Performance = Company Multiple ​ Adjusted Earnings x Company Multiple = Enterprise Value ​ Enterprise Value +/- Working Capital Excess/Deficit - Debt = Equity Value ​ Equity Value - Taxes - Transaction Fees (CPA, Attorney, M&A Advisor) + Cash = Sale Proceeds
  • How long does it take to sell a business?
    The time-frame can be anywhere from a few months to a year and varies based on the marketability of the business. Once we get to know your business, IEI can provide a more specific time-frame for your business and specific marketing plan. ​ One thing that sellers often don't consider is that buyers may want them to actively work in the business for a year or more to complete a smooth transition to new ownership. This is a more likely scenario for smaller businesses. Owners should consider this possibility when estimating the overall time-frame it may take them to exit the business. ​ For more a more detailed guide on potential ownership transition times for businesses of various sizes, our insights blog has a post on the topic called "Don't wait for too late."
  • Would private equity consider investing in or buying my business?
    Private equity firms all have different criteria for investments and typically the smallest businesses they will consider for investment are those with at least $500K in Adjusted Earnings (see valuation FAQ for definition). They also look closely at the management teams to evaluate the opportunity to partner with the team to grow the business. One key benefit to working with private equity is that they are sophisticated in how they structure deals and will often incorporate equity incentives for management teams. The most common scenario for an HVAC owner is selling to a large HVAC company backed by a private equity firm. Private equity firms typically start their HVAC investment by buying a large HVAC company and that company helps the private equity firm understand the ins and outs of the industry. They then partner with the executives in that company to make additional acquisitions. In this scenario, selling to a private equity firm is quite similar to selling to a large privately owned or public HVAC company. ​ For contracting businesses, another common scenario is an owner that wants to sell the business to family members or managers in the company. The typical hurdle with an internal sale is that the employee buyers don't have a significant amount of cash or credit to purchase the business for it's full value. Private equity can be a good solution to this challenge. They can provide the capital to pay for the full value of the business while also incorporating equity incentives for managers or family members who choose to partner with them to grow the business. ​ Exploring private equity makes sense when there are multiple owners with one looking to leave and the others wanting to stay. In this scenario, private equity could buy all of the shares of the one owner and possibly some of the shares of the other owners. At that point, one owner could walk away while other owner/s stay engaged in the business. Some private equity firms will even want to have someone from their team help operate the business. This can be ideal when one partner wants to exit and will leave a significant amount of responsibilities for the remaining partner to handle. Private equity can also be a good option for an owner that is five or ten years away from an exit and wants to sell part of the business now. Selling part of the business allows the owner to get a significant payout without having to wait all the way until a full exit to get compensated for the equity in the business. The owner then partners with private equity to grow the business and sells the rest of his equity when the private equity exits. Ideally, the business has grown significantly over that time and therefore the owners remaining equity is more valuable. There are certainly things to be wary of when entertaining a private equity offer. The financial projections they use to show ongoing earnings and exit valuations can often be inflated. They may have a significant monthly management fee that will need to be paid after the transaction. They may also be leveraging debt to purchase the business and the payments on the loan can be significant. It's important to ask up front about management fees and financing to make sure you fully understand how the finances of the business will be affected after the deal is closed. Ultimately, there are a lot of opportunities and challenges when it comes to selling all or part of your business to private equity. IEI's role is to guide you through the process and help you determine if one of the thousands of private equity companies in the US is a good fit for you.
  • How does IEI maintain confidentiality during the sale of a business?
    It is of the utmost importance to maintain confidentiality. We work with owners to understand their specific needs for confidentiality and maintain the highest respect for those needs throughout our engagement. We initially communicate with potential buyers without disclosing the name of the business for sale. We only disclose the name of the business once we have a serious pre-screened buyer who has signed a non-disclosure agreement. ​ IEI takes a targeted approach to marketing to buyers as we know the national universe of potential buyers very well. IEI doesn’t post your business on a public web site. Instead, we directly contact the most likely buyers to get direct and timely feedback on their interest.
  • Why does IEI specialize in the HVAC industry?
    Our focus on mechanical, HVAC, refrigeration, plumbing, distributor, and controls contracting businesses helps us ensure that we provide high value and competitive services. Our goal is excellence in everything we do and focus is often a key component of excellence. ​ Our focus has the most impact in how we value businesses and how we market businesses. Our valuations are very specific to the types of factors a contractor needs to consider to accurately value their enterprise. Our knowledge and relationships with potential buyers means that we can efficiently connect a seller with likely buyers as we already know what buyers are looking for in the market.
  • What can I do to prepare to sell my business?
    The high-level things are simple. Fast growth and strong profitability are the two goals that will help your business sell quickly and at a high valuation. In addition to focusing on those two objectives, there are a few more things you can do. Your financials will be scrutinized by potential buyers. To give them confidence in the numbers, your financials should be in accordance with GAAP standards. If you do large projects that span multiple tax years, then recording revenues on a percent completion method helps buyers understand how consistent your performance is versus seeing ups and downs based on when you invoice jobs. You should also consider getting accountant reviewed financial statements annually as buyers will trust accountant reviewed statements more than statements produced in-house. Buyers look favorably on recurring revenue and therefore growing your maintenance base should be a high priority. That includes both new client maintenance sales as well as targeting traditionally T&M clients to transition them to a maintenance agreement. The capabilities and experience of your management team can also be a factor. If you want to sell your business and walk away, you need to have key managers overseeing important aspects of the business. Alternatively, you can sell with a two or three year earn-out while working with the buyer to hire, promote, and train the management team that will take over the business when you leave. As buyers review your finances, they will trust the numbers more for owners who have thoroughly separated their business and personal finances. If you currently have the two intertwined as many owners often do, you should consider adjusting your approach to personal versus business expenses a year or two before you sell. Beyond this quick list of operation and financial adjustments, there are certainly additional items that IEI can recommend on a case by case basis.
  • What fees should I expect for a transaction?
    It’s very important for an owner to consider fees and taxes when planning a company sale. You’ll have significant attorney and CPA fees, Uncle Sam will take a significant chunk, and then you have fees from an M&A Advisor such as IEI. Given that fees and taxes can add up quickly, in IEI's valuations we provide estimates for overall taxes and fees and also encourage owners to consult legal and tax professions to help truly understand what their final proceeds from the sale will be. The only part of that equation that IEI controls is our fee and our goal is quote fees below the industry average while also providing high value industry expertise. In fact, a high M&A fee is a part of the reason IEI was formed. An HVAC owner friend sold his large service and construction business and paid an investment bank a ridiculous fee. The idea that there had to be a fairer price for M&A services is at the core of our purpose. Therefore, we are up front about our below industry average fees as a part of our valuation process.​
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