A recent study of M&A Advisors by John Warrilow, undertaken August 1-2, 2011, revealed five key attributes that professional dealmakers believe make a company saleable and enhance its value.

A total of seventy seven intermediaries completed the survey. Of the participants, the broad range of intermediary client size focus included main street brokers who specialize in selling very small businesses, going right up to mid market mergers and acquisitions professionals with an average deal size of one hundred million dollars or more. Interestingly though, although the range of participant focus was broad, the consensus remained the same regardless of the size of the transaction.

Customer Mix

The study found that intermediaries prefer to work on sell-side engagements with companies that have recurring revenue and minimal customer concentration. The following shows what intermediaries feel is the most important characteristic regarding a client's customer base.

		Large, diversified customer base	31%
		Customer place small repeat orders	26%
		A high percentage of extremely satisfied customers	17%
		Large, Fortune 500 clients	13%
		Customers do not require customization	13%

Financial Performance

Intermediaries were divided on which financial metrics were most important in a transaction. Positive cash flow came in first followed by margin growth. Many intermediaries also emphasized the importance of good reporting systems adn the need to examine the ability to produce information quickly and accurately.

		Positive Cash Flow	30%
		Margin Growth	21%
		Audited Financials	17%
		Revenue Growth	17%
		Size of Business (revenues)	13%

Growth Model

Intermediaries believe that businesses with the ability to scale up qucikly with minimal additional investment hold one of the most important value drivers. And following closely behind, they also see the ability to cross sell new products and services to existing customers as a very important value driver.

		Business can expand rapidly with minimal CAPEX investment	35%
		Opportunity to sell or cross sell more products to existing customers	30%
		Business can be replicated in a new geographic market	20%
		Business has strong marketing and IT platforms	15%

Management Strength

Most intermediaries felt that management strenth was one of the key reasons buyers buy companies. A majority of intermediaries felt that developing or training a second-in-command or general manager was a wise investment for business owners to make before deciding to sell.

		General Manager / 2nd in Command	35%
		Head of Sales / Marketing	25%
		Chief Financial Officer or Controller	20%
		Head of Operations	20%

Competitive Position

Most intermediaries surveyed like to work with companies operating in a niche market with a defendable market position as you'll see from the chart below.

		Company enjoys barriers to entry	35%
		Company offers niche products or services	30%
		Business competes on value not price	20%
		Company has exclusive rights to products or significant intellectual property	15%

Macro Factors

The old expression "a rising tide lifts all boats" holds true when it comes to the external factors that make a business desirable. Intermediaries like to work with clients operating in a growing industry and in industries that are new and full of potential.

		Industry is growing faster than economy	35%
		Industry is new and emerging	30%
		Industry is fragmented and consolidating	20%
		Market or industry is deregulated	15%

In summary, the most saleable businesses, according to the professional intermediaries surveyed, have a good track record of positive cash flow, a large diversified customer base, can expand with minimal additional investment, have a strong leader at the helm, enjoy some barriers to entry and operate in a growing industry.

For additional information about how saleable your company may be, please contact the MidCap Advisors' office nearest you.