DEA Meeting: Murphy Business Sales

Dr. Paul Chafetz was pleased to introduce Mariann and Andy Montgomery with Murphy Business Sales.  Mariann is a native Texan and grew up in farm and ranch country and earned a Bachelor’s degree in Animal Science from Texas A&M and a Master’s in Agricultural Science.  Andy is from Bartlesville and earned a Bachelor’s degree in Mechanical Engineering from OSU.  They met in 1999.  They are a power couple with mutual expertise in M&A as business brokers.  Mariann and Andy are both top producers in their company, are committed to continuous learning, with an impressive list of licenses, certificates, and credentials in the brokerage business.  They are also active volunteers and leaders in many groups.

Mariann shared that she started putting this program together several weeks ago and when she ran it by Andy, they determined they needed to change the message of the presentation!  In September, Andy was visiting with a member of the DEA and they said “I think I know what you guys do, but I’m really not for sure”.  That one comment challenged them to more clearly communicate what they do.

Mariann’s goal & objective today was for us to understand:  (1) Their core business and primary focus; (2) The three steps of their core business; and (3) The end result of their core business.

Mariann and Andy are business intermediaries working the upper end business brokerage market and the lower end of the middle market.  They primarily do SELL side representation, selling businesses with revenue from 1M to 35M.  Their sweet spot are businesses selling from 3M-9M in enterprise value.  Sometimes they conduct targeted searches for buyers.  Additionally, they assist in the real estate transactions along with the business sales by helping with an existing lease, or the sale or lease back of seller owned real estate.

Their primary focus and the majority of their business is marketing businesses for third party sales transactions. For many of the business owners they work with, their business represents almost all their wealth.  When they close the sale of that business they hand them the biggest check of their lives!  Working with business owners and using a proven process, they are able to help business owners realize the highest value and optimum transaction structure for their business transfer.  Because of this, business owners are able to live the life of their dreams with the sale of their business.

To get to the closing table and deliver that big check to the business owner, Andy and Mariann do 3 things:  (1) Business Valuation; (2) Value Enhancement; and (3) Market and Sell the Business.

The first step is Valuing the business.  A business owner can become very confused if they are NOT working with an intermediary to help guide them through this process, and help them identify income statement adjustments that unlock HIDDEN business value.  

The top item Buyers are looking for is: CASH FLOW or EARNINGS.  A prospective buyer never comes into their office and says, “I want to buy a business that is losing money!”  For those businesses whose earnings don’t justify the value of the assets in the business, and where the owner wants to get paid for all his assets, the fact is that people don’t buy assets, they buy earnings.

After completing the business valuation, sometimes the value comes up short of the business owners goals…. Then what?  Value Enhancement or Exit Planning.  They may work with the business owner for 12-36 months to Enhance the value of the business in order to meet their financial goals.  The key to increasing or enhancing value is to put in place:  measurement tools such as financial, operational and marketing benchmarks.  Value increases as you de-risk the business.

A couple of items they commonly see as needing the most attention:  financial and operational performance; management team (does one even exist); is there a large and diverse customer base?; are there metrics in place to measure gross, net and product or service margins?

Once the business value has increased, comes marketing and selling the business.  This “go, no go” decision is a “wild card” for Mariann and Andy.  Selling a business is a decision the owners must make for themselves, and for reasons that will survive the marketing & sales life cycle.  For this reason, they want to meet with owners who know they want to sell within the next twelve months, and have a reason for doing so.  Unfortunately, many times the reason to sell is not a happy one… it may be a divorce, disability and/or illness of the owner or a family member or another life event.  These are not scenarios for maximizing value, but they are real and illustrate why exit planning makes strategic sense throughout the life of the business.

After the decision is made to market the business and they have started developing the marketing materials, they help the business owner assemble their  Exit Team of Professionals.  Making sure to have professionals on the team that have successfully completed multiple deals and at the size level and in some cases industry of the business owner’s transaction is critical in getting a deal to the closing table.  Paying for the professional assistance you need will increase the odds of closing the deal and not have complications and legal issues after the sale.

There are MANY steps in selling a business, but they break down into 4 major categories: Planning, Buyer Search, Deal Making and Closing.  One aspect that stands out in importance is Due Diligence.  When they work with sellers, they take them through a seller pre-due diligence so problems or issues can be resolved or disclosed prior to the buyer reviewing the marketing document.  They often hear of business owners just turning over the books & records (even complete customer lists)  to prospective buyers without any filter, not realizing they are giving away the intellectual property of their business.  Also, most business owners don’t realize how intensive and invasive due diligence can be.  An Intermediary will help determine WHAT is necessary to share, WHEN the time is right, and HOW to structure the information provided  to the buyer.

Andy and Mariann are often asked who is their greatest competition.  It is really business owners who choose to sell their business themselves.  In this hot market, business owners are commonly approached directly by buyers.  If they complete a deal without exposing it to the market, they will never know if they have achieved full value. We all don’t know what we don’t know and in most cases business owners have never sold a business.  They don’t realize how complicated, complex, time consuming, and physically and emotionally draining the process can be.

Mariann and Andy are skilled at pricing, marketing and negotiating, allowing the business owner to run their business full-time.  They explain how the business value was arrived at, serve as a buffer to emotions and are knowledgeable on transferring contracts, leases and agreements.  The key part is they bring sellers and buyers together and educate them about the process while facilitating from start to finish.  Mariann can say something that needs to be said to either the seller or buyer that they cannot tell the other without potentially damaging the deal and/or the buyer/seller relationship.

Time kill deals – as an intermediary, Mariann knows what is normal and not normal and can keep the deal moving whatever the delay or hold-up may be.

Andy and Mariann will commonly start working with a business owner after they have attempted to sell the business themselves.  Two of the big problems business owners have when they attempt to sell their business are:  getting less value when they try to sell on their own because they don’t know all the value drivers, and “taking their eye off the ball” during the process.  That is, business performance may dip while they are focused on the transaction.

Mariann and Andy are fundamentally more confidential… buyers are responding to their general and generic information.  If a buyer is talking directly to a seller, the seller’s identity is already revealed.  If the process stops, there may be damage to the business if information leaks to employees, vendors or customers.  They are also experts in marketing; they know how to market companies discreetly to find the right buyer.  Also, as an intermediary they are in the middle, mediating the negotiation. They can listen, and help each side understand what is important to the other.  This helps get a good deal for both sides.

An experience intermediary will have additional knowledge that will be invaluable to the business owner.  For example, buyers prefer an asset transaction while sellers prefer a stock transaction due to the tax consequences.  Did you know a seller can have the best of both worlds if their business is an ‘S” Corp?  Did you know sellers may have the option to defer capital gains tax from the sale of their business?  These are only a couple of examples of industry knowledge they bring to help business owners not only realize the highest value for their business but to keep as much of the proceeds they possibly can.

Andy and Mariann feel it is very important to keep a high standard of knowledge and industry best-practices.  In addition to their extensive training from the franchise, they have also earned many certifications, designations and licenses to ensure delivering top-level professional services.  Andy and Mariann are also very active in industry professional organizations and have served on many committees, boards and held officer positions.

Our primary focus is representing business owners in selling their businesses to a third party

Step 1 – Business Valuation

Step 2 – Value Enhancement

Step 3 – Sell & Market the business

And…….Let’s not Forget

Deliver the largest check the business owner has seen from their business!

LEADS: A – Businesses with > $1,000,000 revenue; B – All of you; C – Introductions to advisory team (CPA’s, Attorneys, Wealth Advisors, Commercial Lenders, Insurance Agents)

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