Wholesale and Distribution companies are very popular with buyers, especially if your company generates strong stable profits. When it comes to selling a distribution company, there are 5 key points that business owners should remember.

Profits Dictate Sale Price
The only reason for some one to purchase a business is because they are purchasing the ability to make money. When pricing a business, a buyer is always, in one manner or another, seeking to price the value of that profit stream.

Most M&A Advisors can attest to the logistical nightmare that can arise in scheduling the required (and finite) resources amongst multiple buyers during due diligence. Imagine 15 potential buyers descending upon your company at one time, all seeking to rifle through papers and boxes of documents in order to complete their due diligence. And the alternative? Scheduling each independently, thus spreading them out over the course of several months and losing momentum in your deal. This is clearly a nightmare scenario – yet it is the most likely scenario if you plan on completing due diligence on-site without a virtual deal room.

As dealmakers predicted, 2007 finishes on a strong note for M&A, with the middle market keeping up the pace of transactions. More.

In a sign that much in the logistics world is driven by China, YRC announced today that it had entered into a definitive agreement to purchase Shanghai Jiayu Logistics Co, Ltd.

Here is a scenario that we often encounter:  the phenomenally successful business that looks absolutely scary when you walk in the building.  Yes, buying a business is based fundamentally on the financial performance of the business.  But how does someone get themselves comfortable with the accuracy of the financials? 

I can say from experience that the image that a business portrays - and specifically, their physical image - goes a long way towards making a buyer feel comfortable with the business.

We often hear buyers inquire about the protections offered by a non-compete agreement. The issue that concerns them, of course, is "what prevents the buyer from going out and starting the same business across the street from me?" And it is a good point: in many small businesses, the vast majority of value is not in assets, but rather in intangibles such as the customers, location, etc.

There are a number of constructs that can help you protect your interests in the business you are buying, but they all center around a well structured non-compete agreement.

Issues to Address in a Non-Compete:
Geographic Reach of Non-Compete. To be effective, a non-compete agreement should address the geographic reach it is to encompass. For many small business transactions, a range of 100 miles is sufficient. For single-branch retail operations, an even smaller range might be appropriate- perhaps as little as 25 miles. For companies that have a wider territory, the exclusion might be the entire country.

The M&A world, and particularly larger transactions, are driven by the availability of cheap credit. We have all certainly seen the ebb and flow in the credit markets - from easy lending terms in the 90s, to a tightening during the 9/11 era recession, and back to an abundance or credit availability in recent years.

A Tip from Clear Rock: One of our favorite places to find current strength data on general market trends is the Small Business Research Center. We're certainly excited to see that they have expanded their coverage, and will be adding data on market strength in the Wholesale / Distribution segments.

In most business transactions there comes a point in time when a formal offer is made and accepted. Although the offer can take many forms, we often see it crafted as a "Letter of Intent," or an "LOI". Often times one or both parties will execute such a document with the idea that either all or part of the document is not binding on the parties. The underlying idea is that both parties want to explore a transaction, and want to begin to formalize the terms under which due diligence and a sale will take place, but want the freedom of certain "out clauses."

The "Material Adverse Change," or MAC Clause. It is in every asset purchase and stock purchase agreement. It's always been in there - mostly little noticed and slightly neglected. At least it has been for some years, and especially in the lower-mid market M&A world. Now, it is back. Time to read the fine print.