exit strategy
Exit Strategy Specialists
Position for transition: ExStrat helps small business owners successfully sell their companies.

A small business owner recently sold three of his companies. Unfortunately, he sold all of them at a loss. He's not alone in debitland, however. According to the Concord-based trade publication Business Broker Press, over the last 10 years, only one in six business owners who attempt to sell their companies do so successfully.

So when the time came to sell his entire business, the owner decided to hire ExStrat, a Melrose firm that helps small business companies in transition implement a successful exit strategy. After examining the company to discover its strengths, weaknesses and risks, ExStrat determined it had a value of $2.2 million. By implementing the changes recommended by ExStrat, the company's value today is approaching $3 million. ExStrat now sees that company probably selling in less than two years for about $4 million. Before hooking up with ExStrat, the owner was going to sell his business for $1.6 million with promissory notes. That's a difference bordering on $3 million minus fees and commissions.  "He's turning cartwheels," says ExStrat's president, Bob Gillette.

Small business owners would do well to plan their exit strategies in advance, according to Gillette. "So many people think, 'I'm not ready to exit my business. Why should I think about it now?' But, truly, the best time to think about exiting your business is the day you open the doors. You should at least have a plan for how to get out. Most don't do this. When partners are involved, it is even more important, since one partner may want or need to exit before the other. Partners need to put a buy-sell agreement in place at the outset."

To assist these business owners, Bob Gillette founded ExStrat in 2003. He had been providing financing for buyers to purchase companies from owners who were transitioning out of their businesses. The more he became involved in this venture, however, the more problems he saw. He also saw the opportunity to solve them. Hence, the birth of ExStrat. First, Gillette, who serves as the company's president, focused on tapping into an "unaddressed" niche -- the lower mid-market. This consists of businesses that will sell from between $1 million and $5 million and have annual revenue of $1 million to $20 million. The other markets include the Main Street market for businesses that will sell for $1 million or less, the middle market for business that will sell for more than $5 million and an upper market that typically deals with sales of public companies. Don't bring the penny jar to these multimillion-dollar transactions.

If the five-in-six failure rate for business sales isn't disturbing enough, Gillette points out that of those businesses that are successful, fewer than 50 percent of the owners receive half their price in cash. The other half of the payment typically comes from the aforementioned notes, and more than 60 percent of the time these notes are defaulted on, according to Gillette, leaving business owners holding the bag - and it's an empty one. Business owners first need to know there are multiple types of buyers, says ExStrat's president. "Many think they're going to sell to another owner-operator somewhat similar to themselves who's going to come in and sit behind the desk and operate the business as it has been done for years," he says. "But there are also financial buyers who sometimes have an assemblage strategy where they'll put many similar small businesses together and try to build a national chain. Other financial buyers will look at distressed situations, buy cheap, fix and sell high. Then there are strategic buyers who see some type of synergistic relationship between what they're doing and what you are doing. It could be a very large public company that will buy a small company for no other reason than that it offers a certain product to a market that it could bring its own products and services into."

Now that the business owner knows the market, ExStrat works with the owner to bring the business into a position to sell successfully. Its strategy to accomplish this begins with an analysis of a company's risks, competitive advantages and the industry lifestyle. Through its proprietary evaluation system, ExStrat determines how effectively the company is positioned and makes recommendations for formulating and executing a successful exit strategy. "The primary function of this report is to lay the business wide open," says Gillette. "After it's completed, we understand what the value of the company is. We understand why it's not worth more than it is and the factors that detract from value. ExStrat then incorporates its Growth and Transition Strategy to optimize that value. "We take that company and move it to a more profitable, higher revenue level so the business will sell for a higher price," says Gillette. The process can take from 18 to 24 months with the company working with a specially trained ExStrat affiliate consultant to implement the strategy.

"We bring large company strategies to small business," says Gillette. "These are proven strategies that many Fortune 500 companies use every day," but are beyond the scope of small business owners. Since implementation of these strategies is likely to include a price tag, ExStrat also offers financing. "We have more than 130 lending sources that we use to provide any number of financing needs for our clients," says Gillette. "It's not just transition monies but everything from working capital to equipment and real estate acquisition to leasing.... Often our sellers need financing to get them where they need to go as part of our recommendations."

After the analysis is conducted, the recommendations made and the strategies implemented, the company is ready to go to market, working this time with specially selected merger and acquisition firms. The actual sale takes, on average, from nine months to one year to complete, according to Gillette.

Says Gillette, "All these facets exist in the market if you want to shop around. You can get an evaluation of your business. You can hire a consultant to try to tune up your business. You can go to banks to try to find financing, and when you get to the point where you want to sell the business, you can contact a firm to do that. "What we've done is build a model that puts all those services under one roof, and we're the first company to do that. We provide the road map on how to take the company from where it is to where it should be in order to be properly positioned and maximize the benefit to the owner."

In addition to the convenience of one-stop shopping, ExStrat offers its services at a competitive price, according to Gillette. The cost of its analysis report, depending on the size of the business and the scope of the work, ranges from $5,000 to $10,000. The consultants' fees vary depending on how frequently the consultant works with the business owner. "It's negotiated based on how much time the owner feels is necessary for the consultant to come in. For some, it's three days a week. For others, it's three times a month," Gillette said. The cost for a consultant working three times a month over an 18-month period averages around $36,000, according to Gillette. Consultants keep 100 percent of their fees. They also earn a percentage from the report's cost, the company's sale and any financing agreement.

In addition to money from its report and financing agreement, if there is one, ExStrat receives 10 percent of the M&A firm's commission. That commission is based on a percentage of the sale with the percentage based on a sliding scale. "On a $3 million sale, you're looking at approximately a 7 1/2 percent commission," says Gillette.

ExStrat serves an area stretching from New York City to Portland, Maine, with a concentration in the New England marketplace. In this global age, it is not rare for a manufacturing firm to have an overseas plant. Working with these companies has brought Gillette around the world where he has solidified relationships on all continents and refers work originating overseas and receives referrals from his extensive network.

The need for successful transitioning is further driven home by an American Family Business survey of 1,143 family-owned businesses conducted last year by the MassMutual Financial Group and the Raymond Family Business Institute. Thirty-nine percent of the respondents said they planned to change ownership within the next five years -- and most of them had no plan for implementing this change. Having a plan can be worth your while. Gillette notes that the aforementioned business owner, having made the changes ExStrat recommended, "has already caught the attention of some potential strategic buyers. The early indications are that he is going to be able to get at least three times what he figured he was going to sell it for to the other owner-operator." That explains the cartwheels.

Industry: Growth and transition

Company background: Based in Melrose, ExStrat helps small business owners effectively position and enhance the salable value of their businesses.

   ExStrat
38C Tremont Street
Melrose, MA
781-397-7600
781-322-5662 fax
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