Kasper and Associates

We've Moved Our Blog!

2010-10-04T15:22:00.002-05:00

The K&A Blog is now posted on our website at http://www.kasperassociates.com/blog/. Please visit and subscribe!

Health Care Reform Bill

2010-09-29T12:46:00.002-05:00

Think the health care bill is only about health care? Allyson Baumeister, officer and partner at CPA firm Sanford, Baumeister & Frazier, outlines the implications and (frightening) impacts of the bill on individuals and small businesses. Well done, Allyson!

http://fwbusinesspress.com/main.asp?Search=1&ArticleID=13188&SectionID=14&SubSectionID=39&S=1

How to Raise a Business Owner

2010-09-27T14:09:00.003-05:00

Are entrepreneurs simply born that way, or is that a characteristic that can be taught?

http://boss.blogs.nytimes.com/2010/09/22/how-to-raise-a-business-owner/

Best-Performing Metro Area: Fort Worth

2010-09-14T13:43:00.003-05:00

The chief U.S. economist for BBVA Compass identifies Fort Worth as possibly the best place to be for a recovery.

http://fwbusinesspress.com/main.asp?FromHome=1&TypeID=1&ArticleID=13104&SectionID=5&SubSectionID=30

Common Business Sense after the Acquisition

2010-08-16T13:32:00.003-05:00

For business buyers: A real-world example of how you can hit the ground running by bringing common business sense, creativity and energy to a business that has been run by the status-quo for way too long. What might look like a struggling business could be an excellent opportunity waiting to flourish.

http://mlb.mlb.com/news/press_releases/press_release.jsp?ymd=20100813&content_id=13404298&vkey=pr_tex&fext=.jsp&c_id=tex

It Pays to Have More Than One Buyer

2010-08-05T21:33:00.010-05:00

View from the opposite side of the Texas Rangers auction. Lesson to learn for business owners: it pays to have more than one buyer prospect interested in your company.

http://blogmaverick.com/2010/08/05/chasing-the-rangers/

Creative Dealmaking

2010-08-05T21:31:00.008-05:00

K&A respects creative dealmaking! Congrats to the Greenberg/Ryan group.

http://www.bizofbaseball.com/index.php?option=com_content&view=article&id=4609:texas-rangers-confirmation-hearing-reveals-details-from-auction&catid=70:mlb-club-sales&Itemid=157

Unique vs. Cheap

2010-08-02T11:53:00.003-05:00

Founding Partner Ed Kasper wrote the following article as a guest columnist in the Fort Worth Business Press:

http://www.fwbusinesspress.com/display.php?id=13031

Strive to be unique; it's where the real value is

Owners of privately held manufacturing, service or distribution companies want and need to know what their company is worth. Often, they seek these informal valuations from trusted financial advisors who in turn review the company’s recent financial reports and render their best opinion. Typically the result of this exercise finds the owner asking, “What can I do to make my company worth even more?” Predictably the response is, “Do more of the things that increase your bottom line profits.” By that they mean increase sales, decrease costs, find more efficient ways to compete, etc.

Without question, increasing profitability is always a worthy objective; but it is only a part of the overall answer to adding solid equity value to an enterprise. Professionals in the mergers and acquisition arena wrestle with the nuances of this issue on a daily basis. Often, overall profitability takes its natural place among many other significant value drivers. One such driver seldom considered in the informal “book” business valuation process has to do with whether or not a company’s products, services or company structure sets them apart or merely establishes them as one of several commodity offerings. In other words, as Tom Pryor, Director of the Small Business Development Center says, “If your product isn’t unique, it had better be cheap”.

By far, uniqueness adds much more value to a company’s worth than being a low-cost provider ever will. Here is an example: Recently my firm facilitated the sale of a ceramic products company. The business made excellent coffee mugs, but as such they were not “unique”. The special advantage the company had achieved in the marketplace was that they had worked for and been granted a difficult-to-obtain license from a national association. The license positioned them to sell products with exclusive designs, themes and artwork. This “unique” position resulted in the eventual acquirer paying more than double the price for the business over what the financial numbers would suggest.

Most everyone knows what it means to be a “cheap” supplier. But what contributes to being “unique”? The following is a short list of factors my firm considers valuable in determining the extent to which buyers will pay beyond what a company’s profitability will warrant by itself:

• Proprietary products and brands (rather than manufacturing to customer specs)

• Exclusive franchise and/or territory

• Outstanding key management in place

• Strong research and development capabilities

• Difficulty of entry by new competitors

• Superb customer service

• Reputation for product reliability

• Desirable customer list (i.e. no reliance on one or two customers)

• Manufacturing “trade secrets”

Continually taking action steps to be “unique” at your company will pay off handsomely when you’ve made the decision to sell.

Ed Kasper is founding partner of Kasper & Associates, a merger and acquisition firm in Fort Worth that represents and sells medium-size manufacturing, distribution and service companies throughout North and Central Texas. He can be contacted at kasper@kasperassociates.com.

Financial Regulations

2010-07-26T11:31:00.003-05:00

Greg Morse, CEO of Worthington National Bank, sheds light on misguided new financial regulations.

http://www.fwbusinesspress.com/display.php?id=12993

Trends in M&A Transactions

2010-07-23T15:48:00.003-05:00

Our friends at Ferguson Law Group, P.C., including Partner Kyle Ferguson, have posted an article describing merger and acquisition trends the firm is experiencing with its clients. K&A can confirm several of these trends from recent transactions. In an ever-changing market, it's important for a business owner to know what to expect when considering a sale.

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Trends in M&A Transactions

Despite the economy's stifling effect on mergers and acquisitions during the past 2 years, Ferguson Law Group's representation of clients in the areas of acquisitions, dispositions and fundraising has remained steady. In the process of helping clients manage the process of buying and selling their companies, certain market trends have become apparent, especially in transactions between $1MM and $10MM. Here are three of them:

Purchase Price

Three years ago, it would not have been unusual to see five to eight times multiples of earnings before interest, taxes, depreciation and amortization (EBITDA) as the basis for the value and/or purchase price of companies; today sellers are lucky to get two or three.

With companies struggling to stay afloat and owners looking to salvage what they can for retirement, it's certainly a buyer's market in the M&A world. To make matters worse (if you're a seller) or better (if you're a buyer), conventional banks, non-conventional lenders, and even the SBA have substantially modified their lending criteria and are now significantly discounting the value of intangibles and goodwill in the business' overall value. In order to get the deal funded with traditional financing, the purchase price must be substantially based on the tangible assets of the company and other objective criteria. Lenders are most often analyzing the value of the fixed assets of the business (such as furniture, fixtures and equipment), accounts receivable, inventory and normalized, historical cash flows for the previous three years.

In order to bridge some of the gap in expectations and financing feasibility, sellers are relying on complex payment structures. Creative combinations are now more effective and include a variable mix of cash at closing, seller financing, retained equity in the business, earn-outs and consulting/employment agreement compensation and benefits.

Time to Close

It is not uncommon these days for even the smallest financing transaction to take 90 days or longer to close.

Although lenders are still clamoring to get borrowers to bring them their deals, it is taking much longer to obtain a term sheet. Most preliminary approvals come with a laundry list of deliverables and conditions, satisfaction of which still does not guaranty that the loan will be funded. In order to reduce as much as possible the amount of time necessary to close, we are helping our clients to be more discerning in their choice of lenders and to be more prepared for more rigorous informational requirements from those lenders.

Seller Participation

If you desire to sell your business, you better plan to stick around.

Pre-Summer 2007, sellers typically entered into a short consulting agreement to facilitate the transition of the company to its new owners, and if they really wanted to sweeten the deal (presumably for both parties), sellers would structure part of the purchase price as an earn-out with potential upside. Today, many sellers are required to maintain a long term financial and personal relationship with the business and buyer. Particularly in conventional bank financing transactions, sellers are now typically required to carry back a note for 10% to 20% of the total purchase price for 5 to 10 years which, of course, is subordinated to the bank's primary lien on the assets of the business and usually subject to standby agreements delaying payment of principal and interest to the seller for a period of years. Additionally, lenders are more frequently requiring that sellers remain employed by (or consult with) the business for a minimum of one year to facilitate the transition and further ensure the continued success of the business. Special attention should be paid to any such employment agreement since dynamics can change dramatically as the parties transition from a buyer-seller to an employer-employee relationship.

http://www.dallasbusinesslaw.com/CM/Firm-Publication/TrendsinMandTransactions.asp

Personal Financial Statement

2010-07-21T14:53:00.006-05:00

K&A was contacted by a prospective buyer today asking for assistance in putting together his personal financial statement. This document is important for a buyer to compile not only to provide a bank in applying for a loan, but also important for demonstrating financial capability to the business seller and establishing credibility to any offer made. Similar to a company's balance sheet, a personal financial statement lists an individual's personal assets (investments, personal residence, etc.) and liabilities (car loans, mortgage, etc.).

Almost all business sale transactions have some component of seller financing, so it's vital that the seller know that a buyer will have the financial wherewithal to complete the transaction and have enough left over for working capital. The seller is taking a risk in lending the funds, so it's not unusual for them to inspect a buyer's financial situation just like a bank would. Having the statement current and available will assist a buyer in negotiating a successful transaction.

The SBA has a specific personal financial statement required to be completed and you can also find templates at the SCORE business consulting site (http://www.score.org/template_gallery.html).

ThermoServ Acquires MugWorld

2010-07-08T12:40:00.004-05:00

ThermoServ, Inc. of Dallas, Texas (www.thermoserv.com) has acquired substantially all the assets of Gainesville, Texas-based MugWorld, Inc. With this acquisition ThermoServ, primarily an insulated plastic drinkware manufacturer, enters into ceramic drinkware markets.

Formed in 2002 by Jim and Bonnie Ivins, MugWorld (www.mugworldinc.com) established itself as a leading provider of artistically-designed ceramic mugs, drinkware, coasters, tiles and pet bowls. The company’s mugs are 100% “Made in the U.S.A.” and are decorated with vivid artwork using a specialized dye sublimation method. MugWorld’s products are sold at college bookstores, military bases, online and in major retail outlets such as Bass Pro Shops, Cabela’s, Academy Sports + Outdoors and JC Penney’s. A significant portion of the company’s sales are from products with logos and themes from over 200 colleges and universities through a license with the Collegiate Licensing Company.

This is the second business the Ivins have sold, and both times the couple turned to Kasper & Associates, Fort Worth’s leading merger and acquisition firm since 1984. Managing Partner Layne Kasper acted as the Ivins’ exclusive representative by initiating, structuring and negotiating terms of the transaction. All aspects were consummated in a confidential manner with minimal impact on company performance.

According to Jay Rigby, ThermoServ CEO, plans are to leverage ThermoServ’s current capabilities to expand MugWorld’s product lines and enter into additional markets, retaining all current employees. Jim and Bonnie Ivins will remain with MugWorld as consultants during transition of ownership.

For further information contact:

Layne Kasper, 817/738-4220, ext. 102; kasper@kasperassociates.com

Confidence

2010-06-21T16:44:00.005-05:00

As a former athlete on the collegiate level, I enjoy quotes from those in that arena. Augie Garrido, the winningest coach in college baseball who’s now at UT-Austin, offers a sage comment which is appropriate for those of us running a company in our current business environment.

“Confidence is the only way to conquer fear. There is a little guy running around inside each of us whose name is Fear. And the only way to keep him down is with confidence.”

It’s no secret that the last two years have been very challenging for business leaders. This has resulted in both attrition and consolidation in many industries. Our business is no different. Several business brokerage firms have closed their doors in North Texas. With confidence we remain committed to serving private business owners when they’ve made the decision to sell their company or want to explore growth by making an acquisition.

Upbeat Trend

Now in this our 26^th year, we are seeing signs of recovery in various business sectors. Should you be ready to harvest the equity you have worked so hard to build or want to expand your operation, I invite you to visit with us to get an update on current market valuations for companies with annual sales revenue from $1 – 70 million. Feel encouraged to contact an Associate whose name and accomplishments are listed here.

Consider This

Washington is not a friend to business owners these days. Besides cumbersome and frequently overreaching regulations, approaching tax increases on the federal level are daunting. The following will occur in 2011:

Top capital gains rate of 15% is scheduled to increase to 20%.
Individual tax rate will jump from 35% to 39.6%.
A Health Care Reform surtax will top out at 5.4% driving the individual tax rate to 45%.

Higher taxes may not be the primary reason to sell a business, but it is important to consider if divestiture of your company is being considered. Since in many cases the process of selling takes up to 6 months from start to finish, it’s timely to make a decision which could impact your tax obligation.

Success Matters

What you’ll receive when you choose Kasper & Associates:

Maximum market value for your company.
Protection of confidentiality through the selling process.
Unmatched professionalism from Associates who understand the ins-and-outs of selling a business.

As Coach Garrido said, the “little guy – Fear” won’t stand a chance when keeping him down with “confidence”. When we work together to achieve your objectives, we’ll obtain results both of us can be proud of. So, the next step is yours. Feel welcome to contact us to confidentially discuss how our professional services apply to your business and personal objectives.

Ed Kasper, Founding Partner

Untyed -- Connecting Leaders in Fort Worth

2010-06-08T15:03:00.003-05:00

Managing Partner Layne Kasper will facilitate a discussion, "Improve Your Score When You Sell Your Business", at this free networking breakfast event June 17, 2010. Business owners register online or send an e-mail to contact@kasperassociates.com.

http://www.eventbrite.com/event/723574230

Why Buyers Need To Stand Out...

2010-05-20T10:01:00.015-05:00

Good advice for business buyers, especially first-timers. A good broker will be happy to assist you in the process -- if you let him!

http://blog.bizquest.com/2008/09/why-buyers-need.html

Three Texas Metro Areas Among Best for Growth

2010-05-19T09:40:00.002-05:00

Love this quote: "We shoot regulators at the state line."

http://www.star-telegram.com/2010/05/13/2188210/three-texas-metro-areas-among.html

U.S. Companies Rethink Outsourcing to China

2010-05-03T15:20:00.005-05:00

Thanks to our friend Patrick Whelan, Managing Partner at Pegasus Capital Group in Los Angeles, for the following article on the current state of Chinese manufacturing. According to the author, U.S. manufacturers should take heart in the fact that the pendulum may be swinging back in favor of “Made in the U.S.A.”

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U.S. Companies Rethink Outsourcing to China

For the last several years, conventional wisdom has held that moving manufacturing operations to China from the United States was a smart move that could return significant savings in costs of goods sold. However, recent industry trends indicate that more and more companies are making the decision to keep manufacturing stateside. Even more telling? Some companies are actually deciding to move operations back to the U.S. from China.

The promise of cheap labor

Key to understanding why many American companies are moving from outsourcing to "in-sourcing" is to first address the question, why is manufacturing in China so appealing? The short answer lies in the abundance of cheap labor in a growing industrial complex hungry for outside business. Despite obvious drawbacks to manufacturing in China (long shipping distances, significant lead times, etc.) any labor-intensive goods produced in adequate volume that could be affordably shipped seemed like ideal candidates for Chinese production.

The initial challenges in setting up operations in China proved to be significant. American firms faced large upfront investments in time, effort and travel expenses; and the cultural, language and even time zone barriers were not easy to bridge. But once these investments were made and the cheap goods started rolling off the manufacturing line, the investments paid off. At least at first...

An emerging market is a fragile market

Early movers into China may have saved money on labor, but they also learned hard lessons about moving critical operations to a developing economy. According to Ralph Keller, President of The Association for Manufacturing Excellence, "Many companies today are rethinking their off-shoring strategy due to escalating costs, quality concerns, the long lead-time required and the fact that they have not realized anywhere near the savings they had anticipated due to the hidden costs of managing suppliers half way around the world."

Charlie Barnhart, Co-founder and Managing Principal at Charlie Barnhart and Associates LLC, a company that studies outsourcing, added that "China has a fragile supply chain. During this economic downturn, thousands of companies have gone out of business in China. Companies call their suppliers to see what's going on and nobody answers the phone." In addition to an unpredictable supply chain, the long lead times associated with poor infrastructure and the great distance from the manufacturer to the consumer make it difficult for companies to meet fluctuating demand for their products.

In an emerging market, things change quickly

As more manufacturing moved to China, the law of supply and demand inevitably kicked in, causing increased demand for labor and upward pressure on wages. According to a recent article in the New York Times, labor shortages are now rampant in China, caused by a booming economy and the rapid expansion of factories even though the number of Chinese workers entering the workforce has leveled off.

Austin English, President of RCF Associates, a manufacturing consulting company, stated that "due to the economic slowdowns of last year, many of the people working in affected factories in China went back to [the rural interior of the country] and have not returned. This has brought a local bidding war for the remaining employees and has forced one of our clients to budget for a 30% pay hike in 2010."

In addition, the cost of shipping goods back to the U.S. has skyrocketed due to a shipping capacity shortage and rising energy prices. According to an article in the China Economic Net, freight prices doubled in the 30 days leading up to December 2009. Stephen Sykes, Vice President of Marketing for Artco-Bell Corp., a producer of classroom furniture for children, said that his company's shipping costs for a single container have increased from $2,200 to over $7,000 over the past eight years.

The effect of these labor and shipping shortages is an overall upward pressure on costs that make China less appealing as an outsourcing partner. According to EDN.net, manufacturing in China is 15-20% more costly that it was just four years ago.

Intangible costs of manufacturing in China

There have been other, less tangible costs tied to manufacturing in China. Our media have broadcast reports about contaminated pet food and lead paint on children's toys from China. Unfortunately for the U.S. companies affected, saving a few dollars on labor has cost them an incalculable amount in negative PR and lost consumer trust. For other firms, shoddy manufacturing has quietly eroded brand equity.

Still other companies have fallen victim to unscrupulous Chinese companies who take advantage of their underdeveloped intellectual property laws to steal their client's designs and produce counterfeit goods. The flood of cheap counterfeits on the local market all but prevents American firms from introducing their own products to the growing Chinese marketplace.

Back to the U.S.A.

Of course, wages in the U.S. are still several times those in China, and will remain so for some time. To a growing number of companies, however, the benefits of moving operations back to the U.S. are compelling.

For some companies, the higher shipping costs alone are enough to sway them toward domestic production. For others, the stability and skill level of the U.S. labor market, the easy scalability of production in U.S. factories, and the ability to exercise greater quality control are critical factors that keep them at home or bring them back. A contribution to the local economy and the ability to say "Made in the U.S.A." are powerful brand equity builders as well.

Case Study 1:

Artco-Bell Corp of Temple, Texas is a children's furniture manufacturer. The company recently moved production of all steel and polypropylene goods from China back to the U.S. While the move actually increased their per-unit manufacturing cost, the elimination of the long ocean voyage between the U.S. and China has reduced their total expenses by 20%. Stephen Sykes, Vice President of Marketing, commented that "For a while, [the Chinese] were buying steel better than we could buy steel. But as the scales began to balance as far as what they were purchasing in raw and what we were purchasing in raw, then the freight became the issue. The great equalizer is the boat ride back over."

Case Study 2:

Sauder Woodworking Co. of Archbold, Ohio provides products to Wal-Mart, Target, Lowe's, and other large retail stores. In recent years, the company has experienced intense competition from foreign companies along with increasing pressure from their customers to meet shorter delivery times with lower inventory levels. Norm Hoeppner, Vice President of Procurement, says that these factors have led Sauder to reassess their supply chain and move some elements of production to local manufacturers. According to Hoeppner, "one of our biggest strengths is our flexibility and speed of service to our large retail customers. We can't meet this service when it takes three months to obtain parts from offshore."

What's the future of worldwide manufacturing?

If the trends of higher labor and shipping costs combined with the lower quality and legal standards in China continue to play out, they will increase the shift back to domestic production. Manufacturing companies in the U.S. have a significant opportunity to win back contracts from China, and they should do what they can to position themselves to be more competitive.

Perhaps Harry Kazazian, Chief Executive Officer of Exxel Outdoors Inc., a top U.S. producer of outdoor recreational gear, said it best. "You're never going to have $2-an-hour labor in the United States," he commented, "but with quality, time, efficiency, you close the gap."

Texas - Texas A&M Baseball Rivalry

2010-04-19T11:30:00.002-05:00

A departure from "shop talk", but a glimpse into what Founding Partner Ed Kasper was doing 48 years ago!

http://www.texassports.com/sports/m-basebl/spec-rel/041510aaa.html

Charlie Marshall 1932-2010

2010-04-11T21:12:00.002-05:00

Remembering our friend, Senior Associate Charlie Marshall. Our prayers are with the Marshall family.

http://www.legacy.com/obituaries/dfw/obituary.aspx?n=charles-e-marshall&pid=141670743

Small Business Needs a Break from Banks, Regulators

2010-03-31T11:30:00.001-05:00

Before you get angry with your banker, you should look at the examiners and regulators to whom they answer. Here's a call for a return to common sense in the world of finance.

http://www.fwbusinesspress.com/display.php?id=12211

30-Day Extension of SBA Recovery Act

2010-03-11T13:39:00.001-06:00

On March 2nd the President signed into law a temporary 30-day extension of the SBA Recovery Act provisions with a $60 million appropriation. The 30-day extension provides increased government guarantees and the elimination of fees on small business loans.

http://www.whitehouse.gov/the-press-office/statement-president-obama-signing-ui-extension-bill

Here are a few thoughts on the current state of government-backed financing:

More and more lenders are turning down conventional loan requests and directing them to government-backed programs (SBA loans). The current environment gives banks little incentive to make loans, so loans with a government guarantee are virtually the only ones that make sense in what many lenders consider to be “risky” times. Of course, this isn’t the case everywhere – some banks are still making conventional loans – it’s just getting harder to find those active lenders.
Lower fees and 90% loan-to-value (for real estate) make them attractive for borrowers. The maximum interest rate is now 6% on a ten-year loan.
Legislation has passed in the House and is pending in the Senate that will increase the maximum SBA loan from $2 million to $5 million. Great news for mid-market buyers.

As always, Kasper & Associates is happy to discuss what we’re seeing in today’s North and Central Texas M&A market. Call 817/738-4220 or e-mail contact@kasperassociates.com.

What's on the Mind of the Private Company Owner?

2010-02-23T11:27:00.002-06:00

Thanks to the Private Equity Professional Digest for this snapshot of Pepperdine University’s newly released Private Capital Markets Study. The study provides insight into the entrepreneurial mind regarding risk, return and the current economic climate.

What’s on the Mind of the Private Company Owner?

February 26, 2010 - A new study by Pepperdine University shows that private company owners can generally be described as gut-feel, risk taking operators with short term payback expectations. Knowing these tendencies may come in handy at your next sit down with the owners and management team of a potential acquisition.

A large number of private business owners would take a business risk (91%) vs. maintaining the status quo (9%) and, at the same time, half (49%) said they rely on “gut feel” to make investment decisions according to the study. The study also shows that most private business owners expect at least a 20% return for investments within 1.5 to 3 years. Private business owners said if they were to invest in a company identical to their own, they expect a 20% return for a 10-year investment.

“Shrewdness, confidence and risk-taking are qualities that define a private business owner,” said the study’s author, Dr. John Paglia, an associate professor of finance at Pepperdine University’s Graziadio School of Business and Management. “However, private business owners may be unrealistic in gauging investments and risks as well as sources of funding or return on investment. Generally, there may be an unhealthy expectation that the next big break is right around the corner and should take big risks to capitalize.”

These findings were part of the Pepperdine Private Capital Markets Study, an investigation of the major private capital markets that examines the current state and outlook for the private capital industry. The private business owner data is based on interviews with 304 business owners and is part of a larger study based on interviews with more than 700 professionals in the private capital industry. The Pepperdine Private Capital Markets Study provides insights into four other private market segments in addition to venture capital: bank, asset-backed, mezzanine and private equity lenders.

Other Findings:

(1) Despite being generally optimistic about prospects for growth, many businesses are struggling – 30% indicate the probability of failure increased over the past six months, 46% report decreased access to capital, 34% report declines in the number of employees, 38% report declines in the size of industry, 50% report increases in competitive pressures, 36% report a decline in confidence of economic growth, 33% report declines in revenues, 22% report declines in pricing.

(2) When evaluating investments, businesses report using payback analysis (54.0%), market analysis (51.5%), “gut feel” (48.5%), internal rate of return (41.3%), and discounted cash flow analysis (34.9%). Larger companies (>$1M in revenues) rely more on payback (62%) and internal rate of return (48%). Smaller companies rely more on market analysis (55%), and payback (47%).

(3) A general investment in the business yields a 20% return expectation. They expect a 10% return from purchasing a new phone system, 20% for a new computer system, 25% for expanding a current market niche or entering a new one, and 30% for hiring a salesperson and acquiring a competitor.

(4) Businesses report payback thresholds of approximately 1.5 years for hiring a sales person, 2 years for a new computer or phone system, 2.5 years for expanding a current market niche, 2.8 for entering a new niche, and 3.2 for acquiring a competitor.

(5) Businesses report the most important factors when borrowing include interest rates, collateral requirements, loan size, and customer service. Companies are less concerned with location of lender, sophistication of bank, and length of loan term.

(6) Businesses expect a 20% annual return for a passive, minority equity 10-year investment in an identical business. They place a premium on time as they’d expect 12% for a one-year investment and 15% for a five-year. Businesses prefer to use external equity to acquire a competitor while siding with personal equity for general expansion of business.

(7) Most businesses would take a business risk to achieve financial independence as opposed to maintaining a current lifestyle. For increased expected returns, nearly 91% are willing to take a business risk vs. 9% who prefer the status quo.

(8) When faced with multiple investment opportunities, all with identical expected returns, nearly 75% of businesses are willing to take a significant business risk on a chance to earn greater returns despite lower odds.

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The survey also includes input from bankers, private equity investors and venture capital groups. To download the 124 page report, go to http://bschool.pepperdine.edu/research/pcmsurvey/.

Succeeding in a Tough Economy

2010-01-28T10:58:00.001-06:00

No matter what industry you're in, there are ways to persevere and succeed. HGC's idea: Hard work.

http://www.star-telegram.com/804/story/1897939.html

2009: A Tough Year to Sell a Business

2010-01-28T10:47:00.001-06:00

Key quote from this Inc. magazine article: The business owner "regrets not hiring a broker to manage the attempted sale, a chore he says took up 75 percent of his time over the course of a year."

http://www.inc.com/magazine/20100201/2009-a-tough-year-to-sell-a-business.html

Why Sell Your Business in 2010?

2010-01-15T14:58:00.003-06:00

Why sell your business in 2010? Significant tax advantages, and not just capital gains taxes.

Maximizing value for our clients in a sale is a top concern at Kasper & Associates, so an article, “Federal Capital Gain Tax Rates: Where are they headed?”, by Monty Walker, CPA, CBI, BCB of Walker Business Advisory Services caught our attention. Monty has done an excellent job of outlining what will occur after this year regarding the capital gains tax and possible Health Care Reform surtax.

Full article: http://campaign.constantcontact.com/render?v=001S22Ky2nkF8Z9AAAEepjQzc9puNwipGe6eahz0G8lFunyRU3Ni6vMeHmnRRTMszHmzaJS4P7Tt3Jf4lUKXOIP_Xe4czS9dz9CRhz6rGc6GwVIWcPu_R8zXg%3D%3D

Highlights:

§ 2011 will see two major changes to current tax rates: (1) The top capital gains rate of 15% is scheduled to increase to 20%, and (2) Bush administration tax cuts will expire, returning the top federal tax rate to 39.6%.

§ Congress is considering increasing capital gains taxes even higher, above the 20% level.

§ Pending Health Care Reform legislation includes an additional surtax (up to 5.4%) on those classified as wealthy, effectively driving the top tax federal rate to 45%.

§ Quote: “If Congress decides to implement further increases, anyone who waited until 2011 to sell a business will wish they could go back in time to 2010.”

Bottom line: If you are considering the sale of your business, this may be the best time.

Keep in mind that the selling process can take 6 months or longer. Those who wait to begin until the 3^rd or 4^th quarter will be unlikely to close before year-end, and will fall under whatever tax rates are in effect for 2011.

After Holding On in Recession, Companies May Cash Out in 2010

2010-01-04T14:38:00.002-06:00

This week’s Fort Worth Business Press contains an article about expectations for merger and acquisition activity in 2010. For the article, John-Laurent Tronche interviewed Managing Partner Layne Kasper. Following are excerpts from the article:

After holding on in recession, companies may cash out in 2010

BY JOHN-LAURENT TRONCHE

January 04, 2010

Executives at two area business brokerage firms say more businesses will be looking to cash out in 2010, after a recessionary stall during the past year and a half that persuaded many business owners to hold tight.

Business brokerage houses are, simply put, matchmakers. Buyers meet sellers in a mutually beneficial transaction that helps the former grow and the latter a chance to retire or move on to something else.

The year 2009 wasn’t as busy as other years for area matchmakers.

“Deal flow has really gone down -- and by that I mean the number of companies for sale has really decreased,” said Layne Kasper, a managing partner at Fort Worth’s Kasper & Associates, a 25-year-old business brokerage firm that focuses primarily on companies in the manufacturing industry. “A lot of that can be attributed to the general economic slowdown.”

In 1984, Layne Kasper’s father, Ed Kasper, was in charge of selling several divisions of an east Fort Worth manufacturing company. He sought the advice of a business brokerage firm, but wasn’t satisfied with the companies’ knowledge of the manufacturing industry, in which Ed Kasper had worked for a long time. So, after getting the sales completed, he launched Kasper & Associates to specialize in helping companies in the manufacturing industry, or other industries, that are looking to sell find a buyer.

Twenty-five years later, Kasper & Associates has eight associates and has been involved in more than 300 transactions for companies with annual revenues of between $1 million and $70 million.

Since Layne Kasper joined the firm in 1997, he has seen three periods of economic stagnation: the dot-com bubble and burst, following the Sept. 11, 2001 terrorist attacks and the most recent recession. In each case, the number of businesses looking to sell has gone down because the value of the company has dropped. For example, a company looking to sell itself for $10 million might find the going price at $5 million due to market woes. In that case, it might be better to hold out until market conditions improve so the company’s valuation is higher.

“When times are tough or the economy is down, it may take a little bit longer to do transactions,” Layne Kasper said. “In most cases, it takes about six to eight months from the time we get started until the business is sold. We’re seeing that now extend a little bit further, maybe eight to 12 months, because of some of the issues with bank financing and some of the due diligence that buyers need to go through.”

Link to the complete article: http://www.fwbusinesspress.com/display.php?id=11677

Best wishes for continued success in the New Year.

Down but Not Out

2009-12-08T16:07:00.002-06:00

CFO magazine published an article, “Down but Not Out”, describing the state of 2009’s M&A market. Following are highlights from the article:

§ Global M&A deal values were down 44% for the first half of the year, but in the United States the decline was 85%.

§ U.S. private equity firms have more than $600 billion in uncommitted capital waiting on the sidelines.

§ Most transactions have been completed by strategic buyers. The author suggests that traditional private, leveraged buyouts won’t return until the credit markets open up.

§ Three factors are identified as essential to revive M&A activity: (1) Lenders reentering the market with reasonable terms and covenants; (2) Realistic valuation expectations from Sellers; and (3) Buyer confidence in economic recovery.

Regarding buyer confidence, it was refreshing to hear Warren Buffett’s declaration of an “all-in wager” on the long-term strength of the U.S. economy with his recent bid to purchase BNSF Railway. We’re optimistic more business leaders will follow that sentiment and return to the American spirit of bold entrepreneurism, and it appears to be occurring with recent communications from K&A buyer prospects saying they are ready to put investment funds to work, especially in Texas.

As always, please feel free to call us to discuss.

Link to the full article: http://www.cfo.com/article.cfm/14443078?f=search

Associate Spotlight: Tony Ford

2009-11-23T10:30:00.004-06:00

Tony Ford is a Senior Associate of Kasper & Associates since 2008. Mr. Ford has over 25 years experience in creating high-growth organizations in manufacturing, wholesale distribution, B2B sales and hospitality sectors. He has served as the founding Executive Director of the Fort Worth Business Assistance Center, Entrepreneur-in-Residence for the Kauffman Foundation and has won both the Ernst & Young Entrepreneur of the Year Award and the SBA Exporter of the Year Award. He earned his B.S. from Oklahoma State University and attended graduate school in Education at Southwestern Theological Seminary.

Contact info: Direct: 817/832-5695; tford@kasperassociates.com

LinkedIn Profile: http://www.linkedin.com/in/tonyjford

Mergers, Acquisitions Sign of Confidence

2009-11-10T09:41:00.001-06:00

This week’s Fort Worth Business Press contains an article speculating that recent high-profile acquisitions may show signs of economic recovery. For the article, Bob Francis interviewed Founding Partner Ed Kasper for his thoughts.

Mergers, acquisitions sign of confidence

BY ROBERT FRANCIS

November 09, 2009

Many economic analysts – along with the stock market – are touting Warren Buffett’s $44 billion acquisition of Burlington Northern Santa Fe Corp. as a sign of confidence in the U.S. economy.

If so, Buffett is not alone in his assessment, though he has deeper pockets than most to ride out a longer term downturn, according to Nathanial Karp, chief U.S. economist for BBVA Compass Bank.

“Mr. Buffett is famous for this,” he said. “Some of the companies he has invested in before have been under similar circumstances. He’s shown great foresight in finding value in a particular industry.”

Karp says most investors look at several factors before going into an investment.

“They look at how this asset will perform in the future,” he said. “If you believe the worst is over and things will improve, then there is a window of opportunity to make a good investment. I think we’re there.”

Karp said most investors also consider the sector the company is in and how it is expected to perform in the future, at the industry and on the location of the company. For Karp, seeing mergers and acquisition activity in Texas is not a surprise.

“Texas has been and will continue to be one of the outstanding states in the recovery process and in overall economic growth,” he said. “The recession has been much milder and recovery will be much stronger.”

Ed Kasper, founder and managing partner of Kasper & Associates, a longtime Fort Worth merger and acquisition firm, says he believes companies are ready and eager to make deals after a dry spell.

“I’m not sure people know where it is all going, but I think they believe the worst is over,” he said.

Kasper believes there will be more mergers and acquisitions coming soon, based partially on the fact that his phone has started to ring a bit more often.

“I think – and this is strictly personal opinion – the first quarter of the year and a little bit longer after that, everything ground to a halt,” he said. “It has slowly been changing and now it’s sort of like a dam has burst. People are looking to buy and it opens up with a trickle and then it gets a bit bigger. That’s where I think we are.”

Link to the article: http://www.fwbusinesspress.com/display.php?id=11358

Remember to thank a veteran tomorrow!

Lending Requirements and Credit Scores

2009-10-20T13:36:00.004-05:00

Business owners and prospective business buyers need to be aware of recent changes in the banking environment. Whether it’s for an acquisition loan or line of credit on an existing business, lending requirements have changed significantly in the last year. The following link is to a Fort Worth Business Press article describing some of these changes, and explaining how individual credit scores are calculated and viewed by lenders.

http://www.fwbusinesspress.com/display.php?id=11149

While many people check their credit reports on a regular basis, few people know what their actual credit score is. A new service was launched this month offering free access to credit scores. Visit www.credit.com to see where your credit score ranks on the major rating systems.

Feel free to contact any of the merger and acquisition specialists at Kasper & Associates to discuss. We’re always available to assist business owners and buyers in negotiating the changing financial markets.

Stock Purchases More Attractive

2009-10-01T15:30:00.004-05:00

Traditionally, business Sellers prefer Stock Sales over Asset Sales for the beneficial tax ramifications. On the other hand, Buyers have typically avoided Stock Purchases because of the possibility of hidden liabilities. However, recent government actions may encourage more Buyers toward Stock Purchases, at least for a short time. Attorney Mark Avery with Richards Rodriguez & Skeith LLP (www.rrsfirm.com) provided K&A with an article, “Items to Consider in the Sale or Purchase of All (or Part) of a Business in 2009”. Following is an excerpt:

“Besides the usual reasons given for doing a stock purchase, there are two other possible reasons to consider a stock sale/purchase this year. First, the American Recovery and Reinvestment Act of 2009 increased the amount of long term capital gain excluded from an individual’s income on the sale of qualified small business stock to 75% (it was 50%) if such stock is: 1) purchased between February 17, 2009 and January 1, 2011; and 2) is held for more than 5 years before being sold. Therefore, a buyer who purchases a small business through a stock sale during nearly all of 2009 and 2010 may find that the taxes which they owe upon the subsequent sale years down the road will be much lower than if they had acquired that same business through an asset purchase.

In addition, in a stock sale, the seller can allocate the value of the goodwill in the business to himself, rather than to the corporation, if the seller: 1) owns the business through a C corporation; and 2) is a key employee in the business operation. In such cases, if the purchase and sale process is handled correctly, I personally have seen millions of dollars saved by the seller in lower income taxes.”

E-mail contact@kasperassociates.com to receive the entire article.

Founding Partner Ed Kasper

2009-09-21T10:04:00.000-05:00

Two recent Fort Worth Star-Telegram articles shed light on K&A Founder Ed Kasper's personal life:

"Long-Term Growth: More than three decades of careful tending and rolling with changes has created a success story for plant life in a Fort Worth back yard"

http://www.star-telegram.com/168/story/1618832.html

"Ed & Janet Kasper 45th Anniversary Announcement"

http://www.legacy.com/DFW/Celebrations.asp?Page=Announcement&PersonID=132597450

1984-2009: Celebrating 25 Years of Making Connections...Creating Results

2009-09-18T10:50:00.001-05:00

Message from Founding Partner Ed Kasper:

“I’m proud of my country and I believe in the free enterprise system which made her great.” These words were especially apropos 25 years ago when I founded this firm, and my passion for assisting owners considering the sale of their business has not changed one bit. I regard private business owners to be the “captains of industry” who drive our economy. And my mission is to create results for them when they’ve made a decision to sell what most likely is their most important financial asset.

Along with many of you, I’ve lived through several serious economic challenges since 1984. To name several – the oil industry downturn of the mid-80’s; the real estate and banking meltdown of the 90’s; the stranglehold on the economy after 9/11; and now the mortgage and financial system fiascos resulting in recession. Still, in good times and bad, entrepreneurs have a need to sell their businesses. Be it planned retirement, health concerns, family issues or just wanting to do something else, we at Kasper & Associates want to be the ones you call to make connections with a buyer who will provide the best financial return to you for all your hard work.

Texas is currently the best place to be in the U.S. should you want to sell your company. Why? Buyers want a presence where the economy is stable and even growing. Facts: The State of Texas, compared to entire countries, has the 15th largest economy in the world. 50% of the new jobs created in the U.S. in 2008 were created in Texas. The D/FW Metroplex had the highest increase of new residents (164,000+) during the latest 12-month reporting period of all major metro areas in the U.S. (San Antonio/Austin was third; Houston was fourth). These facts are key reasons why investors want to buy Texas businesses. Obviously the greater the buyer demand, the better financial return for sellers.

For your convenience, www.kasperassociates.com shows the primary focus of our brokerage services and provides a cross-section listing of businesses for whom we have achieved results. Also, bio data on our professional leadership team is included so you can see who will be advising you throughout the selling process and be confident you’ll have someone with exceptional business operations experience representing your best interests.

Kasper & Associates can make connections and create results for you. We welcome and appreciate your inquiry.

Balancing Acts

2009-09-18T09:53:00.000-05:00

Inc. magazine is on our required reading list. No other publication caters to entrepreneurs and small businesses as effectively.

This month's edition includes an excellent column by Meg Cadoux Hirshberg, describing the challenges business ownership can place on a marriage and family. Good to consider for those thinking about pursuing an entrepreneurial path.

http://www.inc.com/magazine/20090901/balancing-acts-if-not-now-when.html

Banking for Entrepreneurs

2009-09-18T09:52:00.000-05:00

Ever wonder what goes on in your banker's mind? Bruce Bradford's blog gives some interesting insights.

http://www.bankerbradford.com/2009/06/what-your-banker-looks-for-in-your.html

Comparing Two Approaches to State Government

2009-09-18T09:47:00.000-05:00

In many ways, while California is sinking, Texas is flying high.

http://www.economist.com/printedition/displayStory.cfm?Story_ID=13990207

Buyer-Side Search

2009-09-18T09:45:00.000-05:00

K&A has been retained by a Metal Fabrication Company seeking a strategic acquisition. Target company would be involved in metals business, located in Dallas/Fort Worth area, with Sales Revenue from $1-3 million. Point of Contact: Layne Kasper (817/738-4220, ext. 102; kasper@kasperassociates.com).

Buyer's Market?

2009-09-18T09:44:00.000-05:00

The author says it's a "buyer's market", but with lower deal flow it is also an excellent time to sell a company. Good companies for sale today have the attention of a higher number of serious buyers.

http://www.inc.com/magazine/20090601/a-buyers-market-what-is-your-business-worth-now.html

Negotiating Tip

2009-09-18T09:43:00.000-05:00

Negotiating Tip: Sometimes you're better off saying nothing at all.

http://www.inc.com/magazine/20090601/norm-brodsky-when-negotiating-listen-before-you-speak.html

Texas State Franchise Tax

2009-09-18T09:37:00.000-05:00

Texas legislature moving in the right direction, raising exemption on state franchise tax -- easing the burden on small businesses can only help stimulate economic growth. Here's hoping other states and Congress follow suit.

http://www.nfib.com/tabid/598/Default.aspx?cmsid=48999&v=1

Asset Protection for Business Owners

2009-09-17T16:40:00.000-05:00

In an effort to remain on top of tax matters for our clients, we spent time with Tax Attorney/CPA Marvin Blum of The Blum Firm (www.theblumfirm.com) discussing tax and asset protection issues that impact private business owners. The following excerpt from Marvin’s recent presentation to the Fort Worth Chapter of the Texas Society of Certified Public Accountants explains why it is now advisable to switch from a ‘C’ or ‘S’ Corporation to an LLC or LP for asset protection reasons.

“Often, businesses are owned in the form of a ‘C’ or ‘S’ corporation, especially businesses that have been around for awhile. One disadvantage of a corporation as compared to an LLC or LP is that under Texas law, corporate stock can be seized by the owner’s personal creditors to satisfy a judgment against the owner. If the stock is seized, the creditor steps into the debtor’s shoes and has the power to vote the stock and, if the debtor owns a majority of the stock, control the business. Therefore, a client with a profitable business that is organized as a state-law corporation may be a target for personal creditors of the business owner.

However, under Texas law, creditors who want to satisfy a judgment through a debtor’s LP or LLC interest are limited to obtaining a “charging order” against the interest. A charging order merely gives the creditor the right to receive distributions made to the partner or member, if any are made. The charging order does not give the creditor the right to vote the stock or otherwise compel the LP or LLC to make distributions. Due to provisions the Texas legislature passed in HB 1737, effective September 1, 2007, a creditor’s only remedy with respect to a debtor’s ownership interest in an LP or LLC is a charging order. As a result, if distributions are never made, the creditor will receive nothing from the LP or LLC.

Because LP’s and LLC’s are far superior to corporations from an asset protection point-of-view, business owners should always consider converting a ‘C’ or ‘S’ corporation into an LP or LLC. If structured correctly, such conversions can be accomplished free of income tax. The converted entity would be an LP or LLC for state-law purposes, but would elect to be taxed as a corporation for income tax purposes. If this is done, the tax filing requirements should not change. If a new business is being started, the client should consider forming an LP or LLC to conduct the new business.”

Kasper and Associates

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Why Buyers Need To Stand Out...

Good advice for business buyers, especially first-timers. A good broker will be happy to assist you in the process -- if you let him! http://blog.bizquest.com/2008/09/why-buyers-need.html

Good advice for business buyers, especially first-timers. A good broker will be happy to assist you in the process -- if you let him!

Three Texas Metro Areas Among Best for Growth

U.S. Companies Rethink Outsourcing to China

Texas - Texas A&M Baseball Rivalry

A departure from "shop talk", but a glimpse into what Founding Partner Ed Kasper was doing 48 years ago!

Charlie Marshall 1932-2010

Small Business Needs a Break from Banks, Regulators

Before you get angry with your banker, you should look at the examiners and regulators to whom they answer. Here's a call for a return to common sense in the world of finance.

30-Day Extension of SBA Recovery Act

What's on the Mind of the Private Company Owner?

Succeeding in a Tough Economy

No matter what industry you're in, there are ways to persevere and succeed. HGC's idea: Hard work.

2009: A Tough Year to Sell a Business

Key quote from this Inc. magazine article: The business owner "regrets not hiring a broker to manage the attempted sale, a chore he says took up 75 percent of his time over the course of a year."

Why Sell Your Business in 2010?

After Holding On in Recession, Companies May Cash Out in 2010

After holding on in recession, companies may cash out in 2010

Down but Not Out

Associate Spotlight: Tony Ford

Mergers, Acquisitions Sign of Confidence

Lending Requirements and Credit Scores

Stock Purchases More Attractive

Founding Partner Ed Kasper

1984-2009: Celebrating 25 Years of Making Connections...Creating Results

Balancing Acts

Banking for Entrepreneurs

Ever wonder what goes on in your banker's mind? Bruce Bradford's blog gives some interesting insights.

Comparing Two Approaches to State Government

In many ways, while California is sinking, Texas is flying high.

Buyer-Side Search

K&A has been retained by a Metal Fabrication Company seeking a strategic acquisition. Target company would be involved in metals business, located in Dallas/Fort Worth area, with Sales Revenue from $1-3 million. Point of Contact: Layne Kasper (817/738-4220, ext. 102; kasper@kasperassociates.com).

Buyer's Market?

The author says it's a "buyer's market", but with lower deal flow it is also an excellent time to sell a company. Good companies for sale today have the attention of a higher number of serious buyers.

Negotiating Tip

Negotiating Tip: Sometimes you're better off saying nothing at all.

Texas State Franchise Tax

Texas legislature moving in the right direction, raising exemption on state franchise tax -- easing the burden on small businesses can only help stimulate economic growth. Here's hoping other states and Congress follow suit.

Asset Protection for Business Owners

Good advice for business buyers, especially first-timers. A good broker will be happy to assist you in the process -- if you let him!

http://blog.bizquest.com/2008/09/why-buyers-need.html