2012 is a 'Window of Opportunity' for Business Sales

Entering 2012, we expect to see a significant increase in middle-market M&A activity as businesses recover from the economic slowdown. For businesses that have successfully rebounded, or are in the process of rebounding, 2012 could be an ideal time to sell.

While there is still some uncertainty surrounding the current macroeconomic environment, we know for certain that private equity groups and ‘strategic’ buyers have large amounts of cash on hand, and will aggressively seek acquisition candidates to meet their investment and growth requirements. In fact, strategic buyers in the United States have increased the amount of cash on their balance sheets by 18% over the last year to $673 billion, while private equity funds have more than $500 billion in available capital. Banks and lending institutions are beginning to lend money again, and many companies are focused on future growth rather than recovery.

Another factor expected to drive M&A activity in 2012 is the likely expiration of the Bush Tax Cuts at the end of the year. Business owners that choose to sell before December 31, 2012 will take advantage of significant tax savings, as the long-term capital gains tax rate is expected to increase at least 5% in 2013.

Allied Business Group provides M&A advisory, as well as business valuation services to business owners and their advisors for a variety of purposes, including exit planning and transactions, estate and gift taxes, litigation and financial reporting. To learn more about us, please visit our website at www.AlliedBizGroup.com.

Business Valuation and 2011/2012 Gifting Opportunities

As the 2011 year comes to an end, we are reminded of the increased federal estate and gift tax exemption, which is set to expire after 2012. This increased exemption presents an opportunity for individuals to gift a portion of their estate, whether in the form of cash, real property or privately held business interests. Nearly every gift of a business interest requires an independent valuation from a qualified appraiser. A qualified appraiser (as specified by the IRS) is an individual that has earned a designation from a recognized professional appraisal organization and regularly prepares appraisals for which he or she is paid.

Beyond the IRS specifying that the valuation of the gifted interest be performed by a qualified appraiser, it is important to use a qualified appraiser that has extensive experience and an understanding of the discounts that are commonly involved in the valuation of minority business interests. Most notably, these discounts include the discount for lack of control and discount for lack of marketability, which reduce the ultimate value of the gifted interest.

Allied Business Group provides consulting and independent valuation services to business owners and their advisors for a variety of purposes including estate and gift taxes, exit planning and transactions, litigation, and financial reporting. To learn more about us, please visit our website at www.AlliedBizGroup.com.

Case Study: Sleepcair and Spectrum Medical Equipment

Overview

The owners of Spectrum Medical Equipment, a rental distributor and retailer of home healthcare equipment, desired to sell the business due to changes in the industry with regard to Medicare reimbursements. Recent cuts in Medicare reimbursements require distributors of home healthcare equipment to compete on service. These cuts created a competitive bidding environment, requiring companies to compete for Medicare reimbursement contract. Even though Spectrum acquired three of these contracts, Medicare cuts were so drastic that the owners still felt they needed to sell in order to stay competitive. Allied Business Group conducted a directed search for strategic buyers that led to Sleepcair, a local competitor of Spectrum's in the durable medical equipment industry. Sleepcair acquired Spectrum because of the strategic fit between the two companies, as well as its need to acquire the competitive bid contracts awarded to Spectrum.

Client Objective

Spectrum Medical Equipment had four owners, three of which were not active in the company. The fourth active owner knew that because of drastic cuts in Medicare reimbursements, the company would have to expand in order to stay competitive with its two largest national competitors, Apria and Lincare. Therefore, merging with a similar company was the logical step. The owner also wanted to find a buyer who would be willing to retain his 15 former employees.

Solution

Allied Business Group began its sale process by reviewing the client's objectives, particularly those associated with finding a buyer that fit Spectrum's qualitative expectations. We developed a detailed offering memorandum and performed a directed search for strategic buyers, focusing primarily on durable medical companies both in and around Spectrum's geographic area. While there were multiple buyers interested, Sleepcair was not only a qualified strategic buyer, but it also fit the qualitative criteria Spectrum desired.

Result

Allied Business Group completed the sale of 100% of the company to Sleepciar in April of 2011, achieving a 20% premium over fair market value. The acquisition of Spectrum's stock allowed Sleepcair to be reimbursed by Medicare for certain products and services provided in the Kansas City area. This not only gave Sleepcair a strong competitive advantage, but it also made it one of the largest independently owned durable medical equipment players in the Kansas City market.

Company Info

About Spectrum Medical Equipment

Founded in 2000 as a nonprofit agency, Spectrum Home Health Agency branched off to form Spectrum Medical Equipment in 2006. Spectrum is a rental distributor and retailer of home healthcare equipment, including: oxygen compressors and concentrators, portable oxygen systems, BiPAP and CPAPs, humidifiers, nebulizers, home diagnostic equipment, specialty mattresses, hospital beds, wheelchairs, walking aids, and bariatric home medical equipment.

About Sleepcair

Locally owned, Sleepcair is Kansas City's largest provider of CPAP and oxygen products. With locations in Lenexa, North Kansas City, and Lee's Summit, it offers a large variety of home medical equipment.