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Mergers & Acquisitions for Language Owners
Terminology–Earnout
- A provision written into some financial transactions whereby the seller of a business will receive additional payments based on the future performance of the business sold.
- Most deals are not paid out first day—hence earnout
- Earnouts – can be over 2-3-4 years
- Purchase price-$1 million, 25% up front and 25% annual payment/earnout based on next 3 years revenue totals
EBITDA
- EBITDA= earnings before interest, taxes, depreciation and amortization
- EBITDA is essentially net income with interest, taxes, depreciation, & amortization added back in
- Used by companies starting in the 1980’s to determine ability to pay back debt
Positive Earnouts
- Good partnership
- Buyer has larger sales force, better processes
- Results—higher revenues, better final sales price
Negative Earnouts
Earnouts can be negative for sellers:
- How to define and calculate amounts
- Assuming the risk…
- Without controlling the process
Pricing Businesses in the Language Industry
- Company annual revenue < $3 million
- -2.5-4 X EBITDA
- Company annual revenue >$3 million
- -75%-or 1X revenue
- –not ‘fixed in stone’
West African Village Market story – Lived in Guidan Roumji, Niger
- 1st trip to market
- bought Guavas at 200 CFA
- 2nd trip to market
- bought Guavas at 50 CFA
- Prices are not fixed
- know the market
Sellers – Know Buyers Strategy
- Does he want a ‘fixer upper’ or more expensive newer house—real estate analogy
- specialization
- client portfolio/history
- concentration of revenue
- geographic location
- production processes/tools/resources
- time sensitivity—strategy for growth
Buyers – learn Sellers situation
- Why do they want to sell?
- What is the time frame/time sensitivity of departure?
- What is their exit strategy and why?
- How important is price?
Pricing Discussion
- When can/do you ask for more (less)
- You can ask for anything you want
- How time sensitive is your departure/purchase?
- How do you want to structure the deal?
- Earnout, timing of exit strategy
Right Fit has value
Seller matches buyers need for:
- Tools
- Geographic location
- Client list
- Vertical specialization
Reputation has Value
Buyers and Sellers Know your Strengths
- Tools/technology
- Long term client accounts
- Vertical specialization
- Geographic penetration
- Reputation
Question-Pricing
- What kind of price do I want?
- Is it realistic?
- Why or why not?
Pricing/Buyers
- How soon will you get your money/investment back: 4 years too long, 1.5 years—good
- Review sellers cash flow
- Evaluate Debt
Buyers before buying: FUNDING
- Determine price points
- What can you afford based on what you are making?
- Monopoly game
- Find and confirm funding sources!!!
Debt
- Lowers the price point
- Sellers consider paying down debt before selling
- Buyers use this to lower price points
TIMING
Will This Work?
This is an outline of a seminar I gave on M&A in the Language Industry. Contact me if you’d like to discuss your business.
Michael Klinger
ANZU GLOBAL LLC
525 MASSACHUSETTS AVENUE
SUITE 203, ACTON MA 01720
[email protected]
https://anzuglobal.com/
PHONE: 978-429-8014
FAX: 978-429-0671
