Middle market transactions are sometimes the most difficult to complete for several reasons. Many times, either the buyer or seller doesn’t have any experience in completing M&A transactions. This isn’t necessarily bad; however, they sometimes find the process confusing or frustrating. Therefore, it’s important to ask the following five questions before engaging a middle market investment bank to work on your transaction:

Who will work on the transaction?

Many middle market investment banks delegate important transactions to junior staff. Therefore, it’s important to make sure that the senior level bankers will take an active role in your transaction.

What is the “reach” of the middle market investment bank, both domestic and international?

Does the middle market investment bank have the ability to identify and contact buyers or sellers around the world? The world has gotten smaller and there are many opportunities in countries that were previously overlooked by the traditional investment bankers. That’s one of the reasons why many of the “old-line” firms are no longer in business.

What is the firm’s philosophy in terms of finding the right target or buyer?

Is the firm capable of thinking outside the box to identify unique buyers or sellers for your transaction? Too many firms have a myopic view of who the buyer or seller should be. The problem with that is that the client loses the potential to close a very lucrative transaction.

How long has the firm been in business and are they qualified?

It’s important to make sure that you’re dealing with a firm that has been in business for at least 10 to 20 years to make sure that they are capable of completing your transaction. There have been plenty of cases where the firm’s principals have jumped to a larger company and abandoned their clients. Also, is the firm registered, either directly or directly with FINRA (Financial Industry Regulatory Authority), the self-regulatory organization that oversees the industry? If the firm is registered, the principals will also be registered, which means that they have completed at least two qualifying exams, which are administered by FINRA.

Is the middle market investment bank capable of completing cross border transactions?

Given how the world has shrunk, cross border transaction capabilities are imperative. Opportunities are no longer confined to one’s home country and most of the time, the best deals are with companies on the other side of the world. Therefore, it’s important that your middle market investment bank have experience with international transactions. It’s easy to determine if they have this capability by checking out their tombstones.

In conclusion, it’s important to have a firm with well-experienced staff, credentials, experience, and longevity to make sure that your all-important transaction is completed successfully and in a reasonable time period.

Middle market investment banking provides some unique challenges for both buyer and seller.

Most importantly, the number of buyers or sellers available to do a transaction, relative to the very large deals that dominate the headlines, is huge. Many people underestimate how many possible targets or buyers there are to complete their transaction. It’s one of the reasons why an M&A advisor is even more important for a middle market transaction.

Another major distinction of middle market investment banking is that most of the entrepreneurs have never purchased or sold a business before. For many of these individuals, pursuing a transaction may be difficult to understand. M&A can be a complex maze. For example, it’s important how and when certain information is released, when and what type of Non-Disclosure Agreement is used, and how to structure a transaction that is fair to both parties.

The value of a middle market investment banking transaction is always a hot topic among both buyer and seller. Many entrepreneurs have devoted themselves to building their business so they’re not familiar with terms like EBITDA or multiples. There are many stories about this misunderstanding, for example, one entrepreneur was telling everyone that the EBITDA multiple was dictated by the company’s zip code. Nothing could be further from the truth, but this poignant comment is a clue that M&A is a highly specialized field. Another entrepreneur noted that they wanted to sell their business for x million based on his retirement needs, the necessity of paying for their grandchildren’s college educations, etc. Those were all admirable goals, but had nothing to do with the value of the business.

Negotiating a transaction is an art, not a science. To be successful, both parties, on either side of a transaction, need to focus on win-win negotiating. That usually produces the best outcome for both parties. As most middle market business owners do not have significant M&A negotiating experience, there are frequently many transactions that fail. Most of them could have had a positive outcome, but the parties did not find a solution fast enough to keep the transaction moving forward.

To summarize, middle market investment banking is different than very large company investment banking. First of all, most of the time, it’s the individuals’ own money that is at stake. Large companies have millions of shareholders and a mistake on an M&A transaction won’t carry the consequences of a bad transaction for an individual. In most cases, the success of a middle market transaction could be insured by engaging professional investment bankers who know how to navigate the complex M&A maze, can guide the negotiations, and have the requisite experience to structure a mutually acceptable transaction.

We are half way through the fourth quarter and M&A activity looks fairly normal for this time of year. Typically, there is a huge surge of transactions that are announced or closed in December of each year. Many times, there are tax considerations that are driving a closing before year end. In other cases, buyers and sellers have other objectives that they want or need to fulfill before year end.

I founded Versailles Group over 26 years ago to assist entrepreneurs and corporations close the very best M&A transactions possible. 28+ years ago, that was a concept. Today, it’s a reality. We’ve helped individuals and companies on five continents. In many cases, we’ve done multiple transactions for the same individuals or companies. The results reflect our passion for completing exceptional transactions.
The key to successful M&A is to begin exploring how a transaction might help fulfill your goals sooner rather than later so that there’s time to do it efficiently and effectively. Corporates typically pursue acquisitions or divestitures in the normal course of business and are well-acquainted with the process and possible outcomes. On the other hand, most entrepreneurs only do one or two transactions in their lifetime. For both corporates and entrepreneurs, it’s important that transactions be done well. That’s our forte!

November is an excellent time to consider your 2014 M&A goals. M&A is a very effective means of divesting an unprofitable business or divesting a business in order to diversify your portfolio. Many people wait too long before selling and find that the extra years of ownership didn’t add any value. On the buy-side, an acquisition can provide a route to new markets, provide additional product offerings, help diversify, etc.

In the third quarter, M&A activity in the US and Canada increased dramatically, exceeding both 2012 and 2011 activity levels. Europe has also seen a resurgence of M&A activity despite some very difficult economic conditions. M&A activity is also up in Asia / Pacific, Africa / Middle East and in Latin America; however, Latin America hasn’t seen as much of an increase as the other geographies.

The question that this raises is why is M&A activity increasing? There are many reasons for this, including strong fundamentals, e.g., cheap and available capital, but also the simple fact that companies find M&A to be a very attractive way to build or defend shareholder value. Clearly, it’s faster and more advantageous for a company to acquire another business, people, products, equipment, customers, etc. than to build it from scratch. That’s an opportunity for both buyer and seller.

The fourth quarter is an excellent time to begin exploring the acquisition or divestiture of a business to build or protect shareholder wealth in the coming year. I founded Versailles Group almost 27 years ago as I’m passionate about helping management and/or owners grow or divest their businesses to enhance shareholder wealth.

Year-to-date, M&A activity has been robust, as reflected in the chart below. Despite a modest start to the year, the value of M&A transactions is up, over the same time period last year, in all regions except for Asia Pacific.

Low interest rates, willing lenders, buyers with large cash balances, and other strong fundamentals are contributing to M&A activity around the world. And, it appears that deal multiples are increasing due to competition between private equity firms and strategic buyers. One of the strategies of both of these types of buyers is to enhance shareholders’ wealth via the acquisition of companies.

There are two questions that every business owner or CEO should ask, at least annually: when should we acquire a company and when should we sell either all or part of the company. The answer is not always straightforward, but the question is worthy of significant attention. With over 30 years of M&A experience, I have personally seen many businesses miss valuable opportunities by hesitating to consider a transaction.

Over the last six months, global M&A activity has steadily increased as the US and other economies have continued to rebound. This increased activity spiked in July as buyers and sellers have moved quickly to close transactions.

Shrewd owners, managers, and companies are seizing opportunities at a rapid rate. Cheap financing is still widely available; however, not all buyers are using credit facilities. Warren Buffet’s team have concluded over 12 middle market transactions in the first six months of 2013. These were not billion dollar mega-deals; they were smaller transactions concluded to fulfill particular strategies.

In this environment, every business owner or manager should be considering their options for buying or selling. Growth via acquisition can be productive whether it is offensive or defensive. Selling can be useful to shed divisions or subsidiaries that are either unwanted or underperforming. Owners should also consider selling the entire business for a variety of strategic, tax, and other reasons.

There were 21,605 M&A transactions announced, worldwide, in the first half of 2013. The totals by geographic region were as follows:

The US is continuing to lead the volume of M&A transactions with Europe not too far behind. While everyone is continuing to debate whether there is a recovery and if there is a recovery how strong it is, smart companies are completing transactions to fulfill management and shareholder objectives. And, they will benefit from these transactions in both the near and long terms.

With all these transactions taking place, the obvious question is what is the right time to undertake a divestiture or acquire another company? There are many correct answers to that question; however, the real answer is that it depends on your objectives. Most of the time, people/companies wait too long to pursue a transaction; consequently, they miss many viable and valuable opportunities.

Merger and acquisition transactions present an opportunity for a seller and buyer to complete a transaction that will benefit both parties. That being said, the objectives of the buyer and seller need to be in alignment for a transaction to close. Finding a proper deal structure is a critical component in promoting the feasibility of a merger or acquisition. Generally, there are two primary structures for M&A transactions: an asset purchase or a stock purchase.

In an asset purchase, the purchaser will provide consideration in exchange for the assets (both tangible and intangible, e.g., goodwill, intellectual property rights, etc.) of the target company. Somtimes, the acquirer will assume selected liabilities of the company.

The assets purchased are at the buyer’s discretion and what buyer and seller agree upon. Most often, all of the assets are acquired and the selling company is left with the consideration, usually cash, and any remaining liabilities. The seller then either changes the name of the company and uses that entity for another purpose or liquidates the entity.

Most of the time, an asset purchase is favored by the buyer as it mitigates the possibility that prior, and perhaps unknown, liabilities from the selling company will be their responsibility. In particular cases, the avoidance of liabilities is not clear cut. For example, in certain jurisdictions, certain liabilities, e.g., environmental issues may penetrate any structure of an M&A transaction.

A stock purchase is much simpler than an asset purchase. The buyer simply purchases the stock of the selling company directly from shareholders in exchange for cash, the acquiring company’s stock, other consideration, or a combination of the three. The corporate status of the target company remains unchanged except that the stock is now owned by the buyer. In this case, the acquirer acquires all of the assets and all of the liabilities of the target company, unless agreed otherwise by the buyer and seller. And, in some cases, if the seller has valuable tax attributes, e.g., tax loss carryforwards, the purchaser may be able to utilize them.

Each structure contains advantages and disadvantages for both companies. The major concerns include tax considerations, liabilities, and the ease of completing the transaction. Other concerns will arise depending on the nature of the industries and companies involved. Typically, both parties will seek the advice of their tax accountants, lawyers, and investment bankers to determine the best and most efficient structure for a particular transaction.

In negotiating either a merger or an acquisition, the ultimate goal is to structure a deal in which separate companies combine with one another in order to generate shareholder value.

One of the most important and complex aspects of an M&A transaction is the process of negotiating. This usually begins shortly after the shareholders elect to pursue a transaction. While there are some minor negotiations that occur in the earlier stages of the process, the most important negotiations relate to the value and terms of the proposed transaction. With assistance from an investment bank or other intermediary, the potential acquirer, through a valuation of the target company, will determine the price of the offer in cash, stock, earnout, or a combination of the three.

The Letter of Intent, a non-binding document, will outline the valuation and other material terms of the potential transaction. The selling firm can accept, reject, or attempt to negotiate the offer. Most of the time, the offer price isn’t considered high enough or the other terms don’t coincide with the interests of the target company’s shareholders, which results in detailed negotiations, if both parties are willing. Both parties always retain the ability to reject the transaction if it doesn’t meet their financial and other objectives.

In order to complete a successful transaction, a large amount of collaboration and negotiation between the bidding and target company is required. Most importantly, both parties must understand each other’s objectives and it’s always helpful if both sides believe in win-win negotiating.

The importance of understanding each other’s objectives can be demonstrated by the following story. Two sisters were fighting over an orange and in order to resolve the argument, their father cuts the orange in half and gives one half to each of his daughters. While this seems like the best solution, both sisters actually ended up with a bad deal. One sister wanted the rind for cooking while the other sister wanted to eat the orange. Hence, both of them actually lost. Instead, if the two sisters had understood each other’s objectives, the orange could have been divided in a much better way, the rind to one and the contents to the other.

Versailles Group represented PayTrue Solutions, a payment media software company with offices in Uruguay and Brazil, in its sale to EFT Group S.A., a transaction processing services company headquartered in Santiago, Chile.

Here is a link to the actual Press Release or the text is listed below for your convenience.

BOSTON, May 28, 2013 -- Versailles Group, Ltd. (www.versaillesgroup.com) is pleased to announce that PayTrue Solutions (www.paytrue.com), with offices in Uruguay and Brazil, has been acquired by EFT Group S.A. (www.eftgroup.net). Versailles Group acted as exclusive financial advisor to PayTrue. Terms were not disclosed.

Versailles Group, a 26-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures, advised PayTrue’s shareholders on the transaction. Versailles Group works with companies in the U.S., Europe, Canada, Asia, and South America. The Versailles Group team was led by Donald Grava, Versailles Group’s Founder and President.

Founded in 2003, PayTrue offers a complete suite of solutions to address the various needs of the payment media industry. PayTrue’s operations focus on debit, credit, and prepaid cards, authorization of transactions, international brands, risk analysis, and fraud detection. PayTrue also provides professional services that complement its many solutions.

"PayTrue is a fascinating business in a rapidly-growing market, and it required a unique approach by Versailles Group to facilitate its successful sale" said Donald Grava, Versailles Group's Founder and President. "The acquisition of PayTrue has fulfilled the shareholders’ desire for a liquidity event, and provides EFT Group with an enormous opportunity to expand its South American operations. We are delighted to have exceeded our client’s expectations and look forward to watching EFT and PayTrue prosper."

EFT Group provides electronic transaction processing services for the finance and retail industries. EFT also offers business process outsourcing, infrastructure management, help desk, data center, maintenance, and integration services. EFT Group was founded in 1995 and is based in Santiago, Chile.

About Versailles Group, Ltd.

Versailles Group, Ltd. is a Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures. It provides its clients with a high level of personal attention, international experience, and professional execution. Since 1987, Versailles Group's skill, flexibility, and experience have enabled it to successfully close transactions, both domestically and internationally, in all economic environments. More information on Versailles Group can be found on its website, www.versaillesgroup.com.

Contact: Donald Grava

Media Contact: Donald Grava, Versailles Group, Ltd.