Students Of Success

Private equity firms have raised so much capital over the last 12 months that they are vigorously competing with one another for opportunities to put their money to work. Business owners, who previously would have had to go hat-in-hand to investors, instead find themselves inundated with unsolicited offers for their companies. Companies with solid balance sheets, good management and strong growth prospects are able to tailor deals to their liking, and get solid valuations.

According to Private Equity Analyst, a newsletter that covers the private equity and venture capital industry, private equity groups raised $53.9 billion in 2004, more than double the $26.4 billion raised in 2003.

“All this money out there means business owners might be able to get a better value for their company or sell less of it or both” says Patrick Haden, a partner with Riordan, Lewis & Haden, a private equity firm in Los Angeles. “And it allows owners to choose the firm they want to work with, the firm that can help them the most”.

Before the wave of private equity fund raising, strategic buyers would often be in a position to pay up to 25% more than private equity buyers because of the synergies and economies of scale that they brought to the table. But now, flush with cash, private equity groups are largely matching the offers of strategic buyers and sometimes exceeding them.

Because of the amount of capital chasing middle market companies, private equity groups are finding it increasingly difficult to pinpoint good deals. According to Troy Noard, a managing director at Frontenac, a private equity firm in Chicago, “during the last six months, private equity firms have gotten very proactive about contacting business owners directly rather than waiting for investment bankers to bring them deals.”

From the owner’s perspective this is both good and bad. It’s good because owners are now beginning to realize they have options. It’s bad because private equity groups are trying to by-pass the controlled auction process that investment bankers run so that they don’t have to compete against other buyers in order to win the deal. This doesn’t allow the business owner to maximize the value of this company through an auction and, because the owner is only talking with one buyer, it shifts the negotiating power to the private equity.

Having multiple suitors to choose from also allows business owners to negotiate from a position of strength, greatly influencing the price, terms, and structure of the final deal. If a prospective buyer isn’t able to meet the owner’s key terms, the owner can walk away confidently knowing that he or she will be able to find a viable alternative.

For business owners this “Seller’s Market” means that they can take their time to investigate which private equity firm would be the best fit for them and their company. Many private equity groups actually want the former owner to stay involved in the company and retain a meaningful stake so that he is invested in the company’s future performance. As long as the business is on the right track, they will often ask the business owner to stay on, if not as the CEO, then in whatever role the owner prefers, such as sales, operations, or as a consultant.

If you own a company with revenues of between $5 million and $150 million, this is a unique time to consider your options. Valuations are at a four year high, capital gains rates are at a 40 year low, and institutional buyers are aggressively looking to make acquisitions. That makes this a unique time to consider selling your business.

Author Bio: Rich Jackim, former Wall Street attorney and experienced investment banker has helped over 60 business owners successfully exit their companies and realize their personal goals. He is the author of the recenly published book, “The $10 Trillion Opportunity: Designing Successful Exit Strategies for Middle Market Business Owners.” Available at http://www.exit-planning-institute.org Rich is the president of The Christman Group LLC, a boutique investment bank that specializes in selling privately owned businesses.

Rich received his BA from Colgate University, his JD from Cornell Law School, and his MBA from the Kellogg Graduate School of Management. He is a sought after speaker and has either published articles or been quoted in Business Week, Chicago Tribune, Chicago Daily Herald, The Business Ledger, Bulk Transport, Plastics News, Indianapolis Business Journal, Nashville Business Journal, and other regional and national publications.

Want to move into the big time? Many creative small presses and self-publishers are discovering a practical path for penetrating bigger “establishment” trade houses. They bring out a quality book, market it successfully, then allow a trade publisher to buy the rights. While this sounds patently simple, it isn’t. But it does often work. How do you accomplish such a victory?

Your best ammunition is a good, well-focused book. By good we mean one that has been meticulously edited and attractively crafted. Is the cover striking and clear? Has the interior designer laid out the book so it is appealing to the eye and simple to use? A well-focused book meets a specific need and is distinguishable from similar titles in one or more distinct ways. Outflank the competition by making your book more complete, more useful, or more unique.

Now that you have a quality product, go on the offensive and sell the heck out of it! Tap into every possibility for free PRget reviews and author interviewscultivate that all-important word-of-mouth. Place ads in specially targeted media and, if your book retails for $25 or more, consider launching a consumer direct mail campaign. Seek every opportunity to develop momentum for your title.

What does it take to interest a large trade publisher or an aggressive mid-sized house? An impressive print package and a strong sales track record. When you have that delightful duo, you’re bargaining from a position of power. You’re offering a proven product; the risks have already been taken.

Research to determine who publishes your kind of book. First, look in Literary Market Place under “Book Publishers.” There is an index at the end of the section telling who publishes in what genre. Writer’s Market also has a very useful subject cross index. Second, call and get the name and correct spelling of the appropriate current editor. Next, request their current catalog. (Many will have toll-free ordering numbers you can use.) Now study the catalogs. Look for books with similar subject matter. Often you can show how your book will complement another title on their list. Or perhaps you’ll detect an obvious void you title would fill.

Now go to a large bookstore and carefully explore your subject area. Again, tune into relevant titles. The reason we succeeded in selling our Big Marketing Ideas for Small Service Businesses to Dow Jones-Irwin was because we saw their Service America while doing homework at Denver’s Tattered Cover Bookstore. We suggested our book be positioned with it.

Now develop a proposal with pizzazz. Tell how the book meets a present need and why it is different. Give them your sales figures. Include copies of reviews, large purchase orders, and newspaper interviews. This is what we did to sell Writer’s Digest Books the rights to our Complete Guide to Self-Publishing.

When negotiating a contract, you may find it makes sense to bargain in person rather than just by mail, email, and phone. This allows you to “read” the other person better and more quickly consummate a deal. Otherwise, contracts usually go back and forth several times. Sometimes they even falter and collapse. We feel sure the five-figure advance we negotiated for one of our books would have been considerably smaller had we depended on a less personal form of communication.

The negotiation process should be a win/win proposition. Think about what you would like to haveand what you must have. But be willing to compromise. There is no way around it: Publishers Row has some sacred cows. They aren’t going to alter their position on certain issues for you or anyone else. Be reasonable in your expectations but firm in explaining what you must have.

The success stories using this springboard technique could go on and on. Last year Putnam came out with Breaking into the Boardroom, a book we helped a client privately publish in 1986 and for which St. Martins ultimately bought the paperback rights. What Color is Your Parachute, How to Avoid Probate, and The Elements of Style are other classic examples of self-published works that zoomed to stardom. So if you want to fatten your wallet, consider pursuing a trade publisher to pick up the rights to your proven product.

© Copyright 2005 Marilyn Ross

Marilyn and Tom Ross are the coauthors of 13 books including the best-selling Complete Guide to Self-Publishing and the award-winning Jump Start Your Book Sales. Through phone consultations and ongoing coaching/mentoring, Marilyn empowers authors and self-publishers to realize their dreams. She can be reached at 719-395-8659 or Marilyn@MarilynRoss.com.

Visit http://www.SelfPublishingResources.com for free meaty information on writing, self-publishing, and book marketing strategies.