Capitalization of Earnings

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Capitalization of Earnings

Dictionary Definition

This method is used to value a business based on the future estimated benefits, normally using some measure of earnings or cash flows to be generated by the company. These estimated future benefits are then capitalized using an appropriate capitalization rate. This method assumes all of the assets, both tangible and intangible, are indistinguishable parts of the business and does not attempt to separate their values. In other words, the critical…

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PTSC

ft bragg

During May’s Rising Tide Mastermind we had an interesting discussion about surviving Covid with your mental health intact.  The discussion made me think about a case I worked on when I was a paralegal in the army. 

Here is a little back story: 

In the early morning of October 27,1995 1,500 members of 2nd Brigade, out of Fort Bragg, NC, assembled on the field for a fun run. A change of command was happening later in the week and the exiting commander wanted to share some camaraderie with his un…

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What is a Bolt-On Company?

SDE Definition (1)

Bolt-On Company...AKA Tuck-In or Add-On

Dictionary Definition

A bolt-on acquisition refers to a company that is added by a private equity (PE) firm to one of its platform companies, usually in the same line of business, that presents a strategic value.  


Plain English

This is a smaller investment for a PEG and could be of any revenue or EBITDA size, as long as it presents a synergistic value to the platform company.

 

Why it Matters to You

For a smaller company, we would target PEGs tha…

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What is a Platform Company?

Lower Middle Market Definition (2)

Platform Company

Dictionary Definition

A platform company is a company that a Private equity group (PEG) views—when investing through acquisition in a new industry or market space—as a starting point for follow-on acquisitions in the same area


Plain English

This is the first investment a PEG makes in certain industry or market.  Depending on the PEG, the typical platform company has EBITDA of approximately $2M and must be scalable.

 

Why it Matters to You

This is relevant to business …

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What is a Private Equity Group?

BMVA Definition

Private Equity Groups..AKA PEGs

Dictionary Definition

Private Equity Groups are an investment management companies that provides financial backing and makes investments in the private equity of startup or operating companies through a variety of loosely affiliated investment strategies including leveraged buyout, venture capital, and growth capital.


Plain English

A group of investors who use other people’s money to purchase businesses.  They generally do not operate the business themselves…

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Goal, Plan, Challenges, Timeline

Plan

The Blue Sky team embraces the Kaizen approach. One way we live Kaizen is through reading articles and books to improve ourselves and our company in order to best serve our clients. Many of our team members all read the same books once someone gives a recommendation.  This has resulted in some really interesting discussions and improvements to our internal processes.

One book we recently read was The Sales Acceleration Formula by Mark Roberge. Mark joined HubSpot during its startup and grew sal…

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What is the Altman zScore?

zscore

Altman zScore

Dictionary Definition

The Altman Z-Score is the output of a credit-strength test that helps gauge the likelihood of bankruptcy for a publicly traded company.  The Z-score is based on five key financial ratios that can be found and calculated from a company’s annual 10K report. 


Plain English

This is a score that gauges the likelihood that a company is headed for bankruptcy.


Why it Matters to You

This is a good metric for any company to review.  Should the company fall in…

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What is the Main Street Market?

Lower Middle Market Definition (1)

Main Street Market...AKA Mom and Pop Businesses

Dictionary Definition

Main Street is the smallest segment of the business economy.  It is measured in terms of annual revenue of the companies.  Companies with annual revenue less than $5 million. 


Plain English

Examples: Single location Bars, Restaurants, Dry Cleaners, Hair Salons, etc.  


Why it Matters to You

The buyer pool is much different when you are in the main street market.  You are generally looking for someone who is “buying a…

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What is the Lower Middle Market?

Lower Middle Market Definition

Lower Middle Market...AKA LMM

Dictionary Definition

Lower middle market is the lower end of the middle market segment of the economy, as measured in terms of annual revenue of the firms. Firms with an annual revenue in the range of $5 million to $50 million are grouped under the lower middle market category.


Plain English

Companies in the LMM have grown beyond the Main Street Market.  They are above $5M in revenue, have multiple employees, systems and processes, etc.  


Why it Matters to…

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What is an Indication of Interest?

Indication of INterest Definition

Indication of Interest...AKA IOI

Dictionary Definition

Presented by a buyer, prior to the LOI, indicating they are interested in pursuing the business further.  Documents includes:

  • range of anticipated valuation,
  • rough outline of anticipated structure,
  • expectation of timeline from LOI acceptance to close, and sources and uses of funds. 


Plain English

Site visits are usually done after IOIs are submitted.  This is generally kept to a small number of buyer groups.  Most sellers do not…

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