dsmWealth October 18, 2018

M&A expert Eric Lohmeier says business valuations currently are "in the stratosphere."

Today Is a 'Seller's Market' for Business Owners
BY STEVE DINNEN

If you’ve toyed with the notion of selling your business, now might be a good time. A great time, actually, says merger-and-acquisition expert Eric Lohmeier, as selling prices of companies he’s working with are at the highest level he has seen in his career.

Lohmeier is president of NCP Inc., a Des Moines firm that works on merchant banking and business valuations—mainly for sellers. In recent years his firm has worked on deals large and small for the likes of John Deere, Airgas, Claas and Verizon. Their comfort zone is in deals valued between $10 million and $200 million.

With the economy showing sustained signs of durability, Lohmeier said valuations for these transactions are topping those last seen in 2007. And it’s all because EBITDA (earnings before interest, taxes, depreciation and amortization) is expanding and being calculated more expertly.

There are several ways to value a business—discounted cash flow, for instance, or the comparable transaction method. But Lohmeier said that corporate America seems pretty well satisfied that annualized EBITDA is a solid tool to gauge its worth.

Over the past few years a selling business might have fetched five to maybe seven times annual EBITDA, said Lohmeier. With the economy still in high gear, and corporate tax rates trimmed, that EBITDA yardstick has bumped up to a solid seven-eight and is sometimes as high as 10.

"We’re at all-time highs with multipliers," said Lohmeier. "We’re in the stratosphere right now."

In addition to a rise in EBITDA because of better economic conditions, Lohmeier said business valuations also have increased as his firm has been able to delve into the quality of the earnings that are being used. For instance, he said a firm might have an airplane that it uses to shuttle executives around, something a new owner would not need or want and therefore could exclude from the expense ledger. Also liable for a cut would be executive or IT staffers whose expenses could be trimmed as their duties are shifted to the acquirer’s staff.

Lohmeier’s job, then, is to establish a really good base for EBITDA. And to hang on to it as long as is possible. After all, these valuations were impossible to come near to in the dark days of 2008-09. And he said business owners should realize current sales prices are not sustainable. No one knows quite when the economy will soften and those EBITDA numbers will tumble. Until then, though, it’s a seller’s market.

Investments Gone to Pot? Meet 'Marijuana Millionaires'
BY STEVE DINNEN

I’m always on the lookout for investment opportunities. But marijuana? Legally?

A request came for me to sign up for the American Cannabis Summit. It is an online event, https://americascashcrop.com, slated for Oct. 23, to discuss how to become a cannabis angel investor and identify stocks that "are primed to create a new generation of marijuana millionaires" (presumably not Mexican drug lords).

The featured guest will be John Boehner, former speaker of the U.S. House of Representatives. He is adviser to a company that grows and distributes marijuana and is now a vocal advocate of decriminalization.

Last week I heard an ad on WHO radio that invited listeners to contact High Times about buying shares in the company that publishes that pro-marijuana magazine. Companies such as Altria and Constellation Brands already have bought, or are considering, positions in pot growers in Canada, where recreational pot use became legal just yesterday.

And Iowa is about to get into medical marijuana retailing, which includes key support from Des Moines-based Kemin Industries.

Where this heads in the face of official federal government opposition carries risk. But with the majority of Americans supporting marijuana decriminalization, and hundreds of billions of dollars of revenues at stake, corporate America might well try to duplicate with marijuana the success it had in Las Vegas when it ousted the hoodlums who controlled gambling there.

How High-Net-Worth Individuals
Can Form Their Own Financial Advisory Boards
BY GREG POWELL, Forbes Finance Council

Too often, I've noticed that high-net-worth business owners have a collection of financial professionals working for them who fail to collaborate with one another. Business owners, therefore, don’t always know what questions to ask, whom to ask or what information to share with which professional, since on the surface it can be confusing how their area of expertise may overlap with someone else’s expertise.

For example, you might be tempted to discuss balance sheets, income statements and taxes with only your CPA, but chances are that both your corporate attorney and your financial adviser should be kept in the loop about those issues as well. Tax matters have legal consequences that an attorney would need to know about, while financial advisers should have insight into tax payments because they can directly affect both cash flow and a business owner’s net worth. When all parties are involved, they are better positioned to craft powerful strategies for you and your business.

I believe it's time for the high-net-worth business owner—one of the all-too-commonly overlooked millionaires in America—to actively look at forming a "financial advisory board" to deliver the same insights that ultra-wealthy families receive from costly family offices. Click here to read the rest of this article at Forbes.com.

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