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Evergreen Advisors Capital, a middle-market investment bank, announced today that it advised G2SF, Inc. (“G2SF”) on its sale to Gunnison Consulting Group, Inc. (“Gunnison”).
Headquartered in Reston, Virginia, G2SF INC. is a Government focused IT consultancy and enterprise solution provider with core competencies in IT Service Management (ITSM), Mobility Engineering and Management, Security Engineering and Management, and IT Engineering & Integration. Their clients are responsible for the largest IT organizations in the world, including the Defense, Intelligence, and Civilian Agencies within the U.S. Government. As a result of G2SF’s involvement, their clients have realized measurable improvements in operational efficiencies, a reduction in sustainment costs, and an improvement in services.[Read more…]
Evergreen Advisors, a middle market Investment Bank and Corporate Advisory Firm, with offices in both Columbia, MD and McLean, VA, is pleased to announce the addition of John Ellis into Evergreen’s CFO Advisory Practice.[Read more…]
In this Entrepreneur Spotlight, we highlight KaloCyte, a company transplanted from St. Louis, Missouri now located in Baltimore at the University of Maryland BioPark.
KaloCyte is developing a solution for when blood is not available. They have demonstrated proof of concept for ErythroMer™, a dried, bio-inspired artificial red blood cell substitute envisioned for use as an oxygen carrier when stored red blood cells are unavailable, undesirable, or in short supply.
For this feature, we interviewed Elaine Haynes, President and CEO, who has 30 years of healthcare leadership expertise and extensive experience with the commercial development of complex pharmaceuticals on the vision she sees for KaloCyte.[Read more…]
As business valuation professionals, we are often tasked with determining the value of a block of stock in a company, typically a partial interest, for purposes of gift or estate tax planning, stock option issuance, ESOP compliance, or marital disputes. The appropriate standard of value for such assignments is “Fair Market Value.”
Fair Market Value is defined as the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy, and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.
Fair market value does not consider the synergies of a specific buyer. Instead, it contemplates an unrelated, third-party buyer and assumes the company continues to operate as a stand-alone business. Valuation professionals must also consider the rights and restrictions specific to the block of shares (or partial interest) that are being valued.[Read more…]
Evergreen Advisors Capital, a middle-market investment bank, is pleased to announce that PathSensors, Inc. (“PathSensors” or the “Company”) has been acquired by Smiths Detection (“Smiths”). Evergreen Advisors Capital acted as the exclusive financial advisor to PathSensors with legal advice provided by Whiteford, Taylor & Preston, LLP.
PathSensors is a leading biotechnology solutions and environmental testing company based in Baltimore, MD that provides high-speed, high-sensitivity pathogen detection and threat prevention solutions. PathSensors’ solutions can detect a wide range of threats, including anthrax, ricin, Ebola, salmonella, Phytophthora, Ralstonia, and many more. The Company’s technology supports a growing library of threat detection capabilities and can be expanded to meet emerging and specific threat detection requirements. PathSensors shares a similar customer base to that which Smiths Detection serves for chemical-threat detection, while also offering an expanded end-use market into adjacent security markets such as food and agricultural safety.
Evergreen Advisors, a middle market Investment Bank and Corporate Advisory Firm, with offices in both Columbia, MD and McLean, VA, is pleased to announce the addition of John Reichlin to the Evergreen Advisors Corporate Advisory Practice. John specializes in business turnarounds and financial restructurings. He also works closely with owners of middle market companies as a strategic advisor to help them drive growth and to improve profitability.
We are thrilled to be welcoming John to our team as we strengthen our capabilities,” said Rick Kohr, CEO of Evergreen Advisors. “Focused on developing the efforts of our turnaround and restructuring team, John’s experience further complements our capabilities and will help us better serve companies with their corporate finance needs.”
On March 18, 2020, YUM! Brands, Inc. (NYSE: YUM), a worldwide owner and operator of restaurant brands, acquired The Habit Restaurants, Inc. (NasdaqGM: HABT or “Habit”) for approximately $408 million in cash. At the time, Habit operated 245 company-owned and 31 franchised Habit Burger Gill restaurants in the U.S. and in China. According to YUM’s 10Q filing, Habit expected to benefit from the global scale and resources of YUM. As a result of the transaction, YUM recorded $219 million of goodwill and $98 million in brand/trademark value based on the analysis of a third-party valuation firm. [Read more…]
We are in uncharted territories given the impact of the Pandemic at many levels ranging from our physical health to the mental challenges brought to bear on each of us to the significant impact on our economy.
In the first quarter of 2020, companies in the region raised 227 million in venture capital, according to the PwC/CB Insights MoneyTree Report. This funding went to 21 companies over this period and over $50 million higher than the quarterly average from 2019. Zerofox raised $74 million, which was the third-largest round secured by a cyber company in this country.
There was over $121 billion in dry powder amongst the Venture Funds in 2019, and they continue to fund, but many are being more conservative in their approach. I spoke to Chuck Cullen at Grotech Ventures about their philosophy last week – they have two investments they were focused on. One was just funded the other was put on hold in the near term. Speaking with numerous funds, their focus has primarily turned to their existing portfolio companies, ensuring companies have enough cash runway and stressing efficiency. New deals are still happening, but most of these had already been in the pipeline prior to the onset of the Pandemic. The investment pace will surely slowdown in the near term. One Venture Fund I spoke to was working through new deal screening protocols. How do you connect with the founding teams before making an investment? The old axiom is that you invest in an “A” management team is still quite true. They were trying to derive a technology solution to measure management teams while travel has all but ceased.
Valuations may not have retreated much yet, but indications from Venture community and startups alike suggest that valuations are likely to be challenged in the coming quarters. Late-stage valuations may see valuations impacted more so after reaching record highs in 2019. Historically, investor early-stage deal values tend to be more range-bound and may be affected less.
Private Equity [Read more…]
The Coronavirus Recession is forcing even the most well-capitalized companies to deliver cost savings across their supply chains. To weather the crisis, companies must reassess opportunities to source products and services domestically, reduce exposure to regional labor market disruptions, navigate ongoing rent, utilities, debt service obligations, and redeploy their workforces across their physical and digital facilities. The importance of a sound corporate location strategy has never been more apparent, and the need for collaboration with the public sector never more pressing.
The crisis at hand presents unique challenges to company supply chains and economic development organizations, challenges that affect the fiscal positions of both companies and local authorities in then incentive negotiation process. Just as companies must manage risks across their supply chains, cities and states facing shortfalls in sales and income tax collections are reassessing their approaches to the incentive negotiation, with a new need to realize savings as well as to identify opportunities for growth.
Successful location and supply chain analysts in the time of the Coronavirus Recession will be the ones that can leverage creative funding opportunities to realize cost savings for both the public and private sectors.
With the rapid spread of COVID-19 taking hold in the U.S. and across the world, publicly-traded stock prices have taken a beating. Additionally, as business, economic, and political uncertainties increase, private valuations in certain types of securities and industries will certainly take a hit this year. Although this may cause temporary pain in the form of lower portfolio and 401k balances, significant planning opportunities remain for high net worth individuals, business owners, and shareholders of privately held companies. It could be possible that those involved in online stock trading could navigate the financial landscape during this uncertain time to come out the other side in a strong position, after making smart investments. The federal government issued PPP loans to businesses to help them during this time, but after this is all done, will businesses be able to pay them back? The rules for how to get a Payroll protection loan forgiven are here and must be looked at by all businesses who worry for after this is over.
Take Advantage of the Exemption from Estate, Gift and Generation-Skipping Transfer Tax – With everything that’s going on, it’s easy to forget the significant changes that went into effect in 2018 with respect to the estate and gift taxes. To summarize, the federal tax law was changed to allow individuals to transfer double the amount that was previously allowed over the course of their lifetime free of tax. As of this writing, individuals may transfer $11.58 million and married couples up to $23.16 [Read more…]
March madness canceled. Ice hockey thawed. No baseball. Schools closed. Restaurants offering curbside pickup. Breweries doing delivery. Supply chain disruption. Hoarding. Entire companies working remotely. No toilet paper on the shelves! Trump. Congress. COVID-19 vaccine. Social distancing. Stay at home. Olympics delayed. N95 masks. SXSW scratched. Distance learning. Concerts delayed. Disney locked. Group meetings? Fuhgeddaboutit! The headlines sound like new lyrics to REM’s famous title “It’s the End of the World as We Know It.”
What does it mean for a Company’s business valuation? Coronavirus, or COVID-19, muddies business valuations for an indeterminable period. Many businesses will be adversely affected by reduced sales, uncollectible receivables, staff absences for a variety of reasons, increased costs of operating remotely, increased sanitation costs when out of the office work is not feasible, etc.
The Department of Treasury has released the Paycheck Protection Program application and supplemental information, all available on their website.
Sample Application for the Paycheck Protection Program is Now Available: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf
Lenders may begin processing loan applications as soon as April 3, 2020.
Currently, the SBA has a number of programs available through the $2 trillion CARES Act, the largest aid package in American history. One in particular companies should be reviewing is Paycheck Protection Program:
The Paycheck Protection Program (“PPP”) is an emergency lending facility, administered by the Small Business Administration (SBA), to permit small businesses, nonprofits, and individuals to obtain loans via the 7(a) Loan Program (“PPP Loans”). A link to the full bill is located here.
I met with Bill twice to do this interview. The first time we met was February 26th. Just three days later, we had our first Coronavirus death in the United States. Everyone’s life has been altered in some way, including the 7,000 team members of T. Rowe Price-they’re fortunate to have “Coach Stromberg” leading.
Bill, is one of the most decorated athletes in Johns Hopkins history. He had an outstanding baseball career, still holding records from his Blue Jay days on the diamond, but it was on the gridiron that Bill really excelled. He is considered to be one of the best wide receivers in NCAA Division III history, setting many school and NCAA records. Bill was inducted into the Johns Hopkins Hall of Fame in 1994 and the College Football Hall of Fame in 2004. After graduation in 1982, he signed a free-agent contract with the Philadelphia Eagles.
Thank you, Bill, for the quality time you gave me. We covered a wide range of topics, from growing up in West Baltimore, great memories from Loyola Blakefield and Johns Hopkins, and for the last four years leading one of the great financial institutions in the world.
We are still in the early stages of one of the most challenging periods in the history of our country. T. Rowe Price, one of Maryland’s great companies, and Bill Stromberg’s leadership, give me great optimism that our community will be much stronger when we get to “the other side.”
Thank you Bill.
___ [Read more…]
COVID-19 has affected the world much more than initially anticipated. A lot more businesses are being affected than originally thought with the majority having to close down. Some are staying open for now by using janitorial services in order to ensure the required cleanliness standards are kept to help workers and customers feel safe. Nonetheless, some businesses require more support now than ever before. As a result, many people are using sites like GoFundMe to support those who have been worse affected financially and it is nice to see communities pull together and support each other. Even those businesses have survived and remained open must ensure they’re following government guidelines and that they are giving their workers the proper equipment – like providing them with an n95-mask or other protective clothing. These businesses have an obligation to look after their staff at this time, including providing PPE, offering financial support, ensuring that (where possible) jobs aren’t lost, and informing workers at risk of the Coronavirus what they should and shouldn’t be doing to protect themselves and others.
Evergreen Advisors, a middle market Investment Bank and Corporate Advisory Firm, with offices in both Columbia, MD and McLean, VA, is pleased to announce the acquisition of Baker-Meekins. As part of the transaction, James Webb, ASA and Shawn Moxley, ASA will become employees of Evergreen and Ross Adams, CFA will serve as a consultant. Based in Lutherville, MD, Baker-Meekins has been providing independent, expert opinions of the value of a business or its securities since 1987.
“We are very excited about the prospects of combining the experience, expertise and client base of the Baker-Meekins team with those of Evergreen. James and Shawn are widely known in the business valuation community for their expertise in complex fair value and ESOP valuations. They will be a tremendous addition to the group“, said Patrick Lowry, Managing Director of Evergreen’s Valuation Practice.
The need for expert valuation services is increasing in today’s litigious environment. The valuation of closely-held business interests and related assets in the context of tax, corporate transactions and legal disputes is necessary to properly resolve matters and make key financial decisions.
In contentious situations such as divorce or shareholder disputes, it is typical for the parties to hire two valuation experts; one for each side. However, opposing parties may jointly decide, in consultation with their legal teams, to use a neutral valuation expert (NVE). In this case, a neutral appraisal is completed for parties with opposing interests by an independent third-party appraiser or valuation expert.
How can a neutral valuation expert assist you?
- Reduce Financial Uncertainty and Suspicion – The NVE has the expertise to identify the necessary and appropriate data required to ensure full disclosure of all relevant financial information including, financial statements, tax returns, and other bank, investment and retirement plan account data. Trust increases when clients are comfortable that a complete financial picture has been presented and any questions have been asked and answered.
- Provide Fair Access to Financial Information – Specifically, in a divorce setting, the NVE can alleviate the non-money spouse’s financial suspicions and concerns. In many cases, one spouse handles the family’s finances or holds equity interests in privately-held companies. A lack of familiarity with the family finances contributes to angst and uncertainty about the future. The NVE may educate the spouse who has not been intimately involved with the finances. The increased education and understanding diminishes some of the anxiety and concern.
- Independent Opinion – Since the NVE is independent, the parties are more likely to reach an agreement. The NVE can help clients evaluate the various financial options under consideration and explain how those decisions impact both parties and the valuation outcome. Information about the implications of various terms from the NVE provides the parties with the confidence to make decisions and reach an agreement.
Rick Kohr was recently interviewed at the Maryland Life Sciences’ first annual Bio-Innovation Conference, which was held on October 7, 2019. Marty Rosendale, CEO of MTC and host of the Capital M podcast, sits down Rick to discuss access to capital in Maryland and the Mid-Atlantic. He discusses what investors are looking for when meeting new companies and how his company prepares others for raising capital.
The Bio-Innovation Conference provides a forum for professionals from industry, academia, and government to discuss trends and insights into Maryland’s growing life sciences industry while showcasing the state’s and region’s innovations and successes in the life sciences industry. The all-day event attracts more than 400+ top life science professionals.
The cybersecurity industry will continue to remain a growth industry with the internet and its related threats routinely appearing in various new forms. Security is continually evolving — what worked to protect the internet user a year ago is not effective today.
This year has brought a flood of new venture capital funding in cybersecurity, following up on the approximately $5.3 billion invested in 2018. The industry continues to see capital pour into companies competing in the SaaS Monitoring & Security vertical. Going back to the third quarter of 2016 there have been more than forty deals funded every quarter, except two.
However, cybersecurity was more recently listed fifth in investment dollars behind other emerging markets – Artificial Intelligence, FinTech, Digital Health and IoT. Cybersecurity deal activity dropped to its lowest level since the fourth quarter of 2018. There were 63 deals funded in the third quarter, totaling $1 billion..
Read more Here in the I95 Magazine
Evergreen Advisors, LLC is pleased to announce that George Davis will be joining the firm as Executive Vice President, Strategic Advisory. Strategic Advisory. George is well-known for his successes in investing, building and managing biotech, IT, and software companies, often from the start-up stage. He recently completed a 2-year tenure as Executive Director and CEO of Maryland’s Technology Development Corporation (TEDCO), the State’s Technology Transfer, Innovation Development and Venture Investing Platform. With over 30 years of management experience, having served in various C-level positions, including President and CEO of publicly traded companies, George offers a broad range of experience and business acumen. [Read more…]
With the venture capital market hopping with big money deals and his company planning a (partial) move to the South Baltimore’s glitzy Port Covington project, Rick Kohr, the founding member and CEO of Columbia-based Evergreen Advisors, is at a juncture in his career. That means Kohr, who has more than 30 years’ experience in advising early stage growth and middle-market companies has plenty to talk about.
What are the trends in venture capital (VC) today?
First off, we’re seeing a very robust market. Going back to 2014, it was very strong in terms of investment in the U.S., where we’d gone from $71 billion of invested capital to $132 billion in 2018; this year, the first quarter was $32.6 billion in the U.S., which was down 36 percent from last year…..
Read more on page 8 here: http://www.bizmonthly.com/wp-content/uploads/2019/07/aug_Web_pages-reducedsize.pdf
While the appraisal of an Employee Stock Option Plan (ESOP) is very similar to other types of valuations of a private company, there are some complexities that require valuation expertise in ESOPs. The Employee Retirement Income Security Act of 1974 (ERISA) requires Trustees to obtain appraisals by independent valuation professionals to support ESOP transactions. An appraisal is needed when the ESOP initially acquires shares from the company’s owners and each year thereafter that the corporation makes contributions to the plan.
When the Trustees of an ESOP face issues related to appraiser objectivity and independence, qualifications, and knowledge of ESOP special considerations, they often look to Evergreen Advisors for valuation expertise. The following are the main reasons we are contacted for a change:
- Independence and Conflicts
The number one reason ESOP Trustees engage the experts at Evergreen is when an ESOP appraiser is conflicted by providing services to either the company, board, or other related parties to the company. This includes accounting firms that have separate valuation practices. ESOP Trustees are opting to mitigate this risk by engaging truly independent valuation firms like Evergreen to perform critical compliance-related analyses.
ESOP transactions are regulated by the Department of Labor (DOL), and typically have significant tax and legal implications. Therefore, an ESOP valuation must be able to withstand scrutiny and potential challenges from multiple parties including the DOL, the IRS, and the ESOP plan participants. With the additional scrutiny being given to ESOPS by DOL auditors, it is imperative that the ESOP valuation appraiser also have the requisite valuation training, experience, and credentials such as the Accredited Senior Appraiser (ASA), Accredited in Business Valuation (ABV), or Certified Valuation Analyst (CVA). [Read more…]
You would have to be completely unplugged from the media if you have not seen multiple headlines over the past few years profiling mergers and acquisition activity at record levels and record valuations. According to the Institute for Mergers, Acquisitions and Alliances, United States M&A volume as measured by transaction value was over $1.9 Trillion in 2018 up from almost $1.8 Trillion in 2017. Year to date through May, 2019 there was approximately $800 Billion in transaction value. 2018 Middle-market M&A volume in the U.S. hit $427.9 Billion up from $372.7 Billion in 2017.
Valuations are experiencing record levels as well. U.S. private equity backed buyouts were executed at an average EBITDA multiple of 11.6x in 2018, down a bit from the 11.9x multiple in 2017, but still above the average post-financial crisis multiple of 9.9x (2010 – 2016).
- Private capital dry powder is approximately $2 Trillion;
- Private debt funds (non-bank, private lenders) have over $300 Billion of dry powder; and,
- Corporate America is holding almost $1.7 Trillion of cash.
Working with middle-market companies, our investment banking teams at Evergreen Advisors Capital are consistently interfacing with private equity and strategic buyers and our activity levels and outcomes are reinforcing the statistics and anecdotal evidence – It is a great time to be a seller. Across several industries such as business services, software, healthcare, cyber, government contractors, and diversified industrials, we are seeing strong, consistent interest in our sell-side mandates from both financial and strategic buyers. That being said, it is not a one size fits all market. To ensure success and best manage time and resources, entrepreneurs considering liquidity alternatives need to access and evaluate the appropriate audiences for their particular fact pattern.
Scale continues to be a factor in generating interest from strategic buyers. During more than one sell-side engagement, we have seen potential strategic buyers show initial interest in a target only to back away when a higher priority (i.e. larger target) opportunity became available. Even though we found other buyers, the message has been clear that corporate America’s human resources are constrained when it comes to M&A causing transaction timelines to stretch a bit. We have been successful in guiding middle-market companies that may be sub-scale to larger strategic buyers, in generating interest from smaller strategic buyers that are backed by private equity. In almost all of these PE-backed strategic transactions, we encountered a counterparty that was able to act quickly and decisively, generating a great outcome for our client. [Read more…]
2019 continues to be another robust year for cyber M&A transactions. The first half of 2019, M&A deal volume is up 31% over the first half of 2018.¹ We all remember last’s years IPO of locally based Tenable Software and the activity continues with this month’s debut of software maker, Crowdstrike Holdings, a cloud-native endpoint protection platform built to stop breaches, going public with a valuation of $6.6 billion, raising $612 million in their debut.
Locally, BlueRidge AI, Fulton MD just received a $1.9 investment from Datatribe. BlueRidge is integrating Internet of Things (IoT), machine learning (ML), and predictive analytics to help the industrial and manufacturing sector target electric motor failure modes, providing manufacturers with the ability to schedule prescriptive maintenance and minimize downtime. That being said, in order to ensure that its products and services are misra compliant, a number of software development guidelines must be adhered to. Above all, in case you were not aware, the MISRA standard provides a comprehensive set of guidelines to protect against security vulnerabilities and program failures. Furthermore, Datatribe announced this year it raised $50 million for fund two to invest in an additional 12 companies. Inner Loop Capital announced in June that they raised $2.6 million to invest in early-stage cybersecurity and enterprise technology companies in the region. The fund aims to make approximately eight seed-stage investments over eighteen months, with typical initial investments of $300-400k.
Evergreen Capital is working on several projects in this space and seeing some key trends including:
Security Threats continue to grow, along with the volume, variety, velocity, and data. The Digital Expansion includes IOT and Critical Infrastructure. [Read more…]
Kathy Warden was born and grew up in the small town of Smithsburg, Maryland. She graduated from James Madison University in 1992 and in the early part of her career she worked for GE, Verizon, and General Dynamics. She joined Northrop Grumman in 2008 as Vice President and General Manager of the Cybersecurity division. In 2016 Kathy became President of the Mission Systems Test Sector, COO of the Corporation in 2017, and this past January 1st was named Chief Executive Officer.
Recently I met with Kathy at Northrup Grumman’s headquarters in Falls Church, Virginia. We discussed a wide range of topics, but what stood out as I reflected on our conversation, was her thoughtfulness and passion for people and mission. Enjoy!
Chairman, Evergreen Advisors
Interview with Kathy Warden
Small Town Girl
MG: You went to school in Smithsburg, a town of 3,000. It keeps being named the safest city in Maryland. What’s the secret?
KW: There’s only 3,000 people, and they all know one another.
MG: From a small town to CEO of Northrop Grumman: Is there some part of you that was shaped by that experience in terms of character and values? Have you ever thought about that?
KW: I have actually thought about that quite a bit. I’m still just that small town girl. I think values and character are very much shaped in those early stages of one’s life. Being in an environment that was so small, where people knew one another and trusted each other and understood their character based on what they did, not just what they said – that shapes you as you become older. You realize how important character is to building relationships with people.
MG: In high school, were you part of clubs and organizations?
KW: Interestingly, when I was in high school, I was involved, but also looking at what was next. I finished high school by going to the local junior college to get some college credits in my senior year. I interned in a law firm, trying to get exposed to new things. That really helped to shape my thinking about what I was going to study in college. Then I abandoned all of that when I got to James Madison and switched majors. I decided to go in a completely different direction, switching from pre-law into computer systems.
MG: Tell me about your family.
KW: I come from a very humble background, with my parents working traditional blue collar jobs. They taught me the value of setting goals and working hard to achieve them. [Read more…]
Evergreen Advisors Capital, a middle market Investment Bank is pleased to announce that it has been named a 2019 Moxie Award finalist. The Moxie Award program honors the accomplishments and achievements of growing businesses, nonprofits, and associations in the DC metro community. Organizations are recognized for having demonstrated boldness and innovation as an integral part of their growth strategy.
“I want to congratulate our team for being nominated as a Finalist for the 2019 Moxie Award enabling us to be recognized among the boldest and most innovative organizations in the D.C. metro community” Rick Kohr, Chief Executive Officer said. Our team has a proven track record in providing innovative and strategic solutions to meet our clients’ evolving business needs and implementing winning strategies for our clients.”
Finalists were recently announced by Sarah Cody, the 2019 Moxie Award executive chairwoman. “We received an unprecedented number of entries,” Cody said. “We look forward to revealing the winners at the 2019 Moxie Award celebration on Nov. 5, 2019, at The Ritz-Carlton in Tysons Corner.” [Read more…]
Attila Security is the leader in portable IP security. Their award-winning GoSilent technology was originally developed at NSA designed to protect government and enterprises from advanced cyber attacks, zero-day threats, and data theft. Built for the cloud world where traditional network perimeters have disappeared, GoSilent helps global enterprises protect their most precious asset— DATA —wherever it resides. By providing visibility, control and threat defense across physical, virtual, and cloud applications, Attila protects connected devices from the tidal wave of cyber activity estimated to cost the global economy more than $400 billion annually. Their people, products, and partners are committed to protecting the nation state.
For this feature, we interviewed Gregg Smith, a cyber industry veteran who previously led several cybersecurity companies including OptioLabs and Silent Circle on how they got their name and how they have been so successful at having their technology adopted. [Read more…]
Although ESOPs are complex, highly regulated, and expensive to administrate, they can offer owners a tax-advantaged way to obtain liquidity. The following are characteristics that may indicate your company is a good candidate for an ESOP:
- Consistent Earnings and Cash Flow – When a company sells to an ESOP, owners will typically finance the transaction with debt due to the unique tax advantages associated with ESOP debt. However, annual debt service can be a significant drain on an ESOP company’s annual cash flow. Therefore, to ensure the long-term feasibility and success of the ESOP, it is critical that the company not only be able to meet its debt obligations, but also have enough cash flow to fund future capital expenditures and working capital. Companies with high-profit margins and consistent revenue streams generally make good ESOP companies.
- Adequate Size and Employee Base – Statutory requirements limit the amount of stock benefits that can be concentrated among shareholders. Additionally, annual ESOP contributions are limited based on participants salary. Therefore, a company with a large employee base is a better candidate for an ESOP than a company with a small employee base. A good mix of “seasoned” and junior level employees is also helpful to smooth out the Company’s repurchase obligation as participants retire.
- Strong Entrepreneurial Culture – Companies that have a strong entrepreneurial culture are usually good ESOP candidates. Employees that understand the connection between their jobs, the company’s profit, and ultimate value will be incentivized to increase that value as they become owners.
- Desire for Partial Sale – One advantage of selling to an ESOP versus sale to a third party is the option of a partial sale. In most cases, strategic buyers and private equity firms are only interested in buying a controlling interest. This is because these types of buyers want to influence the business operations to enhance their return on investment. In the case of an ESOP, partial sales of at least 30% are allowed. Owners may prefer a partial sale initially to retain control, continue legacy operations, and keep leverage levels reasonable. The remaining interest can be sold gradually, over time depending on the cash flow of the business. This structure offers a level of flexibility many owners are attracted to.
Evergreen Advisors, a middle market Investment Bank and Corporate Advisory Firm, with offices in both Columbia, MD and McLean, VA, is pleased to announce the addition of Todd Nelson, Director Business Valuation.
“We are delighted to welcome Todd to Evergreen Advisors. Todd has a unique blend of business valuation, consulting and litigation experience and is highly respected as an expert within the business valuation community. Todd’s background fits very well with Evergreen’s platform as we look to expand and grow the valuation practice in the Washington/Northern Virginia area.” stated Pat Lowry, Managing Director of Evergreen’s Business Valuation Practice. [Read more…]
After four incredible years serving the Hogan administration, I made the difficult decision to return to the private sector. I left with my head held high for all that our great state was able to accomplish during my time as Maryland’s first Secretary of Commerce. The past four years were filled with plenty of challenges following Gov. Hogan’s spectacular rise to office. Click here to read more at the Baltimore Business Journal.