Weekly Thoughts: FAQs...Part 1

What differentiates me as an Buyer of Your Company... Here are some Frequently Asked Questions (FAQs) that owners usually wonder about..

Frequently Asked Questions (FAQs)...Part 1

Why was Southern Alpha Equity Partners ("Southern Alpha") founded?

Southern Alpha was founded by a leading team of experienced entrepreneurs, investors, and operators to identify, acquire, operate, and grow one privately-held small-to-medium size business.

We are focused on building upon the existing achievements, legacies, and market opportunities that you ("the Business Owner") have built, executed, and accomplished since you have founded or operated the company.

Why do I care about your business?

Like many business owners, a transition plan may not be your top priority at the moment or you may believe you must make difficult sacrifices when looking to sell or transition your business, so typically this process becomes a difficult and emotional draining process for most entrepreneurs and business owners who deeply care about their employees, customers, suppliers, community stakeholders, and legacy.

However, at Southern Alpha, we are understanding of your emotions, because we've been in your shoes before. Not just from an firm perspective, but entrepreneur to entrepreneur, I deeply care about your employees (and how they put food on their tables and how they are able to fund college tuition for their kids). I deeply care about your customers (and how like or dislike your products and services, how your company's products and services improves their businesses, and what customer engagement and feedback they want you to listen about). I deeply care about your suppliers (and the relationships that have been built over the years) and the community stakeholders (who your company supports on a daily, weekly, monthly and yearly basis). Finally, I deeply care about preserving and continuing your legacy by injecting a new form of leadership, growth capital, and strategic insight to take your company to the next level.

What about my employees and associates? What will happen to them after a sale?

I view your employees and associates as the company's most prized and valuable assets to your company's success. Not in the terms of assets on a financial statement (balance sheet), but in terms of continuing your legacy and providing them with continued areas of growth for your their careers, family success, and individual development.

So be assured, your employees and associates should not have any fears of uncertainty as it pertains to their employment status, benefits, and livelihoods once the sale is complete. Frankly, we believe after the sale, in keeping the company's employees and associates intact to continue to operate and grow the business. We will be investing growth capital into the business not only grow the company, but to also provide employees with continued opportunities to grow their careers, provide additional educational assistance programs, conduct town hall-style listening and feedback sessions, and provide them with the resources and systems to do their jobs more effectively and efficiently.

What makes you different than the typical private equity buyer, search fund-backed entrepreneur, family office, or individual buyer?

Well, that's a great question.. Integrity. Transparency. Commitment to Diversity and Inclusion. Teamwork. Commitment to Continuous Improvement. These are all of values that we hold near and dear to our heart that I believe makes me and my firm, Southern Alpha, the best entrepreneurial team for you (the "Business Owner") to partner with during the sale of your company.

How will Southern Alpha determine the value of my company?

Again, throughout the sale process I will make every effort to be transparent, even when it comes to how we value your business. It's true, that most deals fall apart during the valuation stage (over i.e., price, working capital, lack of flexibility in negotiating) and we are committed to being as transparent and honest as possible. Below I am providing a sample look in how we value a company (note: all companies and industries are not the same) to ensure that we agree on valuation methods and for you (the "Business Owner") how the valuation is determined.

We will most likely value the business using different methodologies, that includes:

• Discounted Cash Flow Analysis

• Comparable Company Analysis

• Precedent Transactions

• Multiples of EBITDA

Additionally, valuations may also depend on other factors, such as the:

• Size of an organization,

• Its leadership within an industry/sector,

• Attractiveness of its markets served,

• Strength and quality of management team,

• Historic growth rates and growth opportunities,

• Historic profit margins,

• Barriers to entry faced by competitors,

• Working capital intensity, and

• Degree of customer and supplier diversification

When it comes to the initial (the "Indication of Interest") and final (the "Letter of Intent"), the dollar value will be expressed as a multiple of EBITDA (i.e., 3x, 4x, 5x, 6x, etc.).

How will the deal for your company be financed and structured?

In Southern Alpha's case, the deal (the "Only Deal") will be funded by equity, senior debt, mezzanine debt, and a seller's note. Our equity is comprised of personal funds from myself (so I have "personal skin in the game") and capital from a small group of entrepreneurs, investors, and operators.

A seller's note is a form of debt that is issued by the seller (the "Business Owner") to the buyer of the business. Over the course of a few years, the buyer pays the seller interest on the debt - usually in the range of 5% to 9%. This highly advantageous and attractive to the seller because it increases the amount received over the long-term.

An owner that is willing to issue an seller's note to is very important to us for a number of reasons, which are:

• Aligns incentives between seller and buyer

• Provides comfort to the buyer and the buyers' investors and lenders that the seller is not afraid (and feels confident) of the future of the business

• Typically, results in a speedier and smoother sales process

• Typically, gives the seller better tax advantages by stretching out the capital gains tax into future years

Please remember: Each deal (including yours) is different and I am committed to providing flexible deal structures and terms that meet both our needs.