Deal Notes

Days Inventory

Most aerospace and defense companies have inventory. In some cases, A&D distributors will simply buy goods, mark them up and resell them. In more complex situations, like manufacturing, A&D companies will buy parts and materials, add labor and processes, and convert them into finished goods. From an accounting perspective, these are referred to as Raw …

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Complete_Disclosure

Complete Disclosure

Selling an aerospace and defense company requires a great deal of planning to assure a successful consummation of a transaction. Among the most important is the production of a Confidential Information Memorandum (CIM), to be made available to selected potential buyers after a signed confidentiality agreement is in place. The CIM is intended to describe …

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Working Capital Target

In a prior edition of Deal Notes, we discussed the complexities of Working Capital True-Ups which occur post closing of a sale transaction. The potential for controversy and delay in that process can be minimized if a measured approach is taken to developing the Working Capital Target (“WC Target”) that is the foundation for the …

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Management Presentations

Management Presentations

The “Management Presentations” phase is a key step in the process of selling a company. A typical agenda for the Management Presentations includes: introductions of the senior team, presentations by each discussing their particular area of expertise (e.g., Operations, Finance, Quality, and Human Resources), a period of questions and answers and a tour of the …

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Working Capital True-ups

Working Capital True-ups

Most all aerospace and defense M&A transaction documents include a provision for a “Working Capital True-up”. To those unfamiliar with stock/asset purchase agreements, this may seem like a complex legal construct riddled with sophisticated accounting concepts. And while the technical mechanics can be highly complex, conceptually this is a very simple provision. Working Capital True-ups …

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Inflation Mitigation

When selling a business during periods of inflation, sellers must be prepared and equipped to address buyers’ concerns about future margin erosion due to rising costs. Whether you are a manufacturer or a service provider, the entire supply chain in the aerospace and defense industry is being impacted by inflation right now. Material prices are …

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Financial Projections

Financial Projections

There is probably no more important source of potential disagreement between buyers and sellers than the projected performance of companies that are for sale. Since future cash flows are a critical driver of value, projected cash flow is a key determinant of the price a buyer will be willing to pay to buy a business.In …

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M&A Acronyms

Selling a company involves numerous agreements, many of which are often referred to by acronyms. Misunderstanding of these acronyms can lead to confusion when discussing important steps in the sales process. Key among these are the progressively more specific and binding documents executed to narrow down potential buyers and arrive at the ultimate terms of …

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DealNotes-Customer Consents

Customer Consents

Buyers of middle market aerospace and defense companies will want to obtain two types of consents from the seller’s key customers, before acquiring a business. First, buyers will want key customers to formally agree in writing not to invoke change of control termination provisions. Second, buyers also will want to talk with key customers to …

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DealNotes-Revenue_Analytics

Revenue Analytics

The single largest determinant of the price at which a business sells is its revenue, both past and future. Buyers pay for positive cash flows and operating revenue is the first and largest component of cash flow. In those cases where certain revenue streams generate losses, they will actually detract from value. But in general, …

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DealNotes-Advisory_Boards

Advisory Boards

Many of our clients are individuals who built a company from the ground up or acquired a business at an early stage in its development. In both cases, as successful organizations grow over time, they usually transition from individual governance to institutional governance. Highly successful small businesses often make this transition by first putting in …

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DealNotes-Sale_Preparations

Sale Preparations

If you are the owner of middle market aerospace and defense company, making the decision to sell some day is not trivial, from both a personal and company readiness point of view. To ensure a successful sale of your company, a large amount of planning needs to be done to ensure the result you seek. …

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Customer Concentration

Often, an entrepreneur in the aerospace and defense industry will start a company to support a specific OEM or major program, and then build their business on that foundation. But even after years of being in business, that original OEM or program will often continue to represent a large portion of the company’s revenue. While …

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DealNotes-Supply_Chain_Risk

Supply Chain Risk

We all would certainly agree that we are living in uncertain times created by the pandemic, the Russian invasion of Ukraine, and a variety of other worldwide issues. As investment bankers exclusively selling middle market aerospace and defense companies, we see these uncertainties translating directly into negotiations in real time between buyers and sellers —particularly …

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Premium Pricing

Why should a buyer pay a premium to acquire your business? Buyers don’t want to pay premiums; they want to buy great companies as inexpensively as they can. You’ve spent years building your business and now you want to sell it for a price commensurate with the value you’ve created. The best way to earn …

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Seller’s Deal Team

Alderman & Company’s 21 years of experience selling middle market aerospace and defense companies has proven that the success of sale process is substantially impacted by the quality of the professionals retained by the seller. After a seller and buyer have entered into a letter of intent, almost all buyers will build a comprehensive deal …

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Confirmatory Due Diligence

The purpose of confirmatory due diligence, in an M&A transaction, is to afford the buyer the opportunity to confirm the accuracy of the historical information provided by the company’s management and the soundness of the buyer’s projection assumptions for the company. Typically, Buyer Confirmatory Due Diligence is conducted during a 90-day period of exclusivity after …

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Transfer Pricing Risk

Transfer Pricing Risk refers to concerns that a company may be providing goods or services to a related entity in a manner that is not arms-length. Businesses may have affiliates for a number of good reasons: Tax advantages: Certain types of assets may receive beneficial tax treatments (e.g., depreciation) which are of more value to …

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M&A Attorney

Our clients often are founders of companies that have a long-standing relationship with a general business attorney. That lawyer may have handled a variety of legal issues over the years and the founder may feel a strong sense of confidence in (and loyalty to) the attorney. But for reasons listed below, M&A transactions present unique …

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Cybersecurity

No doubt that you have either read or experienced at your own companies the devastating increase in cyber-attacks that compromise computer systems and data. A Forbes Magazine article has estimated that here were 50% more cyber-attacks on US companies in 2021 versus 2020. Further, the Ponemon Institute estimates that 66% of all US small and …

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Audited Financials

Buyers need to be assured of the accuracy of the financial statements of the seller, otherwise the sale is at risk of falling apart during due diligence. Audited financials provide the highest level of assurance, but auditing must start at least a few years prior to any sale. This is due to the requirement for …

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Agency Risk

A fancy term to address an old problem. When non-owners have some level of control over a business, you have Agency Risk. We always advise our clients to use sale bonus agreements to align senior management incentives with those of the sellers. These are simple, commonplace, and easy to negotiate up front. They can be …

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