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A: We value businesses by using two primary methods of valuation known as Discounted Cash Flows (DCF) and EBITDA Multiple.

The DCF model consists of taking into account a number of variables that will give us an idea on the future profits of a business. To do this we first look at your past and current financials and take into account all revenues, costs, expenses, assets, liabilities, and debts. Based on your business’ historical performance, we build a model that tries to guess the future performance of your business. The accumulation of all of these future profits, or cash flows, and discounting them by a factor will give us an idea of the value of your business.

Using Multiples to value your business is much simpler. The idea is that every business can be valued by using a multiple that is based on industry, company size, and historical performance. The multiple can be multiplied by any number of company’s financials, although EBITDA (a rough standard for a company’s cashflows) is most commonly used. Companies in the lower middle market segment with EBITDA values between $1M-$5M, tend to trade with multiples of anywhere between 2-8X EBITDA, depending on revenue mix, industry, competition, and a company’s own historical performance.

A: We purchase businesses with three primary sources of money: 1) Bank Debt 2) Investor Preferred Equity and 3) Seller’s Note.
1) Most people are familiar with Bank Debt, which is very similar to a mortgage you would have on a house. A bank lends Hive Industries money and we have to pay back the principle along with interest payments over the course of 7-10 years. We are looking for Bank Debt to make up 40-60% of the total financing.

2) Investor Preferred Equity is money from partners and investors. We have $1.5M in partner equity and adititonal equity from limited partners to raise $4M in a total equity check. We are looking for Investor Preferred Equity to make up 20-40% of the total financing.

3) A Seller’s note is money lent to Hive Industries by the owner of the business with terms similar to bank debt. Hive Industries considers the Seller’s note a central component of their financing strategy as it helps ensure a smooth transition between the owner of the business and our team. A Seller’s Note will be subordinate to Bank Debt and above preferred equity on the cap table. We are looking for a Seller’s note to make up 15%-35% of the total financing.

A: Exactly what strategies Hive Industries will use to grow a business it purchases will heavily depend on the nature of the purchased business. However, there are general guidelines and principles we have successfully used in the past to grow businesses.

Unlike other purchasing agents, Hive Industries will not carry out mass layoffs or sell off significant portions of the business to increase margins. This is because Hive Industries’ founders will run the business’ it purchases, and will hold the business for a significant period of time. Cutting costs might be part of the chosen strategy, but never at the expense of serving customers, expanding, and competing. Most likely the opposite will be true, and greater investments in the business will be needed in order to grow the business adequately.

Forming a strong culture is a central component of our strategy as we believe a company’s culture ultimately leads to better strategy and execution. We will dedicate a significant part of our time harnessing and developing the businesses culture.

Listening will be another important component of our growth strategy. Hive Industries will rely heavily on the years of experience of the business owner and his/her employees. Our team will spend 90% of their time listening, observing, and learning during the first 3-6 months of transition. Only after this phase will our team attempt to form a comprehensive growth strategy.

Other general growth factors taken into consideration include sales, ERP/MRP/CMS systems, accountability systems, processes, and analyzing cost and profit centers.

A: The transition would start at closing. Ideally there would be a 90 day period of transition with our team working closely with the owners. This immediate period is flexible and could range from 30-90 days. Afterwards, Hive Industries expects to consult with the owner on an as needed basis from anywhere between 6 months to a year after closing, depending on the complexity of the business. Hive Industries cares about the company's legacy and it is important we have a solid transition period to minimize any disruptions.