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often forget that they likely face capital gains tax on the business sale. That’s one reason Sellers generally prefer stock deals; a stock deal likely has a lower amount of tax. For many (but not all) Sellers, an asset deal exposes them to double taxation: The proceeds are taxed at the time of the sale at the company level, and then the owner pays again when the company transmits the proceeds to her. (Chapter 15 gives you the lowdown on stock and asset deals.)
    Speak to your financial advisor about your specific tax situation.
    Determining What Kind of Company You Have
    As I state throughout the book, Mergers & Acquisitions For Dummies is primarily for Sellers or Buyers of middle market and lower middle market companies. But what exactly constitutes those types of companies, and how do you define other company types? The distinction has to do with size, most often revenues and profits.
    Then you have the issue of critical mass. Critical mass is a subjective term, and it simply means size: Does the company have enough employees, revenues, management depth, clients, and so on to survive a downturn? Smaller businesses most often do not have enough critical mass to be of interest to acquirers. Capital providers who may be able to help finance acquisitions will have little or no interest, too. Although critical mass differs for different companies, in a general sense a company with $30 million in revenue and $3 million in profits has a better chance of surviving a $1 million reduction in profits than a smaller firm with only $500,000 in profits.
    If you’re thinking about chasing acquisitions or selling your business, understanding where your business fits is important. Who may be interested in acquiring it?
    Definitions vary, but for the purposes of this book, I’ve divided the market into sole proprietorship, small business, lower middle market company, middle market company, and large company (and beyond). Table 1-1 defines these companies at a glance; the following sections delve into more detail.

    Sole proprietorship
    Sole proprietorships are companies with revenues of less than $1 million. They’re your neighborhood pizza joints, corner bars, clothing boutiques, or small legal or accounting practices.
    Although these businesses are viable going concerns (aren’t facing liquidation in the near future) and often trade hands, they’re too small to be of interest to PE firms and strategic Buyers, as well as corresponding service providers who assist in M&A work. (Flip to the earlier section “Buyers” for more on these kinds of Buyers.)
    Why are sole proprietorships of little or no interest to an acquirer? Simply put, buying a $1 million business and a $100 million business requires about the same amount of time and the same steps and expenses, so if you’re going to go through the trouble of buying a company, you may as well get your money’s worth and buy a larger concern. Making dozens of tiny acquisitions is just not worth the time or expense.
    Small business
    Small businesses usually have annual revenues of $1 million to $10 million. These businesses are larger consulting practices, multiunit independent retail companies, construction firms, and so on. Unless the company is incredibly profitable (profits north of $1 million, preferably $2 million or $3 million), small businesses are too small to be of interest to most strategic acquirers and PE funds.
    Although PE funds and strategic acquirers are usually not interested in smaller companies, they occasionally make exceptions if a company has a unique technology or process. In these cases, the acquirer can take that technology or process and deploy it across a much larger enterprise, thus rapidly creating value.
    Middle market and lower middle market company
    Lower middle market companies are companies with $10 million to $250 million in annual revenue; middle market companies have revenues of $250 million to $500 million. These