How Many Years & How Much Money?

How many years and how much money should a board allow management to invest before questioning process and capability of the corporate acquisition team?

Can your board define success or failure?

What do you recommend if change is needed?

Where do you go to find out?

Finding Better Acquisition Targets (how & where)

30 years of research & hard work finding target candidates for companies, has taught me where bad candidates come from and how easy they are to find.

It is more common to find acquisition teams weaving a silk purse out of a sow’s ear than to find them working on the front end to build a process and tools that create database of qualified target candidates to meet measurable criteria worked out through meaningful exercise.

Work done on the front end to systematize the acquisition process minimizes the chasing of dead ends & saves considerable  time & money.

In response to the majority of deals that never make it to closing (50%) and those that destroy value once they are completed (over 50%) a few smart companies have incorporated the innovations that makes systematic growth through low risk acquisitions predictable (Warren Buffet, Digital River, Lawson Software – the “old” Lawson Software).

The manufacturer I left last week was sure there was no budget for programs and process that would appreciably lower the risk of bad candidates and failed transactions.   They were however, full speed ahead spending millions of dollars on acquisitions.

A recent PA client just finished digging out from the financial disaster that was the result of a bad acquisition completed ten years ago.

Like the cat burned when it jumped up on a hot stove; it will never again sit on a hot stove (nor will it ever again sit on a cold stove).

If you have a story to share about a company you know that chose the innovative path over the common we would love to hear about it. If you know a story about an acquisition that failed or destroyed value, remember it’s not nice to point.

Is your company common or innovative?

Check out our webinars & coaching

Plan B

Twenty years ago I worked with an inventor that had built a high tech piece of equipment in his garage that NASA would be proud to have its name on.

At the time I suggested strategic partnering with industry as his technology was game changing and it would be difficult to bring to market without huge investment and very good management (that the company did not have).   I asked him to consider my approach as a risk reducing plan B if his plan A wasn’t working.

Like other inventors I have known, he refused to consider the joint venture approach and stuck to his own money raising business plan.

Thirteen years ago I revisited this fellow and was told by him that they were on the cusp of a great new investment that would end all their problems.

Just a few months ago, I called on this company again (new name, same company), my old friend has been tossed out by investors and his reputation within the company is unfortunate (he was brilliant and hardworking).

Still under a million dollars in annual sales, a product no longer miles ahead of the competition, & investors that are worn out and edgy.

Med tech, nanotech, low tech, inventors often believe that the only path to success is more money.  Being open to a two track approach (plan B) gives them choices they don’t have when the finance valve closes.

Losing the edge of superior technology and running out of money make success unlikely.

Corporate Communications & Successful Acquisitions

It’s often the very best people that bail out when acquisitions are badly managed.

Corporate communication can save good employees and customers during the acquisition process if used wisely. The loss of key people and customers is extremely costly.  The investments in team and resources to preempt these losses are quite modest in comparison.

Because it is a difficult topic with no single right answer, management often fears saying anything that might disturb the troops.  When nothing is said & rumors become the key to information, employees ride the emotional roller coaster that drives those who can move on to consider other possibilities.

The key man of a manufacturing plant decided that he should have been in the loop & when he found out days before the closing, he moved to another plant not far away that had been chasing him for years.  Without the key man, the 80 old owner lost the sale of & eventually his business.

Financial diligence is more straight-forward and often gets the most attention, leaving non- financial audits & corporate communication under-valued and often attended to as an after-thought.

Attention to this detail should be a primary concern for any acquiring entity, and finding the talent and resources to make sure it is addressed in a professional and balanced fashion can be one of the most important pieces of due diligence both pre and post-merger.

Have something to add?

Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples

The New Science of Search; Finding Buyer/Partner Candidates Without Brokers

Never before has finding a very large number of  qualified candidates in a specific industry been easier.  With the tools available today, finding just the right people in just the right companies is now an affordable undertaking.

The process of contacting and starting conversations is best to be thought out beforehand with a team that includes a sharp legal mind & a good negotiator.

Done right, this is the fastest and most efficient means of finding the best and most motivated candidates & ensuring a successful transaction.

Beats wasting time with less effective means and difficult people; experience our online webinar to see how it’s done;

mike@packardacquisitions.com

Quit Wasting Resources & Start Finding Acquisition Targets Effectively

Has your team spent time & money investigating poor candidates and bad ideas?

Are there procedures in place to monitor the effectiveness of current acquisition strategy?

What would be discovered if a cost benefit analysis were executed?

Two top executives have interviewed me recently; both held that their corporate acquisition strategies were superior; both have spent into seven figures without any positive results.

The first gentleman spent almost one year at time looking at a single company (over a seven year period investigating seven companies) in other parts of the world.  I expect that he liked to travel.  The second fellow had investigated hundreds of companies over a four year period (he liked to work hard).

Neither approach ended in a transaction.

In the first instance, the defining criteria were extremely restrictive & the pool of candidates (one at a time) was just too small.

In the second case, the strategy of calling twenty brokers and requesting a thinly defined criteria guaranteed that the myriad of candidates would be poorly selected and a great deal of work just to find one that might fit.

A simple criteria exercise & contact discovery process would have brought many well-qualified candidates into the endeavor and not taken four or seven years to execute a worthy transaction.

Why is this so rare?

(50% of acquisitions don’t make it to the closing table & more than half of all completed transactions destroy value)

Acquisition Search; How To Waste Resources & Have A Bad Experience

Over half of all acquisitions don’t make it to the closing table & many companies spend years to find a deal that meets their criteria.

Six years ago, A CFO acquaintance spoke to me about his company’s acquisition search process.

He confided in me that his firm’s president had traveled extensively to research potential targets with very poor results.

Based on the CFO’s recommendation, the President met with me to discuss our process and tools.

He quickly told me that my approach was not superior to his and I could not possibly add to what he knew about his industry or his database for potential candidates.

He showed no appreciation for our criteria measurement tools, or the concept of large scale contact and database building & management that our company provides to clients just like his.

He preferred one-at-a-time trips to visit target companies over our process and sent me on my way.

A few years after our meeting, I checked in again with my CFO contact and asked the direct question, “has your company completed a transaction since we started this discussion (elapsed total time of six years)”? His answer was “no”.

What this company has spent investigating acquisition candidates, one at a time, nationally and internationally over the past six years is many times what they could have spent hiring a qualified president or working with a professional firm for profiling and researching target candidates.

 

Companies like this sometimes feel compelled to make transactions that don’t fit.  Fortunately, that did not happen;

That’s where data feeding the KPMG study that only 17% of acquisitions add value and over 50% of acquisitions destroy value comes from.

Know the acquisition history of the president you hire if you need to have acquisitions done. If you are working with someone with a small history, it is necessary make up for what’s missing.

Have something to add? Your own business wit?

Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples.

Mike Tikkanen
www.PackardAcquisitions.com
952-542-9318

Packard’s New Online Personalized Corporate Search Webinar

Sign up for Packard’s personalized online search clinic & discover advanced tools & process for finding the very best target candidates.

Send an email to;

Mike@packardacquisitons.com

Enhancing Shareholder Value

I had a mechanical engineer once who had an attitude disorder.  For some odd reason, he didn’t like getting impossible assignments.  Whenever I said, “let’s do this improbable thing….”  He’d give me his “moon rock” lecture.

The lecture goes something like this.  “So, you want me to build a system that fits in 3 cubic inches?  No problem.  All we need is some moon rocks.”

The idea is, if you ask an engineer to do something impossible, he knows he has to say yes, but, the only way he can turn the problem back into yours, is to specify a component that you have to get for him, that’s equally impossible to get.

The same problem exists whenever you’re thinking about acquiring a technology for some commercial purpose.  It’s very very important to keep an eye on the reason why you’re doing this in the first place.  If you lose sight of that reason, you may find yourself in a place you never dreamed possible.  One interesting example comes to mind.

A particular investor happened to own a cutlery factory in theU.K.  One of the key elements of cutlery is that knives that start out sharp, tend to get dull with use.  This is something that has been known since pre-humans pounded rocks with other rocks to make stone knives.  In fact, knife edge design may have been the first sign of technology that would ultimately lead to the show cases of our current technology like Twitter, Angry Birds, and Xbox.  This particular investor was looking for new metallurgy to bring back toSheffieldso he could produce longer lasting knives —  a clearly defined goal, with clear consequences if achieved.

There was aU.S.company that specialized in manufacturing metal toys.  This company had developed some special alloys that made their toys some of the best quality toys in their market.  The metallurgy in fact was very similar to that used in the cutlery, so much so that the investor came to visit the toy company to see if he could acquire or license the technology for his cutlery.

When he sat down with the CEO, they had a wonderful discussion, and everything seemed like they would come to an agreement, except for one minor “oh by the way.”  The CEO noted that one of the major shareholders in the company was trying to do a hostile takeover of the company, and if that happened, the CEO would be fired, and the metallurgy wouldn’t be available to the investor.

The only possible solution would be if the investor purchased a massive amount of stock so he could get on the board and prevent the hostile take-over.  In effect, to get the metallurgy, he had to buy the company.  Now investors are just people, and they tend to think that the key to any deal is the people, and he really liked the CEO.  Had we been in the room at the time, we’d have told the investor that it’s time to go look for some different rocks to pound.

So with his viewpoint adrift, the investor purchased the stock, got on the board, and discovered something about hostile takeovers.  People who initiate hostile takeovers are not discouraged by brick walls.  There is one absolutely sure fire way to get through any brick wall.  It’s called a stockholder suit.  So our investor from theU.K.found himself in aU.S.district court discovering that he had decreased shareholder value, and as a board member, was personally liable for the losses of the other shareholders since he obviously knew nothing about the toy business and belonged back in theU.K.pounding rocks to make knives.

Fast forward a few years… the investor survived the legal action, the company’s value did go up, and ultimately the company was sold off to one of the major toy manufacturers which made all the shareholders scream with joy.  There is one minor footnote which makes this story worth telling.  He never ever ever got his hands on the metallurgy.

Each of us knows the concept of “keep your eye on the ball”, but when the real world grabs you, sometimes we need that little extra voice to remind us, “why are we doing this?”

 

This article was written by Glenn Fishbine

Glenn provides deep technology, mentoring, and technical partnerships.. He has four decades of experience in a wide variety of technologies and has held senior & board positions on several technology companies.

He focuses on the technology footprint and strategic planning for new ventures and provides leadership and coaching to product and engineering teams.

https://sites.google.com/site/breakingpointsolutionsllc/

He can be reached at;

Glenn;  glennfish@gmail.com

612 387 7536

Warren Buffets Of The World vs The Uninitiated

A local family business unfamiliar with acquisitions,  hired a seasoned president (John) who claimed to have a significant M & A background.  My first meeting with John clearly demonstrated that he had not developed meaningful criteria for target candidates or an effective plan for finding them.

When John was hired he began the search process by calling brokers nationally with a generic request for businesses that were in his industry and under X dollars in sales volume.  Over four years John and the 3 key management employees looked at about 200 broker delivered companies, and deeply investigated over 40.

This represented almost half of the president’s time & about 25% of the other three key company management personnel.  There was one transaction possibility but the team’s negotiating tactics killed the deal.  I was asked to restart negotiations with this candidate but I did not think anyone could save it so I declined the offer.

A conservative estimate of time spent by the management team, direct costs of travel + outside consultancy equaled considerably more than a million dollars in direct expenses, and at least that much in lost opportunity costs and the fact that this firm was losing market share and profitability each year it did not complete an acquisition.

Definition and database building are the key ingredients to finding a pool of qualified candidates.

Warren Buffet wisely states that one should not ask the barber if you need a haircut.  Non-brokered opportunities based on defined specifications would have been exponentially more likely to become successful transactions than the method John employed.

It is appropriate to point out that M & A attorneys indicate that about half of all transactions don’t get to the closing table (generally for very good reason) and of those that do, a very big percentage just don’t add value & many destroy value.

Companies that have criteria, tools, and process for finding well suited candidates do far better than firms that jump up from the board meeting charging ahead with a great energy and minimal definition, talent, or process for this complex undertaking.

It’s not overstating it to say that the Warren Buffet’s of the world have developed the tools, talent, & process necessary to make acquisition a measurable and low risk endeavor (and are well rewarded for their efforts).

My suggestion;

*  Determine precisely what fits and create a weighted averages criteria model to measures candidates and allow comparison in ranked order.

* Create a plan for building and contacting a large number of specifically chosen candidates with a well crafted contact letter & learn how to search for specific niche companies that fit a more defined criteria.

* create a system for compiling and managing information from the many companies that will be reviewed over the coming months,

* Build a team that can execute the different elements of the process from definition and search to closing and integration.  There is considerable expertise that needs to be in place for each stage of this process.

Having the tools, talent, & systems in place to discover and research the best candidates, manage the information, put the right people and procedures in place in a timely fashion (acquisitions are time sensitive) will pay dividends for years to come.

That is what it’s all about after all.

Experience PA’s Personalized Online Acquisition Web Clinic

Participate in a short impactful discussion about acquisition that will connect you with the right tools & process to find the best target candidates for low risk acquisitions & quit wasting time chasing dead ends.

Contact me for more information

Mike@packardacquisitions.com 952-542-9318

Mike Tikkanen

www.PackardAcquisitions.com

 

 

Technology Assessment in Acquisitions

There are only three things that stand in the way of the successful acquisition of technology:

1.  Excessive brilliance
2. Insufficient brilliance
3. Natural law

I have had the privilege of watching all three of these, sometimes alone, sometimes in pairs, and once in a glorious mind-boggling death-spiral trio, create new found misery to the acquirer and the acquiree.

As a wise man once told me, no one gets up in the morning intending to do a bad job, but the simple fact is, sometimes you get up in the morning with zest and vigor, go to the office, and by the end of the day wish that you’d stayed home watching leave-it-to-Beaver reruns on the classic t.v. channel.

When it comes to technology acquisitions, I’ve found that one key to a failed acquisition hinges on some kind of delusional madness that afflicts most executives during their career.  The symptoms are usually clear and there is always a hindsight that permits the board of directors to pillory someone for the crime of “should have known.”  

A Great Technology Due Diligence Story

Food Tasters for the King

Food is an important part of a balanced diet.

Fran Lebowitz

A few decades ago, I was an entrepreneur with visions of gold and a technology idea that even Frost & Sullivan thought was worthy of a 50 page report for a measly $2,500 per copy. Today, having carried that idea from my basement to a $100 million company on NASDAQ, I’m a partner in a firm that sits squarely between the capitalist and the technologist, serving that delicate roll of matchmaker between the money haves and the money wants. We call ourselves “food tasters for the kings.”

The kings are the many venture capitalists, investors and acquiring companies who sit at the thrones of funds overlooking their portfolios while a thronging mass of serfs jockey for audience and an occasional dole of capital. In the middle, like the old time food taster of medieval courts, we enjoy a special trust to taste the food offered the kings for the various delicate poisons buried in due diligence and only offer forth those companies that seem pleasant to the pallet.

Acquisition/Joint Venture Workshop

Better Process = Better Candidates = Better Transactions

83% fail to create a sustainable competitive advantage (Wharton)

66% fail to add shareholder value (Harvard)

60% destroy company value (Deloitte)

If you are a company seeking to grow by strategic acquisition but aren’t sure how to start the process, you are already on the road to failure.

We offer a workshop to do the initial acquisition research together.

We are not brokers.

We are acquisition specialists who have a proven, personalized process that will get you started in the right direction.

The biggest benefit to our workshop is: no more wasting your time chasing dead ends

Our non-brokered research approach helps you control the process & leverage your resources to complete more successful deals.

Because that’s what it’s all about, after all.

 

* Define measurable candidate criteria that fit your company specifically and build an effective tool that ranks & defines targets.

* Access the best interactive online web-tools for finding, compiling, and managing critical information.

* Discover and contact non-brokered companies chosen specifically to your corporate criteria (and receive opt-ins from multiple qualified candidates).

* Checkout our workshop; it is designed around your company’s specifications & will increase your corporate team’s effectiveness.

Optimizing Your Current Activity

Finding The Best Tools & Process

Contact Pool Pre-Search

Data Management Strategy

For more information,

contact Mike Tikkanen at 952.542.9318 or

email; Mike@PackardAcquisitions.com

Packard Acquisition Presentation June 1st Edina Country Club

Join our small group presentation at the Edina Country Club June 1st  1130 – 1pm, and learn about the tools, process, & and a non brokered approach to finding the best acquisition and joint venture candidates for your clients.

Ninety minutes of useful information and lively discussion about the risks and benefits of acquisition and joint venture.

If you are unable to attend but would like to know more about our presentations, contact;

Best wishes,

Mike Tikkanen

Mike@PackardAcquisitions.com or,

Ps… taking the risk out of acquisition & joint venture is good business for you and your client.PackardInvite-June

Beyond Acquisition

The old model of acquisition has proven to have a big downside.

Studies at Harvard, Deloitte, Wharton and other credible organizations show that more than half of acquisitions destroy value, and that only 25% of transactions create sustainable ongoing value (these numbers don’t reflect acquisition efforts that fail to be completed).

How to become part of the 25% that create sustainable ongoing value?

Companies that concentrate on clarifying measurable objectives and are able to accurately define their own strengths and weaknesses find it easier to articulate the specifications of a superior candidate.

1 + 1 = 3

Locating a significant number of qualified superior targets makes it more likely to find just the right fit at an appealing valuation.

Developing a warm approach that starts conversations of promise is a useful and teachable skill.

Knowing where to find and how to reach candidates has become far easier with the arrival of each new database offering (way easier than just a few years ago).

A benefit of casting a broad net and maintaining a significant database of good candidates grows the potential for joint ventures that can become great candidates later on.

It is also easier to grow a pool of superior targets by allowing a broader definition of deal making to include joint venture, people, and technology.

Starting and maintaining relationships with well chosen companies allows transactions to grow out of mutual benefit and understanding.  A good fit, familiarity, and awareness reduces risk in acquisition.

Growth through a slightly expanded definition of acquisition means more qualified candidates, greater knowledge, & better transactions.

Join our small group discussion April 6th at the Edina Country Club;

http://pacquisitions.wordpress.com/2011/01/31/packard-acquisition-presentation-april-6th-edina-country-club/

Or contact me to continue this conversation.

Mike@PackardAcquisitions.com

Warren Buffet is Still Right

Last weeks Star Tribune article on the negative impact the Albertson’s acquisition is having on Super Value was a powerful reminder of Moody’s report that half of all non financial business failures in 2009 were Private Equity owned.

It is significant that a high failure rate among the people with the most money and best access to information and superior process (private equity funds, large corporations) indicates a need for improving the decision making process at the front end.  Away from transaction driven (broker driven) deals to a more internalized and measured approach to criteria and candidate selection.

Is it easier to make better decisions within smaller companies?

In the Super Value story above, it appears that size of the acquisition must have driven the targeting of a very few mega candidates.

Rather than slow steady growth that would not ruin the brand if big problems were encountered with a single transaction, companies risk everything with each new acquisition.

With the decade long troubled history of acquisitions, I recommend Warren Buffet’s comments about evaluating each new acquisition target ;

” Just think of all the other parts of life where people offer only encouraging words — “You should do this!” — because that’s the only way they get paid (real estate agents, stock brokers, the list goes on).

And Mr. Buffett has trained his sociologist’s eye on this phenomenon more broadly, too. In his 1989 letter to shareholders, he famously wrote about the “institutional imperative,” which describes, among other things, how an entire organization can rise up to help a boss justify some deal he’s inclined to do, regardless of its merit”

And of course, my favorite Warren Buffetism; “

Don’t ask the barber if you need a haircut”

Packard Acquisition Presentation May 4th Edina Country Club

Packard Invitation May 4th, PackardInvite-April6 11:30-1  Edina Country Club Edina MN

Join our small group presentation at the Edina Country Club on the tools, process, & and a non brokered approach to finding the best acquisition and joint venture candidates.

Mike@packardacquisitions.com

If you are unable to attend but have questions, contact me to find out more about Packard Acquisitions presentations & workshops.

PackardInvite-April6

2011 Acquisition Climate

These past two years have cut and squeezed fat out operations and forced even the best run companies to revisit efficiencies, layoffs, and cost reduction.

Internal growth in this environment has been tough.

Finding complementary technologies, greater distribution, new talent, and added sales through non organic growth can be an attractive option for the prepared company.

For those that understand the risks & prepare for the pitfalls of growth through joint venture and acquisition, 2011 will present abundant opportunities as baby boomers exit their businesses and the changing bank climate is forcing many firms to seek partners or buyers.

According to studies at Harvard, Wharton, and KPMG, most acquisitions don’t add value, and over 50% destroy value.

Developing the right talent, tools, and process for acquisition are a necessary first step to removing the risk inherent in the process.

Is your company poised to take advantage of the deal rich climate for acquisition/joint venture 2011 offers?

Feel free to share stories and best practices at this blog or to search past writings (from various experts) to help find success and avoid the pitfalls of acquisition.

Contact me to attend an upcoming Pacquistions 90 minute acquisition workshop at the Minneapolis MN/Edina Country Club (Next available date; February 23rd) or an onsite presentation for your firm; Mike@packardacquisition.com 952-542-9318

Discovering Acquisition Risk; Share A Story

Buying a company and not discovering that a small segment of its manufactured parts were installed on airplanes all over the world and never properly insured by the seller is risky.

The purchase of a union run manufacturing shop where the employees considered the deal so onerous that workers cut the wires on over 20 million dollars worth of electric motors that were being packaged and shipped to the buyer was an unnecessary disaster.

How do smart companies guard against risk?

Share a story or a secret for discovering acquisition risk.

No More Stubbed Toe; The Secret To A Successful Acquisition

Manage the Risk By Building A Superior Team & Creating the Best Tools.

Only a small percentage of acquisitions add value & over 50% destroy value, It takes no special talent to find companies to travel to, investigate, make offers, arrange finance, & close deals. Any good broker can fill your plate with companies to review & most senior management has experienced an acquisition or two.

Interim CEO reports that the average number of acquisitions completed by 71% of top management hired specifically for acquisitions is less than three.

This explains why most deals don’t add value. Many companies look at poorly chosen acquisition targets spending significant resources with little chance of a return. Often the pressure to close a deal after years of search leads to the buying of a company that will destroy value.

Deals that add value are those that were well defined and researched on the front end by smart people using high value process and followed up with good negotiating, due diligence, and integration teams.

A failure in any of these areas has the potential of making a giant mistake. Half of all non-financial business failures were private equity owned last year. What does this tell us? Even the people hired to make acquisitions are making big mistakes.

The past twenty years have allowed below par performance of the best and the brightest because the economy was on fire and finance was easy.

Today, the management team determined to grow through acquisition without adequate definition, talent, and process will find recovering from a bad deal, or wasting resources on a poorly constructed search process unaffordable and likely to lead to critical.

How many of us have travelled, researched, investigated, opportunities that should have been rejected by a well constructed criteria model?

Something more or less fits and an offer is made (after all, this has been a major effort and we need to show results). With luck, a strong management team, and sound integration strategy, the deal will go together.

If the deal was an opportunistic misfit, almost no amount of strong management and sound integration skills can stop the cascade of problems that arise (hence the negative statistics regarding acquisitions).
This is the piece that gives us stories to tell about other people and catastrophes.

How to lower this risk?

Packard Acquisitions founder Mike Tikkanen starts with a robust criteria model to take risk out of the search procedure from the beginning.

Speaking from 100 completed transactions, Mike believes that a practiced investigative team and capable negotiator will strike a successful deal with a sound company while identifying the integration issues on the front end every time if the criteria model is used wisely.

Finally, due diligence is a science that includes risk management at several levels: do your insurance people know how to evaluate risk or do you require outside help? Objectivity and someone practiced in business risk can save a badly stubbed toe.
What would be discovered if you executed a Packard Acquisitions cost benefit analysis with the process you are now using?

What is known can be controlled.

What is not known cannot be controlled.

We always find out, But it is much more expensive to find out later

Contact me to attend the next Pacquistions 90 minute workshop at the Minneapolis MN/Edina Country Club or ask about an onsite presentation for your firm;

Mike@packardacquisition.com 952-542-9318; www.packardacquisitions.com

Acquisition Workshops; Investing In Best Practices

What’s it worth to have the right tools and process to lower the risk inherent in the complex task of finding, executing, and integrating your next acquisition?

A better question might be, what are the costs of falling short in one of these areas?

It’s not just time, investment, and lost opportunity, but the potential of completing an imperfect acquisition, that keeps your CFO from sleeping at night.

Fill out our form http://pacquisitions.com/acq_snapshot.cfm
or,

Contact me if you would like to know more;

Mike@packardacquisitions.com

952-542-9318

Reducing Risk in Acquisition; Building The Best Team

It takes no special talent to find companies to look at, make offers, arrange finance, & close deals. Any good broker can fill your plate with attractive companies to review.

This explains why most deals don’t add value.

Deals that add value are those that were well defined and researched on the front end by smart people using high value process and followed up with good negotiating, due diligence, and integration teams.

A failure in any of these areas has the potential of making a giant mistake. Half of all non-financial business failures were private equity owned last year.

Even the people that should know how to make acquisitions are making big mistakes.

Even the best team can still make mistakes, but far fewer and much smaller.

More On Reducing Risk

Share your stories and comments

Wow For RainSource Conference

I attended the high energy RainSource Conference in Bloomington last week and was really impressed with the organization and connectivity at the conference. It was alive with smart people and great ideas. The speakers were great (I was really wowed by the X Prize speaker) and it was stunning to see so much entrepreneurial talent & achievement in one place.

Rain Source Capital is creating 121 Angel Funds around the country to provide money for early stage companies. The conference brought together investors and early stage companies with the intention of educating and making connections (it worked).

Cudos to the RainSource team for a powerful conference and for working so hard to help business growth, the economy, and jobs.

More on RainSource;

MinnPost

RainSource link

CrowdPitch

Choices (it’s all about risk)

This company had struggled for years to reach profitability when I received the call to talk to the founder about his choices in the marketplace.

Why not consider a back up plan in case the funding source you are counting on does not materialize? After all, being a partner in your project is better than failure, which often has personal repercussions beyond the business losses.

The CEO was certain that the next round of funding was just around the corner and he wanted nothing to do with the alternative I had suggested.

My suggestion? A Strategic partner would help gain market share and / or build a more efficient manufacturing capability and allow him to concentrate on what he did best (and quit spending most of his time raising money). I followed up diligently to no avail.

The banker that had referred him to me a year ago, called last week to tell me the firm was being liquidated.

Another great technology, great product, and good business model imploding because the founder would not take the finance blinders off to look at other approaches to survival.

It hurts me to see the lost money, energy, jobs, technology, and all the years of creativity and building that went into this firm.

Perhaps my approach is too soft.

I tell people that if they “just wait to say no” and look at alternatives in case their own plan doesn’t work. Then there will be a choice available as a resort to failure.

This does not work in most cases. I get more liquidation calls than I care to take.

Your stories and suggestions for improving my approach would be appreciated.

MikeT

Your Exit Strategy…The best way out of your business might be to get further in….

So you’ve built your company from nothing, survived too many business cycles to count, made hard decisions, pledged your family assets and now are thinking about your exit. Now is the time to reap the harvest from your hard work, risk-taking and business savvy.

What a shock it is to find that the business you have nurtured and grown is not worth what you thought is should be (and it’s not due to the economy, recession or other temporary factor.) The underlying cause of the low valuation may simply be the size of the business.

While a $3 million revenue business is a notable achievement, it won’t necessarily create the equity event you had planned. Small businesses are most often transferred/sold to other sole entrepreneurs, and matching your business with the right person is often like finding a needle in a haystack. Then when the match is made, the value becomes the overriding issue, and it still won’t necessarily provide the liquidity event you hoped for.

What to do?

You could choose one of several paths: 1. Don’t exit your business. Continue to manage it and grow as much as you can and hope for the best. 2. Settle for less than expected and live with the impact on your retirement. 3. Find other ways to build value more aggressively

Many companies have determined that their path to growth, while including ‘organic’ or internally generated progress, will focus on acquisitions, mergers and joint ventures that have the potential to create great value leverage.
Organic growth is a long slog and makes sense when a company is in its growth phase.

When your timeline is shorter, other avenues need to be considered. Typically, when well-conceived, executed and integrated, acquisitions can produce a sharp ‘step-function’ improvement in revenue, margins, profitability and cash flow. (Think about climbing a rock wall from the very bottom or getting a lift to a ledge part way up the face.)

Not only does the company become bigger and more profitable, it becomes noticed and more attractive to a broader group of prospective buyers. While a merger may affect your share of equity, as an owner recently told me, “50% of a $25 million business is worth a lot more than 100% of a $3 million business!”

For some businesses and owners, their way to achieve the business transition they hoped for is to broaden their strategy to get further in, in order to get out.