Archive for category Cliff Allen
Your Exit Strategy…The best way out of your business might be to get further in….
Posted by Packard Acquisition Research in Acquisitions, Cliff Allen on August 10, 2010
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.
The Lion’s Way or The Right Way?
Posted by Packard Acquisition Research in Cliff Allen, Mergers on March 10, 2010
Author Seth Godin has a book in his creative inventory called “Survival is not Enough”. In it, he writes about corporate DNA (he calls it mDNA) which includes everything that makes a company what it is….products, brands, people, IP, et al.
In it, he writes about acquisitions of other companies and that one of the primary reasons for an acquisition is to add new DNA to the acquirer’s corporate DNA to make it stronger.
Seth tells the story of a pride of lions. The dominant male sires all cubs within his harem until he is unseated (i.e. killed or driven off) by a stronger male. The new leader then dispatches all the cubs still with the pride.
This is not because the successor is cruel, but because having cubs indicates the lionesses are still nursing and are, therefore, infertile. So, in order to impart his genes in the pride, he must impregnate lionesses quickly (he doesn’t know when a stronger lion will come along).
The analogy for companies that acquire others poorly is that when an acquisition is made, the CEO typically hands over the ‘captured tribe’ to the operating executives, who recognizes that the acquired company has different DNA. Products and services that come with the acquisition are different and have different weaknesses, which make them very easy to kill off.
The same thing happens with the employees of the captured tribe: They are different; they weren’t hired by the operating executives; the products they know are gone; ergo, they are killed off.
The benefit for the operating executive is that their genes are spread more quickly by killing off the products and employees of the acquired company.
The message is NOT to avoid acquisitions. It IS to reinforce the reason the acquisition was made – to acquire another company’s DNA and make the resulting company stronger and more profitable. Sometimes it happens by accident.
McDonalds Corporation acquired troubled Boston Markets – primarily for the attractive real estate they owned. The Chief Legal Eagle at Boston Markets was given the baby-sitting role of CEO of Boston after the acquisition. He fooled them all…and turned the struggling chain around, growing faster than the McDonald’s stores.
When an acquisition is made, don’t do as a Chairman I once worked for did: 1. Announce to the initial joint management meeting of both companies that he believed in the Golden Rule…”He who has the gold, rules”: 2. Then, continue to refer to the acquired company as, “The Captured Tribe.”
Within six months, the senior executives of the acquired company were gone and we (the survivors) had no clue how to run their business.
Let’s make sure the end game of an acquisition is to make the resulting company bigger, better and, most importantly, financially stronger.
See Seth Godin’s Book: “Survival is Not Enough”. The Free Press. c2002 (with updates). Available on Amazon.
Cliff Allen
Packard Acquisitions
651-226-2853
The True Tale of a Deal
Posted by Packard Acquisition Research in Cliff Allen, M&A,, Mistakes, Risk on December 14, 2009
Many of us read INC Magazine. I hope you’ve been following the tale of Norm Brodsky’s effort to sell his company. His chronology began in 2006 and continues today.
He recounts his path into and around some of the potholes on the journey to a successful transaction, including:
-the decision to sell
-balancing the needs of each partner
-the offer
-choosing a buyer
-due diligence
-negotiations
-external factors
-wild cards
-selling a majority of your company
-trying to sell it again
The saga goes on, as Norm works all the angles while he attempts to exit the business successfully.
You can catch up on the story at: http://tinyurl.com/yeshdur
Get the right experts involved in your deal…don’t try to learn as you go, no matter how smart you are.
Cliff Allen 651-226-2853
M & A SPECIAL CIRCUMSTANCES
Posted by Packard Acquisition Research in Acquisitions, Business valuation, business finance, Cliff Allen, M&A, on July 10, 2009
This is part of an article first appearing in the Twin C ities Business Magazine (July 2009) & was written by Ingrid Case,
Mergers and acquisitions have decreased sharply-except where they haven’t.
….With private equity firms less able to pay top dollar for companies, sellers are less eager to part with their firms—particularly when they remember what those firms might have sold for two years ago. “There is a gap between what sellers consider a reasonable value for their business, and what buyers are willing to pay,” D’Aquila says.
The combination has private equity firms spending time working to manage and improve existing portfolio companies, or sometimes to restructure existing deals. Though some private equity buys still happen, the group as a whole has taken a back seat to strategic buyers.
Pockets of Activity
Sellers who can wait are often sitting tight, declining to sell until valuations recover. “Sellers who are in no hurry have no reason to sell,” says Bruce Engler, head of the M&A group at Minneapolis law firm Faegre & Benson, LLP. “They’ll wait until things get better.”
Some business owners, however, are motivated to sell. A few have health or family issues. Many are concerned that their firms won’t survive the current economic downturn unless they sell. “These are companies selling from a position of weakness,” Engler says, adding that such firms can change hands for as little as two times EBITDA.
Other business owners have little choice about selling. “If it’s a public company, the board of directors have to sell if they think it’s in stockholders’ best interest,” says Ivar Sorensen, managing partner of The M&A Group, a private investment bank in Minneapolis.
Or the firm could be the target of a hostile takeover, an increasingly common possibility in light of significantly reduced stock valuations, says Mike McFadden, co-CEO of Minneapolis-based private investment bank Lazard Middle Market.
When deals do take place, the buyer isn’t always a private equity firm, as was so common in the past few years. Instead, strategic buyers are once again the most competitive and active buyers of other firms.
“Corporate players are better able to make strategic investments now because the competition from the private equity firms has been tempered,” Sorensen says. “Corporations are sitting on huge amounts of available capital. They had a long run of very profitable operations, up until recently. Some have reported huge losses in 2008, but those aren’t always cash losses—they can be write-offs of intangible assets such as goodwill, which has no impact on cash flow, and may even help cash flow by reducing tax liability.” That puts them in a great place to buy.
Strategic buyers are typically looking for a bargain, says Cliff Allen, vice president of business development at Minnetonka-based Packard Acquisitions, which finds businesses that meet prospective buyers’ requirements. “People are looking for deals, for good properties that are undervalued,” he says. They hope to pay a price equal to perhaps four times an acquisition’s EBITDA—saving two to three multiples compared to what they might have paid in 2007.
Cliff Allen
Packard Acquisitions
Researching and Profiling
Privately Held Companies for Acquisition
Cliff Allen
Office/Cell: 651-226-2853 Fax: 651-578-7567
read whole article
http://www.tcbmag.com/industriestrends/bankingandfinance/117331p1.aspx
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.
Mitigating Acquisition Risk July 15
Posted by Packard Acquisition Research in Acquisitions, Cliff Allen, Occasional authors, Risk on June 27, 2009
Better Candidates = Better Transactions
Posted by Packard Acquisition Research in Acquisitions, Business models, Cliff Allen, M&A, on April 14, 2009
What’s the difference between hiring an executive recruiter to find the perfect candidate for that important position in your firm and hiring an outside expert firm to find the best candidates for acquisition? Not too much, I think.
Both firms:
1. Understand and define the ‘center of the bull’s-eye‘ for the search. The first is a position description with a clear understanding of the culture and environment. The second is a set of criteria that describe the important characteristics of an ideal acquisition target.
2. Search broadly for candidates that closely match the requirements. On the recruiter side, this includes those executives that are currently fully employed as well as those in transition. On the acquisition side, it includes companies and owners are not in play, but are open to a discussion. Both approaches help avoid an auction environment.
3. Research and profile the candidates. Comparisons are drawn to the others on the short list. Candidates that don’t fit are not brought into discussions, thereby improving the use of the client’s time and avoiding costly mistakes.
4. Provide detailed background information and make introductions to the client.
5. Facilitate the client’s process for vetting the candidates.
6. Enable a successful conclusion.
7. Stand back to enjoy the results achieved for the client!
Both activities are critical to success. Outsourcing is not a dirty word…done well, it brings the right expertise to help companies achieve their goals in an efficient and cost-effective manner with people who do these functions full time.
Cliff Allen
Packard Acquisitions
Researching and Profiling
Privately Held Companies for Acquisition
Office/Cell: 651-226-2853 Fax: 651-578-7567
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.
Acquisition Potholes
Posted by Packard Acquisition Research in Acquisitions, Business valuation, business finance, Cliff Allen, Equity, Risk on April 4, 2009
ACQUISITION POTHOLES:
The Facts:
A KPMG study conducted in 2000 determined that only 17% of Mergers and Acquisitions examined created a substantial return and, even more discouraging, 53% destroyed value. Validating these findings, a six year study by Business Week showed that 61% destroyed value that existed prior to the acquisition (BW October 14, 2002).
Why?:
Acquisitions run a high risk of failure…there are many potholes on the road to achieving a successfully integrated and operating acquisition that is contributing to the worth of the enterprise.
A few of the causes of these discouraging statistics can be found in the steps of the process, including:
1. Defining criteria for the ideal target
2. Conducting a ‘pull’ search (rather than waiting for an intermediary to ‘push’ a prospect at you)
3. Researching, gathering information, evaluating, qualifying and profiling the candidates
4. Organizing, managing and comparing the data gathered
5. Ranking the candidates based on the criteria
6. Making a strong and seamless connection between buyer an seller
7. Negotiating in good faith
8. Effective due diligence by competent and qualified experts – not only finance and legal, but risk, technology, branding, etc.
9. Looking beyond traditional due diligence into the human factors of the organizations
10. Having a financial and tax plan in place that will optimize the transaction value (but not the cost)
11. Maintaining current information on the candidate so that material changes are identified
12. Successfully negotiating a fair transaction (or pushing back from the table if things aren’t progressing satisfactorily)
13. Integrating the businesses (to the level desired) quickly and effectively
13. Continuing to manage the new organization with an understanding and appreciation of the corporate memories
A stumble in any area can cause an acquisition to derail (or at at a minimum, to underachieve.) Rely on experts who have successfully driven this road before.
Cliff Allen
Packard Acquisitions
Researching and Profiling
Privately Held Companies for Acquisition
Office/Cell: 651-226-2853
Facsimile: 651-578-7567
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.
Effective Use Of Talent
Posted by Packard Acquisition Research in Acquisitions, Business models, Business valuation, business finance, Cliff Allen, M&A,, Mergers, Packard Acquisition, Risk on March 19, 2009
EFFECTIVE USE OF TALENT
The challenge for the CEO of a company that wants to grow through acquisition is that the CEO is also charged with running the company. This presents a conflict even in larger businesses that have a dedicated ‘corporate development’ or an ‘M&A’ function. Too often, an ad hoc acquisition team is recruited from daily jobs and, as a result, neither the acquisition search nor the daily job is done as well as it must be. No wonder that acquisitions take too long and rarely deliver the value expected.
Compounding this is the attitude that “our industry is small” or “I know all the players”, but the truth is that until you take an objective and broad based look at the opportunities, you really don’t know what will fit the best. An external perspective is of great value because an expert doesn’t bring a lot of baggage in the form of preconceptions about what might add real value.
Consider using a ‘retained search’ firm for finding and researching acquisition targets. An extensive and well-defined search will allow you and the team to focus on the highest and best use of your time - evaluating the best candidates for acquisition. After all, the objective is to improve the success rate of your M&A transactions.
Cliff Allen, Packard Acquisitions
Researching and Profiling
Privately Held Companies for Acquisition
Office/Cell: 651-226-2853
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