Archive for category Mike Tikkanen
Reducing Risk in Acquisition; Building The Best Team
Posted by Packard Acquisition Research in Acquisitions, Mike Tikkanen on September 27, 2010
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.
Share your stories and comments
Choices (it’s all about risk)
Posted by Packard Acquisition Research in Mike Tikkanen, Mistakes on September 12, 2010
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
Defining Acquisition Risk, by Mike Tikkanen
Posted by Packard Acquisition Research in Acquisitions, Mike Tikkanen, Risk on December 30, 2009
According to Interim CEO, 71% of their placed executives have completed less than three acquisitions when they are hired for that purpose. This partially explains why between 53% & 61% of transactions destroy value & only 17% create substantial returns From Planning to execution to integration, acquisitions are complex.
The finely tuned watch comparison is an appropriate analogy. Any misaligned piece causes the watch to run badly, and while there are many people capable of dismantling the watch, few can put it together.
Repeatedly, I see teams of smart people with pieces of the skill set required to understake the acquisition process, only to observe disastrous consequences of an obvious mistake blowing a hole in the transaction (or worse yet, forcing a poorly chosen transaction to be completed).
Much of the candidate criteria determination, auditing, and integration is non linear. It’s surprising to see how much attention is paid to numbers, and how little to people, systems, relationships, and networks.
Mapping an acquisition is too much for this blog, but to state the wisdom of including a plan for non financial audit and integration at the time of profiling and research would guarantee an understanding of process and a good chance that missing gaping misfits in people and systems would less likely ruin your deal.
Risk Considerations: Read the rest of this entry »
When Finance Is Not An Answer
Posted by Packard Acquisition Research in Mike Tikkanen, Mistakes on October 28, 2009
When all you have is a hammer
A recent phone call proved to be another painful exchange with a hammer toting consultant that could not see value in spending time on any effort other than raising money for his venture.
No matter that the banks are cold, he’s had no luck with presentations to non bank lenders & equity groups, and his client is on the path to extinction if an answer does not present itself soon.
After several attempts at explaining how money comes easier to deals that have the important pieces in place, I found myself throwing in the towel earlier than I used to.
I could feel how firmly the blinders were glued to this man’s head.
It was as if I was trying teach a pig to sing (wasting my time and annoying the pig).
What needed to be understood was, the reason his project was so hard to fund was that parts of it were not far enough along, safe enough, (management, etc) or it just needed to have something not currently present. Money comes to deals that have the necessary pieces in place.
Each struggling venture has one or more part/s that need to be bought, fixed, or found.
Allowing a search for a strategic partner, joint venture, or acquisition target, one gets to pick between money offered at reasonable or unreasonable terms, and another set of alternatives that may or may not be more attractive than a straight play for money.
In business as in life, having choices is better than not having choices.
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.
Death By Acquisition
Posted by Packard Acquisition Research in Acquisitions, Business models, M&A,, Mergers, Mike Tikkanen on March 29, 2009
Death by Acquisition
Not knowing where the rocks are drowns many acquisition teams.
Executing any step poorly increases the risk of failure.
1. Knowing what to look for and how to investigate target candidates is a process that needs to be made measurable.
A robust assumption challanging corporate exercise to determine the most important and least important attributes is critical piece of any acquisition. This process should include definable/measurable risk management questions, and core corporate strategies.
2. A system for affordable mass contact and information gathering and data management insures a more useful information system and a higher number of qualified candidates with a higher measure of success. Not knowing how to do this dooms us to the stone age practice of calling brokers and combing the yellow pages.
A recent client had investigated over one hundred poorly identified companies over four years with one small success. Another company investigated fewer candidates, but they spent years pursuing companies located all over the world, with attendant costs, and no success. Executive pay, travel, due diligence have been in the millions of dollars.
Fortunately neither company succumbed to the pressure of making a bad purchase (a very common problem), for that would have cost them many times more.
3. Being smart in valuation in these difficult times demands having a finger on the pulse and the ability to make and defend the right offer. This is no easy task without being tied in to professional organisation that monitors this information. We are prone to hip shoot this process.
Included in valuation is the snapshot integration financial and nonfinancial assumptions that must be predicted based on limited information that will be useful only if the process for information gathering is disciplined. Without an accurate view of the combined entities, all valuations are at risk.
My experience points to extreme optimism about upside valuation and integration.
4. Negotiation/deal structure/finance is of course the core of a deal. Personalities, deal structure, math, and assumptions are either all right, or they are all wrong. Any doubt in this area and now is the time to stop. If the first three steps were executed wisely and well, this step is much easier.
5. Acquisition integration chaos is more accurate terminology in many companies. From CRM, HR, to the operations, integration professonals can save relationships, efficiencies, and businesses. So often corporate branding, technology, and culture are shocked and damaged through an unprofessional, or inadequate approach brought in with the acquiring firm. Valuations are negatively affected and it takes years to right the wrongs that occurred in a poorly executed integration.
Only rarely have I seen mid market companies execute this step with any finesse or professionalism. http://www.tx2systems.com/ can be helpful.
There are many distinct pieces to acquisition. Companies that understand the process do well consistently. Companies that fail to grasp the comlexities and learn the disciplines, seldom attempt a second acquisition.
Mike Tikkanen
Value Insights
Posted by Packard Acquisition Research in Acquisitions, Business valuation, business finance, Mike Tikkanen, Packard Acquisition, Risk on January 25, 2009
What We Know That Just 
Ain’t So, or
Value Insights
Unanticipated mundane external factors are most often responsible for dumping our transactions into the 80% that don’t add value category.
Carefully developed evaluation and due diligence models offer the best chance of uncovering the questions that if answered properly, will cause us to avoid the failures that affect the great majority of acquiring companies.
To have great evaluation and due diligence models without a strong team that can recognize, develop, and work with the tools will drop you short of your goals also.
The assumptions made in the board room about the talents, team members, roles, responsibilities, systems, and procedures, determines the accuracy of the search and the effectiveness of the due diligence.
A smart team with the right resources can execute the complex task of acquisition at a far lower risk factor than a half smart team with almost the right resources. The losses can be staggering. The investments in team and resources are quite modest in comparison.
Brought to you by; www.packardacquisitions.com
Key Man Insurance
Posted by Packard Acquisition Research in Acquisitions, Business models, Mergers, Mike Tikkanen, Risk on January 24, 2009
The deal was almost done. The owner was asked if he has prepared his key man for the transaction. Specifically, he was asked if he had promised the key man a bonus for sticking around for 12 months to make sure that the new corporate owners would transition well into the client base and management team.
This was a rich deal for the owner. The owner assured us that he had generously compensated his key man.
Days before the transaction was to close the key man quit and moved across the street to another plating company. The owner had thought our concerns overblown and had in fact done nothing to incentivize his key man.
This deal fell out of bed with a non retrievable thump.
Tightness of wallet cost this seller millions of dollars (and nearly a heart attack) when his deal collapsed when the key man left.
In trying to patch up the transaction and talking with the key man, I discovered that he would have been happy with a small amount of money and a little more title but he was felt damaged by being treated like part of the woodwork. Due diligence is more than validating the numbers.
Family M & A Issues
Posted by Packard Acquisition Research in Family business, M&A,, Mike Tikkanen, Packard Acquisition, Risk on January 22, 2009
or, Drugs In The Workplace
Bob almost gave his entire business and estate to a cocaine addict.
Blood is thicker than water, and this can make us thick in our thinking. The good news is that dad changed his mind and did not leave his business to his son, mostly because the key employees had the chance to express their views.
Dad was forced to deal with the grim reality that his son had stolen large sums of money from him when dad let the son operate the company during his hospitalization. Dad also discovered that the smart and loyal long time employees actually hated the drug using son and would quit if he were the CEO/president. Dad put the company up for sale and died a short time after it sold.
The company was sold to a high bidder, and the owners wife was set for life after the sale. The son was allowed a significant sum to start his own business. It all worked out in the end.
Close call.
Brought to you by; www.packardacquisitions.com
Severed Connections
Posted by Packard Acquisition Research in Acquisitions, Business models, M&A,, Mike Tikkanen, Packard Acquisition, Risk on January 19, 2009
Severed Connections
The deal was done. Economically, fair to all the principals involved.
This was an asset sale of a near bankrupt electric motor/transformer manufacturer. What the principals failed to consider was that the employees had felt severely undermined in the transaction. Vacation pay was not paid, benefits not taken were eliminated; things of this nature were taken personally by the rank and file.
The level of employee frustration was made evident when they were tasked with loading the assets onto trucks that would take them to the new owners in MN.
25MM worth of motors and transformers were quickly reduced to scrap value by disgruntled employees clipping wires and electrical contacts as equipment was being packaged and loaded for shipment.
Any amount of nonfinancial investigation would have uncovered the issues. Almost certainly some other path could have been found to avoid the total destruction of value that did occur. Calculating even the highest possible costs of due diligence against the almost total loss of purchase price would show a miniscule investment in risk management.
Practical Advice
Posted by Packard Acquisition Research in Acquisitions, Business models, M&A,, Mergers, Mike Tikkanen, Packard Acquisition, Risk on January 2, 2009
Now is not the time to be recommending selling to your client. Finance is tight and buyers are being brought deals that they could not have found with great effort a short time ago. Values are suffering. Selling is hard.
Could it be a good time to reevaluate growth through acquisition (even to firms more intent on internal growth or even exit planning?).
Here’s why it might be:
Strong players can make deals that will not be possible in strong markets. Transactions must be made with the finance and terms that are available. Money is tight and owner finance is far more common today than it was two years ago.
Growing companies prior to exit is a pragmatic approach to growing value, especially if the growth is low risk.
Many smaller and undercapitalized firms will accept buyouts on asset based agreements to procure some upside for their business rather than struggle through an unpredictable next year/s and risk losing everything.
Here’s how:
Build a smart team,
Create a smart plan from start to finish:
*determine precisely what fits–weighted averages criteria model
*plan for transition and monitoring of all aspects of transaction integration
Build a big list,
Contact everyone with a basic friendly invitation to talk
Manage and track information (use modern tools for data tracking)
Monitor progress and make adjustments
Effective Acquisition Tools
Posted by Packard Acquisition Research in Acquisitions, Business models, M&A,, Mergers, Mike Tikkanen, Packard Acquisition, Risk on December 7, 2008
Determining the right fit, deal structure, finance, due diligence and integration, & knowing where the rocks are makes the difference between wasted assets and effort and a well planned and executed transaction.
Most of the acquisition teams I’ve interviewed have tons of experience making and closing deals. Each team member has skills in their own area of expertise.
Success requires a team with just the right talents for each step of the process. My experience has been that teams lack meaningful process and tools. Too often, methods are haphazard and results come from frustration and guesswork rather than measurement and planning.
No matter how bright the team is, the complexity of the process and the overwhelming amounts of information necessary to find and complete transactions with well chosen candidates simply keeps the failure rate high (about fifty percent of acquisitions destroy value).
Brokers and lead generating contacts provide brokered deals on a transaction based fee basis. It is not the ideal way to be introduced to candidates.
Here are a few steps to make your next acquisition add and not destroy value.
1) Build a measurable criteria exercise as a critical first step. Every company goes through it in some fashion. Few make it a measurable tool for evaluation. It is not that hard once the definitions are numerically rated to give a ranking score to candidates.
2) Learn how to bring candidates into the fold. Without the ability to contact the larger share of available well chosen candidates (database management and contact savvy), there is just too much left undone to be a representative sampling of the available market. How targets are contacted and what they are told has a great impact on the results you obtain (the quality and quantity of your candidate base).
3) Spreadsheet hell. There are many bad ways to manage the profiling and research results from ten or more candidates. Information needs to be updated regularly. This becomes a big problem if spreadsheets or paper are used. An web tools are worth the investment to have access to current information (it makes information useful).
Unmanageable information is useless. Decisions will be made without the most important information if systems are not in place to make it readily available.
4) Be well counseled for deal structure and finance. The markets at this time especially are hard to read. It is worth the investment to know what current market conditions (valuations/finance) are and not make decisions based on guesswork.
5) Plan for due diligence, integration, and its attendant problems. There are many good companies, software, and process people to help with due diligence and transition.
Attending to the non financial aspects of due diligence and integration pays big dividends.
Brought to you by; www.packardacquisitions.com
