Bad Ending or Orderly Partnering?

Most dissolved businesses have had the opportunity to partner & save jobs, revenues, customers, & some benefit for the owners but chose instead to stick to their current non-workable plan of doing the same thing to the end.

Deer in the headlights, it can’t happen here, this won’t last, & other common human responses explain the disasters awaiting those who refuse to acknowledge hard realities.

I worked with a food distributor with great margins and product who waited too long and then vacillated when a fine partner did come along.  A specialty engine manufacturer was dissolved as was a food equipment manufacturer because the thought of partnering was just too foreign a concept until it was too late (in both these cases not a dime on the dollar awaited these owners upon liquidation).

Most companies won’t have the conversation until their banker demands it.

Is it fear or a lack of understanding of the concept of more options?  Or is the failure to appreciate the small value pre-liquidation sales hold for sellers that drives the procrastination that kills most companies by inaction?

Partnering opportunities before the timeline vanishes, offer larger markets & more options with far greater upsides for the struggling entity.

Smart leaders acknowledge reality and search for better options to avoid a bad ending.

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”

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

Fueling Acquisition Success

5 Hidden Causes for Failure
5 Remedies for Increasing Success Rate

Contributed by Joe Torrez http://www.torrezbv.com/

As a corporate development specialist or a transaction advisor, you have a vested interest in increasing the likelihood of success of the transactions you manage. Whether that interest is,

• To grow the bottom-line and enhance the value of your company (or those in your portfolio) and generate increased returns for shareholders, or

• As transaction advisor, to satisfy your customers and create a significant competitive advantage for your firm. The more successful deals you close, the more transaction customers you attract.

• And perhaps that interest extends beyond the success of your company or clients to your own professional aspirations and benchmarks of personal success.

You probably don’t engage in a transaction if you lack the confidence of reaping the benefits of a successful acquisition such as…

• The financial targets of the acquisition are achieved as fast as possible to build cash flow (and minimize burn rate) and profit.

• Added shareholder value is created in the combined enterprise.

• Productivity is maintained during the transition and shows sustained increase over time.

• Employees and customers remain engaged to the company.

Despite having high confidence in the transactions we engage in, they continue to fail or underperform. And this failure comes despite all the published accounts and analysis we have read about…

Moody’s: Half of Defaulters are PE-Owned

Think about it;

Nearly half of all of the non-financial businesses that defaulted in 2009 were owned by private equity, according to a Moody’s Investors Service report, which warned that the elevated default rate among sponsor companies will continue in 2010.

1 + 1 should always = 2.1 or more. Otherwise, the risk is just too high.

There are measurable ways of approaching acquisition & tools that lower risk (well worth the investment).

Mike Tikkanen mike@PackardAcquisitions.com 952-542-9318

 

Warren Buffett Let’s Cat Out Of Bag

“Don’t ask the barber if you need a haircut”, doesn’t sound like the deep philosophical guidance that could account for why only 17% of acquisitions add value, unless of course that wisdom were coming from Warren Buffett.

Don’t ask the broker if you should do the deal. Players don’t get paid if you don’t do that deal. Of course you should do that deal.

And yes, you will get a haircut.

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).

Mr. Buffett uses large company acquisitions to make his points ($50M for a couple of weeks work), but I would point out that all fees in all transactions are large per time invested & that there is almost always someone “suggesting” that this is a great deal, who will be handsomely rewarded upon its completion.

That advice needs to be considered in its own light (if I understand Warren’s comments correctly).

Risk Management Discussion Thread

The following are the astute observations of Carl Hagberg, pulled from an online acquisition Risk Management conversation about M & A, shareholder value, and strategic issues. My comments (that Carl refers to) follow in the More section.

Carl is Editor and Publisher at The Shareholder Service Optimizer
Greater New York City Area http://www.optimizeronline.com/

& he is Chairman & CEO at Carl T. Hagberg and Associates

As an investor, I am extremely concerned by the perfectly awful returns on investment – overwhelmingly terrible ones as the above-cited numbers point out – that have been booked year after year as a result of bad acquisitions by public companies.

This year, when public companies are sitting on record levels of cash – with the 500 largest U.S. non-finanacial companies holding some $994 billion in the 3rd Q. of 2009, according to the WSJ – I am more concerned than ever:

I am hardly the first person to point out that having large stashes of cash on hand – rather than strictly strategically-oriented brainstorms or breakthroughs – are among the major drivers of acquisitions. Historically, having too much cash on hand seems literally to burn a hole in the pockets of CEOs. And when one couples the undeniable thrill of being “flush” with the ego-gratifying idea that this is all due not to dumb luck, or perhaps to a rising tide that’s lifted all the boats in the fleet, but rather, to the CEO’s strategic brilliance…and then throws in the admittedly exciting idea of growing even bigger and richer through an acquisition or two…a disaster ensues for investors well more than half the time. The surprise to me is why we’re surprised here…and time after time after time.

Just as bad from a long-term investors’ point of view, the same top-500 companies who are now so flush with cash cut their dividends by $58 billion a year in 2008. And now, in 2010 they seem to be in a race to spend mega-billions (once again, now that stock prices are rising) on buying back their OWN shares – yet another area where the overwhelming majority of companies that practice THIS art have a history of destroying, rather than building shareholder value for long-term holders.

As a share owner who takes a long-term view, I’m all in favor of making “smart acquisitions”, of course. And right now, where many good companies are flush with cash, and many not-so-great companies, that could benefit big-time from having a savvier owner, are selling near their alltime lows, the opportunities to make great acquisitions ARE great. But as the earlier commenters noted, the historical record is a mighty poor one, and yes, the lack of a truly smart strategic rationale, couped with not-very-smart or savvy execution has been a bad deal for shareholders in the majority of instances. And as the numbers also show, acquisitions have proven to be waste of valuable management time and attention another 17% of the time.

What should we long-term investors be doing in this environment? First, I say we need to insist that WE get paid first when companies are flush with cash. I’d like to see fully HALF of such money get dividended out to us owners – where WE can have it in our hot little hands, to invest it or spend as WE chose to do. And if WE lose it, that’s OK: After all, WE are the OWNERS!

Second, I think we should be pushing back bigtime against big share buyback programs. Sure, the short-termers make out fine here, since public companies have a long history of buying only at the very top of the market…which is often hyped even more – short term that is – by the news of a big buyback program and its “artificial” and too often temporary increase in demand for the stock. Well managed companies ought to be able to find much smarter uses for our money than this…and should indeed be spending any “excess cash” they have on things like R&D, advertising and yes, on making savvy acquisitions that will throw of even MORE MONEY….for US.

And last, we should, of course, be holding company management – and the board members too – much more accountable than we do today when it comes to justifying potential acquisitions – and executing on them as promised.

Defining Acquisition Risk, by Mike Tikkanen

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:

The True Tale of a Deal

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 Attorney’s Blog

When was the last time a client brought you in on an acquisition early? You know, before the deal was inked and marching orders were not just “get this done in 60 days and don’t screw it up”.

This message is for you.

It demands thinking outside the box and may cause anxiety (but read on…it could lead to better results for you and your client).

There is no question that the dismal results coming out of M & A are not attributable to poor work done by M & A attorneys.

Rather, it is the client’s poor approach to search, execution, and integration that goes into the process of finding and completing transactions.

Big egos and The Wild West still live on in M & A, and you, the M & A attorney are (unavoidably) a part of this inefficient and high risk process.

Here is the big secret.

Find and get to know reputable providers of research and integration services and recommend them to your clients.

By definition, if your clients are working with smart front end researchers and integration people, you will be brought in early (because of A, professional courtesy, and B, they can’t do their jobs without you).

Research and integration done properly;

* find an improved field of more qualified target candidates,

* that are put on a better prepared path of transition and integration,

* which almost insures that you will be involved in the process earlier to ask the right questions and find the real answers.

= More success, less failure, happier clients, & longer term engagements with healthy clients.

Think about it.

Mike Tikkanen

Mike@PackardAcquisitions.com

A Most Unproductive Search

About three years ago a CFO talked to me about his company’s acquisition search process. He confided in me that his firm’s president had traveled a great deal 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 I could not possibly add to what he knew about his industry or his database for potential candidates and 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 his one-at-a-time trips to visit target companies and sent me on my way.

Two 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 five years)”? His answer was “no”.

What this company has spent investigating acquisition candidates, one at a time, nationally and internationally over the past five years is many times what they could have ever spent with a professional for profiling and researching target candidates, compiled in an organized fashion to ensure a selection of well chosen candidates.

This is another case of a board hiring an outside president because they recognized the need to grow their company by acquisition.

Companies like this sometimes feel compelled to make transactions that don’t fit.

That’s where data feeding the KPMG study stating that only 17% of acquisitions created a substantial return add 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. Acquisitions are a complex, costly, and risky process.

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

Mitigating Acquisition Risk July 15

We are pleased to announce the next session in our “First Wednesday” seminar series, “The Life Cycle of a Business Acquisition–Mitigating Risks on the Road to Success”.

This interactive panel presentation will cover effective candidate search & profiling, financial due diligence, and integration of businesses.

You will leave with a better understanding of the risks of not paying attention to these areas and a checklist of key success factors.

OnPoint Consulting – Steve Sapletal

Olsen Thielen CPAs – Mike Bromelkamp

Packard Acquisitions – Cliff Allen

The seminar will be held on Wednesday, July 15 at Olsen Thielen CPAs Roseville office, 2675 Long Lake Road (just west of 35W and County C). ST Paul MN

To register, send an e-mail to events@otcpas.com or leave a message at 651-621-8557.

Olsen Thielen CPAs and EBITDA Partners

Barbara Graf | Marketing Coordinator | Olsen Thielen & Co. Ltd. | 2675 Long Lake Road | St. Paul, MN 55113 | Phone: 651-621-8557 | Fax: 651-483-2467 | www.otcpas.com

ACQUISITION / JOINT VENTURE BRIEFINGS

Finding more & better target candidates

& reducing transaction risk

Database Building & Contact •  Measurable Criteria  •  Risk Management  • Integration

 

Individually Tailored to your company strategy and acquisition team

Two half day briefings

Summer and Fall dates available

 

For more information contact: 

Mike@PackardAcquisitions.com 952-542-9318

CAllen@PackardAcquisitions.com 651-226-2853

www.packardacquisitions.com

 

Better Tools for Finding Better Prospects

Better Prospects = Better Transactions

*

Are You Squandering Invisible Assets?

LinkedIn and Facebook are electronic rolodex’s (did I just ‘date’ myself?) that can visually show how ‘connected’ people are – but what happens to people’s connections in the wake of the acquisition?

Ideally, as part of the pre-acquisition research, you would develop a feel for connections – industry, associations, advertising, buying – so you don’t jettison valuable connections unnecessarily or accidentally.

But in the trenches of integration, the acquirer’s team tends to (all too easily) assume that what they do and how they do it is superior to the acquired. This is a dangerous assumption.

Are there executive members of the acquired’s team in key trade association positions?
What media-buy contracts have the acquired’s team negotiated?
What industry connections to key suppliers are in jeopardy if you consolidate buying?
What history, loyalty, and goodwill to people take with them when they are let go?

I think everyone in business has heard, “Our people are our greatest asset” about a gazillion times. But in the heat of an acquisition, are people (and their connections) weighted with the appropriate value?

Contributed by Damon Kocina
Strategic Graphics, Inc.
Improve your impression
www.StrategicGraphics.com
www.LinkedIn.com/in/DamonKocina

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

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

www.packardacquisitions.com

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

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

www.packardacquisitions.com

 

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. 

 

Risk Management and Valuation

Failure to assess business risks in an acquisition impacts value

Organizations involved in mergers or acquisitions, from large to small, have a tendency to conduct minimal reviews regarding the target company’s insurance program and miss areas of risks that seem harmless, but can potentially impact the entire organization.  These missed risk assessments can lead to unintended consequences which can jeopardize the ROI of the transaction. 

Here is an example of a company that didn’t assess all of the risk:

Acme Company was looking to expand through a targeted acquisition.  They wanted to purchase a company with a good product and an excellent reputation.  To their surprise, they found such a target at a reasonable price.  While the target company was not large, the financials were strong and no other “bad” news was identified or uncovered during the due diligence process so the acquisition was consummated. 

With the acquisition complete, Acme Company began the integration process, including the process of folding in the acquired company’s insurance policies into their current insurance program.  However, one item Acme did not contemplate during the due diligence process was how their current insurance underwriter would respond to taking on the exposure of a new product.  On the surface, Acme didn’t see any significant change in their operations and risk exposures as a result of the acquisition; however, Acme’s underwriter was very concerned about the new exposures as a result of the acquisition.  As a result, the underwriter refused to write the coverage and issued a 30 day cancellation notice to Acme. 

Acme was now forced to spend additional time, effort and money obtaining insurance coverage elsewhere or face having a gap in coverage.  Acme ultimately obtained insurance quotes for their newly expanded business but the new insurance premiums were now more than the total sales dollars of the company they acquired.  Now all the financial assumptions and projections Acme laid out for this acquisition have been blown up and this acquisition no longer represents a good valued acquisition for Acme.into the front end of your due diligence process.  Not only can you receive unexpected news from your insurer, but issues identified by risk management can assist management in learning more about the target company’s operations and management.

This example reinforces the need to incorporate risk management into the front end of your due diligence process.  Not only can you receive unexpected news from your insurer, but issues identified by risk management can assist management in learning more about the target company’s operations and management.

Risk Management Resources (RMR) is one of the largest independent Risk Management firms in the country, with over 100 years of experience in helping companies address these and other issues.  We don’t sell any insurance.  We simply help companies better manage their risks and free up additional time for the busy executives currently managing the insurance program, saving them time and money and helping to ensure they achieve their long term strategic business objectives.  Call Brad Pint or Carl Lidstrom at 952-944-8515 or email them at bpint@rmrrisk.com or clidstrom@rmrrisk.com  if you would like to learn more about how we help our clients with their due diligence process.                                      

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.

Exodus

 

Exodus

 

Badly managed corporate communication has caused the loss of many good employees and customers during the acquisition process.  Because it is a difficult topic with no single right answer and the financial diligence is so much more straight-forward, it is easily 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.

 

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.

 

 

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

Brought to you by;                                         www.packardacquisitions.com

Value Insights

 

 

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.

 

 

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.

 

Brought to you by;                                         www.packardacquisitions.com

Key Man Insurance

Key Man Insurance

 

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. 

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.                                                                                                                                                                                 Brought to you by;                                         www.packardacquisitions.com

Family M & A Issues

 

 

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.

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Severed Connections

 

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.

 

An ounce of prevention.

 

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Better Processs = Better Candidates

Corporate buyers with access to cash receive far better returns on their acquisition dollars during recessions. Troubled deals that would be done in good times are being liquidated, mundane companies are finding it hard to get a fair multiple, and cash is at a premium. 

All this points to acquisition as a growth strategy.  

 

Those that discipline their acquisition process will improve their return on investment. 

Advisors can help their clients to: 

* assemble a smart team that will include the talent they need. It may include other outside advisors. 

* determine precisely what fits (challenging assumptions) and create a weighted averages criteria model that measures candidates and allows comparison in ranked order. 

* Create a plan for building and contacting a large number of specifically chosen candidates with a well crafted contact letter, 

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

* Plan for audits (financial and non financial), due diligence, integration, transition, and monitoring of all aspects of the transaction. 

And most important, to see that having the tools, systems, and protocols 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) makes all the difference in the world. 

2009 will be a terrific year for a disciplined approach to strategic acquisition, Multiples are low, opportunities are stacking up, cash is hard to find and owner financing will be abundant. 

Note: The failure rate for an undisciplined approach to acquisition still exceeds fifty percent. It pays to do your homework.                              

MTikkanen@ PackardAcquisitions.com (we can help)

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Two Ways Of Managing Acquisition

   

 

 

Better Prospecting = Better Deals or,

Nightmare on your street:

Aggressive second generation owners determined to grow by acquisition.  A five member internal team that includes two mid thirties family members is chosen to tackle the project.

 The search begins by calling brokers to bring deals which they sort through with a set of criteria that they have determined to be right for the business.  Quickly they have data to sift through on forty or fifty candidates and poor tools for comparison or valuation based on their corporate criteria. 

 The data becomes overwhelming and not much help in decision making.  Much time is spent traveling and investigating.  Team members don’t agree and have no way to accurately compare candidates or make a decision on what should be done.

 If a decision to move ahead is made under these circumstances, the 80/20 rule may well apply: 80% of acquisitions don’t add value.  Over 50% of acquisitions destroy value.

 If the transaction is finalized, it is still critical that audits (financial and non financial) due diligence and integration be handled professionally.  With a corporate team missing significant parts of the acquisition puzzle, it is not hard to understand how companies fail at acquisition.

 A Better Way: 

Aggressive second generation owners determined to grow by acquisition using best practices. 

 They begin by building a smart team that includes the talents they know they will need.  It may include outside advisors.  

Next they determine precisely what fits (challenging assumptions) and create a weighted averages criteria model that measures candidates and allows comparison in ranked order.  Then they, 

* Create a plan for building and contacting a large number of specifically chosen candidates with a well crafted contact letter,

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

 * Plan for audits (financial and non financial), due diligence, integration, transition, and monitoring of all aspects of the transaction.

 Having the tools, systems, and protocols 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) makes all the difference in the world.     

 

 

 

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.                                                                                                                                                                                   Brought to you by;                                         www.packardacquisitions.com