Posts Tagged deal structure
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
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.
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