Posts Tagged privately held companies
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
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Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples.
Proper Financial Planning Before the Sale
Posted by Packard Acquisition Research in Acquisitions, Business valuation, business finance, Equity, Family business, M&A,, Mergers, Packard Acquisition on March 16, 2009
“Proper financial planning before an equity event pays off.”
In the high-stakes environment of a sale—evaluating offers, trying to close, overseeing the interests of the company and employees—business owners may overlook the impact of deal terms on their own finances, and thus risk leaving very large sums of money on the table. Our experience has shown that integrating potential deal terms, key tax and estate planning strategies, and the owner’s personal financial goals can allow a business owner and his team of advisors to tailor the transaction most advantageously.
In a recent situation, we were able to assist an owner and his deal team in answering three key questions:
- What is the minimum offer they could accept?
- How should he invest the proceeds?
- What is the best strategy for transferring some of the proceeds to the next generation?
Understanding the minimum amount he could accept to meet his lifetime spending needs, while still transferring some wealth, was a key to entering negotiations. Second, the owner had a misconception that he could invest the proceeds conservatively and meet his lifetime spending. In reality, sustaining spending over the longer term with an all-bond portfolio was surprisingly difficult because of inflation and taxes. And third, our analytical framework helped the owner and his estate planning attorney quantify the impact on the owner’s lifetime spending by gifting private shares before the transaction or utilizing a GRAT (Grantor Retained Annuity Trust) strategy to transfer wealth to his children.
In summary, the sale of a business often allows an owner’s spending, legacy and philanthropic goals to be met, and the likelihood of meeting these goals is much higher if strategies to meet them are mapped out well in advance of the transaction date.
Craig W. Kleis
Phone: (612) 758-5041
Email: craig.kleis@bernstein.com
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