Favorite Lawyer Quotes

Pacquisitions's Blog

iceberg pic“My client was so sure he was right! Every time I showed him a red flag – he charged at it like a bull at a bullfight. The results were predictable.”

“Some mistakes can be papered over. Some cannot. The cost of the difference is astounding.”

“Bad acquisitions can cost you your company. If you’re lucky in a bad acquisition – it’ll only cost you your profits for a decade.”

“People don’t have to listen to me. They should. That’s what they pay me for.”

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Better. Not Broker.

Broker560

 This is a sad story about the decline of a small town manufacturer. When the economy went into recession, the company contracted from $6MM to $4MM and became unprofitable.

The owner hired a broker to sell the plant. A year passed without any offers from any qualified buyers. Another broker was hired. Of course, by now, the ‘for sale’ issue was universally known throughout the town and morale plunged. Know what else plunged? Business. Being ‘for sale’ is not a great position to have when trying to land new clients. Their revenue contracted further to $3.5MM. They became more unprofitable.

That year also passed with no offers from qualified buyers.

So the owner hired a third broker. And lo and behold….

Continue reading “Better. Not Broker.”

The hidden cost of acquisition

Binoculars560

Tom was a proud father. After ten years in lesser positions at his business, his two children (Sara and Jim) were to begin higher level participation. Tom did have a lot to be proud about – his mom and pop shop had grown into a multi-million dollar enterprise that was a significant employer in an out-state town and his children had completed college and had chosen to be part of the family business. Continue reading “The hidden cost of acquisition”

What would you do if you owned this company…

MaturingIndustryChartPaul was in a quandary. He had built up a nice company and captured a decent portion of a rising segment. But looking into the future, he saw trouble ahead. As his segment matured, he forecasted that the segment would commoditize, revenues would drop, and margins shrink.

Like most business owners, dropping revenue and shrinking margins takes the fun out of the game. However, a service segment had emerged. It was in a fledgling stage but showed incredible growth potential.

 

At first glance, Paul thought his options were:

1) Get out now
2) Ride the wave and get out in a couple of years
3) Build a service division

 

What would you do? What did Paul do?  Continue reading “What would you do if you owned this company…”

Better Answers – Accepting Reality

roughwaterWhether it’s business or family investments, putting a stop to unending losses is a smart move.  When I first married, my new family asked me for business advice during a family summer vacation.  Up to that point we were such good friends.

They had invested in real estate in a high market and were stuck with low rents and a significant cash loss every month and even more losses if they sold in the down market.

I had three glasses of wine that evening and told them what I would do.  Ouch.  No one liked the math and thought even less of me for pointing it out.

The good news is that they are a kind people, and after some months of agonizing and repeating my simple math exercises they began to see the wisdom of paying now to end the forever bleeding of their lower than mortgage payment rents every month.

The sooner we accept that a mistake has been made, the sooner losses can stop and our egos and checkbooks be mended.  I’ve worked with companies protecting inventors / founders egos, with what amounts to delusional thinking about shifting markets, illusive profits, and outright craziness to continue a financial bloodletting until some poor dumb sap has a third glass of wine and spills the beans.

Do you have another point of view or story to share?

Playing At Acquisition

alligatorBroker driven and opportunistic deals are appealing and the excitement of the chase builds quickly.  Some of the team members have done a few acquisitions, we are smart, successful, and experts in our field, why wouldn’t we be winners at the game of acquisition?

I like making brick paths and walls and feel a great sense of accomplishment when I have completed some small structure with bricks in a home project.

But when I watch a real brick layer complete a commercial project, with what looks like a thousand precisely placed bricks in one afternoon, I am aware of the skill and practice being demonstrated. I do not compete. I’m pretty sure acquisitions involve more complexities and pitfalls than bricklaying.

50% of acquisitions don’t make it to the closing table, and according to Wharton, Harvard, and Deloitte, 60% of acquisitions destroy value. and over 80% don’t add a sustainable competitive edge.

Then there are the giant losses incurred by completing seriously flawed transactions.  A recent client was still paying for a bad acquisition ten years later (losses exceeded the purchase price).

It’s allot more fun to complete a deal that took a little longer and see it add value than it is to spend years undoing or making up for an imperfect transaction.

Knowledge is power – experience our short free webinar.  mike@packardgroup.com

The Grinch Thank Stole Business

iceberg picAfter years of growing a profitable business in the northern suburbs, Marvin woke up one morning and knew that it was time to get out. Now, it just might’ve had something to do with a very cold temperature and continued frozen forecast. But for whatever reason, Marvin’s brain flipped a switch and retiring and moving south were all he thought about.

Well, as luck would have it, a fellow Rotary member named Alan, expressed an interest. They sketched out an agreement then had Al’s lawyer put it in legalese. Inside of thirty days, Marvin had put his house on the market and moved to Florida.

It was everything Marvin had dreamed about: moderate temperatures, relaxed schedule, and the beginnings of a social life.

Three months into retirement all was going well. His Minnesota house had sold. Alan’s business purchase payments were coming in steadily.

Six months into retirement he couldn’t believe he hadn’t done this sooner. But Alan’s payments were starting to be late…

Continue reading “The Grinch Thank Stole Business”

Value (not beauty) is in the eye of the beholder

roughwaterCharlie (not his real name) was excited.

He had worked hard, taken risks, and been rewarded. Charlie had built a $40MM manufacturing business over the years through organic growth and acquisition.

That was how I met Charlie. He became a candidate to acquire a client of mine, a niche manufacturing business that Charlie successfully integrated with his two other channels about a decade ago. Continue reading “Value (not beauty) is in the eye of the beholder”

Secrets Of Family Business Transition

ChartsStatisticsFamBizSm

Less than a third of family businesses transition successfully to the third generation.  70% fail or are sold.

Not quite 10% continue as active privately held companies for the third generation to manage.

It is our nature to think that a family business transition can be navigated by the founder and family without outside help (interference?).

Families are complicated, people are complicated, and business is complicated.  Combining personal, family and business decision making is exponentially complicated. Continue reading “Secrets Of Family Business Transition”

When Banks Are Forced To Act (when not deciding becomes deciding)

skeleton on rockLast week, Packard Group watched from the sidelines when a bank shifted a business credit to a workout group. By the time we were referred in, the Bank had made it’s decision and it was out of the hands of the owner.

Here’s the story:

Two years ago, the train wreck took place. In the months, quarters, and years that followed, the company was losing money, marketshare, and human resource assets. Suddenly, denial was no longer an option. All too late, the owner reached out to their attorney, desperate for a conversation that could save the company from being picked apart for dimes on the dollar.

Packard gets the referral (from the company’s lawyer) and a conversation takes place. Options and game plan. When the owner called the Bank, they were told that it was no longer in their hands, and they were going into workout. Everybody loses but the bottom feeders.

Lost projects of this sort happen all too often and here’s why: Federal and State regulators demand that bankers make question loans disappear, so it’s not fair to throw rocks at bankers. In this marketplace for money, most banks are forced to work with a short list for eliminating the stress of an underperforming business credit. The business owners do not see the razor sharp teeth of the workout group until they are firmly in its grip. It’s a fire-sale with the only purpose of getting the bank out from under the loan. It has nothing to do with the potential value of business divisions or assets to the right buyer. Workout doesn’t seem to bother with the right buyer, just A buyer.

It is the saddest when this happens near the end of a great run by an owner close to retirement with no time to recover lost ground. I’ve seen them cry as their workforce is dismissed after years of loyal service, millions of dollars of equipment becomes worth a dime on the dollar, and a perfectly functioning factory building is auctioned off in the fire sale. When you’re 45 yrs old, recovery is an option – at 64 yrs old, it is a long shot.

There are many savvy bankers working the credits of our area, and if you have one, you are a lucky business person. If you run into events that steer your company into troubled waters, your savvy banker will see it and bring to your attention remedies to avoid the big trouble that culminates with the introduction to the workout group.

Not paying attention to your banker pointing out troubles (or not believing the troubles to be real) is not uncommon among business owners and the exacerbates the trouble and angers the bank. Not a good idea. It amazes me how often I witness head-in-the-sand behavior by otherwise smart people.

Reacting wisely and well is the better choice.

By the way, last week’s deal will see many people out of work, a big pile of equipment on the auction block, and a sorrowful ending to a long established business.

Could’a. Would’a. Should’a.

Retirement = Current Business Value)/time * Options – what is retirement worth?

ensenadaAThis is a tale of two business owners – both owned companies roughly the same size, in roughly the same industry, and both at the stage where they really thought hard about getting out.

Now some of you may have been aware of a market correction from 2008-2011 and this comparison is about the effect of time on your plans to harvest your business.

Both owners saw their revenue contract but they took difference approaches.  Continue reading “Retirement = Current Business Value)/time * Options – what is retirement worth?”

The Inventor’s Dilemna (it’s the people)

shipwreckSam’s journey has been an interesting one. He shared this with me over a conference call recently.

From an early age, Sam saw possibilities – and growing up in an entrepreneurial environment, he was encouraged to act on them. Soon he was ‘inventing’ little mechanisms and gadgets. Following his primary school years, he pursued and achieved a degree in engineering and worked, successfully, for a couple of companies. That’s where we pick up his story… Continue reading “The Inventor’s Dilemna (it’s the people)”

Worst Christmas Ever

shipwreckI was having a cup of tea with a business associate and they told me this sad tale.

Back in the late 60’s, three brothers took out a loan, bought used equipment, and started a small company in the north metro.

They did well, expanded, and upgraded their equipment. Around the turn of the century, the health of one of the brothers began to deteriorate so the other two bought him out. The ailing brother’s family could now provide the kind of care he would need more and more of and the business could afford it. He passed away six expensive years later.

Early in 2014, another of the brothers was diagnosed with the same illness. But the world is a different place now (post 9/11, the Great Recession, etc.) and the buyout offer was not so generous. Really not as generous.

The newly ailing brother wanted to accept the offer so as to not make waves. His family objected and questioned the terms, business valuation … basically the whole deal.

They wanted to be able to provide the same care at the first brother received without wiping out their family.

But that’s not what made for the worst Christmas ever.

There are several second generation players in the business and could soon be seeing the third generation in the business. Well, the son of the last of the three original owners has been peacocking around the front office and manufacturing floor. “The heir apparent” to the last man standing. And he’s been making the kind of statements that will make you cringe.

“Going to be a new sheriff in town.”

“Now we going to see how great this company can be.”

“I’ve been talking to my dad and we’re going to make some big changes.”

All while the family of the newly diagnosed brother are coming to terms with the hard road ahead.

Health issues. Money troubles. Either one is bad enough but taken together, they will bring you to your knees.

Christmas tradition is that the families of the three brothers gather over the holidays. In the past, it had been a time for family dispersements, bonuses, gifts, and much merry-making. This year it almost came to blows.

On Being Stingy, Dishonest, and Egotistical (they are choices you know)

solar eclipseMy coach friend Jim Early has reminded me of a Warren Buffetism that is the heart of success in business and life.

Energy and Integrity are Warren’s core requirements with a wink to having a good brain.  While good brains are important and some argue that birth is the determining factor in brain power, more and more evidence points to the cell being a machine that turns experience into biology.

I’ve many years as a volunteer working with troubled youth and it’s apparent to me that mental abilities can be built just like muscle mass and coordination (practice and a little more practice).

Integrity and energy are choices and with discipline, practice, and guidance a “C” student can become a superstar in just about any human endeavor.

And Then He Was Gone (an international man of misery)

shipwreck

Mike & Joe met a prospect at a tradeshow.  He was in some serious international construction development.

He had the pedigree.  He had the connections.  They did their due diligence and things looked good.  This was going to take Mike & Joe’s company to a whole new level.

An RFQ came in.  The kind that you dream about – volume and margin.  The initial engineering issues were resolved to meet the specs and the project was a go.  The first payment was received in time to make for a nice holiday bonus for everyone.

Halfway through the order, more good news.  A container ship was headed out loaded  with materials for the development.  If Mike & Joe could piggy-back on this, he would split the shipping savings.  Which would be substantial.

Things couldn’t get any better…

They didn’t. Continue reading “And Then He Was Gone (an international man of misery)”

Packard Group Presentation Hill Library St Paul 11.18.14

November 18th 11:30 AM – 12:30 PM at the James J. Hill Center; Mike Tikkanen Presenter

Click Here For Free Tickets

Partnering Pitfalls
Whether it’s sharing technology, talent, geography (distribution),

or a dozen other business features,partnering is a much under-appreciated option to grow or save a business.

When it is considered, it’s often too late and falls to bottom feeders not picked from a well-constructed

pool of qualified candidates.

With the right approach and execution, finding the right partner can give a company

regional, national or international distribution in a fraction of the time it might take to organically get there –

and get there before competitors can.

Partnering can also be a disastrous mess when done for the wrong reasons or in the wrong way.

Packard Group presents a roadmap with tools and process for avoiding the pitfalls and

finding better answers.

Suggested donation $7. If you donate $7 or more, we will validate two hours of parking

at the Victory Ramp on 4th and Wabasha.

George and his Banker

Meet “George”

Life was pretty good for George. His manufacturing company of eleven years had twelve well paid employees and he maintained a healthy gross profit after paying himself and his wife a nice salary.

In his slow season, a long-term customer placed a significant order – the kind of order guaranteeing that this would be a banner year. Just two weeks after taking delivery of the order, the long-term customer filed bankruptcy.

Not only did the expected windfall of income and profit not appear, but the invoices from vendors for materials and goods that went into that order did appear – leaving the company with very little money.

George was forced to scramble and take many shortcuts to maintain his vendor relationships and payroll deadlines.

With the business desperately out of cash – after tapping his line at the bank and using credit card debt – George told his banker, Paul, that he would like to extend his credit line for equipment upgrades (when he was really using the money to pay company debts).

Vendor payments became chronically late and George’s firm went from getting early payment discounts to being the kind of customer the vendors sought to replace. Some vendors did replace him and now George was looking for new sources of materials and semi-finished goods. His new relationships offered higher pricing and worse terms which affected the cost of goods sold.

Suffering lower margins and still short of cash, George pulled in any work he could find. (Most business owners know that pulling in crap work will not solve your problems.) His margins got worse and his company began to spend increasing amounts of time and resources on worse and worse work.

It took George about two years to spiral the drain before selling out to some bottom feeders for 18¢ on the dollar.

Paul (you remember Paul, the banker?). Well, Paul didn’t know things were amiss until a couple of payments on the line of credit were late.

So what was Paul’s role? Certainly not one as a trusted advisor. It might be that George was embarrassed or shamed by his sudden turn in fortune. But in reality, it does NOT matter what put George behind the eight-ball. It only mattered what he did next.

Well, here’s what he could have done next:

“Hello, this is Paul.”

“Paul, it’s George over at XYZ.”

“Hey George, how are you doing?”

“That’s what I wanted to talk to you about. Got time for a cup of coffee tomorrow?”

In my imaginary scenario, Paul and George have a cup of coffee and George explains his problem. The fallout required coming up with some kind of a plan that would turn the short term high interest loans into a longer term note that would not suck all the money out of the business.

Remember that George’s firm has a solid track record and was profitable – without the non-recurring loss that forced the credit card debt and short term high interest loans that sunk his company.

Paul could have made the presentation to the bank board and the bank could have agreed to provide the funds at a decent rate and less painful terms. While this might mean a tighter belt for three years, George would have survived the ordeal.

But reality was that the final few years were stressful and unhappy. For him, his family, his vendors, and his employees. I’d like to think that company would still be around today if he had made use of his banker relationship.

What Happens When I Change My Mind (and don’t complete the transaction)?

graphics failed acquisitionsWhat happens when Larry (your son in-law) loses his plant manager’s job on the east coast at the same time you are scheduling the closing date for your manufacturing company in the Midwest?

Your daughter would love to move the family back here (babies and all) if only her husband could find a good plant manager job in MN?

It has been my experience that no amount of money will stand in the way of grandpa doing what is best for the family (if money is not the driving force behind the sale) and if you are the buyer, no amount of lawyering or threatening will win you this deal.

Most privately held sale transactions don’t treat the issue of deal termination well to start with.

Losses to the buyer of a transaction that was shopped for for twelve to twenty four months and worked on for another six to eight months are hard to recover (don’t forget to add lost opportunity costs).

There are other reasons that hard won deals don’t end well for buyers.  Another in-law example (brother in-law) had spent years siphoning off inventory from the family business and running his own operation with corrupt employees sharing bonus money.  This was uncovered in the due diligence phase after years of search and months of back and forth negotiating.

I think it true that most deals don’t close and many transactions that do close have too much “hair on them” which makes them struggle or fail.

Even the best process and smartest deal making people will have these problems but far more trouble can be expected from a weak team and poor process.

One of our recent public company engagements was with a buyer still paying for a very big acquisition mistake ten years later.  The board was very much like the cat that sat on a hot stove.  It would never sit on a hot stove again (nor would it ever sit on a cold stove).

Shortcuts and a non-professional approach to acquisition can cost allot.  Transactions are all about risk and smart people want it minimized.  Find good people and develop best practices – it saves money.

 

 

 

 

 

Fabricated Metal Manufacturing Acquisition/JV Opportunity

Our client designs and markets custom foam filled wall panels and doors to a global niche market.   The customer base is mainly OEM companies who buy the products because of their superior performance and value.

Sales over the last seven years range from 2 to 5 million.

Seeking a strategic buyer or partner to manufacture and market.

This company has a wide range of models with accessories to meet the growing diversity of the OEM systems in the global niche` market.  These doors have extremely low to no leakage and the large OEM systems cannot leak more than ½% to 1% of their volume.  Systems have operating pressures ranging from 0.036 psi to 0.542 psi.

Owners have been in this global niche` market business for a combined total of 50 years.

The company has a great reputation in the industry and their designs are specified in many major markets.

Major OEM customers are based in the USA, Canada and Mexico.

Sample of installations:

  • King Khalid University in Saudi Arabia ($2million in custom doors)
  • Intel in the USA and Israel –a wide range of custom doors
  • Disney in Hong Kong and Universal Studios in Orlando- custom doors and panels with custom paint
  • Phipps Conservatory- Center for Sustainable Landscapes- “Green” custom doors and wall panels, plus custom solar reflective paint for this unique “green” OEM system application
  • John Hopkins University, Amazon.com, US Embassies-Middle East, Pfizer (Wyeth) Pharmaceutical Puerto Rico

We are in current negotiations with several major global companies for a three year contract for the next generation of data centers and telecom business systems that are set to go into Central and South America. Production is slated to start this summer.

For more information, respond to this email and we will follow up with more information.

Mike Tikkanen 

Mike@Packardgroup.com

Fifty Years Of Great Leadership (what’s so special about Warren Buffet?)

The man (boy) bought his first farm when he was 14.  I was still a paperboy at 14 and certain that my savings would buy the V8 Chevrolet that I had been dreaming of.  

Warren is really smart & genuine and he empowers people (24 people run Berkshire Hathaway).  

His sense of community is incredible. Giving away 85% of his wealth and begging legislators to raise taxes on the rich to make a more fair economy.

On top of all that, I hear that the BH shareholder meeting in Nebraska tomorrow will be more fun than a barrel of monkeys.

A toast to great leadership.

 

 

 

 

 

 

 

 

Another Inconvenient Truth

graphics failed acquisitionsOur two Foreign Exchange students (sisters – 1 year each) came from Culiacan Mexico.  Their father Humberto, was a Sinaloa legislator with a sweet demeanor and sharp mind.  He liked to argue.

My most memorable discussions with Humberto put me on the wrong side of  arguments over American Exceptionalism.  10 years later, I must agree that a core problem impacting everything from schools to public health is how we are giving away the very heart and soul of our nation each time a Bain Capital buys another outgrown American Family business.

Humberto’s argument was that American Capitalism had shifted from businesses founded by real people, delivering real products and important services, to large capital organizations that absolutely do not care about the people, products, or services being delivered by the entities that are acquired.

I argued with Humberto that the Warren Buffets of our world really did care about these things.  Humberto challenged me to name names.  How many Warren Buffets can you give me?  His position was that Mitt Romney, junk bonds, and Bain Capital were the driving force in American Capitalism today and not Warren Buffet.

The article that follows is concise and powerful and has clarified the tortured thoughts that man has visited upon me. Continue reading “Another Inconvenient Truth”

About A Man & His Idea

Roses on Wall25 years ago I met Phil Crowley when his struggling public company, Southern Kitchens, was introduced to me by two of the initial investors (they thought I might be able to help save the company).

Phil started out as a man with a vision of making money and doing good, and he pushed harder and harder until it became reality.  He wanted to employ people that had strikes against them and found it difficult to find good jobs.  He knew that men without meaningful work had a hard time showing their families what a good life would look like.

The Company manufactured packaged food products for the vending industry and went from just an idea and zero sales to about five million in sales, about fifty ex-offenders working at the plant, and a few hundred investor/shareholders over ten years because of Phil’s persistence and passion.

Most of Phil’s workers never had a good job before.  Those men taught me lessons in respect and how good work is valued.

Phil was not a dreamer, he handled theft and the problems common to the people he worked with.  For six months I watched Phil run a difficult business and observed the pride and dedication of a work force of men (mostly) that had never had a good job before.

Phil did not get a chance to see his vision become the new national model of capitalism and not because his vision was flawed or that it could not have worked.

He paid a good wage, the work was clean, and the hope of workers owning publicly traded stock would build wealth beyond just the weekly paycheck.

The essence of his vision could revolutionize jobs in the inner city and make life better for so many people, workers and their families and revitalize hundreds of American communities.

What happened to Southern Kitchens we read about today all too often; events outside of Phil’s control put the company into a stressful situation that demanded a partnership or buyout.

The Southern Kitchens French Accent partnership was very poorly chosen (think Bernie Madoff) and the company was soon run into the ground by the French Accent management (who went to jail) and all the people that so needed their jobs lost their jobs and the company collapsed.  Phil’s right hand man killed himself – he had built his life around this company as had Phil.  Phil died a few years ago, I think of a broken heart.

It would not hurt us to revisit Phil Crowley’s new model of capitalism.

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