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”
Paul 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…”
Broker 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. firstname.lastname@example.org
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.
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.
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”
There is no reward that beats cash when it comes to investment. Value investing is defined by how much cash is returned per dollar spent. Warren Buffet is my favorite speaker on this topic, “Our acquisition preferences run toward businesses that generate cash, not those that consume it […] however attractive the earnings numbers, we remain leery of businesses that never seem able to convert such pretty numbers into no-strings-attached cash” Continue reading “Follow The Money”
My Best acquisition search experience was a 24% return on a direct mail piece I did for a client some years ago in the temporary help field. Out of about 100 searches I have never seen anything like it. Hundreds of candidates and most of them qualified (stunning success). Continue reading “Share Your Best Or Worst Acquisition Search Experience”
“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.”
A business owner, we’ll call him John, grew his rebuilt truck parts business over 30 years to 20+MM – no small achievement. John’s company was a major employer in a small town. John himself was a celebrated benefactor at school fundraisers and church events. Continue reading “An Uncomfortable Family Reunion”
Our group is searching for companies in the assembly, packaging, & kitting business with sales of under 10M in the Midwest for acquisition & joint venture.
This is an ongoing search and timing can be over the next few years. Continue reading “Assembly, Packaging, & Kitting Search”
Over the years more than a few clients have worked hard to bring new (or improved) technologies to market only to find that tons of dollars later, the market has shifted and recovering sunk costs will be difficult or impossible. And what to do next is not easy either. Continue reading “Fewer Surprises; Good”
On Harley-Davidson (NYSE: HOG ) and its customers’ loyalty:
“Any company that gets its customers to tattoo ads on their chests can’t be all bad.” Continue reading “The Best Buffet isms”
It is said that the most dangerous place a person can stand is between a bear and her cubs.
For a more meaningful business metaphor, let’s turn the bear into a company with a Not Invented Here engineering team, and me walking into this company with a non-organic growth opportunity.
I will still be eaten alive. Continue reading “A Bear And Her Cubs”
God knows I make mistakes (and some of them are whoppers) but the combination of errors causing the write down of $580,000,000 / or 75% of an acquisition target’s (ERA Mining) value within a year of the Caterpillar transaction, is thankfully not yet one of them. Continue reading “Caterpillar – Call Me (I can help)”
Sign up for Packard’s free, short webinar and stop wasting time on opportunistic and broker driven deals.
Ten minutes plus your questions; Mike@PackardGroup.com
Acquirers often fail to take advantage of effective systems & people of purchased entities.
Family business spends 4 years & 1M plus to make acquisition (75 candidates investigated, 40 site visits, 3 offers – no transaction completed (none of the candidates were a good fit) Continue reading “Acquisition Cost Benefit Analysis & Risk”
Too little effort determining what fits (process),
Too little attention to the non-financial audit (people), &
Making a square peg fit into the round hole (egos).
This explains why the failure rate of most acquisitive companies is real and deserved. In practice, retaining the best and the brightest talent demands meaningful communication and genuine effort. Continue reading “Making Haste Slowly”
Knowledge is Power. How many years and how much money should a board allow management to invest before questioning the strategy of their corporate acquisition team? Can your board define success or failure?
Contact me for our free short (8 minutes + your questions) webinar,
Companies losing money due to poorly chosen acquisition targets outweigh those profiting from such transactions by large measures.
They can be seen cobbling together broker driven deals nursed & prodded to closing over the objections of their advisors (who still have to be paid when the deal falls apart or implodes later). Continue reading “When Acquisitions Hurt”
Identifying what doesn’t work can be a good first step. Continue reading “If Half of Acquisitions Don’t Add Value & …”
In my experience, this is right thinking. Small failures allow us to fight on – big failures can be deadly.
Last year we worked with a public company that had completed a badly chosen acquisition ten years prior and was just getting out of the woods from those financial losses and bad memories.
Cat never sitting on a hot stove again analogy still in force (this cat would never sit on a cold stove again either). Continue reading “Not Failing Big; The Secret To Acquisition Success”