Better. Not Broker.

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 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

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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…”

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

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

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”

Follow The Money

buddha 1There 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”

Favorite Lawyer Quotes

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.”

Fewer Surprises; Good

10Fore sight is the ability to see potential realities that will prove or disprove a current strategic plan.  Every now and then, hind sight kicks us where we went wrong.

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”

Making Haste Slowly

roughwaterMy experience with acquisitive companies is that they suffer from a few common mistakes.

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”

Not Failing Big; The Secret To Acquisition Success

shipwreckIs the secret to success in acquisition simply not failing Big?

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”

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