What would you do if you owned this company…

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? 

Better Answers – Accepting Reality

Whether 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?

The Grinch Thank Stole Business

After 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…

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

This 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. 

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

Sam’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…

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

My 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.

Another Inconvenient Truth

Our 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.

About A Man & His Idea

25 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.

Finding Superior NON-BROKERED Acquisition/Buyer/JV Candidates

Contact me for next week’s free, short (ten minutes + questions) personalized webinar to discover the best process & tools for lowering risk and increasing the quality of buy/sell/JV transactions,

Mike@packardgroup.com 952-542-9318

Fewer Surprises; Good

Fore 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.

The Best Buffet isms

Now and then I like to post fun and readable quotes from the business world.  Warren Buffet never disappoints (submit your own & tell us your  favorites).

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.”

Plan B

Twenty years ago I worked with an inventor that had built a high tech piece of equipment in his garage that NASA would be proud to have its name on.

At the time I suggested strategic partnering with industry as his technology was game changing and it would be difficult to bring to market without huge investment and very good management (that the company did not have).   I asked him to consider my approach as a risk reducing plan B if his plan A wasn’t working.

Like other inventors I have known, he refused to consider the joint venture approach and stuck to his own money raising business plan.

Warren Buffets Of The World vs The Uninitiated

A local family business unfamiliar with acquisitions,  hired a seasoned president (John) who claimed to have a significant M & A background.  My first meeting with John clearly demonstrated that he had not developed meaningful criteria for target candidates or an effective plan for finding them.

Criteria Modeling; Finding the Perfect Candidate Fit

Many of us have been through the unsatisfying experience of a the management team determined to grow through acquisition without adequate definition. We travel, research, investigate, many opportunities without any return.

Acquisition Activity Cost Benefit Analysis

Are you are on a board of, or an active member of an acquisitive company?

Does the company have procedures in place to monitor the effectiveness of current acquisition strategy?

IP, Money, People, Perception, & Reality

Many struggling inventors and start up IP companies believe that their problems would be solved with just one more round of financing, or if only the bank would loosen up the credit line one more time.

In my experience, more money rarely solves all the problems of a troubled company.

Much of the time, pieces of the company are missing, perceptions about reality are mistaken, or some other fatal flaw that money doesn’t answer, keep the firm from its potential.

Would the company benefit by finding a value added reseller, added management talent, or a joint venture partner to bring it to market, or have it manufactured?

Ignoring hard reality and fighting viable alternatives too late works for no one. Considered early as a possibility, discussions can happen, choices can be considered, put on hold, or executed later.

So often, the funder has been exhausted with failed promises and missed deadlines.

Impatient and lacking the trust and enthusiasm that began the relationship, stakeholders / funders timelines diminish and choices and bargaining power evaporate.

Beginning with all possibilities, we open doors to more choices as well as show supporters (funders) that we are open minded and willing to plan for all potential eventualities.

Have an opinion or thought to share?

Write a comment.

Not Invented Here

Sensible people can make thousands of hours of work & spend huge dollars to accomplish what has already been done because of the mantra “the work must be done in house”.

Whether seeking market share, technology, distribution, or other growth options, the not invented here syndrome can be a defensive and high risk position.

Case Study: Left at the Altar…Again

The owner of Company X had been interested in acquiring Target Y for a long time. Finally, the owners of Target Y were open to discussion.

Owner X traveled to negotiate the deal, corralled the owners of Y, negotiated and negotiated, and (after several months) he finally struck a deal.

ACQUISITION / JOINT VENTURE BRIEFINGS

Finding more & better target candidates

& reducing transaction risk

Database Building & Contact •  Measurable Criteria  •  Risk Management  • Integration

 

Individually Tailored to your company strategy and acquisition team

Two half day briefings

Summer and Fall dates available

 

For more information contact: 

Mike@PackardAcquisitions.com 952-542-9318

CAllen@PackardAcquisitions.com 651-226-2853

www.packardacquisitions.com

 

Better Tools for Finding Better Prospects

Better Prospects = Better Transactions

*

SOMETIMES, ALL YOU HAVE TO DO IS ASK!

As a proactive business buyer, whether a one-time buyer or someone who acquires companies on an ongoing basis, you must define and pursue various creative means to locate viable companies that potentially offer extraordinary acquisition potential.

Understanding that the best acquisition opportunities are among companies not “officially” for sale and knowing that finding a business to buy that has solid financial return on investment potential can realistically be bought with favorable purchase terms, should be enough motivation for a serious buyer to tenaciously put forth the required effort to find one.

There is a similar challenge within the sales profession for finding high performance sales personnel. This objective is comparable and directly relates to business buyers pursuing quality companies to buy. The old adage: “All the good salespeople are already employed”, should be especially thought provoking for a serious business buyer. The best sales personnel to hire are there for the taking.

It is not that extraordinary businesses cannot be bought; it is just that their business owners have not been asked if they’ll sell or have they been made to make a conscious decision or reached a compelling level of justification to consider selling their company. In most cases, they also have not applied any effort or resources to define their company’s market value to determine if the selling effort would be worthwhile. The best companies to buy are there for the taking.

Sometimes the first person to effectively pursue an opportunity has the easiest course to success. Initiating a compelling company purchase process does not have to be a complicated procedure, the first step can be very obvious and simple. Again, as in selling, sometimes all you have to do is ask!

Mark Smock is President of BUSINESS BUYER DIRECTORY, LLC, “BBD”. His firm is an established M&A listing referral services provider, an integrator of global M&A business-for-sale listings referred to specific BBD business buyer clients. Their business buyer clients pay a nominal, “success only” referral fee only if they purchase the BBD referred company. There is no cost or obligation to look at any referred deal. BBD only refers established companies for sale, with minimum annual EBITDA of $1MM, headquartered within N America, control interest for sale and within any industry. Start up’s, venture opportunities, funding solicitations or joint ventures are not considered.

msmock@business-buyer-directory.com

SEE LISTINGS @ >> http://www.business-buyer-directory.com

Have something to add? Your own business wit?

Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples.

Better Candidates = Better Transactions

What’s the difference between hiring an executive recruiter to find the perfect candidate for that important position in your firm and hiring an outside expert firm to find the best candidates for acquisition? Not too much, I think.

Both firms:

1. Understand and define the ‘center of the bull’s-eye‘ for the search. The first is a position description with a clear understanding of the culture and environment. The second is a set of criteria that describe the important characteristics of an ideal acquisition target.

2. Search broadly for candidates that closely match the requirements. On the recruiter side, this includes those executives that are currently fully employed as well as those in transition. On the acquisition side, it includes companies and owners are not in play, but are open to a discussion. Both approaches help avoid an auction environment.

3. Research and profile the candidates. Comparisons are drawn to the others on the short list. Candidates that don’t fit are not brought into discussions, thereby improving the use of the client’s time and avoiding costly mistakes.

4. Provide detailed background information and make introductions to the client.

5. Facilitate the client’s process for vetting the candidates.

6. Enable a successful conclusion.

7. Stand back to enjoy the results achieved for the client!

Both activities are critical to success. Outsourcing is not a dirty word…done well, it brings the right expertise to help companies achieve their goals in an efficient and cost-effective manner with people who do these functions full time.

Cliff Allen

Packard Acquisitions
Researching and Profiling
Privately Held Companies for Acquisition

Office/Cell: 651-226-2853 Fax: 651-578-7567

www.packardacquisitions.com

Have something to add? Your own business wit?

Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples.

Geeks Bearing Formulas and other Warren Buffetisms

Geeks Bearing Formulas and other Warren Buffetisms

(Repeated from M and A’s April Dealmaker’s Journal and Warren’s annual Letter to His Shareholders);

“Private equity is a name that turns the facts upside-down: A purchase of a busines by these firms almost invariably results in dramatic reductions in the equity portion of the acquiriee’s capital structure compared to that previously existing.”

“Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

“Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel… Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.”

“regulation…could be a catalyst for positive change…it doesn’t have to be a negative” General Electric CEO Jeffrey Immelt, quoted by Wall Street Journal.

Only one thing is more important than learning from experience, and that is not learning from experience. John M Templeton.

“America’s financial architecture is about to be remade…to be brought under federal supervision“Matt Cooper, Portfolio, as quoted in Mergers and Acquisitions Magazine.

All that we are is the result of what we have thought. Buddha

Thomson Reuters reported that about one third of M & A chapter 11 purchases involved financial services business. Mergers and Acquisitions Magazine, December 2008.

The nature of men is always the same; it is their habits that separate them. Confucious

“You’re not bankrupt until people know you’re bankrupt” By which he meant, I’ve come to understand, that money is a complicated reality. It’s a master illusionists game.

The artifice is everything. Transparency is the enemy of making it really big-which is one reason the word ‘private’ got joined to ‘equity’.

(Michael Woolf, in an article The Ultimate Bubble found in the February issues of Vanity Fair as reported in Mergers and Acquisitions magazine.)

No person was ever honored for what he received. Honor has been the reward for what he gave. Calvin Coolidge

You cannot discover new oceans until you have the courage to lose sight of the shore. Anonymous quote

Have something to add? Your own business wit?

Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples.

Death By Acquisition

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

www.packardacquisitions.com

 

 

 

Have something to add? 

Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples.

 

Technology Challenges in a Merger or Acquisition

Technology Challenges in a Merger or Acquisition

Combining two operating businesses presents an unusual opportunity to create an integrated and effective web strategy that will improve the financial results of the new entity.

In the current economy, businesses with a viable web strategy for sales/marketing have posted 26% increases in revenue (year to year periods).  The way they’re doing it is by integrating CRM, email marketing, contact management, and web presence (read web sites).  Businesses going through merger and/or acquisition are faced with integrating two often-different, and sometimes outdated IT infrastructures.  

A web strategy, by virtue of what it takes to develop a viable solution, assuages the disparate integration problem and drives revenue.  The bottom line in any successful web strategy development effort is that the following gets studied:

– key messaging

– sales process

– the customer/prospect buying process

 

Integrating appropriate technology over the knowledge from that study creates the viable web strategy.

 

Here’s what happens in a successful web strategy deployment:

– Niche markets are identified

– Marketing/Sales campaigns are targeted

– Key messaging is automated

 

When a company is making these thing happen, sales growth and revenue result.

 

There are a few consulting outfits who have the methodology and business relationships to pull this off.  Their problem is that business owners can point to countless failures of any one of the technology components mentioned previously; those are namely CRM, email marketing, web sites, and contact management.

 

Technology isn’t to blame, it’s the methodology that’s at fault in those implementations.  Give the result of your merger and acquisition activity a foundation for success.  Start with business process aimed at your specific markets and you won’t go wrong.

 

 

Joe Nemastil

The NT Group

612-279-2160

http://www.thentgroup.com

Have something to add?

Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples. 

Preparing Yourself for an Acquisition

Preparing Yourself for an Acquisition

 

There are a few things to consider when approaching your commercial banker to help finance an upcoming acquisition.

 

Given the current economic conditions, you may be facing an opportunity to acquire a long-time competitor who is now struggling. Acquisition might open the door to a new market, or it might mean the addition or expansion of a line of complementary products.

 

When it comes to financing the acquisition, you’ll no doubt talk to your commercial banker. But how about engaging the bank beforehand to act as a sounding board on the merit of the acquisition itself?

 

Your banker should act as an impartial third party in helping clients in acquisition mode, beginning at the exploration stage. While the banker should certainly have a strong desire to help clients close a deal, he or she must remain impartial and provide direct, honest feedback based on years of experience.

 

Let’s take a look at some critical issues to keep in mind when considering an acquisition:

 

1. Payback. Before making that critical “go-no go” decision, you need to measure objectively the payback period on the purchase price. How long will it take for this to pay for itself? Remember, it is important to pay only for the value your acquisition target has created. The value that your company creates belongs to you already.

 

2. Not So Sudden Impact. Set realistic expectations. Do not underestimate the challenge of achieving synergy and savings. Assume that it will take more time than you are estimating. 

 

3. Collateral is King? Remember, however, that advance rates on many asset types have decreased during this economic downturn.

 

4. Structurally Sound. The important thing here is to keep in mind that all the pieces of the deal have to cash flow. With bank financing playing a smaller role in the overall structure of acquisitions, sellers are being asked to shoulder more of the risk and buyers are putting more equity on the table.

 

Showing your commercial banker that you have considered each of these four areas will contribute significantly to getting the deal done, quickly and efficiently.

 

Steve Stoup, Senior Vice President

Fidelity Bank

(952) 830-7230

www.fidelitybankmn.com   

 

Have something to add?

Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples.