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 last mile is the hardest

last_mileTwo partners, Bob and Tom, were getting tired. They had met years ago while both employed by the same company and together had developed a better mousetrap. Now it was 18 years later and they were looking for a way out.

 

The business they co-owned did alright and had provided well for their families but would best be described as a life-style business. Continue reading “The last mile is the hardest”

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.

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”

M & A SPECIAL CIRCUMSTANCES

This is part of an article first appearing in the Twin C ities Business Magazine (July 2009) & was written by Ingrid Case,

Mergers and acquisitions have decreased sharply-except where they haven’t.

….With private equity firms less able to pay top dollar for companies, sellers are less eager to part with their firms—particularly when they remember what those firms might have sold for two years ago. “There is a gap between what sellers consider a reasonable value for their business, and what buyers are willing to pay,” D’Aquila says.

The combination has private equity firms spending time working to manage and improve existing portfolio companies, or sometimes to restructure existing deals. Though some private equity buys still happen, the group as a whole has taken a back seat to strategic buyers.
Pockets of Activity

Sellers who can wait are often sitting tight, declining to sell until valuations recover. “Sellers who are in no hurry have no reason to sell,” says Bruce Engler, head of the M&A group at Minneapolis law firm Faegre & Benson, LLP. “They’ll wait until things get better.”

Some business owners, however, are motivated to sell. A few have health or family issues. Many are concerned that their firms won’t survive the current economic downturn unless they sell. “These are companies selling from a position of weakness,” Engler says, adding that such firms can change hands for as little as two times EBITDA.

Other business owners have little choice about selling. “If it’s a public company, the board of directors have to sell if they think it’s in stockholders’ best interest,” says Ivar Sorensen, managing partner of The M&A Group, a private investment bank in Minneapolis.

Or the firm could be the target of a hostile takeover, an increasingly common possibility in light of significantly reduced stock valuations, says Mike McFadden, co-CEO of Minneapolis-based private investment bank Lazard Middle Market.

When deals do take place, the buyer isn’t always a private equity firm, as was so common in the past few years. Instead, strategic buyers are once again the most competitive and active buyers of other firms.

“Corporate players are better able to make strategic investments now because the competition from the private equity firms has been tempered,” Sorensen says. “Corporations are sitting on huge amounts of available capital. They had a long run of very profitable operations, up until recently. Some have reported huge losses in 2008, but those aren’t always cash losses—they can be write-offs of intangible assets such as goodwill, which has no impact on cash flow, and may even help cash flow by reducing tax liability.” That puts them in a great place to buy.

Strategic buyers are typically looking for a bargain, says Cliff Allen, vice president of business development at Minnetonka-based Packard Acquisitions, which finds businesses that meet prospective buyers’ requirements. “People are looking for deals, for good properties that are undervalued,” he says. They hope to pay a price equal to perhaps four times an acquisition’s EBITDA—saving two to three multiples compared to what they might have paid in 2007.

Cliff Allen

Packard Acquisitions
Researching and Profiling
Privately Held Companies for Acquisition

Cliff Allen

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

www.packardacquisitions.com


read whole article

http://www.tcbmag.com/industriestrends/bankingandfinance/117331p1.aspx
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.

Preparing to Make an Acquisition

Preparing to Make an 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.
Some acquisitions, like marriages, are made in
heaven. Such a union of two companies can
boost revenues, cut costs and increase market
share. Other deals – also like some marriages –
are made in hell. There are turf battles,
management deadlocks and employee morale
issues that can easily undermine the entire deal.
The challenge in making an acquisition work is
to define and then stick to a solid process – from
target selection to approaching your commercial
bank for financing.
Assuming you have decided to embark on an
acquisition strategy, how do you identify an
appropriate target?
The “right” opportunity might mean gaining
access to a cutting-edge technology, or bailing
out a financial or management distress situation.
The result may be reduced costs due to increased
synergies, or positioning the new organization
for growth.
When selecting a target, one or more of the
following outcomes should be expected:
1. The deal will lower your overall costs.
2. You will be able to increase the combined
company’s market power by spreading the
stronger brand name over a wider product or
service base.
3. The acquisition will change the competitive
landscape.
Once you have eyed your target, serious due
diligence begins. Let’s look at some potential
pitfalls that would need to be addressed:
1. Compelling strategic rationale. Make sure
you can answer the question, “Why am I doing
this?”
2. SWOT analysis. Have you identified the
company’s core strengths, market
opportunities, and any potential threats?
3. Customer satisfaction. What are the
customers of the target company buying, and
what do they define as satisfaction?
4. The “people” factor. If you are not paying
attention to employees and what this means to
them, you can kiss a great outcome goodbye.
Now, when it comes to actually financing the
acquisition, you’ll no doubt talk to your
commercial banker. At Fidelity Bank, we
consider ourselves an impartial third party in
helping our clients in acquisition mode,
beginning at the exploration stage. Let’s take a
look at some critical issues we like to keep in
mind when working with a client who is
seeking financing for an acquisition:
1. Payback. Before making that critical “go,
no-go” decision, you need to measure
objectively the payback period on the purchase
price.
2. Not So Sudden Impact. Set realistic
expectations. Do not underestimate the
challenge of achieving synergy and savings.
3. Consider Collateral. 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, especially with bank
financing playing a smaller role in the overall
structure of acquisitions.
Showing your commercial banker that you
have considered each of these last four areas
and have addressed all the issues covered above
will contribute significantly to getting the deal
done, quickly and efficiently.

First appearing in the Minnesota Business Journal 4/19/09

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. Some acquisitions, like marriages, are made in heaven.

Such a union of two companies can boost revenues, cut costs and increase market share. Other deals – also like some marriages – are made in hell. There are turf battles, management deadlocks and employee morale issues that can easily undermine the entire deal.

The challenge in making an acquisition work is to define and then stick to a solid process – from target selection to approaching your commercial bank for financing. Assuming you have decided to embark on an acquisition strategy, how do you identify an appropriate target? The “right” opportunity might mean gaining access to a cutting-edge technology, or bailing out a financial or management distress situation. The result may be reduced costs due to increased synergies, or positioning the new organization for growth. When selecting a target, one or more of the following outcomes should be expected:

1. The deal will lower your overall costs.

2. You will be able to increase the combined

company’s market power by spreading the

stronger brand name over a wider product or

service base.

3. The acquisition will change the competitive

landscape.

Once you have eyed your target, serious due

diligence begins. Let’s look at some potential

pitfalls that would need to be addressed:

1. Compelling strategic rationale. Make sure

you can answer the question, “Why am I doing

this?”

2. SWOT analysis. Have you identified the

company’s core strengths, market

opportunities, and any potential threats?

3. Customer satisfaction. What are the

customers of the target company buying, and

what do they define as satisfaction?

4. The “people” factor. If you are not paying

attention to employees and what this means to

them, you can kiss a great outcome goodbye.

Now, when it comes to actually financing the

acquisition, you’ll no doubt talk to your

commercial banker. At Fidelity Bank, we

consider ourselves an impartial third party in

helping our clients in acquisition mode,

beginning at the exploration stage. Let’s take a

look at some critical issues we like to keep in

mind when working with a client who is

seeking financing for an acquisition:

1. Payback. Before making that critical “go,

no-go” decision, you need to measure

objectively the payback period on the purchase

price.

2. Not So Sudden Impact. Set realistic

expectations. Do not underestimate the

challenge of achieving synergy and savings.

3. Consider Collateral. 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, especially with bank

financing playing a smaller role in the overall

structure of acquisitions.

Showing your commercial banker that you

have considered each of these last four areas

and have addressed all the issues covered above

will contribute significantly to getting the deal

done, quickly and efficiently.


ANTHONY GIZINSKI

Vice President

Fidelity Bank

anthony@fidelitybankmn.com

http://www.fidelitybankmn.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.

SOMETIMES, ALL YOU HAVE TO DO IS ASK!

big_zebra_splshAs 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.

Acquisition Potholes

108-0872_imgACQUISITION 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

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

10Technology 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. 

Effective Use Of Talent

fh000005EFFECTIVE USE OF TALENT

 

The challenge for the CEO of a company that wants to grow through acquisition is that the CEO is also charged with running the company.  This presents a conflict even in larger businesses that have a dedicated ‘corporate development’ or an ‘M&A’ function.  Too often, an ad hoc acquisition team is recruited from daily jobs and, as a result, neither the acquisition search nor the daily job is done as well as it must be.   No wonder that acquisitions take too long and rarely deliver the value expected. 

 

Compounding this is the attitude that “our industry is small” or “I know all the players”, but the truth is that until you take an objective and broad based look at the opportunities, you really don’t know what will fit the best.  An external perspective is of great value because an expert doesn’t bring a lot of  baggage in the form of preconceptions  about what might add real value.   

 

Consider using a ‘retained search’ firm for finding and researching acquisition targets.  An extensive and well-defined search will allow you and the team to focus on the highest and best use of your time – evaluating the best candidates for acquisition.    After all, the objective is to improve the success rate of your M&A transactions.   

 

Cliff  Allen, Packard Acquisitions

 

Researching and Profiling

Privately Held Companies for Acquisition

Office/Cell:  651-226-2853

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. 
 

Proper Financial Planning Before the Sale

water-lilies

“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:

  1. What is the minimum offer they could accept?
  2. How should he invest the proceeds?
  3. 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

www.bernstein.com.  

 

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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. 

 

 

 

Beyond Financial Due Diligence, By Cary Tutelman

tutelmancaryBeyond Financial Due Diligence

By Cary Tutelman

When companies are considering acquiring another company, they do extensive due diligence. They analyze balance sheets, income statements, debt history, customer lists, physical assets and equipment, the product and/or service offerings, etc. This is done to make sure that the buyer knows what they are buying.

However, there is another aspect of due diligence that is typically not done. I call it the non-financial audit. This is an analysis of the organization: its strengths and weaknesses, biggest needs, strength of management, culture, values, work environment and impact of a sale on customers and employees.

Mark’s Story

I was hired by a company to do a non-financial audit. My client was interested in going beyond the financials and getting an analysis of the organization. Here are the highlights of what I found:

Mark, the owner/entrepreneur/President, maintained all the relationships with the key customers. The customers didn’t know anyone else in the organization except a few customer care employees who they dealt with exclusively by phone. The key customers told me that they trusted the President and if he left, they had no reason to continue buying from the company because their loyalty was to the President, not the company.

 

Mark told me that he was only willing to remain with the company for 30 days after the sale. Then he was retiring. He would not accept any consulting contract beyond the 30 days. My conclusions: the financial health of the company was at stake when the Mark left and the new owners should expect significant drops in revenue right away.

– Mark was a typical entrepreneur with the typical command and control style of management. He made all the critical decisions and everyone else did what they were told. The managers were weak, untrained, underdeveloped, not really involved in management matters and took no initiative to improve the company. The employees were complacent and set in their ways. My conclusions: The new owners couldn’t rely on management for guidance or leadership and it would take a massive effort to change a system and the culture that had been build over 30 years.

My recommendation to the client: Don’t buy this company. Although it looked good financially and the market and products were sound, the overall risk was very high and the probability of failure was too great. My client bought a different company.

Non-financial audits are critical to the due diligence process and provide the buyer with a vivid picture of what “life” would be like if they completed the purchase. Yes, some buyers have told me that they can muscle through any organizational situation as long as the company is financially strong. I think this overconfidence is a mistake. A savvy buyer wants and weighs all pertinent information about a possible acquisition. That way, they will make a well-considered decision.

Cary has been a business consultant and the owner of CJT Company since 1981. He works with closely held and family owned businesses in transition. He guides them through the complicated web of ownership, management, board and family issues that transition brings.

Cary is a co-author of The Balance Point: New Ways Business Owners Can Use Boards, a book written specifically for owners of closely held and family businesses. It clarifies what owners do, what boards do and when they are needed and how owners, boards and managers can work together. Cary is a co-founder of The Board School, which helps business owners understand how to use boards in running and transitioning their company.

Cary J. Tutelman CJT Company Phone: 952-941-8864
Email: cary@cjtco.com
http://www.tutelmanconsulting.com

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Value Insights

 

 

What We Know That Just jimearlyphotoAin’t So, or


Value Insights

 

 

Unanticipated mundane external factors are most often responsible for dumping our transactions into the 80% that don’t add value category. 

 

Carefully developed evaluation and due diligence models offer the best chance of uncovering the questions that if answered properly, will cause us to avoid the failures that affect the great majority of acquiring companies.

 

To have great evaluation and due diligence models without a strong team that can recognize, develop, and work with the tools will drop you short of your goals also.

 

 

The assumptions made in the board room about the talents, team members, roles, responsibilities, systems, and procedures, determines the accuracy of the search and the effectiveness of the due diligence. 

 

A smart team with the right resources can execute the complex task of acquisition at a far lower risk factor than a half smart team with almost the right resources.  The losses can be staggering.  The investments in team and resources are quite modest in comparison.

 

 

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.

 

Brought to you by;                                         www.packardacquisitions.com

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