Two 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”
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”
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
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…
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”
Last 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.
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?”
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)”
November 18th 11:30 AM – 12:30 PM at the James J. Hill Center; Mike Tikkanen Presenter
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.
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”
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.
Before I tell you the one thing you should never ever bring to an acquisition closing, I need to give you the background….
Company X was a successful company. Especially when you consider that on $3MM in revenue it spun off 30% in pre-tax profit. For over twenty years the owner, (we’ll call him Harold) ran and grew his business with savvy planning and shrewd decision-making.
Harold’s only son, (we’ll call him Donald) worked in the business and had spent time in each discipline as he was being groomed to take over when Harold was ready to pass the baton.
Best laid plans and all that.
Harold was hospitalized after being diagnosed with advanced cancer and 24 yr old Donald was put in charge.
Fast-forward five weeks and Harold is back in the office part-time while working through his radiation and chemo regimen.
(It is important to know that company x is a small, 10-person niche manufacturing business with long-standing employees)
Harold is in his office when five of his employees come in and shut the door. They say that they speak for rest and tell Harold that they will not work for Donald. Donald has been derogatory and denigrating to the ‘peons’ for years. They had laughed Junior off as they were treated wonderfully by Harold, generously paid, and received abundant benefits for their good work.
However, during Harold’s hospitalization, Donald’s attitude had sharply worsened and more importantly, was observed doing cocaine at work.
************************ Continue reading “Don’t Bring This to a Closing”
George (dad) really wanted his son (Don) to have his profitable 10 person niche manufacturing business when the time came. Don worked in the business for 20 years and knew process and people and how to run the business.
But when I talked to the employees, to a person they stated they would quit if that ever happened. Continue reading “Tales From The Crypt Of Family Business”
“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”
Directors have it doubly hard when it comes to acquisitions.
They have to hire someone that knows how to find appropriate candidates and execute transactions successfully (this person needs a combination of very specific talents – often misrepresented in resumes) and the board must be clear about the criteria necessary in the search (the difference between needs and wants).
Talking with M & A lawyers, you will find that about 50% of deals don’t make it to closing. There are just so many things that can go wrong and it is so costly when it happens. Continue reading “Why Deals Don’t Close”
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)”
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 & …”
Why not consider a back up plan in case the funding source you are counting on does not materialize? After all, being a partner in your project is better than failure, which often has personal repercussions beyond the business losses. Continue reading “Choices (it’s all about risk)”
Think about it;
Nearly half of all of the non-financial businesses that defaulted in 2009 were owned by private equity, according to a Moody’s Investors Service report, which warned that the elevated default rate among sponsor companies will continue in 2010.
1 + 1 should always = 2.1 or more. Otherwise, the risk is just too high.
There are measurable ways of approaching acquisition & tools that lower risk (well worth the investment).
Mike Tikkanen mike@PackardAcquisitions.com 952-542-9318
“Don’t ask the barber if you need a haircut”, doesn’t sound like the deep philosophical guidance that could account for why only 17% of acquisitions add value, unless of course that wisdom were coming from Warren Buffett.
Don’t ask the broker if you should do the deal. Players don’t get paid if you don’t do that deal. Of course you should do that deal. Continue reading “Warren Buffett Let’s Cat Out Of Bag”
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?
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