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.

 

 

 

 

 

The Cost Of Lost Opportunity

On a sales call recently, the prospect had just spent three months trying to close a deal that fell apart when their offer was outbid by a very small percentage.

The prospects Bank financing expires in 45 days and borrowed money will be more expensive or non existent by the time the company closes a deal with another candidate. Altogether, this was probably six to nine months of searching & wasted effort.

This prospect did not have a plan B ready to go.

Why no backup candidate?

The cost of lost opportunity on financing alone is going to be many times what they could have spent to have good back up candidates.

If their financing evaporates (and it might in this market), the cost of lost opportunity becomes astronomical.

A small investment in this case would have gone a long way to guard against a major lost opportunity.

ACQUISITION MINI MBA

Better Process = Better Candidates
Better Transactions

* Acquire key tools to help your company effectively locate the right acquisition/joint venture candidates and complete the best transaction with the greatest efficiency.

* Discover the best strategy, resources, & process (learn where to find the biggest available pool of qualified candidates, how to attract them, & how to manage multiple candidates over time).

* Create a meaningful corporate criteria model (to measure candidates by).

* Get the best information management systems & learn the difference between golden information & useless data.

Negotiations, integration, and relationships (from beginning to end) successful acquisitions require financial and non financial understanding and monitoring.

Combine team building with effective methods, resources, and training.

Organize your team around a powerful approach to finding the best targets and completing successful acquisitions for your company.

On your site or at our location.

Contact; Mike@PackardAcquisitions.com

952-542-9318


PackardAcquisitions.com

ACQUISITION / JOINT VENTURE BRIEFINGS

SunsetFinding 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
*

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.  

 

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. 

 

 

 

Brand Management in an M & A Environment

damon2         
Brand Management in an M&A Environment

In a solid and well-managed integration, prior planning of branding and transitioning customer loyalty and name recognition is a thoughtful and deliberate process. Leadership makes the time for careful consideration of how to maximize the brand equity and retention while removing ego from the equation.

Now lets talk reality. Have you ever seen the dominant player in a merger or acquisition impose their branding even when the product already has strong market share and loyalty? 

I’ll assert that the ego’s involved were bigger than the combined annual revenue of both companies.

There are too many variables for there to be one single solution or ‘best’ way to integrate brands. 

Consider the market – is it local, regional, national? (e.g. Micro-Brewery brand may not translate to a national market)
Consider the target demographic – are they fiercely loyal? (e.g. Apple Computer)
Consider the future – which brand is better positioned for the inevitable changes in the market place? (Sprint’s CDMA technology or Nextel’s iDEN technology)

In November of 1998, when Norwest Corp officially acquired Wells Fargo, the decision was made to use the Wells Fargo brand. As a native Minnesotan and Norwest customer, I had more affinity for the Norwest brand. But a dispassionate review of the facts shows that the right decision was made. Wells Fargo had a more extensive and storied past and was perceived to have better traction in a national market.

It might be that the driving force behind the merger or acquisition is about technology or distribution channels – but at some point, that technology or channel will be marketed to customers. So I’ll leave you with this:

No customers. No revenue.
Know customers. Know revenue.

Contributed by Damon Kocina, Owner, Strategic Graphics, Inc.

Strategic Graphics emphasizing an integrated design formula to tie Branding, Positioning, Print, Web, Trade Journal, and Trade Show events into a cohesive message and presentation.

 

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.

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

Family M & A Issues

do-not-feed-the-monkeys

 

 

or, Drugs In The Workplace

 

 

Bob almost gave his entire business and estate to a cocaine addict. 

 

Blood is thicker than water, and this can make us thick in our thinking.  The good news is that dad changed his mind and did not leave his business to his son, mostly because the key employees had the chance to express their views. 

 

Dad was forced to deal with the grim reality that his son had stolen large sums of money from him when dad let the son operate the company during his hospitalization.  Dad also discovered that the smart and loyal long time employees actually hated the drug using son and would quit if he were the CEO/president.  Dad put the company up for sale and died a short time after it sold. 

 

The company was sold to a high bidder, and the owners wife was set for life after the sale. The son was allowed a significant sum to start his own business.  It all worked out in the end.

 

Close call.

 Brought to you by;                                         www.packardacquisitions.com

Severed Connections

 

Severed Connections

 

The deal was done.  Economically, fair to all the principals involved. 

 dscn0202

This was an asset sale of a near bankrupt electric motor/transformer manufacturer.  What the principals failed to consider was that the employees had felt severely undermined in the transaction.  Vacation pay was not paid, benefits not taken were eliminated; things of this nature were taken personally by the rank and file.

 

The level of employee frustration was made evident when they were tasked with loading the assets onto trucks that would take them to the new owners in MN.

 

25MM worth of motors and transformers were quickly reduced to scrap value by disgruntled employees clipping wires and electrical contacts as equipment was being packaged and loaded for shipment.

 

Any amount of nonfinancial investigation would have uncovered the issues.  Almost certainly some other path could have been found to avoid the total destruction of value that did occur.  Calculating even the highest possible costs of due diligence against the almost total loss of purchase price would show a miniscule investment in risk management.

 

An ounce of prevention.

 

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

Practical Advice

Now is not the time to be recommending selling to your client.  Finance is tight and buyers are being brought deals that they could not have found with great effort a short time ago.  Values are suffering.  Selling is hard.

Could it be a good time to reevaluate growth through acquisition (even to firms more intent on internal growth or even exit planning?).

Here’s why it might be:

Strong players can make deals that will not be possible in strong markets.  Transactions must be made with the finance and terms that are available.  Money is tight and owner finance is far more common today than it was two years ago.

Growing companies prior to exit is a pragmatic approach to growing value, especially if the growth is low risk.

Many smaller and undercapitalized firms will accept buyouts on asset based agreements to procure some upside for their business rather than struggle through an unpredictable next year/s and risk losing everything.

Here’s how:

Build a smart team,

Create a smart plan from start to finish:

*determine precisely what fits–weighted averages criteria model

*plan for transition and monitoring of all aspects of transaction integration

Build a big list,

Contact everyone with a basic friendly invitation to talk

Manage and track information (use modern tools for data tracking)

Monitor progress and make adjustments    

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

 

 
 img_0548

Effective Acquisition Tools

inferno2

 

Determining the right fit, deal structure, finance, due diligence and integration, & knowing where the rocks are makes the difference between wasted assets and effort and a well planned and executed transaction.

Most of the acquisition teams I’ve interviewed have tons of experience making and closing deals. Each team member has skills in their own area of expertise.

Success requires a team with just the right talents for each step of the process. My experience has been that teams lack meaningful process and tools. Too often, methods are haphazard and results come from frustration and guesswork rather than measurement and planning.

No matter how bright the team is, the complexity of the process and the overwhelming amounts of information necessary to find and complete transactions with well chosen candidates simply keeps the failure rate high (about fifty percent of acquisitions destroy value).

Brokers and lead generating contacts provide brokered deals on a transaction based fee basis. It is not the ideal way to be introduced to candidates.

Here are a few steps to make your next acquisition add and not destroy value.

1)    Build a measurable criteria exercise as a critical first step. Every company goes through it in some fashion. Few make it a measurable tool for evaluation. It is not that hard once the definitions are numerically rated to give a ranking score to candidates.

2)    Learn how to bring candidates into the fold. Without the ability to contact the larger share of available well chosen candidates (database management and contact savvy), there is just too much left undone to be a representative sampling of the available market. How targets are contacted and what they are told has a great impact on the results you obtain (the quality and quantity of your candidate base).

3)     Spreadsheet hell. There are many bad ways to manage the profiling and research results from ten or more candidates. Information needs to be updated regularly. This becomes a big problem if spreadsheets or paper are used. An web tools are worth the investment to have access to current information (it makes information useful).

Unmanageable information is useless. Decisions will be made without the most important information if systems are not in place to make it readily available.

4)   Be well counseled for deal structure and finance. The markets at this time especially are hard to read. It is worth the investment to know what current market conditions (valuations/finance) are and not make decisions based on guesswork.

5)   Plan for due diligence, integration, and its attendant problems. There are many good companies, software, and process people to help with due diligence and transition.

Attending to the non financial aspects of due diligence and integration pays big dividends.

Mike@packardacquisions.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

Brought to you by;                                         www.packardacquisitions.com

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