The hidden cost of acquisition

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Tom was a proud father. After ten years in lesser positions at his business, his two children (Sara and Jim) were to begin higher level participation. Tom did have a lot to be proud about – his mom and pop shop had grown into a multi-million dollar enterprise that was a significant employer in an out-state town and his children had completed college and had chosen to be part of the family business. Continue reading “The hidden cost of acquisition”

What would you do if you owned this company…

MaturingIndustryChartPaul was in a quandary. He had built up a nice company and captured a decent portion of a rising segment. But looking into the future, he saw trouble ahead. As his segment matured, he forecasted that the segment would commoditize, revenues would drop, and margins shrink.

Like most business owners, dropping revenue and shrinking margins takes the fun out of the game. However, a service segment had emerged. It was in a fledgling stage but showed incredible growth potential.

 

At first glance, Paul thought his options were:

1) Get out now
2) Ride the wave and get out in a couple of years
3) Build a service division

 

What would you do? What did Paul do?  Continue reading “What would you do if you owned this company…”

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.

 

 

 

 

 

Why Deals Don’t Close

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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”

The Lion’s Way or The Right Way?

tigerAuthor Seth Godin has a book in his creative inventory called “Survival is not Enough”. In it, he writes about corporate DNA (he calls it mDNA) which includes everything that makes a company what it is….products, brands, people, IP, et al.

In it, he writes about acquisitions of other companies and that one of the primary reasons for an acquisition is to add new DNA to the acquirer’s corporate DNA to make it stronger. Continue reading “The Lion’s Way or The Right Way?”

Risk Management Discussion Thread

african art 2The following are the astute observations of Carl Hagberg, pulled from an online acquisition Risk Management conversation about M & A, shareholder value, and strategic issues. My comments (that Carl refers to) follow in the More section.

Carl is Editor and Publisher at The Shareholder Service Optimizer
Greater New York City Area http://www.optimizeronline.com/

& he is Chairman & CEO at Carl T. Hagberg and Associates

As an investor, I am extremely concerned by the perfectly awful returns on investment – overwhelmingly terrible ones as the above-cited numbers point out – that have been booked year after year as a result of bad acquisitions by public companies. Continue reading “Risk Management Discussion Thread”

Better Candidates = Better Transactions

winterWhat’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.

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. 
 

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.

Exodus

ship2Badly managed corporate communication has caused the loss of many good employees and customers during the acquisition process.  Because it is a difficult topic with no single right answer and the financial diligence is so much more straight-forward, it is easily under valued, and often attended to as an after thought. Continue reading “Exodus”

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

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

 

 
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