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”

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”

The Grinch Thank Stole Business

iceberg picAfter 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…

Continue reading “The Grinch Thank Stole Business”

Don’t Bring This to a Closing

solar eclipseBefore 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”

Why Deals Don’t Close

shipwreck

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”

Dissecting Deals of Necessity

roughwaterDissecting Deals of Necessity

If necessity is the mother invention, it might also be considered
the mother of M&A in today’s wallowing market. Whether it’s a distressed acquisition out of a bankruptcy auction or a cost-cutting merger that eliminates capacity in a given sector, deals of necessity seem to be the only game in town.
 
The question I have, though, is whether or not these deals will work. The whole idea that two companies have to merge to survive evokes the old cliché about tying two rocks together to make them float. If a merger fails to address the fundamental issues facing two companies, then it’s unlikely a deal will save the combined business. The merger between XM and Sirius, for instance, doesn’t change the fact that they’re competing against a free product, terrestrial radio.
 
At the same time, it’s often the case that there are few other options available. Perhaps that’s why so much speculation went into the possibility of a General Motors and Chrysler tie up or why the government force-fed Merrill Lynch to Bank of America.
 
Considering that deals of necessity are driving the M&A market, I’m curious what distinguishes those that work – such as Wilbur Ross’s steel rollup – and those that don’t. From what I can tell, it all boils down to execution, but if anyone has any additional thoughts, I’d be interested to hear about what other factors may play a role.
 


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.

 

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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.

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Better Processs = Better Candidates

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Corporate buyers with access to cash receive far better returns on their acquisition dollars during recessions. Troubled deals that would be done in good times are being liquidated, mundane companies are finding it hard to get a fair multiple, and cash is at a premium. 

All this points to acquisition as a growth strategy.  

 

Those that discipline their acquisition process will improve their return on investment. 

Advisors can help their clients to: 

* assemble a smart team that will include the talent they need. It may include other outside advisors. 

* determine precisely what fits (challenging assumptions) and create a weighted averages criteria model that measures candidates and allows comparison in ranked order. 

* Create a plan for building and contacting a large number of specifically chosen candidates with a well crafted contact letter, 

* Build a system for compiling and managing large quantities of information from the many companies that will be reviewed over the coming months, 

* Plan for audits (financial and non financial), due diligence, integration, transition, and monitoring of all aspects of the transaction. 

And most important, to see that having the tools, systems, and protocols in place to discover and research the best candidates, manage the information, put the right people and procedures in place in a timely fashion (acquisitions are time sensitive) makes all the difference in the world. 

2009 will be a terrific year for a disciplined approach to strategic acquisition, Multiples are low, opportunities are stacking up, cash is hard to find and owner financing will be abundant. 

Note: The failure rate for an undisciplined approach to acquisition still exceeds fifty percent. It pays to do your homework.                              

MTikkanen@ PackardAcquisitions.com (we can help)

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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Effective Acquisition Tools

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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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