Monthly Archives: July 2015

Deal Team 6: A study in Acquisition Precision

Currently, I am advising an industrial manufacturing company on the sale of a division. This project reminds me of the disciplined process our deal team at Primedia/Intertec used for many years to execute probably 30 plus buy/sell transactions over just a few years. Back in the day, we essentially functioned as a deal factory while we executed a leveraged roll-up business model for a PE firm.

On a consistent basis, we were evaluating, negotiating, integrating and selling businesses. Often, we had 4 to 6 deals in one stage or another of the process at any one time.

Working with this volume of deals lead us, over time, to develop a highly disciplined M&A and deal integration process. Our process was totally dependent on an internal team of experts. That team functioned like a well-oiled machine, required a tremendous amount of mutual trust and over-the-top inter-team communications.

Most often, the team consisted of at least 6 executives/department experts. They included:

  • CEO/President
  • VP of M&A and Strategic Planning
  • CFO
  • CTO
  • VP of Production and Manufacturing
  • Division Executive who would own responsibility for the business once acquire

With my current industrial manufacturing client, we recently met with a potential strategic acquirer who is also on an aggressive acquisition growth track. They arrived for a meeting with my client and, like we used to do back in the day, brought in their corporate team of experts. Deal Team 6.

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They had clearly done their homework on the business, reviewed all of the material on the business in detail. They proceeded to utilize meeting time in a highly efficient and effective manner to extract the maximum amount of diligence information.

This company’s M&A/deal team worked in tandem. They easily played off of each other’s questions, based on the answers they received. So often, an unexpected answer to one specialized department question has ramifications for another discipline in the company that can often have serious ramifications for the successful integration of the business if not fully explored.

In all cases, the CEO wisely deferred to his team to go through their specialized diligence check lists. At the right time, he would add the appropriate context or clarification question as required to fill in the blanks on a big picture basis. This gave him invaluable info needed to best assess how this potential acquisition would fit with his company strategically, technically and, not to be under-emphasized, culturally.

Here are 4 key reasons why this disciplined team approach to acquisition assessment is so effective and leads to a much higher rate of successful business integration.

  • Every member of the team, hears all questions and answers. This builds a broad understanding of and far deeper background on the business than can possibly be gained from reading a Deal Book or gaining knowledge second-hand from someone who was there.
  • Each Deal Team 6 member gains an understanding of the business on an intuitive level as well. They see the facilities and gain an intangible perspective on the business that can only be developed by meeting the selling company management face-to-face. There’s an element of context and intent that adds invaluable color to what otherwise might simply be a sterile, factual or suspicious answer to a question. To put it another way, it’s one thing to look at a photo of the Eifel Tower but something completely different to experience it in person.
  • Once the deal is done, The Deal Team 6 then owns the responsibility to effectively integrate the new business into the parent company. There is a tremendous art and science to deal integration that I will address in a separate blog.   Needless-to-say, deal integration success improves exponentially with a Deal Team in place and a highly organized and disciplined process.
  • If the CEO allows his Deal Team 6 to openly assess the Strengths, Weaknesses, Opportunities and Threats of the deal at the end of the diligence process and those attributes are heard and fully vetted, the Team becomes more cohesive and motivated to deliver results because they were heard and concerns and ideas were addressed should the CEO choose to close the deal.

Merger, acquisition and integration work is a combination of art and science. It is infinitely more effective and successful if approached on a team basis, leveraging the collective knowledge and experience and, with a rigorous process in place.

Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me at cbishop@capitusgroup.com. I’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.

Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.

 

Thinking about transitioning from your business?

 

By Dave Raden

Principle, Capitus Group

Let’s talk about how to increase Corporate Value and decrease Business Risk?

In a recent article, I provided an overview of a 4-Step Transition Plan for your business:

  • Discovery
  • Options Assessment
  • Strategy Selection

 

  1. Plan Execution. And then a following article discussed the first part of Discovery-Personal Transition Preparation.The second part of the Discovery step involves an objective evaluation of your company including understanding where the company lies in its lifecycle and what its value and risk parameters really are. It is very important to understand how to properly use Corporate Valuation Enhancement along with Business Risk Reduction concepts to ensure that you are achieving the personal ownership goals described in my previous article.Let’s start by understanding where your company is in its business lifecycle. Let’s define the stages as:
  • Early
  • Growth
  • Mature
  • Regeneration
  • Transition For today’s discussion we will assume that most companies looking to transition are not in the “Early” stage. But knowing what stage in which your company currently resides is important to know in to preparing for the final “Transition” stage.   Below are specific challenges of the other three stages:
  •  
Growth Maturity Regeneration
Challenges Profit/Value Strategy   Focus/Execution Competitive Strategy Reassessment
Resource Allocation   Infrastructure Development Maintain and Optimize Reconfiguration
Capital Requirements   Capital Structure Complexity Maximize Capital Efficiency Re-Evaluate Needs
Human Resources   Build Professional Mgmt. Team Maximize HR Efficiency Match to New Needs
Prod/Svc. Development   Expand Product Offering Optimize Quality and Service Create New Offerings
Systems   Scalable Systems w/ Metrics Refine/Improve Systems Match to new needs

 

 

Please be aware that the lines between these three stages may overlap. For example, in a manufacturing company I owned in the flexible packaging industry, we were a mature 30 year old business growing top line revenue over 10%. But we were really in a Regeneration stage.

We had six color presses in a market demanding up to 10 color print capability. If we didn’t spend millions in the near future on new equipment, our business would be lost to our competition. Frankly we also needed to do significant work in all of the challenges above in blue under the Regeneration box.

At that point in time, while our historic revenue and EBITDA growth looked good, our business risk was high which could potentially negatively affect corporate value.

So to enhance value through risk reduction, a process of objective evaluation of the specific functional areas of business needs to be initiated. There are several tools that can be employed that range from using due diligence checklists to computerized models.

As an example of one such tool, we have found that a model developed by Kenneth J Sanginario of Corporate Value Metrics that is called the VOP, (Value Opportunity Profile), not only gives a current corporate value baseline but also designates risk areas that are stated in three levels of importance. Also, it provides guidance on the potential increase in corporate value if improvements are made. The specific issues that need improvement can then be incorporated in your business plan.

To utilize the VOP, you first enter financial information for at least three but preferably the last five years along with expected future growth potential.

Then over four hundred questions are posed to your management team in the following eight functional business areas:

  • People
  • Leadership
  • Sales
  • Operations
  • Finance
  • Marketing
  • Planning
  • Legal

This model was designed by corporate valuation experts so it gives a baseline valuation from the uploaded financial information and answers from your company team. While it then lists specific things that need improvement in a prioritized list, the developers realized that rarely can all of these be accomplished at once. You can “what if” the model with those issues you want to tackle first and see how much value improvement can occur with successful execution.

The take away after using a process to delineate where your company truly resides in its lifecycle. It helps you to develop a baseline value and examines current business risk along with some ways to reduce it. Further, it allows for better preparation to assess your transition options in Stage 2 of our process.

Whether you are beginning to prepare for a transition or just want to make your company more “saleable”, utilizing a formal process will help to enhance your EBITDA and reduce future business risk.

To quote Gary Miller of GEM Strategy Management, “Begin planning early, prepare your company to go to market, select an interdisciplinary team of experts who can work together, monitor the team with a lead consultant and execute the plan when the timing is right.

Planning to meet ownership goals is not something to start a few months before a potential exit. It is a process that can take from two to five years to successfully execute.

Next time we will explore Stage 2-Options Assessment. We will discuss how to put the right team together to make sure all viable options are put on the table that will best assure that ownership goals are met.

Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me at cbishop@capitusgroup.com or to the author of this article, Dave Raden at draden@capitusgroup.comI’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.

Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.

 

 

 

 

 

 

www.capitusgroup.com

10 Reasons Why the Odds are Stacked against You When You Decide to Sell Your Company

The law of supply and demand is in full force when it comes to the likelihood that most private company owners will be able to sell their company at all or else, sell it for anything close to the value they expect to receive.

The following compelling, if not overwhelming statistics come from the likes of Pepperdine University’s Private Capital Markets Project, Price Coopers Waterhouse, The Exit Planning Institute, INC. Magazine and the Small Business Administration.

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Every one of these metrics is working against company owners’ ability to sell or even transition their company to the next generation.

  • Over 10,000 baby boomers turn 65 every day.
  • People age 55 and older own over 30% of all companies with employees.
  • Over the next 12 to 15 years, over 8 million companies will be sold
  • Or, looked at another way, 35% of businesses are owned by people over age 65.
  • The average business owner retires at age 71. What do they do if they have no buyer at that time?
  • 83% of business owners want to see their business continue on.
  • 80% of businesses will never sell. They will simply wind down and close their doors.
  • Only about 33% of boomer companies successfully transition to the second generation.
  • Worse, only about 13% of boomer companies successfully transition to a third generation.
  • Even now, in one study, only 8% of companies listed for sale today with revenues under $30 million will actually ever sell.
  • A 3 to 5 year exit planning window is ideal but a minimum of two years is a must. Way too many business owners simply wake up one day, decide to sell and are then shocked to find out what their company isn’t worth or that no one will buy it.
  • Finally, only about 13% of company owners have any kind of exit plan or timetable in place.

With these overwhelmingly unfavorable metrics amounting to terrible odds for a successful exit, it is frightening that only about 5% of business owners actually know the accurate value of their company. Value expectations are frequently wildly above market and they count on that windfall to finance their retirement. Then, they rarely calculate the net effect of that windfall after deducting the rapidly escalating impact of taxes.

Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me at cbishop@capitusgroup.com. I’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.

Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.