All posts by Abraham

Paul Hager: M&A opportunities in cybersecurity, clean energy and environmental sectors

What are the emerging sectors in M&A, and what does the emergence of these sectors mean for M&A? Paul Hager, one of our partners in the United States., analyses the situation in this interview.

From communications technology development and international policy negotiations to ONEtoONE

What is your professional background?

My professional background is diverse. I began my career in communications technology development. Then, I worked in international policy negotiations as a U.S. Representative to Europe.

In this work, a high premium was placed on anticipating the technological, economic, and political pressures that might pose the next set of challenges and opportunities.

How can companies achieve strategic growth?

There are different ways to achieve this: through building better business models, using investment strategies, leadership teams, operations, and financial structures.

From 1995 onwards, I founded technology companies and led the strategic management consulting practice for a Fortune 500 company – Science Applications International.

A common factor in my work has been the focus on the strengths (value) and weaknesses (risk) of companies. That is, establishing the value and risk of companies relative to changing business environments.

How did you join ONEtoONE Corporate Finance?

My joining ONEtoONE was an opportunity for me to continue my passion in helping companies reach greater business success more quickly through strategic acquisitions or divestitures.

I have found my ONEtoONE team members to be incredibly knowledgeable in their respective industry markets. They are also dedicated to achieving results that optimize value for each client.

I think the quality that sets ONEtoONE apart is its team-focus approach to identifying and capturing that value for clients. My colleagues know that a team that contains talent tailored to meet each client’s M&A goals will deliver the greatest value.

That, plus the excitement and opportunities that come with working with M&A experts from around the world.

Emerging sectors of M&A: the future of cybersecurity, clean energy, and environmental M&A

Over the past twenty years, my work as a financial advisor has included asset valuation, investment strategies, due diligence, and terms negotiation. I have led valuation and diligence projects for corporate clients in Europe and North America.

The core of my investment strategy work has been to ensure prospective buy or sell decisions are aligned with the company’s corporate “purpose” and business model.

I believe ignoring this alignment is the first step toward an unsuccessful M&A effort. Fundamental to my advisory role is to clearly identify the true value of any company – whether that company is to be sold or purchased.

What do you think are the emerging sectors in the M&A world?

As an expert in the clean energy, environmental, Internet, and cyber security technology industries, I expect that these sectors will generate major M&A opportunities in the coming years.

Why are these the sectors with the strongest M&A activity?

In the cybersecurity sector, there has been continued consolidation and expansion of competition since 2017.

For example, Thales’ December 2017 purchase of Gemalto for $ 5.43 billion exemplified the traditional process of a large technology firm augmenting its security services portfolio.

Symantec’s sale of its website and key management security services for $ 950 million. At the same time, it purchased mobile (Skycure) and enterprise (Fireglass) capabilities.

In its strategy, it emphasised its refocusing on services. This enables them to address better the growing global demand for dynamic, scalable mobile security technology.

What motivates this interest in cybersecurity companies?

Cybersecurity M&A seems to be fueled by companies’ need to better align their services and technology offerings to quickly-changing technology and application platforms.

Between 2017 and 2021, the cybersecurity market spending was estimated at $1Trillion. As of 2018, cybersecurity’s $ 232 billion level of M&A and funding activity expanded at least at the market’s 15% growth rate.

What about clean energy and the environmental M&A sectors?

M&A growth within the clean energy and environmental services markets appears to be a result of accelerating technological advances and rapidly expanding market demand.

Volume in renewable energy M&A volume has increased yearly since 2010. In 2017, 406 deals represented $ 360 billion in value, up from $ 293 billion in 2016.

Excluding the purchase of large-scale infrastructure/yieldco assets, the M&A volume drops to $ 45 billion.

What was the reason for this boom?

Accelerating technological advances in energy production, storage, delivery infrastructure, and use are now forcing companies to buy innovation. This innovation manifests itself in terms of integrated energy generation and completion.

What deal volume is expected in these emerging sectors in M&A?

I expect the volume of deals to increase, even though the average deal size may remain static.

The cross-border volume for clean energy M&A is approximately 46%, with nearly half of that taking place in the United States and Europe.

Cross-border volume for cybersecurity M&A is approximately 32%.

Current tech and cyber security mandates

I am currently working with a software company that provides advanced technology solutions for high-integrity software design, development, and testing for commercial and government clients – specifically in the areas of defense and law enforcement. The company wants to acquire a firm that holds a differentiated space within the software engineering capability. Located in California and New Mexico, they offer support to government defense clients.

In addition, I am working with two cyber security companies, one in Canada and the other in the US. They specialize in cloud and blockchain security technology for the commercial market. Both will be a sell-side mandate.

Will Paul Hager‘s expectations for these emerging sectors in M&A be fulfilled? What seems clear is that we are moving towards an increasingly focused environment on technological development.

Also, a greater awareness of the need for sustainability and care for the environment.

Whatever your company’s sector, our expert advisors will make the most of any corporate transaction you need to undertake.

If you want to find out more about the expertise of our partners, have a look at the “ONEtoONE Team” section

THE BUSINESS PLAN: THE PATHWAY TO BUY A COMPANY

“Do that which you fear to do, and the fear will die.”- Emerson

The business plan consists of using numbers to determine how you are going to get where you want to get, what measures you will take, how much they will cost, and what economic results they will have. It is a natural extension of the strategic plan. In the long run, it will also help you see if you are advancing in the right path.

Why could the business be considered the pathway to the purchase of a company?

The business plan is the layout and budget; it details how you are going to assign the resources, how much each project will cost, and what objectives you will establish. Therefore, it should include a financial model. It must build a bridge between the past and the future of the company.

It has to do with a fundamental element because you may not only require money to purchase a company but also to make the necessary changes so that the purchase is successful.

This plan incorporates the tactics that you will implement to reach your strategic vision and the investments to carry out to achieve it. You might not need investment but rather an improved focus and assignment of costs. If you do it well, you will know the amount of money you really need and when you need it.

If you want to purchase the affiliate of a multinational, maybe the cost structure of the corporate services pressure profitability too much or there is too much bureaucracy and it dampens decision-making and commercial effectiveness. It could also be that the corporate strategy is not a good fit for the country. If you are aware of this, you will be able to show a financial investor that the profitability could grow much more if the company breaks from the corporate mold.

If the seller is a businessman and you see that it does not function with the same force as it did a few years ago, that it has slowed down, that the costs are too high, that corporate energy is lacking, that there is bad circulation of money, and that the money is lost in the details, you might see that there is the possibility to create a lot of value with a more aggressive and professional management. However, you will have to show it.

These are the messages that you will transfer to a financial partner so that he or she invests in the project alongside you, buying a company for the value that it creates and later managing it to create even more value.

How you transmit the messages of the business plan will be decisive. Since you will not be investing much money yourself, your value will be in the credibility of the documentation that you prepare (the proposed operation and the strategy to increase profitability). If your credibility is of high quality, you will find investors and they will put a price to your idea. If not, you will not have an operation to begin with.

If you want to have a financial investor, you should incorporate an exit strategy in the business plan. Venture capitalists will dedicate 50% of their time to study if it is worth investing in the company and the other 50% to analyze how they could leave in four or five years. If you want to attract investors, give them something to think about.

Be careful with your projections. If they are too low, they will not be attractive since financial investors look for profitability above 20%. If they are too high, they should be well-supported because, if not, you will lose credibility.

It is true that the projections you make will benchmark you. Investors will ask that you comply with them, and if you do no reach them, they will penalize you. Therefore, I recommend that you be conservative and leave room for error.

Venture capitalists invest in only one or two companies for every 100 offers that they receive. Thus, it is very important that your business plan be of high quality if you want to get past the test. You could ruin your chances with a bad business plan.

If your business plan is presented by an investment bank, they will be much more interested in it, and it will have the structure that they are looking for. It is worth it getting help from professional, specialized advisors.

The layout of a basic business plan

Below, I explain the basic layout of a business plan:

–Executive summary: two or three pages that summarize the opportunity, numbers, price, company, sector, management team, growth strategy, expected profitability, and exit strategy. The investor might only devote five minutes to it, and if, in this time period, you have not gotten his or her attention, your document will go straight to the trash. Therefore, the quality of the executive summary is fundamental; potential investors might not read more than that.

–Company: show its products, organizational chart, facilities, production and sale methods, clients and suppliers, competitive advantages, and its position in the industry.

–Sector: clarify your sector and subsector in which you operate, its size, actual and projected growth, margins, competitive landscape, and tendencies.

–SWOT: show the strengths, weaknesses, opportunities, and threats of both the sector and the company.

–Competitors: how many players exist, who are the most important five actors, who competes directly with your company, what are your competitive strategies, your margins, and your balance structure. Also mention your potential competitors.

–Strategic opportunity: describe the strategy that you will develop to take advantage of the competitive opportunity, what advantages the company has and the actions that they will take, and what the expected results are.

–Management team: the background of the executives and why they are the ideal people to lead the company according to a new strategy that will provide more margins and profitability.

–Numbers: show the numerical results of the previous three years and the projections for the results that you will have under your management in the following three scenarios: optimistic, realistic, and pessimistic. Explain how you will invest the additional capital.

–Profitability: explain the expected profitability under each of the scenarios and the risks of not achieving them.

–Exit strategy: some options for the investor consist of growing the company through acquisitions or selling it later to a foreign company, going public, or selling to a larger venture capital firm.

This article was written by Enrique Quemada – President of ONEtoONE Corporate Finance

Your might also be interested in “THE STRATEGIC PLAN: THE KEY TO CREATING VALUE IN THE PURCHASE OF A COMPANY”.

Investment Opportunities in Russia’s Growing Agriculture Sector

As the world’s population and demand for food continues to sharply increase, a major looming question for policymakers, investors and communities is, “Where will increased food supply come from?” While additional food production will depend on various factors, including government policies, private sector investment and technology, one country that will likely play an increasingly important role in feeding the world is Russia.

Since 2000, Russia’s grain exports have rapidly grown and in 2017 Russia surpassed the United States to become the world’s largest exporter of wheat. In addition to its current agricultural production capabilities, climate change may make many millions of additional acres in northern Russia available for farming. This, combined with planned expansions of Russia’s export infrastructure, broadening export markets and a planned increase of fertilizer use, could increasingly place it in a position of global agriculture sector leadership.

This article provides a brief overview of the Russian agriculture sector, how it has been impacted by economic sanctions in the wake of Russia’s annexation of Crimea and its great potential going forward. In addition to having major world food supply significance, this will create significant opportunities for global agriculture sector investors.

A Snapshot of Russia’s Agriculture Sector

The largest country in the world, Russia has approximately 1,282,500 square kilometers of arable land. While the key drivers of Russia’s economy are oil and natural gas exports, the agriculture sector is also important and currently comprises approximately 4.7% of Russia’s GDP.

Russia’s most important crops are grains, sunflower oil and corn. It is one of the world’s top producers of wheat, the world’s largest producer of sunflower oil and an important producer of corn. In addition to grains and vegetable oils, Russia also produces and exports many other food products such as barley, fish, meat, dairy products, fruit and nuts.

Russian food products are exported around the world. Russian grains, for example, are exported to over 120 countries. The main export destinations for Russian grains are North Africa, the Middle East and the South Caucasas. The main export destinations for Russian sunflower oil are the CIS countries, China, Turkey, Egypt and Iran.

The Macroeconomic, Geopolitical and Climate Context

Since 2014 Russia’s agriculture sector has been impacted by a number of major macroeconomic and geopolitical events. The first event was the collapse of the price of petroleum, Russia’s most important export. Between 2014 and 2018 the price of oil fell from US $103 a barrel to a low of US $39 a barrel and the price is currently US $61 a barrel.

This has had several important consequences for Russia, including pushing the Russian economy into recession, causing a sharp fall in the value of the rouble and a causing a drop in Russia’s foreign currency reserves. The rouble’s devaluation caused the price of imports to sharply increase which in turn created strong upward inflationary pressure. In 2015, the inflation rate in Russia was over 15%, its highest level in a decade.

A geopolitical development that has had an important impact on Russia’s agriculture sector is the economic sanctions against Russia. Following Russia’s annexation of Crimea, various countries implemented several rounds of economic sanctions against Russia. In response to these sanctions, the Russian government banned food imports from several countries and areas, including the United States, Canada and the European Union. Following this, the structure of Russian consumer food consumption significantly changed. Between 2014 and 2018, the percentage of food consumption that was based on imports fell from approximately 37% to approximately 22%.

A third set of events, whose cause and significance still remain difficult to analyze precisely, are temperature increases and extreme weather events. What is clear is that due to several years of highly favorable weather conditions Russian grain production has sharply increased. In 2017 Russia become the largest exporter of wheat in the world, exporting nearly 28 million tons. It is expected that the 2017-2018 harvesting season will produce about 133 million tons of grains, of which approximately 45 million tons will be exported. It is expected that about 32 million tons of these exports will be comprised of wheat.

Agriculture Sector Potential and Obstacles

The Russian agriculture sector has massive potential going forward for several reasons, one of which is rising global temperatures that may melt snow currently covering massive areas of potential farmland. According to one report, global warming could create an additional 140 million arable acres of land in Russia. This, combined with an additional use of fertilizers and technological developments, could exponentially increase Russian agricultural production capability.

Additional production capacity has the ability to be matched with new markets. Vladimir Putin’s vision of a Greater Eurasian region and the possibility of great economic integration with China, a massive source of food demand, could significantly increase export market depth.
Russia faces, however, major challenges to building its agriculture sector. A major current challenge is its weakened economic condition due to low oil prices and the weak rouble. This has made it much more expensive to import needed agriculture machinery. Further, weakened central government finances have made it more difficult to support the agriculture sector with subsidies, a key component of Russia’s overall agriculture sector public policy.

Another major obstacle to Russian food export sector growth is infrastructure limitations. Russian traders have lost access to ports in the Ukraine, which has limited export capacities. Several upgrades to Russian ports and terminals are current being built or are planned, but it is unlikely that these improvements will have a major impact on grain export capabilities for at least a few years. One of these ports is a new grain facility that is planned to be built at the sea port of Zarubino, near the Russia-China border.

Russia’s great size also creates opportunities as well as challenges. While Russia is uniquely positioned to supply markets in Europe, Asia and the Middle East, due to its immense size and the fact that many places with great agriculture growth potential are in areas that are not highly populated, it will be a challenge to put in place, not only agricultural product storage and transport infrastructure, but also the communities required to support significant further agriculture sector development.

Investment Opportunities

The current and potential future economic and agriculture landscape in Russia creates many investment opportunities. These include:

-investing in farming companies that have production growth strategies

-investing in company or investment funds with agriculture-driven infrastructure strategies, including ports, roads and logistic centers

-investing in companies whose business models are based on agriculture sector inputs, including agriculture machinery, agriculture equipment and fertilizers

-investing in companies in the financial sector that can complement or increase existing agriculture sector financing sources

Conclusion

The already important Russian agriculture sector has the potential to grow significantly in the years to come. In addition to having major significance for global food supply, this will create many investment opportunities for global agriculture sector investors.

This article was written by Darin Bifani. The photo for this article was taken by Nitin Bhosale.

If you would like to discuss potential agriculture investment strategies in Russia or other parts of the world, please contact us!

Why you need a professional for selling your company

What skydiving and selling your company have in common

In this article, written by Jeroen Maudens (ONEtoONE Partner in Belgium), we will discover that selling your company has something in common with skydiving. As in skydiving, to sell your company you need someone to team up with, a guide, a professional, an advisor. The jump is yours. The decision is yours. The company is yours. The guidance is not.

Selling your company and the skydiving metaphor

Skydiving is crazy stuff, we all agree on that one, don’t we? It is not natural to us. Most people think about it for months or years before they actually take action and book D-Day in their calendars. Before committing we make sure to get the right place to jump (I had mine in SPA, Belgium) with the best instructors and, preferably, a record of low to zero accidents! Bizarre, skydiving is not rocket science. You just go to the airport, check the parachute, do the safety drill, read the instructions, suit up, board a plane and jump out. Voila, done, piece of cake!

Yet nobody does this on their first attempt, we all go tandem. We all wish to be in the safe hands of a professional instructor. Someone that has done it many times before and still goes home every evening in full health. Why? Because you would risk not pulling the string up there? No. You would end up in a rollercoaster of emotions and pull the string too soon… or too late? Due to the sensation you might forget how to carefully navigate towards the dedicated landing spot or use the wrong technique in landing, since it is your first time and risk breaking a leg doing so. In the worst-case scenario, you end up paralysed or even death.

The most probable scenario though, is that you will not jump at all. You will back out at the exact moment when the door opens, and you see 4,000 meters of air and clouds between yourself and planet earth. On the moment of truth, you will step back, tell yourself it is not worth risking your life and keep on wondering your whole life how it would have been to have jumped, to have done it. You will hear about the amazing sensation of freedom, and you will never have experienced it yourself.

How does skydiving relate to selling your company?

Selling your company is a once in a lifetime operation for most people. Yet many try to do it all by themselves. It is the financial operation of a lifetime, the fruit of years of hard labour and sometimes financial struggle, hard decisions and risky investments.

Just because you know your company best, you might think that the best salesman for your company is… you. Wrong! You might learn how to prepare, valuate and market a company. Many books describe what a structured auction should look like and you can find templates for NDA’s, non-binding offers, binding offers, LOI’s and SPA’s all over the internet.

The lowest price is not always the best deal.

One thing though you do not have: The experience of the right mix in timing, nuances, finesse, experience and contacts to create the upside you deserve in your once in a lifetime operation. You need someone alongside you that manages the process and guides you through negotiations when emotion takes control of you. You need somebody to give you that push when you feel like backing out last minute because of fear of the unknown. You need an expert in selling companies, not a manual on how to sell your company. You need someone to team up with, a coach, a guide, a professional, an advisor, a friend. The jump is yours. The decision is yours. The company is yours. The guidance is not. Do not jump alone, get help.

If you are interested in learning more about selling a company, take a look at SELLING YOUR COMPANY AND THE IRREPLACEABILITY PARADOX.

Sandy Garrett: M&A Opportunities Abound Across the Board in Tech

An interview with Sandy Garrett, Partner in the United States.

From IBM to Wall Street to ONEtoONE

I’m uncomfortable being comfortable. After Columbia University, I went on to IBM and worked on developing many technological firsts while pursuing an advanced degree in computer science. I then transitioned to Wall Street, working as an analyst and later chief risk officer for the tech sector in several firms. Following this, I founded Venlease Associates (The Garrett Group), providing debt capital to emerging companies. Since selling this business, I have pursued M&A and encountered ONEtoONE, a highly ethical company that puts the interests of the client before self.

At ONEtoONE, we are all accomplished in our own right and can create the right team to optimize our performance for each mandate. As an example, an entrepreneur was referred to me with the goal of acquiring a specific target using an ESOP to gain a bidding advantage in what he expected to be a competitive auction. At the time, I knew nothing about ESOPs applied to M&A. Using the ONEtoONE platform I reached out, found a partner well versed in this matter. Prior to ONEtoONE, I would have passed on taking the transaction. Similarly, I have been able to put together different ad hoc, high quality teams to help complete mandates I could not have otherwise accepted.

M&A opportunities in tech sectors

We’re now well into the throes of the knowledge revolution. Creative destruction abounds; there are sky high valuations due to the confluence of strong global economic growth, booming global consumer confidence, and exceptional global liquidity. Now is clearly the time to be a seller.

Much of our role in ONEtoONE, including mine, is to advise our clients how best to position themselves to be attractive to lenders and/or optimize valuations. This applies to fund raising, non-controlling investments, or acquisition. However, at the same time, we provide them with an objective perspective regarding the investor community.

The future of tech: biotech, renewables, high tech, and semiconductor

Successful early middle market companies have a well-defined, albeit sometimes narrow, focus that can cause them to miss opportunities. In biotech, many companies look at large markets, but lose sight of the economics and reimbursement issues behind, for example, personalized medicine, particularly in immunotherapy. Finding a strategic partner sooner, rather than later, may cause entrepreneurial management to miss unicorn status, but may also prevent a technology from hitting a stone wall while seeking funding for Phase II or Phase III.

Government support to renewables is finicky, creating risks and lowering valuations. However, as some products become sustainable without subsidies, growth capital and M&A capital are becoming highly prevalent. Projects that have reached the performance stage of long-term cash flow such as PPAs are increasingly in demand. ESG investing is getting out of the nascent stage and ever larger funds are coming together creating an extraordinary capital raising and M&A global opportunity for biotech, healthcare related services and renewables.

Low capital investment opportunities favor tech. Software, IT services, logistics, data analytics, to name a few, command values no longer based on EBITDA or revenue, but rather on future potential related to synergies and roll-ups. AI and Block Chain are just now creating their own revolution destroying many businesses and creating many new ones. Companies that don’t have the resources to play the game need to seek acquirers that do. Companies that do have the resources need to move and grow faster, raising capital, merging with complementary partners, and/or making acquisition.

The semi industry has matured and has become cash flow positive. While still requiring extraordinary technical expertise and capital investment to participate, there is so much talent available; most products are evolutionary and commodity-like in nature. Supply chain and time-to-market may be more important factors in survival than raw technology. This suggests targeted strategic alliances and intelligent acquisitions rather than simply additional fund raising for growth. Size is not the issue as Broadcom’s unfriendly bid for Qualcomm demonstrates and Qualcomm’s friendly bid for NXP.

Cross-border opportunities between US-EU-ASIA in tech sectors

Business today is global. Upstream and downstream opportunities abound cross border. The rise of the middle class in India and China and record low unemployment and high consumer confidence in the US are giving rise to a consumer related bonanza for many companies. This is putting further pressure on all the sectors I follow for middle market companies to grow faster and/or develop strategic alliances.

China and India strategies are musts to survival. India has become the fastest growing country in Asia. China is still targeting GDP growth in excess of 6% in the coming years. Chinese and Indian companies are beginning to expand globally and making investments and acquisitions everywhere, especially Europe and Africa. China wants to lead the semiconductor and high tech industries and is rapidly moving up the value chain. India is a highly fertile ground for biotech, health related services, and software development.

Current tech mandates

I am currently leading two main mandates. The first is an outstanding specialty chemical distribution company in India, accelerating its emergence as a manufacturing company and looking at prospective 4X revenue and 10X EBITDA in five years. Additionally, I mentor the initiator of venture debt in India that created the dominant (over 60% market share) provider of venture debt not only in India, but China and SEA as well. They recently left to start their own fund with a first close from Indian investors. We are working on raising a second close from LPs outside India.

I am also participating, but do not lead, mandates on an outstanding event planning company in Europe and the leading Spanish travel agency for winter and ski related vacations. Given my strong connections to global banks and lenders through my years of semiconductor financing, I am looking into collaborating with many of my partners on real estate transactions requiring both debt and equity.

THE STRATEGIC PLAN: THE KEY TO CREATING VALUE IN THE PURCHASE OF A COMPANY

“The best brands never start out with the intent of building a great brand. They focus on building a great – and profitable – product or service and an organization that can sustain it.” – Scott Bedburry, branding consultant and CEO of Brandstream

If you detect a true opportunity, the key to success is not in buying the company but rather in creating value in addition to the purchase price. To see if that is possible, you should work on a plan that explains why it is an opportunity, what you are going to do, and how you are going to do it.

The strategic plan in the purchase of a company

The strategic plan consists of determining the competitive position that you want to obtain: how the company will go from where it is now to where you want to take it, what mission and vision you have for it, and what you will communicate to your team.

This has to do with the competitive strategy, the alignment of all of the organization with a common and clear focus that will allow you to differentiate yourself from your competitors and create value. The focus, a principle motive, as Jim Collins says in “Built to Last,” is the fundamental reason why your company exists. Apart from making money, it is the only thing that should not change in your company.

The more robust your strategy is, the easier it will be for all to achieve their goals; they will all be aligned in the same path. Keep in mind that strategic misalignments are what kill the efficiency of organizations. The result of this alignment is coherency; lost resources are the result of misalignments.

Your task as a leader will be to define this vision, making it tangible, memorable, and inspiring. To have a good strategic plan, you should deeply understand the competitive environment of the company, make the right assumptions, and design mechanisms that coordinate the key processes in the organization so that they function in an aligned matter toward a common goal.

Apart from this clear and focused strategic plan, you will redefine the products and services, marketing, operations, commercial model, type of professionals that it needs, compensation systems, and technological developments. When you align everything, you will achieve success, and the company will run like a machine.

Strategy and leadership

The vision should not impose but rather inspire. Your team should internalize it; if they do not buy into it, forget about having success as a company. In order to do this, leadership is crucial, since leading is helping others understand the strategy.

Team members love to have a leader with a clear strategic vision, although it is true that once you explain it to them, you should be absolutely coherent. The bigger the difference between what you say and what you do, the more disheartened your team will be. Each action that you take will have massive implications in your team’s morale, for good or bad. Your actions speak louder than words.

If you are ambiguous with the strategy, send mixed messages, or act inconsistently, this will always be interpreted negatively by your people. Therefore, be as clear as possible. A way to achieve this is by saying “no” to all opportunities that are not aligned with your strategy.

If you want to be successful, try to have everyone on board with the new project, rely on them, explain it to them, consult them, and listen to them. Strategic alignments are not achieved in the company leadership but rather in the face-to-face interactions with the employees. Be aware that there is always a tendency for people to feel left out. Fight against it.

If you want your company to grow much faster than its competitors, you will need more than a differentiation factor; you will need a radical differentiation factor, meaning that you find a new space in the market that you can possess and defend.

This article was written by Enrique Quemada, Chairman of ONEtoONE Corporate Finance Group.

If you are interested in learning more about buying a business, take a look at THE 10 MOST COMMON OBSTACLES WHEN BUYING A COMPANY.

Selling Your Company and the Irreplaceability Paradox

An old rule of thumb is that if you want to succeed in business, you should make yourself irreplaceable. Whatever the merits and demerits of this strategy might be in some work environments, if your objective is to sell your company, irreplaceability is often a major drawback that can scare investors away from otherwise great companies and prevent deals from going through.

Regardless of its merits in some work environments, irreplaceability is often a major barrier to selling a company.

The Concept of Irreplaceability

One strategy that some people adopt at work to strengthen their position at a company or with a client is to make themselves irreplaceable, a situation where it is very difficult or impossible to find a person who can do a job in the same way that they can.

Irreplaceability refers to a situation when it is very difficult or impossible to find a person who can do a job as well as another person can.

There are two sides to irreplaceability, positive and negative. On the positive side, irreplaceability may be the consequence of unique talents that a worker has or special relationships that have been built up over many years due to excellent work or other strong personal or professional bonds.

On the negative side, irreplaceability can be achieved not because of a specific skill but rather due to a person working in such a way that it is hard for other people to replicate that person’s work. This difficulty in replicating another person’s work might arise due to the facts that:

-information that is vital to how a firm functions may be “in a person’s head” rather than set forth in a place that other people can easily access

-a client relationship may be developed in a way that a client is really the client of a person rather than a client of a firm

-the status of firm or work matters may not be reported so that other people can quickly react to business opportunities and risks.

The Irreplaceability Paradox

Regardless of how useful irreplaceability may be for securing and maintaining a position in the workplace, if you are interested in selling your company it is a major drawback. Many investors will not invest in companies with strong irreplaceability components and if they do, they will generally discount the purchase price significantly because of them.

There are three key reasons for this:

–Company Value Risk. The first reason, not surprisingly, is that if you are the only one who can do certain work or maintain relationships with clients or third parties that are vital for a business, once you are gone investors will not be able to effectively run the firm, firm value will be lost and investors will lose money.

–Scalability Limitations. The second reason is that investment returns often heavily depend in private investment transactions on a company’s growth. Companies whose key value drivers are organized into invisible and irreplaceable silos are often extremely difficult if not impossible to scale.

Companies whose key value drivers are organized into invisible and irreplaceable silos are often extremely difficult if not impossible to scale.

Investment Exit Limitations. The third reason is that most financial investors in a company do not make an investment with the objective of holding an investment indefinitely. They often invest with the goal of retaining the investment for a fixed period of time, such as five or seven years, overseeing a company’s growth, and then selling it. Companies with high irreplaceability components are extremely difficult to resell farther down the road.

Overcoming the Irreplaceability Paradox

Keeping in mind these issues, persons who are interested in selling their companies should strive to put in place work methods to avoid high degrees of irreplaceability or the perception of irreplaceability. This involves several practical steps.

Information Access. The first step that a business can take to avoid irreplaceability is that all key firm information should be stored in a place that is secure and easy to access. Ideally, vital information should be stored in more than one place or have appropriate back up so that technological breakdowns or human error will not cause this information to be lost and firm business operations to be affected.

Work Method Standardization. The second step that business owners can take is to ensure that work methods are, to the extent possible, standardized and publicized within a firm. Work approaches should be reduced to written form that people new to the firm can, with appropriate training and experience, review, understand and replicate.

Client and Third Party Relationships. The third step that business owners can take is to structure client and key firm third-party relationships so that they are with a firm rather than a person. This involves:

-Making sure that client and third-party relationships are set up through intake procedures that are defined by the firm and involve the participation of more than one person

-Structuring client and third-party relationships so that other firm members are brought in to the client relationship at appropriate times so the client understands that client work product is the effort of more than one person

-Creating a culture of firm and client integration so that over time client relationships become deeper across the firm.

Conclusion

Irreplaceability can significantly reduce the chance of selling your company or reduce the purchase price that buyers are willing to pay for it. To avoid these sale limitations, long before selling a company business owners with company sale strategies should put in place policies and procedures that ensure that a company ownership transition will not result in operational or financial lapses or losses that will make a company less attractive to potential buyers.

This article was written by Darin Bifani.

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Six Steps to a Great Business Plan

Regardless of what stage a company is in in its corporate life cycle, the market conditions it faces or how successful it is, it can always benefit from creating a strong business plan. In addition to serving as a constant guide for a firm’s entire team, a great business plan can help articulate a firm’s vision and strategy to many different types of external audiences that are vital for a firm’s success, including customers, financing parties, potential joint venture partners and counterparties in M&A transactions. This article identifies six steps that entrepreneurs and companies should keep in mind when creating and implementing their business plans.

Step #1 Create a Strong Value Statement

The basis of every business is its core values, the principles that guide a company regardless of the business conditions it faces and regardless of whether it is succeeding or failing. These principles are not only a firm’s internal compass; they are also the key bridge between a firm and the market it operates in. As Steve Jobs said in a well-known speech on marketing, given that in a noisy world with constant competition for consumers’ attention consumers will remember very little about a business, its values are what help consumers internalize an image of a business as not only a utilitarian set of products and services, but rather as a representation of the way consumers live and want to live.

Step #2 Create a Business Plan That is as Unique as Your Business

Many business plans simply state, in essence, that a business will sell more products and services and, as a consequence, its revenues will significantly grow. But even if two businesses operate in the same market, sector and segment, there will often be large differences in how they do business. This is because they have different people, different cultures, different ways of operating and different histories. Rather than being superfluous to a business plan, these differences are often a business’ heart and soul and what make it great.

Accordingly, rather than losing what is unique about a business through off-the-shelf business plan templates that are applicable to all firms in all sectors, a better approach is not to be afraid to throw out standard business plan formats and instead create a plan that clearly presents what is different about a firm, the opportunities it sees and how it plans to take advantage of those opportunities. Create a business plan that only your business can create and only your business can implement.

Step #3 Understand Market Force Allies and Adversaries

Businesses do not, and cannot, operate in an economic and financial vacuum. As the Chinese philosopher Sun Tzu said in the strategy class The Art of War, if you want to win in war you have to have a deep understanding of not only yourself but also others. In the business context this means clearly understanding the internal and external forces that work to your advantage and those that work against you. These forces are often different for every firm and can include factors as diverse as:

Employee morale.
The nature of a business’ competitors and barriers to competition.
Financial factors such as the cost of capital.
Microeconomic and macroeconomic variables.
Regulatory factors.

To create a strong business plan, it is vital to understand the internal and external forces that work in a firm’s favor and against it. The impact of these factors can also change with positive forces creating risks and negative forces creating opportunities.

It may sound straightforward, but truly understanding our businesses and the market around us is far from easy. To understand market forces better than your competitors, it is important to have an analytical approach where assumptions about the market that are based on anecdotes about the market or unfounded perceptions are replaced with investigative processes that are designed to obtain empirical data and systematically apply that data to business plan hypotheses.

This data should provide a firm with not only actionable information regarding the current supply and demand for a product or service, but also the factors that affect that supply and demand, how they change, and factors that can affect those changes. To develop this type of vision of the market, it is necessary to both study the market from diverse perspectives and to have strong relationships with your target consumers and have a deep understanding of how they live, how they make decisions about products and services and how they use those products and services. Ultimately, every business is the sum of its clients.

Step #4 Plan for Uncertainty and Moving Targets

Business plans often paint a static view of businesses and the markets that they operate and assume that the only thing that a business needs to do going forward is more of what it is currently doing. This simplistic view of business operating realities, not surprisingly, often leads to situations where a business’ performance projections quickly deviate from business realities. Particularly for businesses that seek investment from outside investors, missing forecasts can cause investors to question a business’ credibility which of course can undermine fundraising efforts and other business initiatives.

Rather than assuming that an operating environment will be static, business plans should assume that many types of operating environments are possible.

Because of this, rather than view the future world as fixed target that will remain still as a business moves toward it, it is better to view it as a set of macroeconomic and microeconomic possibilities which have different sets of likelihoods of occurring. In this type of vision of the future businesses have to have the flexibility of reacting to different internal and market scenarios as they develop.

Step #5 Don’t Let the Long Term Become the Enemy of the Short Term

A business plan should be a document that not only inspires people to stretch for goals in the future but also provides a very concrete picture of the steps that are required to be taken to reach those goals. Businesses can fall into the trap of painting a clear picture of targeted future goals but not providing a clear path to the short term changes, quantitative as well as qualitative, that will be required of a business in order to meet those goals. A business plan fails if it cannot answer the question: “What should I be doing right now to be where I want to be tomorrow?”

Step #6 Review the Business Plan Every Day

Some companies prepare a business plan, review it once a quarter or less and then, if results fall short of projections, go through a period of internal questioning as to why the targets are not being met. However, a business plan should be a document that is reviewed on a daily basis and becomes a constant guide through changing business currents and an inspiration to meet the challenges it sets forth. It also should be a document that reflects the best of a firm and incorporates new firm wisdom as the firm grows, makes mistakes and learns from them.

Conclusion

Business plans can range from general statements of abstract goals that have little chance of being realized to living documents that play a large role in the day to day activities of a firm. There is no one correct way to prepare a business plan, but by creating a strong value statement, identifying a firm’s unique strengths, developing an objective methodology to understand the positive and negative forces that affect a firm, preparing for uncertainty, focusing on the short as well as long term and reviewing a business plan constantly, a business plan can play a major role in strengthening a firm’s business performance.

This article was written by Darin Bifani. The photo for this article was taken by Stephan Leonardi.

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You Can Destroy a lot of Value When Selling Your Business

You can destroy a lot of value while selling your business

When you receive offers for the sale of your company, you will also receive suggestions about different payment methods. The method you choose will have a huge impact on the final price of your business.

A buyer might propose to pay all or part of the price in his company’s shares; another might want to pay one part upon closing the deal and the other part over the following years according to the company’s results. Some buyers might even suggest paying in installments not based on results.

Vendor finance

Sometimes the buyer is not able to get financing or does not have enough liquidity and he asks you to finance the transaction (vendor finance). This way, he can pay you in installments.

It is obvious that the money comes from the results of the actual company, but this should not matter to you. However, it is important to understand that there is the risk that he will not be able to pay. It is important to note that, it is crucial to establish clauses that will give the company back to you if this is ever the case.

Paying in installments

Paying in installments is very common in service companies. Buyers are usually worried that the company’s client portfolio will go along with the business owner. By paying in installments, the buyer can guarantee a transition that will allow him to get to grips with the portfolio and build trust with clients while the previous owners are still linked to the company.

Exchanging shares

In others cases, the buyer might suggest a merger via exchanging shares.

If the buyer’s company is public, it will be more profitable for him to pay with the company’s own stocks. In these cases, they will offer to pay you more than if they were paying with money, and you should evaluate the quality of the buyer’s stocks. Are they overvalued? What chance is there that they will lose value? Only accept this offer if you have faith in the future of the company that is buying yours.

If the stocks are a bit illiquid, you can agree on a repurchasing of part or all of the stocks used in the deal within a specified period.

Combination of payment methods

Other times, the buyer’s company is not capable of getting more debt and so he pays for everything with a proposition of a combination of stocks and money. This is also possible.

Sale of company vs assets and liabilities

You should also define if the transaction is the sale of your company or the sale of assets and liabilities.

A sale of assets and liabilities is a cleaner transaction that usually interests the buyer because he does not have to take on the company’s past responsibilities, but it could affect you negatively; for example, tax is higher, so it is a good idea to be aware of its impact on the final price.

Negotiation

During the discussion, many topics are brought up. Even price has many faces, and you should understand the implications of the different methods of payment.

Mergers and Acquisitions advisors are specialists in negotiation. During the negotiating stage, a lot of the value that you will reap from your business is created or destroyed. Our clients often hire us just for this negotiating period, when they have received an offer to buy their company.

This article was written by Enrique Quemada, Chairman of ONEtoONE Corporate Finance Group. Book: How to Maximize the price of my company.

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Do you know what you are looking for when selling your company?

Do you know what you are looking for when buying a company?

You will find what you are looking for only if you know what it is that you are looking for.

When it is time to focus on what type of company would be the best fit for you, analyze your strengths, what sectors you have experience in, what type of clients have you developed a good network with, what geographical region you want to be in, and what type of business you feel the most comfortable in: manufacturing? Service? Retail? Wholesale?

The clearer you are in your search criteria, the more help you can get from others.

For example, let us assume that two directors come to see me. One of them explains to me that he is searching for companies that have a turnover of more than €10 million without giving me an explanation. However, the other says that he is looking for an graphic design company that has a turnover of more than €10 million because that is his specialty and that he has experience in leading various important groups in that sector. If an opportunity arises in the industry over €10 million, I will call the second client because he is a much more qualified candidate with many more possibilities of closing the deal since he is familiar with the sector and knows what he wants.

What geographical area interests you?

Even though it may seem counterintuitive, the more general you are, the more difficult it is for the consultors to think of you when the opportunity arises.

I remember a few directors who had worked in the construction sector who came to see me. They told me that they were interested in buying companies tat produced curtain walls. I discussed other opportunities with them but they discarded them; they had done a study and considered that the market would grow in this field and that the true opportunity for them was there. Since they were so specific in their demand, they were engrained in my memory and when an opportunity in that sector came up, I thought of them immediately.

Determine the characteristics of the ideal company

You should also clarify the turnover amount that interests you and the number of employees that would make you feel the most comfortable.

Determine if you want a company that needs restructuration and where no more funding is needed or one that is in good condition and would generate a steady flow of cash (i.e. a cash cow). Or perhaps, you are looking for one that is held hostage by its growth or one that has a lot of debt because you are an expert in negotiating with banks.

It could be that you are looking for a company that is involved in advertising or marketing because that is your strength, or you see yourself capable of generating better cash flow.

Whatever it may be, be clear on what it is that you are searching for. Once you have determined the most important elements of the company that you want, prioritize them.

I believe that experience in the industry is fundamental. The better you know a sector, the easier it will be for you to find windows of opportunity and the more difficult it would be for others to scam you.

Focus on what you can bring to the company

When you analyze a company, do not focus so much on what it does but rather on what you can do with it yourself. Does it have a reliable client base to which you can sell other products? Can the products that the company already produces have other uses by creating new markets? Do you have the capacity to take the company internationally? After that one, could you acquire more companies in the sector and that way create a relevant player in the sector?

Potential candidates

There are two types of clear candidates:

-The divestment of a division or small company that belong to a larger company: the larger company sells it because they no longer align with the strategy or because it has financial difficulties or because it has found a better opportunity and needs liquidity to finance it.

-The sale of private companies due to the retirement of the owner or conflict between the partners.

This article was written by Enrique Quemada, Chairman of ONEtoONE Corporate Finance Group. Book: ¿Puedo comprar una empresa? Yes, You Can!

If you are interested in learning more about buying a business, take a look at THE 10 MOST COMMON OBSTACLES WHEN BUYING A COMPANY.