All posts by Abraham

Company Relationships in M&A: The Differentiating Factor

If you consider just how much time goes into an M&A transaction, from extensive financial analysis to the intricate process of evaluating the target’s corporate culture, then you can imagine how disappointing it would be for a venture to fail due to poor company relationships. As it were, it is estimated that somewhere between 70% to 90% of M&A transactions fail to achieve all of their goals; it is fair to suggest that much of this would come down to poor relationships in M&A.

On face value, the concept of individual relationships within a company can seem rather trivial, but the reality is quite the opposite. Just like any functional group, success will largely be derived from how well the team is able to work together, and naturally, this will significantly depend on relationships within this group. In turn, the concept of fostering relationships must be taken extremely seriously within any business, and this is never more relevant in the context of a newly merged company post-acquisition.

The Importance of Company Relationships

With this in mind, a company must consciously and actively prioritise the promotion of positive relationships internally, to the extent that it can be considered a part of the company’s corporate culture. As we have alluded to in our previous article, the advantage of having a strong and balanced corporate culture cannot be overstated, and resultantly, the companies that dedicate the most time to developing it will often rise above those that fail to do so.

As such, the task of fostering company relationships is not just a job for top management and human resources, rather it is for each and every employee to truly embrace. Alas naturally, we as human beings will not always enjoy the company of absolutely everyone, but it is essential in a business context to put any differences with particular individuals aside for the sake of the firm’s success. As it were, a solid foundation of strong working relationships internally will exact a high degree of confidence within a team to deliver fruitful results, in a genuinely supporting environment.

How to Ensure That an Acquisition Is Successful

This latter point in particular, the maintaining of a supportive workplace, is absolutely essential for company morale. As a direct result of being apart of such an environment, incoming employees post an acquisition will be able to transition into the team much more comfortably in the knowledge that their colleagues will have their back from the very first moment. One of the crucial aspects of ensuring this is the case is creating a workplace that promotes open dialogue amongst its workers, in which employees can feel comfortable in discussing their feelings, ideas and perspectives regarding business operations.

One of the major benefits of an acquisition is exactly the fact that you will obtain individuals with varying opinions, and so to supress anyone with a difference of perspective is to truly waste an opportunity to improve the company. As a whole, this notion derives from the concept of trust. The sooner a company can generate a genuine level of trust amongst its employees, the sooner it will truly be able to promote the comparative advantages of individuals within the firm so to increase input overall.

Be Careful: Do Not Neglect Internal Company Relations

What is vital to consider that in this disruptive moment in time for the world of business, arguably the most differentiating factors of a firm are related to innately human-oriented skills and capacities. Be it personalised customer service, corporate communication or negotiation skills, these are all linked to interpersonal and emotional capacities, and it is unsurprising to see that the companies who most effectively maintain strong internal relations are the ones that will most effectively execute these differentiating external operations.

The other thing to recognize is that neglecting internal relationships can be as damaging and harmful to a company, as maintaining well-established internal relationships is beneficial. Resultantly, to set this in a sporting analogy, if your company fails to address internal relations whilst your competition does, it is the equivalent of losing two games in one as you see your competition climb the proverbial ladder above you.

The Acquisition Process Should Not Substitute Personal Communications

Overall, a happy company is a strong company, and this derives from the absolute foundations of team affairs. Particularly for companies with incoming acquisitions, if they brush off the notions of internal understanding, team bonding and healthy communication, then it is more likely than not that they will encounter unwanted problems in the future. Even as early as the acquisition process, “data rooms and software tools should augment, expedite and manage the voluminous amount of data and information… but they should not be a substitute for direct, personal communications.”

After all, employees just like any human, are emotional beings and shouldn’t be treated in a mechanical or rigid manner. Overall, it is always in everyone’s interest to promote genuinely warm and open working relationships in any company.

ONEtoONE acted as Exclusive Corporate Finance Advisor to Securitas Belgium on the Acquisition of Services in Safety

ONEtoONE acted as exclusive corporate finance advisor, facilitating the acquisition process. Securitas AB is a security services, monitoring, consulting and investigation group, based in Stockholm, Sweden. The group has over 330,000 employees globally, of which 6,000 in Belgium. Securitas AB is listed at Nasdaq OMX Stockholm, Large Cap segment.

Services in Safety (SIS) is an Antwerp-based specialist in safety solutions. SIS tells 50 employees and has an annual turnover of c. €6m. This acquisition will help Securitas Belgium grow its presence in the Safety area.

Over the last decade, Securitas gradually expanded its scope of activities to become an integrated solutions provider. In recent years, Securitas showed sustained growth of its safety training activities (firefighting…).

“The accumulated knowledge and the presence of SIS in the petrochemical cluster in the harbour of Antwerp are an ideal addition to our services and client portfolio. Today we definitely entered the market of ‘integrated security services’,” thus Sven De Smet, Area Manager High Risk and Safety.

“During the conversations with Securitas it became clear that we had the same vision about the future of safety. We will also foresee the continuity toward our clients, by keeping our whole team, and by keeping me as company director. The synergies that Securitas offers as a multinational, are without doubt interesting for our customers”, concludes former owner of SIS, Joël Goffart.

About ONEtoONE

ONEtoONE, as a corporate finance advisor, contributed to the success of the acquisition process. ONEtoONE Corporate Finance Benelux is an entity of ONEtoONE Corporate Finance Group. The Brussels office offers M&A advisory services to mid and large corporates. ONEtoONE CF Benelux also offers private placement services and is listing sponsor on Euronext Brussels.

For any further information please contact Mr. Jeroen Maudens, Partner: [email protected] or Mr. Daniel Gillet, Managing Partner: [email protected]

Click here to find out how to effectively integrate post acquisition!

Steps to Selling a Business

Selling a business requires a very carefully thought out process that must be extremely well organized, and as such, this process contains a vital three-phase sequence: the preparation of the company’s documentation, the marketing of the company and ultimately, the negotiation with the buyers.

The process will usually last between 9 and 12 months, although there are frequent examples of when complications are experienced and this timeframe can expand significantly. With this in mind, there have been operations that have lasted several years, however if the process is genuinely respected and well organised, then one can go about ensuring that the timeframe will not go beyond the 9 to 12 length.

1. The Preparation of the Documentation for selling a business

In the process of preparation, there must be the creation of three significant documents:

1. A sales notebook, otherwise considered a memorandum of information, in which it presents the competitive advantages of the company, its capital structure, as well as the relevant financial projections and figures.

2. The company valuation. This document will outline the company’s value drivers, as well as additional elements that will assist negotiations in the final phase of the process.

3. An extended blind teaser of the company is also necessary in order to address and inform potential buyers about the general concepts of the company. This document, as is hinted in the name, ensures the anonymity of the company being sold until the potential buyers sign a confidentiality document called a non-disclosure agreement.

2. The marketing of the company

For this phase of the process, one must first create a mapping document of all possible worldwide buyers. As such, it is very common that the best buyer for your company is not the one that you have in mind. With this in mind, you have to consider that the buyer might not always be located domestically, or be a direct competitor of yours; taking this a step further, the buyer might not even come from the affiliated sector of your company.

For example, we once had a case of a logistics company in the pharmaceutical sector, which we did not sell to a fellow pharmaceutical company. Rather, we sold it to a company that focused on hospitals. We were able to do so because we had analyzed the corporate operations that had recently taken place in the world, and in turn, we found that there had been an instance where a transaction between a hospital and a logistics company for pharmacies had occured. This information gave us a valuable insight into the trends and thought processes that were taking place in other international markets. As a result, as we have suggested is possible, the buyer ended up being a company from a different sector.

Once the best potential buyers are found, it is time to contact the CEOs or top management of the selected company. These companise have been selected largely because they have been perceived to be the best fit for your company, and the ones that will be able to offer the highest price.

This process, which is often conducted by professional advisors, is one that can be considered to be long and laborious. However, in taking this additional time, it can be ensured that the buyer and seller are transparent with each other, share the information necessary, along with their updated perceptions and feelings toward the potential operation.

The negotiation with the buyers

Once you receive your indicative offers, this is when you begin the process of negotiation with respect to what has been offered, and how you wish to potentially adapt them. It is important to not only try find the company’s that is going to pay you the highest price, but also focus on who will be the best managerial fit for your company, as well as who will present the optimal payment method according to your needs.

As such, there are many differing elements that come together during a negotiation. Once there is an agreement with your selected buyer, this is when the official letter of intent is signed. At this point in time, the strength and significance of the negotiations get taken to a new level, as there is now a mindset that an agreement regarding a deal will arrive.

After this letter of intent, there is the necessary process of due diligence; a sometimes tedious but extremely important process that everyone should conduct before buying a company. This process sees the holistic analysis of the target company’s legal, fiscal, labor, legal, environmental and financial situation. As such, a complete analysis of the company is necessary because once acquired, any contingencies that this company may have will become the responsibility and problem of the buyer and therefore, the acquirer should try to prevent or adequately prepare for them as best as possible.

After finalising the due diligence, this leads to another negotiation process. This particular negotiation covers the likes of how to deal with contingencies, ascertaining various guarantees and finally, the revered sale and purchase agreement. However, there one cannot take the sale and purchase agreement for granted. As such, it is a process that can last up to a year and is extremely technical. Therefore, it is essential that you use experienced advisors for this phase, ones that have gone through the process many times and know exactly how to anticipate problems that are likely to arise.

Remember that the buyer will also be accompanied by very experienced advisors. As a result, especially if you are a first time seller, you should not face these experienced advisors and buyers without an experienced team that you can have absolute confidence in. With these trusty advisors on your team, you will be assured that interests will be defended and that you will be guided effectively through the process.

As is detailed, the process of selling a process is a long and extensive one. In trying to complete it alone, you risk becoming lost in the process or simply losing the motivation to get through it all. Unless you truly feel that you know how to maximise the price of your company, it is recommended that you seek out professional advisors with experience in this process. If you feel that you fall into this bracket, do not hesitate to get in touch with our team of trusty advisors.

The Types of Financing for a Business Purchase

Business Purchase: Types of Financing

If you are thinking of buying a company, there will come a time when you will need to consider how to manage the company’s payment, or as such, how will you finance the purchase. Within the market you will find different types of financing options, and here we will be discussing the main ones.

Crucially, you must have in mind the current point of the economic cycle at the time of your purchase. When the economy has less liquidity, debt is going to be more expensive given the heightened demands from banks with direct respect to the increased interest rates one would face if they were to be borrowing money at the time. In turn, if the bank perceives your venture as high risk, then they will double down with even higher interest rates on top of the already increased levels. As a result, you must be confident in your ability to pay back your debt, if you choose to go down this line of financing during a time when the economy is holding less liqudity.

What does the types of financing depend on?

The types of financing you can access will depend on:

1- The operating cash flow that the company has had to date (net profit plus amortization)

2- The quality of the collateral (guarantees) that you give

3- Your prestige, along with that of your partners

4- The business plan. If you are implementing your business plan, take a look at SIX STEPS TO A GREAT BUSINESS PLAN! This article identifies six steps that entrepreneurs and companies should keep in mind when creating their business plans.

During a company purchase, there may be different bank debt tranches and they are differentiated by the preferences regarding collection and interest paid. The types of debt that are more focussed on collection will typically demand higherinterest because they incur more risk.

Importantly however, when buying a company you can use multiple levers of debt.

Short-term bank financing

If we talk about short-term bank financing you would have:

Loans to finance working capital that are obtained from financial institutions, which may be in the form of loans, lines of credit or discount of effects.

Next, you have financing through accounts receivable such as factoring (the sale of the debts of other clients) and confirming.

Long-term bank financing

On the other hand, long-term bank financing is quite frequent in leveraged purchases (with indebtedness), in which different types of debt are used depending on the excesses and cash needs foreseen for future years:

The one that charges the least interest would be the debt with mortgage guarantees. Given it has physical collateral to support its loan, the bank is reassured that if the debtor does not pay them back, they can keep the asset. The bank therefore assumes less risk and therefore is willing to lower the interest rate in comparison to when there are no assets present to support the payment. As such, it is possible to obtain financing for up to 80% of the value of the property and in turn, you can agree on a longer return period.

There is also the Sale & Lease back concept, which consists of the sale of a company asset and the simultaneous realization of a financial lease contract on that asset. Therefore, the ownership of the property is transmitted but a right to use it is maintained. This allows the seller to take the entire amount generated by a sale and continue in the same facilities, whilst paying a rent.

An option that is typically associated with higher interest levels is that of Senior Debt. It is named this way because it has a preference for collection with respect to the rest of the associated debts. There can be a deadline of agreement between a period of between 5 to 7 years, redeemable annually and with a grace period of 12 or 18 months. This type of debt already has protection clauses (also called financial covenants), which are obligations to meet certain ratios (Debt / EBITDA, EBITDA / Interest, Minimum own funds, etc.). Thes obligations are typically reviewed on a quarterly basis.

If the company does not comply with these ratios, economic penalties or accelerated depreciation clauses can be activated. Moreover, you will often be asked to pledge the shares of the company you buy. Given that these clauses that the banks require are mainly based on compliance with the business plan, it is recommended that you are conservative in your construction of the plan, because a failure to comply can lead to the bank demanding a renegotiation of conditions that will often charge you more commissions and higher levels of interest. Some additional covenants that can be imposed on you are that of the prohibition to pay dividends, repay loans to the owners or carrying out further corporate operations.

Banks can also add further debt limitations in the contract to that provided in the Business Plan and in turn, require you to contract the lines of financing of the currency with the same financial institution. They can also put limitations on fixed asset investments, by way of not letting you exceed what is established in the Business Plan. They may demand that there be no changes in the shareholding during the life of the debt and negotiate for early repayment formulas, so that you use the excess cash that is generated to repay the debt, instead of allocating it to the growth of the company. All of this will be possible depending on your negotiation strength and the risk of the project.

Participative loans consist of the contribution of funds to a company in exchange for remuneration, which is based on a variable interest rate that depends on the evolution of the borrowing company. The advantage to this strategy is that it is based on an order of priority for repayment, which typically sees the associated bank put behind on that list, with the investors placing participative loans considered the priority. Importantly however, the investor that grants the loan does not get included in the capital structure of the company.

Mezzanine Debt is another form of financing, which perhaps can be considered as subordinated by the previously mentioned types. However, there are funds that are specifically specialized in granting this type of financing. It is called a mezzanine because it is ahead of shareholders in collection rights, but behind with respect to the other creditors. As the borrower assumes more risk, it is a type of financing with higher interest rates (between 15 and 25%), which usually has 100% amortization at maturity and a longer repayment term: 8 or 10 years. It allows the Company to have free cash flow during the life of the debt, in order to implement growth and development strategies. The restrictions (covenants) imposed by the lender are also relatively minor.

This type of debt allows the grantor the possibility of accessing capital through the purchase options released, so that if the project goes well, the borrower can also earn a lot of money. In other cases, the investor also acquires a percentage of the capital and accepts only to charge interest when there are benefits in doing so.

It is usually agreed that the repayment of the loan and its interest must be made in full before the shareholders receive any dividends.

Preferred shares

Along with the different types of debt, you can also choose to give out preferential shares: these shares do not usually have the voting rights associated with them, however they are placed ahead with respect to collection rights in comparison to the other shareholders. Importantly however, they are still behind any type of debt financing in the event of liquidation.

There are infinite models of preferred shares because they are issued according to each company and their individual circumstances. There are preferred shares that give your holder the right to receive a certain dividend and if it can not be paid, accumulate it when possible. Other preferred shares are convertible, so if the company goes very well, they can convert it into normal shares, whilst if it goes poorly they can accumulate their right to dividends until they can be paid, given that they have collection priority. Resultantly, this holder has more upward travel and is considered to be more protected.

Within a more globalized world, the sell and purchase of companies is a great way to approach a new market or reinforce a competitive position. The main difficulty involved in this type of operations is knowing how to approach them so as not to be deceived and maximize our value. If you are considering buying a company and looking for advice, do not hesitate to contact us and learn more about the different types of financing!

Taking M&A Transactions to the Next Level: Corporate Culture

Corporate Culture: Taking M&A Transactions to the Next Level

The coveted concept of synergy is thrown around continuously when discussing M&A, and yet it is so often left unprioritized during the heated process of executing a deal. As such, a company owner might be inclined to confirm a seemingly lucrative transaction or opportunity, without truly investing enough time in analysing the target’s corporate culture. Invariably, this is an almost natural response for a business owner, who in all practicality, just wants the best for their company. However, to truly do the firm justice, the owner must comprehensively evaluate whether the acquisition target is a genuinely viable fit at a cultural level for the firm.

Keep the Wheels Turning

The benefit of acquiring a firm that fits into the corporate culture of your company speaks for itself. Like a well-oiled machine, a business that is functioning well will have each and every member playing their part, executing their role well, and in turn promoting the overall success of the company. Such a scenario becomes increasingly challenging to achieve when there are elements of disharmony, disagreement or varying visions within a business; a situation that many companies that have recently expanded via acquisitions unfortunately find themselves in. Resultantly, a lack of unity at an internal level can lead to a range of detrimental outcomes such as reduced efficiency or output, arguments between employees and management, or even workers leaving their posts as a direct result of their disillusionment with the company’s new formation. In turn, there must be an appreciation for the fact that an integrated, synergetic corporate culture post-acquisition should not be considered as a nice-to-have, but as a must.

After all, one can focus on the financials all they want in the pursuit of that bargain deal, but if a transaction ultimately fails due to a lack of cultural integration, then what first appears to be a money well spent situation will become an avoidable instance of hard-earned profit gone to waste. Once again, it comes down to pure human temptation, and being able to turn down the option of executing a deal quickly, for the sake of truly thinking things through. What one might forego in the short-run, in the form of being able to report the merger, enjoy the spoils of the positive press and lap up the praise, one will truly advantage from in the long-run by ensuring that either their deal will in fact benefit the firm overall, or that a disaster waiting to happen is avoided.

It is Worth it in the End

It is then at this point that the hard work really pays off. After having established that your target acquisition will integrate well into your company’s corporate culture, then you have the opportunity to truly take your firm to the next level. Much like any solid partnership, it advocates for the notion that 1+1≠2, but rather 3 or 4 or 5, whereby together in collaboration, two new partners are able to bring out the best in one another such that the firm can achieve exponential results beyond their usual output. In turn, the well-oiled machine won’t just function, it will fire on all cylinders, at a level that had not been previously achieved before.

The morale of the story can be traced back to one of the more famous children’s fables by Aesop, The Tortoise and the Hare. If a business owner who closes a lucrative deal without checking for cultural synergy is the speedy Hare of the story, then the owner that takes their time to assess their target’s ethos and philosophy will play the part of the Tortoise. As such, this owner will take the time to evaluate their potential acquisitions holistically at a corporate culture level, in comparison to the Hare who takes the process for granted and rushes right through it or skips it altogether. And just as Aesop so wisely alluded to, it will be the “slow and steady” that ultimately “wins the race!”

Welcome to the Machine: Computers Are Teaching Themselves

Machine Learning: When Computers Teach Themselves

Have you ever considered how the Google search engine can so accurately predict what you are looking for, even after typing just 2 solitary letters? It all comes down to a concept called Machine Learning, or the process of computer systems undertaking explicit tasks without ever being specifically programmed to do so. As such, Artificial Intelligence (AI) systems are often criticized for an array of reasons, not least for having the inability to feel emotions like their human counterparts. However, in the ongoing debate regarding AI’s place in society, there remains a fact that must be accepted at a holistic level: Computers are capable of teaching themselves.

Records are Tumbling

The implications of such potent technological capacities have not been lost on many of the world´s largest companies, with 2017 seeing an unprecedented level of AI and Machine Learning firms being acquired to the aggregate sum of USD$17 Billion; a figure that exceeds all recorded years of AI-related acquisitions combined (451 Research’s M&A KnowledgeBase). However, in considering that 2017’s list of acquirers included the likes of Apple, Facebook, Google, Microsoft and Cisco, the figure comes as little surprise. In saying this, the marquee purchase of the year went to IT-giant, Intel, who acquired Israeli tech firm, MobileEye, for a lazy USD$15.3bn; all for the sake of adding an autonomous transportation company to its already extensive portfolio.

As is largely indicated by the previous list of major acquirers from 2017, it can be firmly understood that the majority of AI take-overs are stemming from the US. With the nation acquiring and investing in 4 to 5 times more Machine Learning based entities than that of Europe and Asia respectively, the USA certainly remains the land of opportunity for AI firms. As such, the 1^st quarter of 2018 saw no less than 116 deals take place, seeing USD$1.9 Billion being directly invested into US-based AI companies: This constitutes a 29% quarterly increase from the closing of 2017.

What the Fuss of Machine Learning is All About

One of the fundamental reasons why companies are so driven to invest in Machine Learning systems are due to their unique capacity to independently analyse enormous amounts of information into succinct, easy-to-comprehend reports. This all derives from the “Big Data” phenomena, in which businesses across all sectors are being exposed to a never-before seen level of facts, figures and statistics; which of course need to be accurately evaluated in turn. With AI systems becoming increasingly capable of not just analysing these massive data-sets, but also making inferences, extrapolations and predictions from them, the concept of Machine Learning is in practice, just another step in the evolution of modern-day technology.

In what are extremely encouraging signs for companies specialising in Machine Learning, nearly USD$2 Billion worth of early-stage venture capital investments were made in AI companies across the highly productive 1^st quarter of 2018. Unsurprisingly, the vast majority of these investments have been directed towards Machine Learning related businesses that are vying in what are becoming extremely lucrative markets, such as Autonomous Transportation, Predictive Analytics and Robotic Automation (Global Banking & Finance Review). These figures are in itself enough to suggest that the AI sector could be in for another record-breaking year.

Context in the Chaos

During this period of transition towards a more AI-oriented work environment, one of the genuine challenges for businesses will be finding the right balance between embracing the hype and maintaining stability in their modus operandi.’ Currently, the world is experiencing a moment whereby people and companies alike have a certain perception of the world, in which it is sensed that the ´age’ of the ‘smart machine’ is upon us. In turn, this perception is leading to a spike in innovation with respect to AI, and how it is integrated into the world’s working environment.

During this time, expectations regarding the capacity of Machine Learning systems are increasing, which might actually result in a sudden fall in modernization as a direct result of pessimism or disillusionment towards the rise of AI. It is during and following this point in the adoption cycle where it will be up to the true AI pioneers to take the initiative, gain the first movers advantage, and lead the world into an environment that can sustainably maintain a balance between human and technological synergy. If successful, it is at this point where the modern and mainstream workforce will truly embrace the capacities of AI and Machine Learning.

The Next Step

One could argue that the next frontier for AI is that of the manufacturing sector, in which Machine Learning systems could help to improve the efficiency of supply-chains, internal production systems, and overall product quality. As such, the predictive nature of a Machine Learning system could help to address specific flaws and problems within a company’s daily operations, which would otherwise take months to fix or even identify. Beyond this, an advanced algorithm could even go as far as being able to forecast an overall system failure, by way of identifying and isolating a malfunctioning ‘part’ of a company’s process. For example, Australian-based start-up, VROC Artificial Intelligence (www.vroc.ai), is one of countless companies from around the world that are implementing interpretative systems to improve business output. With their “preventative maintenance solution,” VROC uses advanced “predictive analysis and machine learning to identify unscheduled breakdowns before they occur.”

Undisputedly, Machine Learning is truly on the precipice of redefining the way in which companies across all industries go about their daily business. With computers becoming capable of teaching themselves processes that are otherwise understood to be lengthy and complex, it invariably allows human capital to be redistributed to new roles that will allow the leveraging of the respective comparative advantages of man and technology.

Airline Industry Consolidation

Since the Airline Deregulation Act of 1978, the aviation industry has unquestionably remained one of the most ultra-competitive sectors within the world of business, hence the airline industry consolidation. Come 2018, and the unrelenting struggle over squeezing margins, ever-expanding passenger numbers and volatile fuel prices has seen the recent departure from the sector of the likes of Monarch Airlines, Air Berlin and soon-to-be Alitalia.

In a bid to keep their planes in the sky, airlines have resultantly looked to convergence-type strategies such as mergers, airline groups and joint-ventures so to remain well-connected, competitive and relevant in an industry that is often dominated by the heavily subsidized, government-backed carriers such as the infamous Gulf State three: Emirates, Qatar Airways and Etihad. In turn, the apparent need to form these various partnerships has the capacity to create the most unlikely instances of collaboration; all in the name of getting that extra bum-on-seat.

	US	Europe
Oneworld	American Airlines	IAG
SkyTeam	Delta Airlines	Air France-KLM
Star Alliance	United Airlines	Lufthansa Group

Table 1. Outlining the current formation of major Airline Groups, and their corresponding Alliances within the US & Europe

Everyone is Wanting a Slice of the Pie

It is as truly symbolic as it is reflective of the industry’s cutthroat nature, that a French and Dutch airline would choose to join forces, or for an industry leader such as Qatar Airways to still seek out codeshare agreements with the likes of British Airways and Iberia, as a part of their 20% stake in IAG. Even more recent, one of the most quintessential rivalries has been eased, with Qantas and Air New Zealand (who originate from different alliances) announcing a new codeshare agreement that covers their respective domestic networks.

Amongst the benefits of heightened connectivity and market share, consolidation within the aviation industry has the propensity to generate significant innovations amongst airlines, which will ultimately seek to combine their resources. For example, an airline group that connects each member’s respective digital presence and AI mechanisms, has the enhanced ability to create a business that genuinely understands the wants and demands of its customers. With this improved access to information, an airline group can more accurately implement strategic changes, recognizing whether there is more value in developing a new low-cost carrier (LCC), or investing further in the quality of their full-service airline etc.

So, What Can We Expect to See in the Airline Industry?

At present, the industry continues to churn out more and more agreements, with Fiji Airways having just been confirmed as a Oneworld “connect” partner, which will in turn link the Pacific Island nation to the alliance’s extensive network. Closer to home, the notorious LCC, Ryanair, have publicly stated their interest in developing an airline group of their own, touted as Ryanair Holdings. Such an entity could have fascinating implications for the industry, with the prospective project having the potential to become the sector’s first ever LCC-specific airline group. All the while, IAG has also made public their desire to acquire another up-and-coming LCC in Norwegian Airlines. Finally, Lufthansa Group are also considering the potential acquisition of the bankrupt Alitalia, whilst also having been linked to the Sweden-based Scandinavian Airlines (SAS).

A logical question to ask at this point is what does all of this consolidation tangibly mean for the average customer? Arguably the biggest thing for a passenger to understand will be the heightened value of loyalty to an airline alliance. With more airlines continuing to bolt on to one of Oneworld, SkyTeam or Star Alliance, it might simply be a matter of choosing an airline and its corresponding alliance and sticking with it. The exhaustive membership list of these alliances mean that no destination will be unreachable, regardless of which partnership you are associated with. In turn, by sticking loyal to one alliance you will ensure that you gain access to discounts, seamless connections when travelling internationally, and the increased likelihood of that ever-elusive upgrade.

As such, both airlines and passengers can, and are, finding safety in numbers by way of benefitting from the implications of the industry’s ongoing consolidation.

Selling Your Family Business - Is It time?

Family Business – Is It time to sell?

Are family businesses ever actually sold? The short answer is yes, but they typically incur a cost that goes beyond a price-tag. Many family business transactions end up breaking the resistance of the family, and can resultantly cause significant internal rifts. As such, it is traits such as stubbornness and having an emotional connection to the company that often prevents one from objectively appreciating the competitive dynamics of the sector, and in many cases, generate a vicious circle that ends with the life, closing or bad sale of what was once a magnificent organization.

With this in mind, family businesses will only typically be sold when there are genuinely potent reasons for the transaction; health problems, strong discrepancies between the family members due to management, old age, urgent need for capital injection, clear technological obsolescence, a diminishing profitability or a strong process of concentration in the sector. As such, many family business owners make the mistake of delaying a necessary decision: an acquisition, a recapitalization, a merger or even a sale when there is no clear succession in the family and the manager enters the age of retirement.

The emotional difficulty of transitioning to new investors when selling your family business often causes family businesses to borrow too much, causing liquidity problems as soon as a business ncycle change occurs. This happened to thousands of family businesses during the last financial crisis, which in turn saw the end to so many family enterprises, robbing the kin of their precious family assets.

The Time to Sell Your Family Business is Now

Currently we are in a historic moment for Spain, in which we are going to experience the longest period of intergenerational transfer of private companies in history: The “Baby Boomers” have to retire. In most cases, their children or “Generation X” (those born between 1965 and 1980), have had more sophisticated education and have opted to work in large companies. Behind them come the “Millennials”, a generation that claims to be the least enterprising in recent history.

This lack of desire to be entrepreneurs by the next generations will enhance a phenomenon of concentration, making our business fabric more resistant when the next crisis comes; and rest assured, it will come.

Many entrepreneur “Baby boomers” have lived to work, have hardly developed hobbies and are faced with the vertigo of not knowing what they will do with their time when they retire. Therefore, they resist selling the company, complicating its future viability. Thus we find that 70% of family businesses do not pass on to the next generation.

Planning is Crucial

The high mortality of companies is due, among other reasons, to the lack of planning for a transition towards a competent succesor when selling your family business, the failure or exhaustion of a business or a sector, family difficulties, fights between partners, a lack of capital or a lack of financing.

Many of these closures could have been avoided if the entrepreneur knew how to choose the right time to part with their company.

In recent years, competitive pressures have accelerated the need to be quick to identify the opportune time to part with the company. Every company has an optimal time to be sold. It is vital to strive to know and be aware of it and then not regret it.

Business families must be alert to perceive the warning signs and, in case of need, know how to put the icing on a long process of creating value by way of culminating it through a magnificent sales operation. M&A consists of a long and complex process that must be approached with patience. Don’t hsitate to contact us!

Due Diligence: Working Capital & Investements

Previously, we have explored the concept of Due Diligence its importance throughout the process of buying a business. In the following article, we will explain two important aspects to analyze during this crucial phase: The concepts of working capital and other investments.

The Working Capital

We recommend that in the due diligence process that you pay special attention to the working capital (current assets and current liabilities). As such, you must compare the situation with the company’s current assets and liabilities with the two previous years and see if there are significant variations. If there are, they may be making “arrangements” to make the company appear to be worth more than what they truly are.

1- Collection days: It is a ratio that tells us the number of days that acompany takes to charge its customers. If the collection days are getting longer, you may be exposed to a payment problem. It may represent more sales and profits in the income statement, but customers in reality will not be paying as stated. Resultantly, there will remain the possibility that you will face a future liquidity problem. Moreover, the company might have increased its sales a lot, but achieving this so to be able to show a temporary increase in clientele is a rather futile and useless concept to a potential acquirer. Adding to this, if the days of collection have shortened a lot in recent months, the seller may be intentionally accelerating the collection so to increase cash levels in the short-term and in turn, increase the valuation of the company at the time of sale. If this is the case, the company you seek to acquire will be taking money that is yours away from you, and you will be left with an empty space.

2- Stocks: It is a ratio that tells us the number of days of purchases that a company has in store. If we have 60 days of stocks, everything that will sell in the next 60 days can be considered as in stock. If the stock days have lengthened in recent times, you may have a lot of obsolete material that has no outlet. If they have shortened with respect to previous years, the seller may have sold stocks in an accelerated manner so to increase cash levels in a bid to either take it for themselves, or add it to the sale price.

3- The days of payment: It is a ratio that tells us the number of days that the company takes to pay its suppliers. If the ratio is 60 days, it means that everything that has been bought during the last 60 days has yet to be paid. If paydays have shortened, suppliers may not trust the company, along with their financial situation and in turn, are being required to pay cash if they want to be sold their required goods. Another alternative is that they are mismanaging their payments (making them too soon), in which lengthening the payments out would allow an increase in cash generation. If a company lengthens the days of payment, it may mean that it is delaying payments so that there is more cash at the time of sale, so to increase its value.

If you see inconsistencies between these ratios and those of previous years, you should investigate further and look for an explanation. It is good that you also compare data from the competition (days of collection, payment and stocks) and see if there are significant discrepancies (there should not be, but if there are, you should analyze why). Companies like INFORMA or AXEXOR can provide you with the key figures of their main competitors, all based on the information that they present in the Mercantile Registry.

If you see that there are clear inconsistencies in the working capital that are affecting you, you should propose a lower purchase price that eliminates the effect of the manipulations. You are looking to buy a company with a stable working capital, not one that has been manipulated last year for sale.

If the company’s sales are seasonal, do not use the end-of-year working capital fund, instead you will have to calculate the working capital average and the debt of all the months so to have a real vision of the company. Importantly, if you buy the company when the activity and cash levels of the company are low, you will have a problem financing the growth of the balance sheet as money is needed to buy stocks and pay suppliers.

Other Investments

Another place to look for discrepancies is in investments with fixed assets (machinery). The seller may have delayed these investments so that there is more cash in the company, of which he can take for themselves before the sale. This impacts you because you will be the one who has to replace the asset that has been taken. Therefore, if you see that in the last year there was less investment in fixed assets than in previous years, look for why.

Perhaps the machinery is more obsolete than the amortization tables show and it is urgent to replace it to remain competitive. You can find yourself buying the company thinking that you do not have to invest for three years and, the day after being announced as the new owner, discover that you need to urgently make a purchase of machinery to compete.

Do not stay rely on the document presented with the results of the due diligence, review every aspect with the team responsible for analysing the company and ask them about each individual area; the toad may be hidden in one of the pages of the document and go unnoticed if the auditors do not explain it in detail.

Look for tracks that sound strange, try to find inconsistencies even if they are small and then pull the thread. All the time that you dedicate to this will help you to better understand the company and, sometimes, to avoid disappointment.

You should also investigate other issues that do not appear on the balance sheet: lawsuits against the company, contracts, credit to customers, agreements with employees for payment in undeclared money or commitments of future variable salary, etc.

If the facilities belong to the partners, look carefully at the lease paid by the company. Make sure that the results shown to you regarding rent are not represented well below the market value, which has the capacity to reduce cost levels and artificially increase the buying cost of the company.

All these inquiries that have been mentioned can be decisive for the future of a company, and it is possible that you cannot carry out a certain type of analysis without the help of an expert. If you need a guide and a reliable team with which to carry out this phase of buying a company, do not hesitate to contact us!

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Four Ways to Evaluate When It’s Right to Take Your Businesses Global

When to Take Your Business Global

While taking your business global holds the promise of new markets, a larger client base, and bigger profits, no company should rush headfirst without adequate preparation. In a previous article on One to One Corporate Finance we discussed ways for investors to evaluate the best business to buy. In this instalment, we would like to provide you with four ways you can evaluate whether your business is ready to move from the local to the international market.

Have You Chosen the Right Market to take your business global?

Before plunging your business into a foreign market, ask yourself which market is the right one for your operation? Is it established enough locally to support your expansion, and have you done the necessary market research and chosen the right country and segment to penetrate? Entry into foreign markets can be costly and consume vast management time and resources, doubly so if the country’s economy is stagnating. Expanding into a country like the UK for example, which is going through economic uncertainty due to the fallout from Brexit, might not be propitious to your new foreign operation. Nadex documeted that there has been underlying weakness in the Pound due to the flagging UK economy. The Financial Times also reported that one in seven European companies with UK suppliers had moved their business out of Britain as a result of this uncertainty. Once you’ve weighed these factors and chosen wisely, only then can you set your sights internationally.

Is Your Product Ready to take your business global?

Once you’ve determined how to set a proper foothold locally, you must now look at your product and determine whether it is ready for international exposure, or are there issues that might hold you back? Based on the product gap analysis, it is essential you take the necessary steps to make your product market-ready. Fast Company recommend being prepared re-think your product strategy, as it may not be a sure hit the first time. Determine whether product localisation is required in your target market, and initiate a patent and trademark review to protect your intellectual property and ensure you’re complying with local standards. If you fail the first time it could be an indication that you didn’t take the right approach to fully localise the product. Go back to the drawing board and rethink your strategy.

Organisational Readiness & Operations

You’ve now determined your product is ready for international exposure, the next step is to take into consideration the cultural differences, regulations, and customs of your target market. Business journalist Michael Evans suggests that a company must be flexible in the policies and procedures it implements in international operations. This will ensure that the company’s vision is being executed effectively. Policies and procedures must be in place to comply with local labour and employment standards. You must also decide on the appropriate level of direct presence in the region to manage your operation; will you need local partners to handle specific aspects, or will you be self-sufficient and dependent on your own staff? Some companies need their sales and support teams on the ground for example. Depending on the nature of your operation, your needs will vary.

You Have Suppliers & Customers

Having taken into consideration the company requirements, it’s time to consider your supply chain as well as marketing and customer base. Entrepreneur reveals that it’s essential to be able to find trustworthy suppliers who will deliver and adhere to agreed payment terms, as it will be vital to your international success and your ability to deliver to your customers. Having a reliable supply chain in place will guarantee that your product will reach your customers. As such, by providing a reliable middleman to facilitate secure transaction, your customers will feel comfortable sending money to a foreign company with which they have never worked with before, and you’ll rest easy knowing that you will receive those payments in exchange for your products. Once you’ve determined the necessary platforms and supply chain possibilities, you’re ready to consider the next steps in your global expansion.

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