All posts by Abraham

Risk Arbitrage and Cross-Border M&A

Many strategic as well as financial investors are familiar with the numerous advantages of cross-border M&A, including expanding into potentially lucrative new markets, establishing a presence near existing or new clients, building and smoothing out revenue streams and diversifying international business risk. Investors, however, may be less familiar with another potential advantage of cross-border M&A, that is the possibility of creating financial and operational value through an investment strategy known as risk arbitrage.

This article will provide a brief overview of the concept of risk arbitrage and then discuss how risk arbitrage principles can be used as part of an overall M&A strategy to identify investment opportunities, build firm value and reduce firm risk.

Overview

Even though when many people hear the words “risk arbitrage” highly speculative strategies that are confined to narrow corners of the M&A world often come to mind, risk arbitrage is a very simple concept that occurs in markets and applies to businesses every day. In financial markets, arbitrage refers to a situation where an asset can be purchased for a price in one market and sold at a higher price in another market. Risk arbitrage, on the other hand, refers to taking advantage of a mispricing of risk and the impact of that mispricing on credit or asset prices to either build firm value or prevent firm value from being lost.

To provide a simple example of risk arbitrage in the credit context, let’s say that a fair interest rate for a loan based on the risk of a company or an activity is 8%. If, assuming the same level of risk, a bank is willing to lend money at a price of 6%, this represents a clear risk arbitrage opportunity for borrowers. Similarly, if borrowers are willing to pay a 10% interest rate, this represents a clear risk arbitrage opportunity for lenders because borrowers are overpaying for the actual level of risk in connection with a loan that a creditor will take.

These opportunities also frequently arise with regard to asset purchases. To take another example, let’s assume that the capitalization rate for multifamily properties in a particular market is 6%, meaning that the price of the asset is derived by dividing the net operating income of the asset by 6%. If the real risk associated with a multifamily property in the market warrants a capitalization rate of 4%, this represents a risk arbitrage opportunity for buyers, because in practical terms it will reduce the price that is paid for an asset. Similarly, if the risks associated with a multifamily property warrant a capitalization rate of 8%, the opportunity to sell the property at a capitalization rate of 6% represents a risk arbitrage opportunity for sellers because the buyer is effectively discounting asset risk by 2%.

It may well be asked how these types of opportunities can exist, as one would assume that if a risk arbitrage opportunity existed, buyers and sellers would immediately take advantage of these opportunities and the resulting market pressures would quickly cause the arbitrage spread to disappear. However, often the arbitrage spread does not disappear, principally because of three key reasons:

1) Information necessary to accurately price assets is often not available, particularly with respect to companies that are not publicly traded;

2) Assets and the market context that defines asset values are in a constant state of change which causes risk levels to fluctuate faster than they can be converted into accurate pricing terms;

3) Misperceptions of risk exist even in the face of clear information.

Risk Arbitrage and Cross-Border M&A

Risk arbitrage opportunities often exist in cross-border M&A, particularly in emerging markets due to the fact that information regarding market fundamentals or assets may be more difficult to obtain or key market drivers, such as inflation rates or currency values, may be more volatile than in more developed markets.

It commonly occurs in emerging markets, for example, that investors may assume that because a country is considered to be “risky” and companies or assets in that country by definition must be equally risky. In fact, many companies that operate in riskier jurisdictions adopt measures that protect themselves from risk such as, for example, having operations or assets abroad or hedging against currency risk. Because of this, the acquisition of a company at a discount rate of 15% to reflect country risk, when in fact the company’s risk profile merits a discount rate of only 12%, implies a risk arbitrage gain of 3%.

Risk arbitrage opportunities can also occur in highly stable markets where risk pricing in the market does not reflect real levels of company, sector or market risk. In this type of situation, assets can be sold at a price in excess of the price which reflects real market risk, creating a risk arbitrage gain.

In addition to risk arbitrage gains at the time of asset purchase, it is also possible to realize arbitrage gains throughout a company’s operation. For example, for a real estate development company, developing projects in a country where credit is mispriced can increase profitability and reduce market risk.

Risk Arbitrage and Investment Exit Issues

Many risk arbitrage strategies are employed with assets that have deep and liquid trading markets, such as publicly traded securities, so that once arbitrage opportunities are captured they can be quickly monetized. In the private M&A context, however, investors may hold an investment for many years and it can occur that the market context can significantly change over time and assets that are bought at a discount in year 1 may need to be sold at an even larger discount in year 5 due to a worsening of market risk perceptions.

For this reason, for investors that take a long-term view of strategy and building company value, risk arbitrage should generally not be used as the sole criteria for making an investment but rather as part of larger strategic investment decision that takes into account the investor’s overall strategy and the value that the acquisition of an asset or presence in a country will create irrespective of arbitrage gains.

This article was written by Darin Bifani. If you would like to discuss the potential for using risk arbitrage principles as part of a cross-border M&A strategy, please

Should I sell when market consolidation occurs?

Sell my business when market consolidation occurs?

The economies of scale that other companies reach through market consolidation can make business owners realize their size is not enough to survive and ask themselves this question: Should I sell my business?

Ask yourself if there is enough business for all the competitors

Are there companies that are disappearing? Is there market consolidation? The growing interdependence of economies across the planet has accelerated cross-border M&A deals, forcing local companies to acquire the sufficient critical mass to compete against global players.

IF YOU ARE INTERESTED IN LEARNING MORE ABOUT CROSS-BORDER M&A, HAVE A LOOK AT “WHY IS THERE SO MUCH CROSS-BORDER M&A”

The entrance of larger, competitive foreign players shrinks margins and at the same time forces local companies to spend more to keep up with their research, development, and innovation capacities. To survive, many companies are forced to merge in order to reduce cost or gain enough market share to create economies of scale.

When should I sell my business

A warning sign for the business executives is when customers start to vertically integrate, buying competitors and consequently buying their products and market share.

We had a client that started to worry when he saw how the big groups of his industry were being acquired by competitors or by private equity companies. He realized that with his own resources, his company would not be able to compete against corporations with more capabilities and decided to sell before it was too late. Fortunately, we were able to ride the consolidation wave and sold the company to an American group that had to put in a high offer in order to win the auction against a Dutch group and various private equity firms.

We have seen many executives and business owners who did not notice, or chose not to notice, the signs of a consolidation in their sector. They failed to take the initiative and proactively join the M&A wave, hoping that out of nowhere the day would come when they would receive an offer. Unfortunately, that day never came, and instead these business owners lost everything.

This sad reality is especially relevant when it comes to family businesses, as 70% of them are not passed on to the next generation. The sale of a company is one of the most important decisions that a businessperson makes in both his or her business and personal lives. It takes courage not to be caught in the sector consolidation trap.

8 negotiation techniques when selling a business

Selling a business: negotiation techniques

Selling your business is no easy task. Here are 8 negotiation techniques you should know in order to maximize its sale value.

First steps when selling a business

1. Prepare the company for the sale.

If you were to sell your house, you would take the time to fix it and make it look as appealing as possible to buyers. The same applies to your company. For example, there are some financial figures that you should improve to make your company look more attractive to investors.

2. Know what it is worth.

You should understand your company’s valuation. You should not share this information with the buyer, but you should understand what the drivers of the value are in order to be prepared for the negotiation.

3. Have alternatives.

Having back-ups is key, and in order to find alternatives, you must look for them. It is not a good idea to sell your company to the first buyer that comes across. You have to create alternatives by looking for those that have the best financial capacity in the business world.

4. Create the right setting.

You need to make sure you create the right setting. The appropriate people must be at the negotiation table. You have to understand the key people and what their interests are because different players may have conflicting interests.

Learn, be ambitious and don’t be the sole decision maker: don’t forget this negotiation techniques

5. Learn as much as you can.

You should try to build a personal relationship with the buyer and measure the situational power. Knowledge is power, so you have to understand what the other person knows about you.

6. Be ambitious.

You should try to be ambitious and throw down the anchor. However, you should be sensible. It should be done in a reasonable way using reasonable arguments. Sometimes, it is not a matter of what you ask but rather how you ask it.

When you negotiate the sale of your business, a useful M&A negotiation strategy is to anchor the negotiation from the top with an aggressive demand. Learn more about it reading “Key for M&A negotiation strategy: Throw down your anchor“.

7. Start the negotiation with the most problematic point.

The tendency is to start the negotiation with the easiest topics and leave the problematic topics for last. However, this is a big mistake. The toughest things should be discussed and sorted out at the beginning of the discussions when both parties are excited about the deal so the issues can be easily ironed out. Whereas, when these items are left for last, when each little wrinkle could be really problematic, the chances of finding common ground become slim to none.

8. Have a team of advisors.

You should always have a team that you can rely on. You should never be the sole decision maker for your party. In negotiations, this will help you give the impression that you are not the whistleblower and that you need to consult issues with your advisors.

If you want to learn more about it, feel free to listen to our new podcast:

4 things to evaluate the best business to buy

4 ways to evaluate the best business to buy

There may be a lot of opportunities around you, but if it involves as much investment as does the purchase of a company, it is important to judge the opportunity to make sure it is worth your time and money. Here are four ways you should consider to evaluate the best business to buy.

Quality of the source of the business to buy

The origin of the opportunity will serve as an indication of whether the opportunity is a true one.

Has it come to you through an investment bank or through an unknown intermediary? In the latter case, be more cautious. Is the seller paying an advisor? If so, it means that he or she is truly interested in selling.

Is the sale process formal? Did they make you sign a confidentiality agreement? Is there a sale memorandum?

This information is very relevant because in many occasions, the owner is only trying to test the market to see if there is interest for his or her company or to see what its true value is. In other cases, the operation may come to you through an intermediary but does not know if the owner truly wants to sell.

Are all shareholders selling?

Often, after conducting an in-depth research you discover that the seller is only a minor shareholder that only has 15% and is looking for a buyer to “get out of there.” The usual in these cases is for the major shareholders to buy them. It usually makes little sense to replace the minority shareholder’s problems and pay money for it.

In other occasions, those who sell are major shareholders but the minorities have the right to abort your operation if they are not consulted in the process.

It could happen that a minority shareholder wants to sell, and in this case, it is important to be creative and design formulas that allow you to close the operation. This usually involves a more complicated operation and the likelihood of failure is very high.

Quality of advisors when looking for the best business to buy

If the advising team that surrounds the seller does not have experience in this type of processes (this happens quite often), it is highly likely that the operation is ruined or the execution becomes more difficult. Therefore, you should look at the type of advisors and lawyers that the seller has before embarking on a purchase mandate.

You can tell them that you are willing to study the operation given that the work with corporate finance advisors and lawyers with given experience in the buying and selling of companies.

If their lawyer is a friend that specializes in family law and he or she is helping them with the process (the lawyer could be the first in not selling so that he or she is not left without a client), it may not be a good idea to become involved with a process that has a high likelihood of failure. Without a doubt, the higher the quality of advisors, the higher the possibility of a successful operation.

Is it really the type of company that you are looking for?

When evaluating the best business to buy, you have to clarify whether the company is in a development phase that interests you: start-up, growth, or maturity. Do you really possess the tools you need to compete in this sector?

Is the company part of the sector and type of business that you have the capacity and real experience to manage?

Is the company in a geographic zone that is accessible and close to your location (two hours maximum by car), and in a good geographical zone to successfully develop the business?

You should be sure to reflect on all these things before embarking on a new purchase.

This article was written by Enrique Quemada, ONEtoONE President.

New M&A transaction advised: Midsona acquires Davert, a leader in the German organic food market

Midsona AB (publ) (“Midsona”) has reached an agreement for the acquisition of German company Davert. The M&A transaction, which has been advised by ONEtoONE Corporate Finance and Seufert Rechtsänwalte on seller´s side and Strata Advisory AB, Heuking Kühn Lüer Wojtek and Fredersen Advokatbyrå AB by on buyer´s side, involves the acquisition of the German leading company in the organic food market with a turnover that exceeds 60 million euros per year. The total purchase price is approximately EUR 48.5 million (~SEK 511 million), on a debt-free/cash-free basis, and will be paid in cash¹.

About Midsona

Midsona holds a strong position in the Nordic market with own strong brands within health foods, personal care and hygiene. Midsona also sells a number of licensed internationally established brands. Our products are sold through grocery and convenience stores, pharmacies, health stores and internet. Midsona’s priority trademarks are: DALBLADS, FRIGGS, HELIOS, KUNG MARKATTA, MIWANA, NATURDIET, ESKIMO-3 and URTEKRAM. Midsona has annual sales of about MSEK 2,173 (2017). The Midsona share (MSON) is listed on NASDAQ OMX Stockholm, Mid Cap.

About Davert

Founded in 1984 by Rainer Welke, Davert is a pioneer in the organic food industry in Germany. The Company is a leading manufacturer and distributor of organic dry packaged food, offering products under its own Davert brand as well as private label products. Davert’s portfolio includes a broad range of organic products in categories such as convenience products, snacks, superfoods & nuts, breakfast cereals, rice and pulses. Davert’s products are sold through various channels including grocery stores, drugstores, health food stores as well as to the food services industry.

In recent years, Davert has launched a new brand design, broadened its product portfolio and extended its distribution. In this period the Company also moved into a new, purpose-built production facility and significant investments were made in state-of-the-art manufacturing lines and an automated warehouse. Davert has approximately 150 employees, all of which are located at its facility in Ascheberg, North Rhine-Westphalia, Germany. Sales in 2017 were EUR 64 million (~SEK 616 million).

Financial Effects of Acquisition on Midsona

For the financial year 2017, Davert achieved sales of EUR 64 million (~SEK 616 million) and adjusted EBITDA of approximately EUR 4.4 million (~SEK 42 million). For the current financial year, Midsona expects Davert’s sales to increase compared to the previous year and to achieve adjusted EBITDA of approximately EUR 5.0 million (~SEK 53 million). Not taking into account any transaction-related costs, financial or synergy effects, the purchase price would represent a current year EV multiple of approximately 9.7x EBITDA.

Synergies are anticipated to be realized in areas including production, cross-selling and procurement. By 2022, these synergies are expected to have an annual impact on EBITDA of approximately EUR 3.8 million (~SEK 40 million). Initial synergies are expected to be realized during 2019. Midsona has financed the M&A transaction with a new debt facility.

^{(1) The purchase price excludes: (i) a capital investment in a new production line of EUR 8.5 million and (ii) potential payments between April 2020 and 2022 of up to EUR 6 million in aggregate contingent on Davert exceeding specified financial targets. The capital investment will provide Davert with new production capabilities targeted at attractive, fast growing segments. The investment program is expected to be completed in late 2018.}

^{Note: Purchase price and 2018 figures converted to SEK at exchange rate of 10.54. 2017 figures converted at 2017 average rate of 9.63.}

Click here to find more M&A transaction advised by ONEtoONE!

Target customer, who is it?

Do you know how to decide who your target customer is? In this article we give you some suggestions to help you answer this question. We will also talk about how to deal with competitors after having analyzed what the customers want.

What kind of customer do you want to serve?

You must choose which type of customers you want to serve to identify which will be your target customer. Wanting to serve everyone is a mistake, just like it would be to cover all the needs in your customer segment, or trying to imitate every new idea. There are many companies living a “herding behaviour”, following the leader’s steps and comfortable in vulgarity.

Reflect on which customer segment your company has a great potential to create a unique offer that covers a type of unattended need. Once discovered, be willing to renounce on the other types of customers that don’t have such a need for that service.

Insurance company Progressive discovered a poorly-served collective. Those with an alcohol abuse or risk behaviour history had great difficulty in being accepted by insurance companies. They tackled this collective, which had few alternatives, and which, in turn, allowed them to charge higher premiums. Thanks to their ability for handling information, they were able to identify segments within this collective that didn’t pose such a risk, like drivers with a drinking history but also parents with small kids.

In order to add real value to your target customer, you must step in the customers’ shoes and understand their behaviour. Try to understand the psychological reasons behind their purchases. You must feel how they feel. Don’t project your feelings to the market. Think about their concerns, needs, preferences, thoughts, hopes, relationships and daily routines. It is important to see them in action. How are your customers? What are their personalities like? Whom do they identify with? What are their hopes? How do they see themselves?

When Gillette decided to approach the Indian market, they asked the product design team to spend a few weeks living with the potential users. The designers resisted because they thought that they didn’t have anything more to learn about shaving razors. Upon returning from the trip, one of them, an Indian-American, acknowledged that by watching an Indian shave in his village, without any water nearby, he realized that he had a completely wrong idea of the optimal design for a shaver for India. He understood that he had to design parts that allowed for larger spaces between blades so that, while shaving without water, hair would not get stuck between the razor blades and hinder the shaver’s functionality.

Try to think like customers do. Don’t focus only on the features of the product or service, but in the benefit to the customers, on how they perceive it, on the psychological value. What do customers really value? What touches their core?

Target Customers are your strategic assets

I recommend that you see your customers as strategic assets and innovate around them, not around your products or services. Instead of thinking about the product used by the customers, think about the problems they have to address. Customers don’t buy a drill, they buy a hole, they don’t buy a service, but a solution. We don’t have to think about the service they want but about the solution they’re after. It requires empathy, understanding the feelings of a type of users and their frustrations. That’s why many business models have been born out of users’ frustrations.

Dropbox is an example. It was founded in April 2007 by Drew Houston, a 27-year-old man. The idea came to him while on a bus, when he realized he had forgotten his pen drive. He decided to program a service for synchronizing and sharing files between computers on the Internet. This way, he could always have access to the latest version of documents.

Every job has a functional, emotional and social dimension. How do I help customers do their job? You must decide who will be and who won’t be your customers. Ask yourself: Who are my direct customers? Who are my final customers? What issues do they have? What can I do to address these issues? How do these customers use existing products to satisfy their needs? What can make me different in a way that makes these customers interested? And ask them: What makes you buy this product? What’s it missing? Why don’t you recommend it to your friends? To make customers be your fans you must give an overabundance of the feature they value the most. Focus your efforts on attracting and engaging fans – those who can be most interested and loyal. They will help you spread the message among their peers. Turn them into your army. It’s about closing the space between problem and solution. But be careful, you must solve real problems, not ones created by you.

Maybe you can create a new class of customers that didn’t exist before, like FedEx did when they developed a new market for those who wanted their packages to arrive in just one day, guaranteed.

Curves, the fitness-club chain, realized there was a type of customers, women, that didn´t have their needs covered when practicing sports, and created a solution for them. In traditional chains, with sophisticated machinery, customers worked out looking at television screens, without any interaction with others. The rooms were full of mirrors for customers to admire their figures. Muscular customers intimidated a segment of women who didn´t feel fit enough to show their bodies in that environment, or to follow aggressive fitness programs. Curves designed exclusive centres for women that didn´t need saunas, swimming pools or large installations, so they could be smaller and closer to home. The machines were simple, arranged in a circle to encourage conversation between them, in an intimate space, without any mirrors, only for women and with basic fitness programs. Many women felt attracted to this type of gyms. Since the required investment was smaller, subscription fees were also smaller, 70% cheaper than a traditional gym, allowing the centres to become popular for a collective that used to reject them because of price or of the distance to and from their homes.

What are your competitors doing?

After analyzing what the customers want and your capabilities, you must look at competitors and alternatives to see if there is something that will make you different in the eyes of those customers.

Naturally, the strategy is to satisfy the target customer and gain a profit while doing so, that’s why you must ask yourself if the customer is willing to pay the price you have to charge in order for it to be profitable for the company. Thus, it’s about creating value for your target customer and being capable of capturing value for yourself as well.

Common reasons to sell a business

In this article, Enrique Quemada, ONEtoONE President, tell us the 10 most common reasons why entrepreneurs sell their business. Let’s begin!

Internal and personal common reasons why entrepreneurs sell their business

1. Preparing for retirement: this is a very personal reason to sell a business. There are businessmen who, at 55, decide they have enough money and “have done it all”, they no longer feel the urge to continue fighting and would rather focus on other pastimes, such as travel. Others prefer not to retire until 70. If a businessman is 63 and wants to sell his company and retire in two years, it is always a good idea to start preparing the company for sale.

2. Health problems: you only live once and if your health fails you it may be best to let go of the company so that you can spend the time you have left with your family, without the trouble and demands of your company.

3. Lack of interest in continuing the business on the part of the children or a lack of preparation: the owner must understand and accept that his children want to pursue different paths from him.

4. Conflict of interests between shareholders: one of them doesn’t want to continue or there are disagreements about the correct course for the company. This makes decision-making difficult and compromises the competitive future of the company.

5. Need for a new injection of resources: The need for capital increase in order to stay competitive is very common. It is possible that an owner, especially when he is getting along in life, isn’t willing to reinvest the capital that he has made from the company and prefers to sell.

DOES YOUR COMPANY NEED A NEW INJECTION OF RESOURCES? HAVE A LOOK AT “REACT TO YOUR COMPANY’S NEED FOR CAPITAL BEFORE IT IS TOO LATE“!

External common reasons why entrepreneurs sell their businesses

6. The entry of a powerful competitor into the sector: sometimes a company has developed a market and made it attractive enough for a bigger player to come in as a competitor. This is what happened with Netscape in the browser market when Microsoft appeared. Netscape resisted, and failed.

7. End of an upward economic cycle: the mature businessman faced with a cyclical change decides to sell the company. As a businessman once said to me, “I’m already rich. I don’t need to spend the last years of my life fighting an economic crisis”.

8. You receive a good offer for the company: upon analysis of the offer, it is clear that more value will be obtained accepting the offer than continuing to manage the company. This means that the buyer is paying a price greater than the embedded value and is sharing, as we will later see, the value of synergies or, simply, overvaluing it.

9. Changes in sector regulations: for example, new phyto-sanitary requirements may mean significant investments that make it impossible to be profitable given the current size of the company. One way to survive and keep the existing value of the current capacity (clients, brand, products, and technology) is to become part of a larger group.

10. Change of business or simultaneous dedication to more profitable companies that require more attention: sometimes you find that another business you started is more profitable, requires less effort, has a brighter future or, simply, brings you more satisfaction.

3 Keys to Maximizing the Price of a Company

MAXIMIZE THE PRICE OF A COMPANY

The sale of a company is one of the most important moments in the life of a business owner. And it is one of those moments where the process must be as professional as possible. There are three keys to maximize the price of a company:

1. Find the most financially able buyer

The first key is selling it to a buyer who truly has the financial capacity for the purchase. Often, you might receive a buyer who has double the revenues you do and has a lot of debt. There might be a lot of interest, but what is likely to happen is that they will not be able to pay a lot because they simply do not have the resources. However, if you find a buyer who has $1 billion in turnover, $100 million in profits, and no debt, that buyer is sure to offer you a better price because the buyer simply has greater financial ability.

2. Look for synergies

The second key is synergies. This means finding the buyer that has the best synergies with your company, in addition to having the financial capacity for the purchase. This implies the buyer being able to sell your products to the same clients, selling your products to their clients, or opening a new market for your company. These are synergies that create value, which will be reflected in the price tag.

YOU MIGHT ALSO BE INTERESTED IN, “4 STEPS TO PREPARING YOUR COMPANY FOR ITS SALE.”

3. Create competition

The last key is creating competition. It does not make any sense to sell your company to the first buyer that comes along. Rather, one should always look for other potential buyers, even though this search may be confidential. It is important that this research is done because otherwise, you will not have any negotiation power and this will be very obvious when it comes down to negotiation the sale price.

Conclusion

Therefore, at a time as crucial as selling your company, it is of vital importance that you find the buyer that has the financial capacity for the purchase, that has true synergies, and that you create competition among potential buyers who fulfill these requirements. Our experience shows us that this doubles the price of the offer during the sale process. Through 30 years of value creation, imagine doubling its value just during the nine months that the sale process usually takes.

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

5 places to find the right company to buy

Once you have made the decision to buy, it may be hard to find a company for the purchase. The first thing to do is to get the word out – in your surroundings and among the key actors in the world of mergers and acquisitions. Then, look in these places and, more than likely, you will find the best buy for you:

1. Gather information and ask around

First of all, get to know the industry that interests you, contact the professional association of the sector, speak with its leader and show him or her your interest, ask them to let you know if they hear of any company for sale.

2. Directly contact business owners

Another alternative is directly contacting the owners of the companies that interest you. You will be pleasantly surprised. Over the years, I have called many business owners in name of clients who were interested in buying them and these calls have always been well-received. In fact, some owners have shown great interest. Many business owners love to hear that you want to buy their company. They feel flattered and are willing to sell.

3. Use the internet

Another way is to put an ad on the internet, on corporate buying and selling websites. In these websites, there are a lot of ads for selling but very few for buying. This means that your ad will stand out and will provide you with a lot of leads. It is much better to have companies come to you than for you to go to them. This will increase your negotiation power.

YOU MIGHT ALSO BE INTERESTED IN, “6 STEPS TO IDENTIFY THE IDEAL SECTOR AND COMPANY TO BUY.”

4. M&A banks

Of course, it is important to make public your desire to buy a company. Head to M&A banks. There are not that many (ONEtoONE Capital Partners is one of them) and are easy to find on the internet. However, you should show them real interest in buying because bankers like those who show true interest and will not want to waste time with those who are not serious. The advantage of contacting one of these entities is that they have sale mandates and the seller has paid them so that they make a sale notebook and create documentation about the company, meaning that they will be able to give you a lot of information.

5. Lending entities, such as banks and venture capital firms

Risk entities, such as lending banks or venture capital firms, are also an amazing source. They know the companies for which the business owners are close to retirement or where they are overwhelmed and are looking to find substitutes to take on the company leadership.

If you are looking for companies in crisis, ask around at these banks. They have many of them as clients and will be happy to look for an alternative leadership.

The aggressive debt of companies and the fall of revenues and EBITDAs (earnings before interest, taxes, depreciation, and amortization) provoke many companies to have difficulties when facing the debt. In these circumstances, banks find that these companies are the most willing for a change in leadership.

The banks are aware that if a company is insolvent, it will go into bankruptcy soon and they will lose most of what they have loaned the company.

Therefore, to avoid this situation, financial entities are taking control of the situation and are forcing business owners to oblige them to sell their company with the goal of recuperating most of the amount loaned.

Speak with venture capital firms that are focused on your sector. Most will have sectorial preferences. You can find them at www.webcapitalriesgo.com.

Other tips

If you are looking for small companies, you can speak with the Chamber of Commerce in your area or with a broker.

Other actors that can show you companies are law firms, financial offices, or auditors.

Do not forget about head hunters, those to whom financial investors hire to find an executive for their company. In these cases, you are the last in coming to the operation and, even though you can get a percentage of capital, your negotiation power is much less.

If may seem like a lot of work having to do a search, but as the saying goes, “no pain, no gain.” Behind this search could be an opportunity that cannot be matched. If you do not like your current situation, do not conform; create your own destiny.

Do not overlook the company you are working for at the moment. You may be in an ideal buying opportunity, but you did not realize it. Appearances fool and maybe, while you look for an opportunity outside, owners of the company where you work are secretly looking for a buyer. You will not be the first executive to whom it happens.

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

Key for M&A negotiation strategy: throw down your anchor

When you negotiate the sale of your business, a useful M&A negotiation strategy is to anchor the negotiation from the top with an aggressive demand. When we hear high or low figures, we tend to unconsciously adjust our expectations in the direction of the figure we have heard.

Using anchoring in M&A negotiation strategy has a psychological effect

The anchor has a strong psychological effect and it directs the operation in favor of the person who throws it down. This way, you inevitably condition the other party, who then has to rethink their position.

When an anchor is introduced into a negotiation, the ZOPA (zone of possible agreement) usually turns in its direction. The negotiation turns towards the zone of the person who has thrown down the anchor.

Because of this, many people think you should make the first offer and that first offer should be aggressive. Naturally, this anchor is more effective when we actually have other offers and candidates, because if we end up breaking negotiations with the anchor, we will have other options.

DO YOU WANT TO KNOW MORE ABOUT M&A NEGOTIATION STRATEGY? READ “NEGOTIATION IS YOUR POWER WHEN SELLING A BUSINESS”! YOU WILL LEARN ABOUT HOW TO VERIFY THE POWER OF THE OTHER PARTY, AND ONETOONE NEGOTIATION EXPERIENCE WHEN SELLING A BUSINESS

How to throw down an anchor

By making the first offer, you are risking the breakdown of negotiations, as you might throw down an anchor that is too big. Therefore, when you throw down your anchor, it is best not to be categorical. It is not necessary.

Sometimes, we do not even need to make an offer to throw down an anchor. For example, for the buyer, it can be enough to make affirmations such as “Naturally we have to perform a good due diligence in order to know the company better, but companies belonging to this sector are being sold at 4 times EBITDA, which is what we are thinking of.” Even if it is not a good offer, this offer has the effect of an anchor because it hinders the seller’s expectations.

Also, launching the first anchor softly can stop/delay the other party throwing down anchors on their side. In order for your demand to be believable, you should always back it up with rational arguments that can be discussed. You should support them with standards, references, or precedents that make it credible. You will not offend the other party if you can logically justify your demands with solid arguments.