Tag Archives: buy and sell

Whether Buying or Selling a Company: Pick the Right Advisor

Pick the Right M&A advisor By PAUL HAGER, Partner of ONEtoONE Corporate Finance

Have you bought, or sold, a business lately? If you did, how do you know if you received optimal value on the deal? Did you ask an M&A advisor? It can take years before the value gained can be objectively measured, or even whether the result was a business success. Recent McKinsey and Harvard research shows that nearly 90% of all M&A deals fail to deliver the value expected, or achieve their M&A goals. How can this be?

Well-known, high-profile deals like Daimler-Benz-Chrysler; Time Warner-AOL; Quaker Oats-Snapple; Sears-Kmart; Google-Motorola; Sprint-Nextel, are extreme examples of deals not meeting expectations. A number of factors lead to poor M&A results. These include: simply paying too much; fundamental cultural mismatch; massive infrastructure incompatibilities; significant redundancies; or no product synergy, whatsoever (i.e., the marriage simply wasn’t ever going to generate products customers would consider more valuable).

As someone who has bought companies as a Fortune 500 investment committee member, and as a valuation and investment advisor for M&A clients, I’ve found the team you select to be your investment advisor plays a significant role in the amount of value created in the deal. I hope my thoughts might help you pick the right investment advisor, and significantly increase the likelihood of you achieving your M&A goals. I’ve listed characteristics I think exist in all exceptional advisors. An exceptional investment advisor:

1) Asks “Why?”.

You’ve likely heard of Simon Sinek’s Golden Circle paradigm or Paul Ambruso’s use of the “5 Whys” to discern the root cause of success and failure. The “5 Why” approach was derived from Taiichi Ohno’s 1960s Toyota Production System methodology. Its purpose is to identify inefficiencies, waste, inconsistencies in manufacturing. Most importantly, the technique can help people discover and objectively assess assumptions, biases, facts, priorities of any endeavor – personal or professional. In our case, buying or selling a business. The “5 Why” method states that clear insight leads to the best decision, and that insight is likely to come only after you’ve assessed answers to five iterations of “Why?”. For example, your investment advisor might ask, “Why do you want to buy a business?, Why do you think buying another company will lead to greater innovation?, Why do you think this type of research capability will lead to needed innovation? And, so on. Asking “Why” throughout the M&A process leads to clearer understanding of why a certain type of company or investors would be the best match. An exceptional advisor asks “Why” to constantly validate assumptions, eliminate wasted effort, explore new deal options, and sustain deal focus.

2) Understands your business

As an M&A advisor, there is no adequate substitute for deep understanding of a client’s operations and industry sector. Having empirical insight into current and future industry trends, enabling technologies, and inter-dependent industries dramatically heightens the value ceiling. An exceptional investment advisor will use this insight, and that of her other industry experts, to develop a set of optimal investment candidates for each client.

3) Spearfishes

Last year, a friend of mine told me of her exciting trip to Bora Bora (How nice is that?) She said the restaurant would take their dinner order the day before, so that snorkelers could search for the exact type and number of fish needed for their guests’ dinners. No waste in effort, time, or resources (fish not on the menu appreciated that). The diver knew the depth and location to find the type and size of desired fish. An exceptional investment advisor will find those investors and companies that most value a specific client’s offering. Through use of the “5 Whys” and other analytic methods (e.g., Porter’s 5 Forces) to build a well-defined target profile, the advisor will quickly identify superior matches for each client.

4) Leverages global reach and local insight

In searching for their client’s best investment candidates, it is sometimes more efficient and expeditious for advisors to contact corporate, institutional, and private investors with whom they regularly do business – “the usual suspects.” Because of established trust and understanding regarding these investors’ preferences and capabilities, advisors will work within their established networks. That’s understandable. But, the best strategic partner, the one that may most value the client’s offering is often not within any investor’s direct set of contacts. The best advisor is one who will leverage an expansive global investor network that connects multiple industries. Investors who most value your offering may be in Singapore, Prague, Estonia, or Shanghai. An exceptional investment advisor will leverage access to trusted M&A colleagues with deep understanding of financial markets, industries, and companies in each region of the world – allowing them to open discussions with new investors and corporate networks that promise to hold greatest interest in the deal.

5) Takes business, personally

If the human body is 60% water, I surmise at least 60% of a company’s value is its people. Or maybe, applying the Pareto Principal, 80% of a corporation’s value is its people. A good investment advisor is constantly mindful that M&A success depends on people to embrace and support implementation – before and after the deal. Having been an entrepreneur, and having worked to grow small businesses for nearly twenty years, finding a phenomenal, successful M&A match helps to improve the lives of people in each company. Or, it should. Cultural rifts and redundancy layoffs can destroy the deal, its value, and peoples’ lives. Applying the previous four facets helps create and expand deal value. An exceptional investment advisor knows that business is personal, and that the company’s greatest value asset must be supported, nurtured, and challenged. A successful M&A deal will do that.

There are many exemplary investment banks and advisory groups around the world. Whether it be a top-tier large firm, or one with a boutique focus, these firms have phenomenal analytic research, and deal-making talent. I know this from my own experience.

My only suggestion is that you chose an investment advisor who also possesses the five qualities mentioned above. If you do, I am confident you’ll capture exceptional value in your deal.

If you are looking to optimize the value of your investment within an operation, I encourage you to evaluate ONEtoONE Corporate Finance: a firm dedicated to provided the highest value services to their clients through transparency and professionalism. For more information click the button below.

If your profitability is decreasing, react before it´s too late

The company sees how its margins are getting stretched and each time it becomes more difficult to generate profits. It is a medium sized company that can’t benefit from the same economies of scale and other advantages of large companies yet it doesn’t have the flexibility of smaller companies either.

The owner is conscious that the product offering is small and not very differentiated, with mostly mature products and few products in development. The company’s bottom line is hurting.

In these cases, understanding that the future will bring a continuous deterioration of value and that an economic crisis or losing a key client can be devastating, might be enough motivation to look for a buyer and secure the value before it’s too late.

Sometimes the appearance of substitute products allows a business owner to see that the long term is not going to be profitable with his or her current business model and that something must radically change. However, the business owner is not capable of accomplishing the transformation alone.

We had a client with a company that manufactured bridge cranes that was experiencing continuously shrinking margins. The company was owned by two family branches: one managed the company and the other challenged all the decisions made by the management team. Tensions had escalated and there were more family politics involved than the politics of the company. This period coincided with the aggressive entrance of two multinationals that started to lower prices in order to eliminate smaller competitors. If you want to compete against those types of titans, you require a united and aligned team with a common strategy, which seemed impossible in this family. They decided to sell the company before it was too late. They gave us a mandate and we sold the company to a German group that was rapidly expanding to an international level.

If you anticipate that other relevant competitors will abandon the sector, make a decision to sell before your are the last to do so.

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

Book: How to Maximize the price of my company

Who to sell your company to?

The time may come when you decide on changing projects or retiring, without a succession plan. You must prepare yourself and your company for one of the most important events of its existence: selling it to a third party.

During the sale of your company you´re risking the materialization of all the value generated through many years of hard work. Considerable wealth can be created or destroyed in this precious time. That´s why you must know all the techniques that help to maximize the sale price.

Many business executives wait for a buyer to appear someday, without stopping to think about the poor logic in selling the company to whoever comes first.

Is this the best buyer?

Is this who can pay the most?

It would be a huge coincidence if it was. It´s much more likely that it´s not. Also, by being the only buyers, they have substantial leverage.

Another mistake you can make is to allow a lawyer or a CPA to handle the sale of your company. Almost 70% of a deals value resides in finding buyers with the best strategic fit, who can pay more for your company. A lawyer or a CPA may find a buyer, but it´s unlikely that they´ll locate the best possible buyer since they´re not specialists at locating ideal buyers.

If you really want to maximize the sale value of your company, you, or the advisors you hire, must perform a rigorous search process to find the best buyers or investors: those who have better synergies with your company, who are stronger financially and who recognize the strategic value of your company (wherever they may be). Then you´ll have to make them compete to increase the price.

The key factor in maximizing your company´s price is getting the interest of powerful buyers, with great economic resources and strategic motivation to acquire your company.

The keys to price and how to put the finishing touches on a value and wealth creation process, for those who have taken the risk of entering the entrepreneurial world. It´s one of the most important and delicate moments in the life of a company and, hence, where there´s the greatest need to act the most professionally.

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