The M&A boom of 2019 has turned uncertain in 2020. But, there are islands of strong investment activity. M&A investments will be more centered on emerging technologies that enable corporate transformations or entry into new market formations. Strategic investment decisions will be made with an eye beyond growth in revenue, margin, or market share. The COVID-19 pandemic and economic recession have served to accelerate structural business changes that have been evolving across the global market. Supply chain resilience, distributed workforce optimization, skillset realignment, AI-infused business processes, and corporate end-to-end sustainability are a few of the areas where corporations are revamping operations and portfolio to meet the 21st century economy. Companies’ fundamental realignment of investment focus will likely remain through 2025.
Aggregate 2020 deal volume for the middle, large, and mega markets will be down 45% from 2019 levels. There will be nearly 70% fewer megadeals, but M&A within the North American middle-market sector will drop only about 30% from 2019’s highs. Other sectors of M&A activity through 2021 will be in distressed funding and accelerated industry roll-ups. Our takeaways for the 2020-2021 North American M&A market:
1) Heightened Demand for Disruptive Technology to take advantage of entirely new markets and to stay ahead of competitive market entrants.
2)Transformational change needed for entire portfolios in order to increase market penetration in fast-growing sectors, such as BioTech, medical/health services, IT infrastructure, sustainability, ClimateTech, natural resources, Telecommunications, FinTech, and core technology disruptors (AI, IoT, Cloud, Blockchain).
3) Cross-border M&A remains strong, aided by new foreign direct investment legislation in key markets, such as in UAE and China, will give impetus to North America looking outside of its borders for transformative assets. At the same time, North America will remain attractive investment geography because of its advanced technology and healthy consumer markets.
4) PEs and VCs turn from small deals to branded companies, while corporations look for value deals, market consolidation, and recapitalization. It is expected these activities will stay near the rubric of portfolio or capability transformation.
5) Buyers will heavily weigh Environmental and Social Sustainability (ESG) and corporate data security integrity, particularly as it relates to GDPR compliance. A company’s ESG and data privacy capabilities will be major determinants of its value and fit for future business platforms or add-ons.
6) Historical levels of cash available for M&A, with PE firms holding $2.4 trillion, US corporations’ access to $2.2 trillion, and non-financial institutions/groups raising $6 trillion in debt & equity. Even if the economy continues its GDP losses, these levels of capital are unlikely to tighten to the extent seen during the 2007-2009 Great Recession.
If you are looking to optimize the value of your investment within an operation, we 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.
BERNAR DE LA HERA (co-author) | Partner ICT Specialist, ONEtoONE Corporate Finance
M&A activity in disruptive environment
Technology is advancing at high speed. Remember how space looked from the flight deck of Star Trek’s Enterprise, just before the ship reached warp speed? The speeding onrush of celestial bodies and the blurring of peripheral view might have made you feel the slightest sense of disorientation, anxiety, imbalance. The barrage of new technological innovations disrupting established industries can be equally disorienting, especially if you’re trying to lead a business. This is basically how the high-tech industry can also be described.
Today, innovation in key information technologies is fueling change across thousands of products and services. IT is restructuring business models of thousands of companies, driving a trend for a rising number of smaller individual startups and challenging the survival of more consolidated players in the field. Research shows that an increasing number of companies are buying innovative technologies to ensure a smooth adaptation to new processes, products, services, and markets that are created as a consequence of tech innovation. When outsourcing, for example hiring scarce technical expertise compliant with organic growth strategies becomes obsolete, acquiring other companies for that expertise may become a matter of survival.
Leading technologies like the Internet of Things (IoT), Artificial Intelligence (AI), and Blockchain are enabling innovation across a multitude of industries – especially in finance, transportation, agriculture, energy, supply chain, entertainment, healthcare, and bio-engineering. These three technologies eliminate barriers between traditional industry verticals. The result is hybrid companies that can efficiently produce, fulfill, scale, and support successful offerings across multiple verticals – a phenomenon called “Amazoning”. New advanced technologies will also continue to fuel related M&A activity.
When outsourcing, for example hiring scarce technical expertise compliant with organic growth strategies becomes obsolete, acquiring other companies for that expertise may become a matter of survival.
Let’s take a closer look at the mentioned technologies
The internet of things (IoT) – Billions of devices – from home thermostats, to heart pacemakers, to farm machinery, to police surveillance systems – are connected to the Internet and constantly communicating data. Businesses are taking advantage of IoT capabilities to scale for competitive advantage, and at a faster pace than they did cloud-based computing and storage.
The IoT ecosystem enables business intelligence (BI) efforts to apply machine learning on raw customer data pulled from devices and networks scattered around the world. Full use of IoT assets allows companies to measure and manage their global supply chains and operational performance instantly. For instance, retailers are able to real-time track individual product purchases – by customers, time of day, location, and dozens of other parameters.
Blockchain – The benefits of Blockchain technology will totally disrupt how we all live and work. Blockchain is a more specialized, function-specific, and structured application of the IoT schema. It is a highly distributed network of processing nodes (e.g., computers, databases, servers), where every node holds a mapping of the entire blockchain structure (addresses, node identifiers). As these nodes, or “ledgers”, complete a transaction for an “owner”, each transaction is time-stamped and encrypted. As these discrete transactions accumulate, they are grouped together, assigned an identifier, and labeled as a “block”. Strong encryption and multiple copies of each transaction block ensure no transaction record can be altered.
Blockchains have no central authority. They distribute work, according to pre-established order of work, across chain nodes for processing. All transactions are verified in the blockchain process and periodically revalidated to ensure there is no variance between nodes’ copies of each specific transaction. Many industries are taking advantage of blockchain’s processing, documentation, transparency, and securitization features.
Artificial Intelligence (AI) – In the 1950s, ‘60s, and ‘70s, AI was primarily an effort to apply sets of statistical models to discern data trends and perform non-complex problem-solving. Early AI was an attempt to replicate basic human reasoning as it applies to data mining and analysis. Today’s AI has advanced beyond data mining and machine learning – to “deep learning” where the computer can identify, recognize, analyze, and describe data patterns in human terms – to apply and enhance its own models and methods in order to more thoroughly understand data’s meaning. Advances in machine and deep learning now fuel other technologies, such as virtual reality, augmented reality, mixed reality, and natural language processing. In addition, it is very likely that AI will increasingly be used in a wide variety of M&A tasks.
Even as new information technologies are created (such as 5G, quantum, and neuromorphic computing), IoT, AI, and Blockchain will remain as major drivers of related M&A activity. In the attempt to have an overview of the M&A activity in this disruptive environment, we have used in our study a sample of over 5,000 companies and deals from Pitchbook.com advanced search for the high-tech industry for the period 2015-2018. Thus, this research of “disruptive information technology” includes IoT, IA & Machine Learning, Cryptocurrency/Blockchain, Cybersecurity, Fin Tech, Bigdata, Robotics & Drones and Cloud and 3D Printing.
Overall, the data show that there is a surge in the number of large value M&A deals from 2015-2018. VC firms are targeting larger tech players in the innovative information tech sector. The distribution of capital invested demonstrates that the predominant mid-market industry sector receiving investment was advanced IT, accounting for 70% of transactions throughout the period.
Even as new information technologies are created (such as 5G, quantum, and neuromorphic computing), IoT, AI, and Blockchain will remain as major drivers of related M&A activity.
Which industries receive the most capital investments for innovative IT?
Regarding the industries that receive the largest amount of capital investments for innovative IT, the data reveal a fragmented picture of technology application, with some predominant use groups being software (58.88% of all transactions), Other Financial Services applications (7.61%), Commercial services (5.64%) and IT services (4.02%) respectively.
A more thorough analysis can be found in the full report that can be downloaded at the end of this article. The High-Tech Industry Outlook 2019includes data of capital invested and deal count according to the volume of transactions, the primary country sector, the deal type, and world region.
To sum up, innovation across the IT industry is accelerating at dizzying speeds. Huge technology disruption – in the form of AI, IoT, and blockchain – is fueling other industries’ in-house innovation, and dramatically expanding companies’ capabilities across global markets. Companies are buying innovative IT to ensure their own ability to deliver new technologies, products, and services at accelerating speeds to quickly-evolving global markets. With regards to today’s M&A landscape, these disruptive technologies had the following impact:
US advanced tech M&A remains strong, but Europe IT M&A is growing
During a time of falling global Capital Investment activity, rising investment in the IT sector is a bright spot
Buyers are placing greater emphasis on integrating acquired IT innovation
Advanced IT remains the hot M&A target.
Download the full report “HIGH-TECH INDUSTRY OUTLOOK 2019” to have a deeper understanding of today´s M&A landscape within the disruptive environment.
The Benelux and Spanish teams of ONEtoONE Corporate Finance are pleased to announce the success of a new advised business acquisition. Kinepolis Group, a pioneering enterprise within the cinema industry, has acquired two cinema complexes belonging to Group El Punt.
As a result of this transaction, Kinepolis acquires the `Full Cinemas´ megaplex in Barcelona, the second-largest cinema in Spain, which has 28 screens, 2,687 seats and welcomes more than 1.3 million cinema-goers every year. In addition, Kinepolis gets `El Punt Rivera´ in Valencia, which has 10 screens, 2,528 seats and attracts more than 300,000 visitors annually.
Prior to this business acquisition, Kinepolis Group already had 6 cinemas in Spain. Following the latest transaction, the company will run the three biggest cinemas in Spain: Kinepolis Ciudad de la Imagen in Madrid, Full in Barcelona and Kinepolis Valencia. In total, Kinepolis Group currently operates 97 cinemas (45 of which it owns) worldwide, with a total of 852 screens and more than 185,000 seats.
“This acquisition reaffirms ONEtoONE´s expertise in cross-border transactions, thus providing extra value to build-up processes.”
– Dominique Gazel-Anthoine, Managing Partner at ONEtoONE Spain
“This acquisition demonstrates the strength of our international network to initiate and advise meaningful M&A transactions for Belgian corporates. Our local approach is also very appreciated by Board and ExCo members during the negotiations.”
– Antoine van den Abeele, Managing Partner at ONEtoONE
The process of negotiating with investors implies many factors that have to be well managed to achieve the desired outcomes.There is no magic recipe for successful negotiations with potential investors, however and if you want to negotiate like an expert, the following key points will help you to get closer to your goals.
1. Understand what you really want and what your aspirations are when negotiating with investors
Goals give you direction but clear expectations will give you the strength to negotiate because you will have convinced yourself that you deserve it. As American president Lyndon Johnson said, “what convinces is conviction.”
2. Failure to prepare yourself equals preparing yourself for failure
Preparation is 99% of the success. Many negotiations fail due to the lack of preparation. It is essential that you discover during the process what the investment opportunity represents for the buyer: Why does he want to buy? Which ones are his restrictions? What are his economic motives? Why does he need your company? What does he intend to do with it? How much does he expect to gain?
Find out more about the search for investors here.
3. Reach an agreement with the ‘best’ alternative you have
A good agreement requires having good alternatives. If you lack alternatives you lack bargaining power which the buyer will exploit to obtain concessions from you. Although this seems obvious, often an entrepreneur negotiates with a single buyer: How do you know if this is the right buyer? Is this the buyer to whom your company creates the most value or the one who can pay the highest price? Only a good search method for alternatives will provide with answers to these questions.
4. A good negotiator asks a lot, speaks little and is a good listener
Share information, but above all, get information. Ask twice as many questions, seek clarification of the answers, and summarize what you have heard to verify that your understanding is correct.
5. A good negotiator builds trust, and never lies
Do not build expectations that cannot be fulfilled and keep your promises. You will gain the respect of the other party when being reliable. Lies eventually will be uncovered and undermine confidence, which increases the risk premium.
6. Create the optimal conditions for a good negotiation before meeting with the other party at the negotiating table
This is achieved by making sure the right people are in the room, with the correct expectations, at the most favorable moment for you, and that you have the best alternatives when there is no agreement. And of course, never improvise!
Prepare an overview of the various interests of all parties participating in the negotiations. Is there someone who can torpedo the operation because of other interests? How can you influence them to be supportive? Keep an eye on the people involved and their personal interests. Determine who on the other side values the operation most, and get that person to participate actively in the negotiations.
Alongside the interests of the investing entity there are the interests of the people who are negotiating. Find out who is the ultimate decision maker and what his/her personal interests, needs, and desired outcomes are. Ask yourself about the negotiator: Does (s)he have the authority to close a deal?
8. Have a sincere interest in the objectives of the other party
This will help that he in return also cares about your objectives, and creates the best mutually beneficial solution. Remember that by creating empathy you create a favourable climate for ‘grow the pie’ thinking. Be tough on your demands but affectionate with the person.
” Negotiating with investors is a game of information and information gives you power. You must seek to understand their needs rather than their wants.
9. Power is a very relative concept
In negotiations the power depends on your alternatives and the alternatives of the other party.
Remember that in a negotiation with investors 50% is emotion. Check the real power of the other party; usually it is being overestimated. Perceptions are crucial in negotiations, and it is essential to understand them well. Situational power is based on perceptions, not facts. Therefore, be aware of the signs you transmit.
10. A good negotiator is able to grow the pie rather than fight for the biggest piece
You will maximize your outcome when guaranteeing that both parties will achieve their objectives. The first step to grow the pie is to believe that a deal is possible.
Negotiating with investors is a game of information, therefore the best negotiators are focused on receiving information rather than giving information. When you better understand the needs of the other party, then you will find items that are very important to them but have less value for you. You can exchange these for items which are important to you but have less value for them.
And above all remember that in a negotiation that affects you, if you’re not at the negotiating table, you’re probably on the menu. If you are considering a corporate transaction and wish to prepare a good negotiation, do not hesitate to contact our advisors.
One business trend that will likely gain significant strength in the coming years is technology-driven M&A. These are acquisitions or joint ventures whose fundamental purpose is to create or protect firm value through the acquisition of technology. While the search for technology has always been an M&A strategy, its importance has grown as the pace of technological development has accelerated, the use of technology in our lives has increased and technological disruption of industries has become more common.
Technology-driven M&A transactions have, as with all M&A strategies, potential advantages and disadvantages. On the one hand, they can help companies jump often lengthy innovation curves, rapidly expand into new business areas and maximize the sales potential of products and services. On the other hand, acquiring technology can be very expensive, implementing technology can be challenging and there can be significant uncertainties as to the impact of technology on a business and whether the acquired technology will remain relevant and competitive in the face of other technological developments and market changes.
This article briefly discusses the increasing pace of technological development, provides an overview of three models of technology-driven M&A and looks at some advantages and disadvantages of tech-driven M&A strategies.
The Accelerating Pace of Technological Development
While technological development is by no means a new phenomenon, arguably we are witnessing the greatest acceleration of technological progress and impact of technology on human lives in history. There are four related reasons for this which have combined to create a virtuous cycle of technological progress.
● Increased Dissemination of Technological Knowledge. Information about technology and technological development is being disseminated at increasingly rapid rates. Due primarily to the Internet and the explosion of knowledge-sharing economies, it is possible to learn about technological developments, discover how to replicate them and work on ways to improve them faster than ever before. The Internet has gone a long way to convert the world into an open technological laboratory.
● Improving Technological Development Finance and Economics. Investment in technology has rapidly increased due to growing global wealth, deeper and more efficient capital markets and the increasing interface between investment capital and technology development. This has been combined with the falling cost of many key building blocks of technological development, such as human labor, access to information, computer-driven research and the cost of technology development-enabling devices such as computers.
● Increased Use of Technology. The use of technology in our daily lives has increased. Due to increased Internet penetration rates, the Internet of Things and trends such as technology convergence, our lives are increasingly intertwined with devices, such as cell phones, which rapidly evolve. This has increased technology absorption rates.
● Economic Conversion of Technology. Due to increased knowledge about technology demand and immediate access to large amounts of technology users through the Internet, the chances of converting technological development into short-term financial gain have improved. This has created the rise of companies such as Google, who channel large amounts of resources into technology research and technology ventures. The shrinking loop of technology development and economic conversion creates strong incentives for the constant push for new technological applications.
Three Types of Technology-Driven M&A Strategies
The rapid pace of technological development has had a major impact on businesses and how businesses view the path to value creation. As an M&A strategy, the acquisition of the right technology can allow a business to grow at rates that can be significantly in excess of growth strategies that rely on other growth drivers.
There are three key types of technology-driven M&A transactions.
● The first type of technology-driven M&A strategy is used by businesses who are looking to acquire innovation to defend their current business model, strengthen elements of their business or transition into new business areas. One example of this strategy is where a petroleum company seeks to acquire a company with renewable energy technology.
● The second type of technology-driven M&A strategy is utilized by technology companies who have technology at different stages of development but who not have the necessary resources to complete the technological development or who do not have a platform to monetize the technology. This strategy can allow technology companies to shorten product launch cycles, significantly expand their access to potential customers and greatly accelerate their ability to deliver their products and services to those customers.
● The third type of technology-driven M&A strategy is used by financially-driven investors who attempt to use technology to create financial value consistent with their overall investment strategy. Technology can be used with every type of financial M&A strategy, ranging from turnaround strategies to long-term value growth to risk arbitrage.
Advantages and Disadvantages of Technology-Driven M&A Strategies
Technology-driven M&A strategies have advantages and disadvantages. At the company level, the key advantage is the right technology can significantly improve business performance. This, is and of itself, can create a series of positive developments, including increased productivity, profitability and investment.
A second key advantage of technology-driven M&A strategies is that they externalize different parts of the technology development and commercialization phases, which can create overall economic efficiencies. For an industrial group, it can be economically efficient for a large portion of technology development to be carried out by third parties. Similarly, for a technology firm, it can be economically efficient for other parties to develop and maintain the channels necessary to market technology.
On the other hand, technology-driven M&A strategies can pose several challenges. To begin with, acquired technology may not fit precisely with a company’s business model or may be difficult to implement, which can create operational inefficiencies as well as efficiencies.
Second, even if technology fits precisely with a company’s business model and can be readily implemented, technology may become obsolete or markets may shift toward different technological applications, eliminating the benefits of the technology acquired.
Thirdly, because of the uncertainties involved with the integration, implementation and durability of technology, it is extremely challenging to value. Unlike investment funds who might hedge the risks of technological investment by investing in many technology ventures, for a single company a major technological investment may constitute a significant bet of its available business development capital. Furthermore, given the uncertainties of technology investments, financing parties may only underwrite investment in technology at significantly higher costs than more secure CAPEX or other investments, which can put firms under financial pressure, particularly if it will take a long time for technology-driven benefits to be realized.
Conclusion
As the pace of technological development and the integration of technology in our daily lives continues to accelerate, technology-driven M&A will become an increasingly relevant M&A strategy. While this strategy has advantages and disadvantages, it should be carefully considered by companies looking to maximize the potential of their business model and drive overall firm growth.
In our financially interconnected world where there are few restrictions on where M&A deals can be carried out, one major practical transaction challenge that investors and companies face is the valuation of companies and assets in emerging markets.
Emerging market valuation can be difficult due to several reasons, including:
– the key revenue and cost drivers of a company’s business may be highly exposed to microeconomic or macroeconomic variables that are rapidly changing
– there may be a limited number of transactions in a market involving a particular asset or company type which creates a high degree of uncertainty about what an asset or company is worth
– there may be country risks, such as political or social risks, which create significant uncertainty about how the business environment a company operates in will change in the future.
These difficulties often lead to situations where companies or assets are significantly overvalued or undervalued, creating unrealistic investment return expectations, investor and company tensions that negatively affect a company’s performance and, most importantly, inefficient patterns of capital allocation and repayment that can restrict business and economic growth.
This article briefly defines the concept of an emerging market in the valuation context, discusses some emerging market valuation challenges and sets forth guidelines that companies and investors can use when they face valuation challenges in these markets.
What is an Emerging Market?
While the term “emerging market” is often used as a shorthand way to refer to countries that are entering a phase of significant economic growth, from a financial valuation perspective the concept of an emerging market is often not so straightforward.
The reason for this is that every country is in reality comprised of many different markets, and these markets are in a constant state of flux with some markets growing, others in a state of relative stability and other markets in a phase of decline. Even with respect to markets that are in a phase of decline in terms of total market size or profit margins, the application of new technologies may cause these markets or sub-markets to enter new periods of high growth.
For the purpose of valuation, it is therefore helpful to identify three types of emerging markets:
– the first type of emerging market is a country that is undergoing a phase of rapid economic growth. This is growth which is significantly better than historical growth rates and has been sustained for at least several years. To provide one example of a classic emerging market, since 2002, Ethiopia’s annual GDP growth rate has exceeded 10% many times
– the second type of emerging market is a sub-market in an economically mature market, such as the United States, that is currently undergoing a phase of rapid economic growth. An example of this type of market is green vehicle technology
– the third type of emerging market is a market which is the result of the combination of two markets, such as the financial sector and technology, producing the fintech market.
These emerging market types highlight the point that regardless of how a market is labelled, the actual market realities a company operates in can be highly dynamic and complicated.
Valuation Challenges in Emerging Markets
Valuing assets and companies in emerging markets presents significant challenges, both from market-based as well as cash flow-based valuation approaches.
Market-Driven Valuation Approaches
A common way for companies to be valued is to derive valuation metrics from the market, such as based on the relationship between company sale prices and company revenues or EBITDA. However, in emerging markets there can be very little transaction history regarding a company or asset type, so these metrics may not exist
Cash Flow-Based Valuation Approaches
Another common way for companies to be valued is to forecast the company’s future cash flows and then discount the value of those cash flows by a discount factor based on risk. In emerging markets, however, this can be very challenging to do because first, as suggested above, there may be not enough transaction history to extract a discount factor. More importantly, emerging markets often experience high degrees of volatility and accordingly cash flows and risk levels can be highly susceptible to change, either moving to more stability, lower risk and lower growth rates or becoming significantly riskier and at times even collapsing.
Emerging Markets Valuation Principles
To face the challenges of emerging market valuation, it is helpful to keep the following points in mind:
– Definition of Market. The first point is to accurately define the market that the relevant company or asset is in. It is often the case that a company in an ostensibly highly stable market is actually positioned in a sub-market experiencing significant growth which may be not be reflected in the valuation metrics applicable to transactions in the broader market. Similarly, a company in a highly volatile emerging market may actually have a business model which is highly stable and insulated from a significant amount of market volatility, such as a company in an emerging market whose sales are based on long-term contracts with highly stable buyers.
– Definition of Company Relationship to Market Drivers. The second point is to analyze the relationship of a company’s business model to market drivers. For some business models, such as construction, there tends to be a high correlation between the company’s business model and a country’s GDP growth. Other business models, however, may benefit during periods of macroeconomic volatility, such as those based on debt renegotiation or selling discount products and services.
– Use of Other Markets as Valuation Reference Points. In the absence of sufficient transaction history in a market for valuation purposes, it is useful to use metrics in other markets as a starting point. While different markets can have very different realities, many business models of companies in the same industry, even if they are located in different jurisdictions, are structurally similar which can help define income and cost structures and profitability.
Once this is done, it is then necessary to compare the company to be valued with companies in the reference market to see whether the reference valuation parameters should be adjusted upwards or downwards. Some key factors to consider in this comparative analysis are:
– The profitability of the company to be valued compared with companies in the valuation reference group;
– Risks to the company’s current revenue and cost structure compared with risks that affect the company’s valuation reference group;
– Size of a company’s potential growth market compared with companies in the valuation reference group; and
– Ability of a company to take advantage of that growth market compared with companies in the valuation reference group, based on such factors as strength of the companies’ leadership and management teams, the nature of competitors in the market, barriers to market entry and regulatory factors that promote or restrict competition.
Conclusion
Due to the integration of global capital markets and low economic growth rates in mature markets, investors will continue to look for investment opportunities in emerging markets and companies in emerging markets will continue to search more developed markets for investment capital.
While investing across markets at different stages of development presents significant valuation challenges, through a careful analysis of market realities and comparing the structure and prospects of a company’s business model to companies in a reasonably selected valuation reference group, it is possible to obtain a valuation of a company or asset in an emerging market that is fair for investors as well as target companies. This is necessary to match investment capital with investment opportunities and create continually more efficient markets.
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!”
I began my professional career by working in the sector itself, in a role related to General Administration and Finance, during which I also had my own company in product importation and commercialization. However, my dream was always working in the M&A world, a passion that awakened in me while working toward my Master’s in Finance and was living in Bogotá. This was when I decided to start my own company and dedicate myself part-time to teaching. In the last few years, I have participated in various administration boards as an external member, where I have gained invaluable experience and developed a successful career as an M&A adviser. In 2016, I joined ONEtoONE to to give a much more global reach to my deals.
The global network of ONEtoONE
What I like the most about working at ONEtoONE is the feeling of support I receive from my colleagues and fellow international partners. Having more than 100 professionals who are M&A specialists all over the world allows us to feed from each other’s experience and wide network of contacts. Technologically, I am convinced that we are pioneers; we have an information system that is unique to lead deals in a way that is more organized, efficient, and practical. Everyone in the team has professional qualities that are incredible from any point of view.
M&A in Colombia and prominent operations
My base is Medellín, where we have our headquarters, but from there, we attend to all of the country, especially to Bogotá. I personally develop many projects in the food sector, but there are other sectors that I enjoy profoundly, like IT and telecommunications. Currently, we are buying two companies in Mexico in the food industry, selling a natural foods distribution company in Colombia, capitalizing a meat processing plant, and negotiating various important operations for the upcoming year in sectors such as telecommunications, IT, distribution, and fabrication. We are constantly valuing companies; it is our passion, and we collaborate with many colleagues on a local and international level who are executing their own M&A deals.
Want to learn more about our partners? Have a look at “ONEtoONE Team” blog section!
Deciding whether or not to sell a business is one of the most important decisions a business owner will make, professionally and personally.
We want to find out what your reason is and what motivates you to make the leap and commit to selling your business. If you would like to know more about others in your position, we have created a study that illustrates the 16 most common reasons business owners like you chose to sell their business.
It is crucial to be prepared for when the time comes to sell your business. Without the proper preparation and planning, the chances of your company finding a suitable buyer who is willing to pay a premium price decrease immensely which in the end results in a poor sale and loss of profits. The main issues we see with situations like these include not having any type of transition plan, a lack of a competent successor, family difficulties, issues between the partners, and insufficient capital or finances to operate. After years of hard work and dedication, ensuring a successful transition for your company should be a top priority.
At ONEtoONE, we want to hear from you and learn what your specific reasons are regarding the sale of your company. Our goal is to use our experience to benefit you and ensure that you have a successful and profitable experience.
If you miss this wave you will be devoured as the fate of individual companies has never been more uncertain, and the window of opportunity is closing for many companies unprepared or unable to adapt to the new market realities.
There are five reasons why you should ride the current M&A wave:
1. Companies are valued by estimating their future profits. When a company is in a very profitable stage, a promising future can be projected, which will maximize its price. When it´s going through a bad phase it´s much more difficult to make an exciting future credible.
2. The economy has cycles. The key is to sell during a buoyant economic cycle, not only because the company has a higher turnover and makes a better profit during this phase, but also because buyers are more optimistic and there´s a greater abundance of money.
3. In buoyant periods, companies listed on the stock market are willing to pay more because their shares also lists at higher multiples. In economic booms, it´s also easier for buyers to obtain financing for purchases, either through banks or by issuing corporate debt, which allows them to pay even more for your business.
4. Another external element which affects your company´s value is interest rates. When rates are high, companies are worth less and when they´re low, companies are worth more.
This is because value is estimated by discounting the cash flow that the company will generate during the rest of its existence. It´s discounted based on interest rates plus a prime that represents the risk of the company not meeting its expectations. If interest rates are low, it´s discounted at a lower rate. Due to the denominator being lower, the resulting figure in the valuation is higher. This is why companies are worth more at lower interest rates than at higher ones.
5. Today money is abundant, the value of companies in the stock market have never been higher, interest rates worldwide are at the lowest level ever seen, and there is a huge M&A wave. Ride the wave before it goes.
@EnriqueQuemada
