Are We Selling a Business or Watching Die Hard?

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Are We Selling A Business  or Watching ‘Die Hard’?

There is a lot of drama involved in selling a business. According to Wikipedia, the movie series “Die Hard” is about “a police detective who continually finds himself in the middle of violent crises and intrigues where he is the only hope against disaster.”

If you use the “strong or powerful” definition of “violent,” that pretty much describes many M&A deals.

Some deals never die, and like layers of a PCB, the Nakatomi Plaza has many floors. Each floor and every deal has many steps, and danger can await around every corner.

Some deals die quickly, which is best for all parties if the deal was going to die anyway.

Most deals die several times during the course of the process. Sometimes, the death is due to something that is found in due diligence by the buyer, and many times the cause of death is a drop in results by the seller. If both sides can agree to a resolution, the deal can march on.

Sometimes, a deal can die due to something that happened with the buyer or some other outside factor like a fall in the market or a drop in the economy. We have had several deals that went into “zombie mode” to be brought back to life even years later.

Lots of planning, effort, and expense go into all phases of the deal. The more both parties have sunk costs into the deal, the less likely that they will truly walk away. How bad does the movie really have to be to actually walk out of the theater? I have only walked out of the theater for one movie — "Lost in Translation” — but I ended up watching it later in full on DVD. If you have a better alternative or backup plan (or plans), walking out is easier — or it makes it easier to move on if the other party walks away. The truth is the more that a deal dies and recovers, the more that both parties are committed. Just like in “Die Hard” after going through a range of ups and downs, Bruce Willis made up with his movie wife in the end.

How do you keep deals from dying?

First, try to take the drama out of the deal. Tensions start to run high when the buyer calls your baby ugly for the 10th time or when the seller takes too long to respond to 50 pages of due diligence requests. The seller’s advisors have been through many deals, and they have less at stake, so rely on your advisors to determine what is normal and what is out of bounds. The owner can vent to their advisors, and it will not affect the deal.

Being well-prepared helps the deal go more smoothly throughout the process. The more that due diligence is prepared in advance, the easier it is to respond to further questions or to any changes in the business. Many owners take their eyes off the ball during the sale process, and the business can suffer, which affects everything. Have you seen any movies that were not well-prepared? Most people would rather see a well-produced Hollywood feature film than a “Blair Witch Project”.

Get rid of “the brother.” Many times, there are too many voices in a deal. The seller often has too many advisors, including family, friends at the club, consultants, managers, and hired advisors. It is good to get sound advice, but the seller needs to stay committed. Buyers often have too many consultants who ask too many repetitive questions during due diligence. All parties should focus on what is really important. We do not always get what we want, but we usually get what we need from the deal.

 What is the ulterior or real purpose of the deal?

In the first “Die Hard” movie, Hans Gruber’s true motive was to steal $640 million of bearer bonds. In real life, both the seller and buyer have main and secondary purposes for the deal. The buyer probably will not tell the seller the true and full strategy for acquiring the company, and the seller probably will not reveal everything about their personal financial situation and goals for post-sale. The more that you can learn about the other party and what their true goals are, the more that you can keep the deal on track.

 Try to clear the decks while selling a business.

It is hard enough to get through the process even if there are no distractions: imagine trying to do this during holidays with travel, family drama, and all kinds of other things going on. You might not want to schedule an AS9100 audit during due diligence or hold off on a major re-organization. If there are too many distractions, the next thing you know, East German terrorists have taken over your Christmas party.

When a deal really dies, all parties feel like they are falling out a window for 30 stories, shouting, “Nooo!” I have hung up the phone many times, thinking, “Well, that deal’s dead-dead,” only to have the deal come back to life, then die again, and then come back to life and close.

 Just like Bruce Willis, we can never give up. “Yippee ki-yay!”

 

 Thanks to our US-Partner Tom Kastner – he generously allowed us to publish his article.

 Tom Kastner is the president of GP Ventures, an M&A advisory services firm focused on the tech and electronics industries.

 Vienna, October 2020

 

ACS Moschner & Co Ges.m.b.H.  A-1010 Vienna, Austria  acs@acsvienna.com  www.acsvienna.com

 

The difference between a valuation and the market price

A market valuation helps determine the company’s worth on the market. Valuing a business is often described both as an art and a science.

By JARMO KUUSIVUORI

Usually, there is a gap between valuation and the real market price

It is rather common that owners have a different view of the valuation of their company. It is not a surprise that in most cases it’s too high. They have built their value expectations from comparing to known deals with very high valuations.

Determining the value of a company is an intricate activity. Market leadership, lengths and sizes of customer contracts, number of own IP’s or patents have all significant impact on the valuation. If you ignore these factors, you may end up having too high expectations.

The more you have interested buyers equals to a higher price

Another vital ingredient is that how many buyers are seriously interested in your company. Several buyers mean higher pay. This formula is valid for almost every case. So the critical question is how to attract more buyers?

Advisors and Brokers have their networks and partners to match sellers and buyers to get the best possible deal. However, sometimes the company or business is not attractive, or it is overpriced. In this case, it is important to make rational decisions if the seller wants the deal to happen. And, if you’re going to make a rational decision based on the facts,  it’s good to have the data from our market evaluation study.

Defining the optimal deal structure may give a big boost to grow the total value

The deal structure may also have a significant impact on the price. If owners know their business and numbers well, they can optimize the deal structure in a way that they can get a higher price. When this happens, the buyer is usually pleased to pay more because the buyer understands that he or she has less of a risk.

Interested to hear more?

If you are interested in discussing the value of your company, let’s talk. We have access to a database with deal prices that will help in the valuation. Our job is to help you to sell your company with the highest possible market price.

How to increase your company value

Usually, at a certain point of small and medium-size companies’ lifecycle owners decide to sell their company. The case depends mainly on timing and money offered.


By JARMO KUUSIVUORI

Why sell?

How the owners end up to the decision to sell? Maybe there have been discussions and thinking about it for many years. Some of the owners might want to retire, or perhaps some of them got seriously ill. Sometimes the owners feel that they need bigger muscles to grow their business further. Often the market and technology changes can be so dramatic, that selling the company is deemed to be the best way. In some case, the challenges faced are so enormous that the owners feel that selling the company is the only way out the situation.

Fortunately, the reasons are usually very rational and well considered.

How to prepare to sell your company?

The selling process takes time and won’t happen overnight. The owners should start the preparations for selling the company and maximizing the value years earlier. However, that is rarely the case. Although it’s not difficult. Preparations are mainly about getting the basics of the business in place. On top of that, you should optimize the fundamental operations. That could be done typically more professionally.

If you don’t know how to start, you can ask help or/and you can use onboard an external expert as a Board Member. It’s quite simple, and once you have started, the rest of the journey is more comfortable.

It would be best if you had more than a severe single buyer candidate

It is the phase of the process where you have an excellent opportunity to increase your company’s value. It is incredible how many companies are sold to the bidder who contacts the owners just at the right time. If a company wants to buy your business, most likely their competitors could be interested as well. It is the point of the selling process where the excellent speeches should not blind you. Instead, it would be best if you focused on getting data for comparing the offers to the table.

Here M&A Advisors can help you to optimize the value of your company. They can grow your future wallet and earn their fees simultaneously. Using Advisors will bring you more money than not using them. So, don’t accept the first or only offer that appears apparently at the right moment.

Are you interested to hear more?

Our mission is to help our customers to increase the value of their company. If you are interested in discussing the value of your company and how to raise it, let’s talk.

Grow Your Business

Should you consider strategic acquisitions to compliment organic growth?


By BRUCE HAKUTIZWI

We routinely hear on the news about huge companies merging with and acquiring other huge companies in deals measured in the tens of billions. But just a few minutes of research will show even novice entrepreneurs that growth through acquisition is a very viable option for small and medium-size businesses as well.

The question is, is it the right growth strategy for your company? Or are you better off expanding in more organic ways – by opening up satellite locations, franchising, or focusing exclusively on aggressive sales and marketing tactics?

There’s an interesting conversation to be had around this topic for every unique business situation, and there’s truly no “right” answer that fits every circumstance. Let’s look into some of the pros and cons of growth through acquisition versus more organic business growth so you’re in a better position to make that decision yourself.

The pros of organic business growth:

Growing your business organically – in the most natural, progressive way possible – offers the most control over how that growth occurs. That doesn’t mean you’re going to completely avoid unexpected setbacks or even the stress of “too much success” at times. But, generally speaking, if you’re focused on continually improving your marketing efforts, improving your product or service, and identifying new or more profitable markets you can successfully enter, you’re going to find that growth is more predictable and controllable over the long term.

There’s also a real sense of pride and accomplishment that comes with growing a business from the ground up with your own (and your team’s) efforts to account for its success. Many entrepreneurs couldn’t imagine doing it any other way.

The cons of organic business growth:

The biggest potential negative aspect of relying on strictly organic growth is that it’s usually very slow. It may take years for the market to evolve enough – and for your business to be able to afford – to justify a second location or expansion into a new geographic area. Getting to the point of opening a third location will probably take less time than the second one did, but it could still require years of planning and effort to get there.

This isn’t a hard-and-fast rule, of course. There are plenty of examples out there of restaurants, clothing stores, and specialty service businesses that seemed to appear out of the blue and suddenly explode across the map as they took over the market. But oftentimes, apparently explosive expansion – when it’s sustainable – is actually far more controlled and organic than it appears from the outside. And there are plenty of other stories of companies that went after aggressive organic growth and ended up biting off more than they could chew, collapsing before they could realize the rewards of the strategy.

The pros of growth through strategic acquisition:

Unlike slow and steady organic growth, growth through acquisition or merger is generally much faster and – if done right – can yield a number of other almost instant benefits that can help make that rapid growth sustainable.

David Annis and Gary Schine, authors of the book, “Strategic Acquisition: A Smarter Way to Grow a Company,” explain the benefits of acquisition this way:

“Growth through acquisition is a quicker, cheaper, and far less risky proposition than the tried and true methods of expanded marketing and sales efforts. Further, acquisition offers a myriad of other advantages such as easier financing and instant economies of scale. The competitive advantages are also formidable, ranging from catching one’s competition off guard, to instant market penetration even in areas where you may currently be weak, to the elimination of a competitor(s) through its acquisition.”

So this method of growth offers a two-fold growth process:

Grow your company’s market, brand reach, audience, sphere of influence, and supply chain while also eliminating or overtaking your biggest competitor, either by acquiring them directly or by acquiring one or more smaller competitors until your company is the largest in your competitive market.

The cons of growth through acquisition:

Growth through acquisition is rapid and can yield quick results. But the internal atmosphere that develops in the time immediately preceding and following an acquisition or merger can present a number of management challenges that could hinder that rapid growth or plant the seeds of future failure.

If the merger or acquisition requires reorganizing of the workforce and/or management team in one or both companies, you may have a significant amount of stress and hard feelings to work through in the minds of those who stay. There can also be a latent sense of betrayal or disappointment on the part of employees, partners or owners of a company that has been acquired, especially if they agree to the arrangement because they’re facing a do-or-die situation.

Merging two distinct company cultures and methods will always present challenges, but a successful acquisition needs to get through these and other potential problems quickly and effectively if it’s going to successfully grow and evolve from the process.

How to choose what’s right for your business:

The question of whether to buy your competitor or open up a satellite location – to grow organically or inorganically – must be answered individually by each business owner based on their own unique circumstances.

In both cases, thorough, strategic planning is required to ensure growth is both attainable and sustainable over a long enough period to achieve the company’s goals and justify the expense and effort required.

It’s usually best to explore both options thoroughly before heading too far down either path. Discuss your options with your lawyer, business broker and other trusted advisors to make sure you’re considering all the pertinent details.

Then research businesses for sale in and around the areas you’re considering for expansion and determine whether buying one or more of these businesses will help or hinder progress toward your growth goals. Keep a sharp eye on your competition – both large and small – and look for where synergies can be identified or created so that a merger or acquisition creates added value for everyone involved.

Once you’ve done your due diligence and you’ve settled on the best path, move ahead decisively. “Luck favors the bold,” as they say, and business growth certainly follows that axiom.

ACS Deal Meeting

On 21st and 22nd June, members of the ACS network will meet in Prague, Czech Republic, at the Hotel Paris to discuss their current transaction mandates and leads to solicit further international M&A activities across Europe, North America and the Africa/Middle east regions.

Prague lies at the heart of Europe and is one of the continent’s finest cities and the major Czech economic and cultural centre. The city has a rich architectural heritage that reflects both the uncertain currents of history in Bohemia and an urban life extending back more than 1,000 years.

Although a relatively small economy, the Czech Republic has seen relatively strong growth of 3-5% a year over the last few years. Unemployment (3%) and government debt (35% of GDP) are low and consumer spending has been growing at over 5% a year making the country an attractive target for investment. A major topic of discussion will be how to best help clients tap in to the opportunities in Czech Republic and other growing economies in the Central European region