Mergers & Acquisitions

Transcription

1 Mergers & Acquisitions AN INFORMED STRATEGY FOR SMALL & MID-SIZE COMPANIES by James S. Cassel

2 It s Simply Smart Business! Increasingly in recent years, senior business decision-makers responsible for their companies success have found that a merger, an acquisition, or the sale of all or part of a business can be one of the most important keys to enhancing their businesses success. And you don t have to be at the helm of a Fortune 500 company to take advantage of this winning strategy. In fact, your business can be a mid-size or small company and still gain huge benefits by utilizing an M&A strategy. This report aims to provide these companies with a down-to-earth, brief, and simple overview of mergers and acquisitions as a winning strategy for success. The purpose here is not to provide all of the details or a how-to manual, but simply to cover some of the most essential points to consider in determining whether your business should adopt, or at least consider, a strategy that takes advantage of mergers, acquisitions, or sales. Mergers & Acquisitions: Anyone Can Play NO MATTER WHAT THEY SAY, SIZE DOESN T MATTER! The world as we know it wouldn t be the same without mergers and acquisitions from Adam and Eve, the earliest merger, to the Louisiana Purchase, to Microsoft and Skype. In many respects, you could say that history has been written through mergers and acquisitions. Yet, because M&A has such a Wall Street, big business, Fortune 500 ring to it, many small and mid-size companies often feel they re excluded from doing mergers, acquisitions, and divestitures. Some simply overlook the relevance and value of these strategies to their businesses. While giant corporations may capture headlines through their deals, remember, even the smallest businesses can use a merger, acquisition, or divestiture strategy. No matter how small or large your company, your strategy for success should take into account goals and benefits associated with acquiring another business or selling all or part of yours. For some, the results can mushroom beyond anyone s wildest dreams. That was the case back in 1980 with Bill Gates and Paul Allen who, at the time, operated a small business. They made a key acquisition namely DOS (known then as QDOS for Quick and Dirty Operating System). They also made business history, and have continued to make use of acquisitions throughout Microsoft s history. But Microsoft s example could just as easily be today s Smith Manufacturing, Inc., or ButtonWorks, or Anything.com. 1

3 Your M&A Strategy The Key To Accelerating Your Business Success Let s start with a key concept merger. When one company absorbs the operations of another and brings them into a single corporate structure, you ve got a merger. Sometimes they are mergers of equals. Sometimes they are not. When a company purchases another business, but that other entity continues to operate separately under the control of the acquirer, then you have an acquisition or a takeover. On the surface, that s it. But making the M&A strategy successful takes considerable planning, financial and business expertise, roll-up-your-sleeves analysis, negotiation, decision-making, integration planning, and other hard work. Define Your Goals, Determine Your M&A Approach TWO TYPES OF BUYERS Mergers and acquisitions can be driven by any of There several goals. are two types of buyers For example, the purpose can be to make significant strategic and financial. short-term financial gains, increase product offerings, So ask yourself, Which type quickly establish operations in new geographic areas, revive a failing business, increase market penetration, of buyer is my company? reduce competition, and so on. Mergers and acquisitions define themselves by the nature of the buyer s goals. There are two types of buyers strategic and financial. So ask yourself, Which type of buyer is my company? THE STRATEGIC BUYER If you are a strategic buyer, you want to target a business for its fit with your company and so the two companies enhance each other. In other words, the strategic buyer focuses on potential synergies that can be gained by merging the two companies. The philosophy is that 2 plus 2 will equal 6 or even more. The strategic buyer will see potential gains derived by: taking over (or eliminating) a competitor, expanding markets geographically, diversifying markets, enhancing capabilities, increasing product and service offerings, and increasing market penetration. In terms of business and management styles, strategic buyers look for the perfect fit. In fact, deals often break down or experience problems if management styles do not mesh. In formulating the deal, it s important to determine the financial fit, especially by examining the cash flow and debt burden that will result following the merger. In negotiations, strategic buyers will focus on the ability to make acquisitions using stock vs. cash. Strategic buyers generally acquire 100% of the target company or assets. Following the merger, both companies need to devote considerable attention to integration of the companies. 2

4 THE FINANCIAL BUYER If you are a financial buyer, you will target a business for its financial attractiveness. Clearly, a good price will be one of the keys to the deal. Pricing is based on a multiple that takes into account several factors, including industry comparisons, revenue, earnings, and cash flow. Financial buyers look for a return on their investment. They employ a make it work mentality, and often focus on gains that can be derived from improving operations. Among key concerns of the financial buyer are revenue growth, cost efficiencies, and achieving goals using the immediate market value of corporate assets. The Other Side Of The Coin SELLING YOUR BUSINESS In order for buyers to have something to buy, there must be sellers with something to sell. To divest, therefore, is the other side of the coin in M&A transactions. Just as buyers have goals for entering into M&A, sellers, too, have goals and expectations. The goal may be simply to cash out in other words, take the money and run. Or the seller may feel the future of the business would gain significant advantages if it were acquired by a buyer with more resources financial, technological, infrastructure, management expertise, and so on. Whatever the reason for selling, you need to approach the M&A process with goals in mind; a strategy, caution, information to make decisons, wisdom, and so on. Of course, it s absolutely critical that the seller do everything necessary to maximize value. SELLING SMART It s easy to say you want to sell your business. And it may be just as easy to determine why. On the other hand, the actual process of selling your business can be as complex as buying a business perhaps even more so. The selling process involves a number of key steps. These include: gaining an understanding of your company s worth (a major undertaking unto itself), preparing a confidential selling memorandum, marketing the business, and in the process, getting the word out discreetly, identifying prospective buyers, negotiating with one or more potential buyers, and otherwise traversing a potentially treacherous landscape of legal and financial details. If you think you may want to sell all or part of your business, it s a good idea to begin preparing well in advance. 3

5 Don t Think Of M&A As A Do It Yourself Strategy USE EXPERTS TO HELP MINIMIZE YOUR RISKS. To some, mergers, acquisitions, and sales may seem simple. But, they re no walk in the park. They require special expertise, in-depth experience, legal savvy, and financial know-how. The success of a merger, an acquisition, or a divestiture depends on understanding and taking control of many complex issues...it s not unlike a marriage, with any number of factors influencing success or failure. Unfortunately, as a result of buyers or sellers lack of experience and planning, limited due diligence, or desire to go it alone, many deals falter. The acquirer or seller spends considerable time and money spinning wheels in the M&A or sales process. Without knowledgeable outside resources, a potentially terrific deal may fall apart before closing. When a deal moves forward without proper guidance, the completed merger may not work. Serious legal concerns may arise down the line. Financial difficulties may occur. Organizations may fall into disarray. Faulty operations create stresses that impact the business, its customers, and employees, and may strain stock prices if the business is a public company. Valuable members of management and good mid-level employees may leave the team. The success of a merger, an acquisition, or a sale depends on understanding and taking control of many complex issues. With appropriate, expert professional assistance, you can work to identify and meld differing corporate strategies. Similarly, independent professionals with experience and expertise in M&A need to map and guide the integration of two corporate cultures. Business valuation experts need to decide which valuation methods to use to determine the right price of the deal. They can help your company calculate its risk and exposure in a sea of variables and moving targets. It s not unlike a marriage, with any number of factors influencing success or failure. The best direction your company can take at the outset is to engage the services of a capable investment banker, good lawyers, and accountants. In addition, the investment banker you select should have the knowledge gained from other deals. Ultimately, your company is likely to save money and forge a better price as a result of the investment banker s advice and assistance thus providing real value that far outweighs the fees involved. How An Investment Banker Can Help At a minimum, whether you are a buyer or seller, an investment banker can help your company decide if a merger, acquisition, or sale is a good strategy for your business. Once your company makes that decision, your investment banker will become intimately involved as your financial advisor and will handle a wide range of complex work that is required in developing and implementing the structure of the deal. 4

6 ASSISTING THE BUYER As a financial advisor, the investment banker works closely with a client to understand what the company expects to accomplish through an acquisition and to explore the various opportunities an acquisition can offer. An investment banker s role includes: determining the acquisition criteria (such factors as size of the target, geographic focus, products/ services offered, and management quality), undertaking the search for acquisition targets, assisting the client and the client s other professionals in negotiations once the target has been identified, analyzing financials and other data provided by the target, engaging with the seller in a comprehensive due diligence process, assisting in closing the transaction, and working with the client after closing the deal to help make sure everything that was anticipated actually occurs. ASSISTING THE SELLER An investment banker also works closely with a client who may wish to sell all or part of a business. Among its many activities, an investment banker: explores the client s goals and reviews various alternatives, assists extensively in developing a valuation of the seller s business, schedules all of the tasks and related deadlines associated with the selling process, performs various financial analyses helps find the buyer, and markets the business to maximize value. An experienced investment banker undertakes a highly organized marketing strategy on behalf of the seller. That strategy includes the preparation of a comprehensive confidential sales memorandum that describes the client s business and highlights its key strengths. The investment banker, drawing upon a network of contacts and databases, then gets the word out to specifically targeted potential buyers. The savvy investment banker will also work to create an auction environment, where several buyers compete for the acquisition, thus helping to assure a favorable price. Ultimately, the investment banker helps select the winning bid and assists in negotiating an agreement that addresses all key issues, ranging from employee continuation to form and timing of consideration. A WINNING STRATEGY As noted at the outset, mergers, acquisitions, and sales can become key strategies for many businesses to achieve and accelerate their success. This report has attempted to provide you with a broad-brush overview of some of the essential factors to consider when making a decision to pursue or consider a merger, acquisition, or sale. The bottom line is that the key to making these deals work is to approach them intelligently and arm yourself with the best professional expertise available. It s simply smart business! 5

7 Cassel Salpeter & Co., LLC is a middle market investment bank focused on providing independent and objective advice to middle market and emerging growth companies. Our investment banking and advisory services include broad capabilities for both private and public companies: Mergers and Acquisitions; Restructurings, including 363 Sales and Plans of Reorganization; Equity and Debt Capital Raises; Fairness and Solvency Opinions; Valuations; and Financial and Strategic Advisory. Our senior partners are personally involved at every stage of all assignments. Our success is based on unbiased advice; understanding each client's business objectives; providing value added services; and our extensive relationships and expertise. We have forged relationships and executed transactions nationally and internationally. Experienced. Informed. Connected. Cassel Salpeter & Co., LLC 801 Brickell Avenue Suite 650 Miami, Florida Member FINRA SIPC 6