Welcome to Golden Nugget Friday, the motivation behind today’s topic came from episode 013 when John Bly talks about his passion of helping other entrepreneurs in the small business niche $1M to $50M grow thru mergers and acquisitions. Today we will cover 2016 Merger & Acquisitions outlook, key drivers that help devise a growth-driven acquisition strategy, five components for executing a successful acquisition as well as, a reasons why they fail. We have some amazing FREE resources - M&A Due Diligence check lists and 35-page M&A Guide.
Did you know that 2015 was record-breaking year for acquisitions? Buyers splashed out $3.8 trillion on mergers and acquisitions in 2015, the highest amount ever, surpassing the previous record set in 2007, before the financial crisis, according to data compiled by Bloomberg. If anything, companies seem more optimistic about pursuing Mergers & Acquisitions than they were in 2015 - according to an EY survey published, almost 60 percent of executives expected to carry out acquisitions in the next 12 months, up from 40 percent a year earlier.
Have a listen to the 2016 outlook on M & A from an interview on Squawk Box with Pip McCrostie – she is Global Vice Chair of transaction advisory services and here’s what she has to say….. time stamp on episode at 2:42
According to John Bly Mergers and Acquisitions can seem daunting to entrepreneurs, but it doesn’t have to be. Growth through merger & acquisition is a simple process that can yield huge rewards if the numbers work, if the company is a good match, and if you are willing to accept some risk. Perhaps the most important aspects of M&A are having the desire, strategy, and structure to make it happen – if you have that then you can take your company to new heights with explosive growth.
When I spoke to John earlier this week about Mergers & Acquisitions I asked him why he wrote the book Cracking the Code this is what he had to say. (http://maxumcorp.com.au/013-growth-by-mergers-and-acquisitions-with-john-bly/)
Cracking the Code – John Bly
This book serves as a guide to effectively find good deals for entrepreneurial businesses in the 1 to 30-million-dollar range. It provides a blueprint for how to tackle issues such as determining whether it’s a good fit, due diligence, structuring the deal, valuation, tax issues, and how to land the perfect catch. For M&A to succeed, these matters must be addressed first. John will show you ways to find potential spots for rapid growth and accomplish, on a smaller level, what the bigger companies do. By breaking M&A down into approachable elements, you will find that your entire outlook on the topic will be transformed. (http://www.amazon.com/Cracking-Code-Entrepreneurs-Business-Acquisitions/dp/159932427X)
What Key Drivers Help Devise a Growth-driven Acquisition Strategy.
There are several strategic drivers or reasons why you would want to get involved in a Merger & Acquisition, according to Mark N. Clemente and David S. Greenspan
If some of these strategic drivers fit your company and you’re ready to explore a Merger & Acquisition strategy, here are 5 components to help you execute a successful acquisition! Note once the acquisition is complete, it is critical to get the integration strategy implemented correctly. I can’t stress enough that these tips are just a starting point. Down load the free M & A Due Diligence Check list and the 34-page guide for more specifics to assist you!
While no two deals are the same, as I reflect on my own experience of completing three Mergers. I learned that there are 5 basic components for executing a successful acquisition.
1. Assembling the right Team.Develop an internal working team made up of representatives from finance, sales and marketing, and operations. Depending on the complexity you should consider using outside experienced advisors such as lawyers, accountants, investment bankers, valuation experts, and in some come cases insurance or employee benefits experts.
2. Finding Ideal Target Company. Your team should decide if they want to target internally through screening, networking and industry contacts or work with an investment banker or broker to find and evaluate
3. Create the Plan. Why are you doing this? What are your specific objectives? Where are these target companies—domestically or internally? How will you finance the deal? What are the value-added efficiencies and cost savings that will result from the proposed transaction? How will you choose target companies to buy? You will need to draft an acquisition plan that includes objectives, relevant industry trends, method for generating deal flow, criteria for evaluating target companies, and a timetable for deal completion.
4. Valuation of Business. This is a tough one as no one valuation method will answer the real question which is what is this business actually worth? Value is in the eye of the beholder. Market value is one indicator, capitalization of earnings, discounted cash flow, and net return of assets or equity. Also consider strategic value, meaning, what is the projected earnings stream under the proposed new ownership. Look at assets such as customer lists, brands, intellectual property, long term contracts and licenses. This is where I had professionals provide a second opinion and provide critical expert advice.
5. Financing the Acquisition. Depending on size and complexity of the deal the unique the structure will vary with a wide number of options available for financing. Could be equity financing, the buyer's cash position depending on the terms of the purchase price, perhaps an earn out over 12 – 36 months based on company continued performance and market conditions. A private placement offering to a small group of investors is another option for acquisition financing.
Why do Mergers & Acquisitions Fail?
1. Misgauging Strategic Fit
Chances are things will go wrong if the acquisition is too far outside the parent company’s core competency.
2. Getting the Deal Structure Or Price Wrong
If the acquiring company pays too much or the pricing structure is wrong, it’s going to be tough to get the acquisition to show a positive ROI..
3. Misreading The New Company’s Culture
Just because your two companies may be in the same industry or there is a strategic driver identified doesn’t mean you’ve have the same culture. It’s all too easy for the acquiring company’s integration team to walk in with “winner’s syndrome,” and fulfil the worst fears of the new staff. Far better if they enter the new company’s offices carrying themselves with the four H’s: honesty, humanity, humility, and humour.
I have named just a few reasons why Mergers & Acquisitions can fail however, there are a ton of reason and it’s very important you do your own research to make sure that a Merger or Acquisition is right for the success of your company’s future.
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