Mark Ostryn's M&A Blog

Comment on Australian Mid-Market Mergers & Acquisitions. Reviewing optimal M&A outcomes incorporating – strategic valuations, bid price setting, scenario game theory and financial modelling.

Should Your Company be on the Acquisition Trail?

Should your company be on the acquisition trail?
Written by Mark Ostryn, Mergers & Acquisitions Facilitator, LINK Sydney

You’re in a dynamic, fast growing industry, but achieving organic growth solely through reinvesting free cash flow, may not be the best strategy.  You need to grow faster, otherwise your vision may be captured by other, better-funded competitors or new entrants.   Is acquisition an option?

Think more about the blue sky opportunity to be captured and how best your own company can capture them.  Once you’ve a framework, you’re better placed to determine the type of company you need to acquire. Alternatively, you may find that organic growth, or growth through collaboration and strategic alliances is less risky or more profitable.

Here’s a list of 10 questions that you should be able to provide very detailed answers to before you head down the acquisition path:

  1. What are your key strengths, weaknesses, opportunities and threats?  In particular, what do you need to ensure your opportunities come to fruition?  Also how do you mitigate against threats to your business?
  2. Imagine the future of your industry.  How will it evolve?  How will customer tastes change, how will suppliers adapt to suit those change, what shifts are likely to occur in related industries, what new direct competitors are likely to emerge, how will customer needs otherwise be satisfied and what impact (if any) will government policy, technology or the environment likely to have?
  3. To what extent do you and your team have the right experience, skills and attitudes to capitalise on the opportunity?  Can this be improved, and what external skill sets might you need to contemplate bringing in?
  4. How will you make money from the opportunity?  How can you best develop this opportunity in a risk- averse way, then continue to capitalise on it by building and maintaining entry barriers?
  5. Review your customers buying process.  How does the customer make decisions, is your service a compelling purchase, how much does it cost to reduce and deliver the service, how much support is required and how easy is it to retain the customer?  What additional revenues or annuity streams can be obtained to improve cash flows?
  6. How would you strengthen your Value Chain and ensure optimal performance from manufacturers, distributors, imports and exporters, wholesalers and retailers?
  7. What are the strengths and weaknesses of your current competitors, what resources do they control and how could you potential co-opt potential or actual competitors by forming alliances or otherwise collaborating?
  8. What are your financial projections?  What cash flow issues do you have particularly pertaining to investing in capital or personnel, or customer or supplier payment terms?  How might these constraints hamper your growth?
  9. What alternative scenarios could take place as you implement your plan?  How would you cope with a best or worst case scenario where the initiative is more or less successful than anticipated?
  10. What is your eventual exit strategy?

Out of all these questions, perhaps the last is both the most important and the most challenging to answer.  This theme will be raised in part two.

Looking Forward To a Successful Business Sale

M&A Process Logo Lower quality

You’ve built up a sizeable business. It’s profitable and still growing, but you know there’s more to life than 65 hour weeks. You’re an “empty nester” and keen for more golf and extended vacations. You’re ready to sell. However, your financial advisor tells you that thanks to the exiting baby boomers, businesses are trading at lower multiples values than ever. You’ll need the proceeds from your business sale to fund your superannuation. Time to get out, but how do you maximise your sale value?

There may not be many participants in your industry who have the spare funds to invest in acquiring your company. The larger your company is, the less the number of participants. Many are already known to you, so there’s a likelihood that when you sell, your M&A advisor will be facilitating some kind of auction process. So what’s your action plan in the 18-24 months, before the auction process starts?

Firstly, identify these players. They may be direct competitors of yours now, or they could be interstate or overseas operators who know that buying the niche you’ve worked hard to carve out is cheaper or less risky than trying to do it themselves. But think beyond that. Which companies in related industries (or those companies in a different stage in the supply chain to your company) would also benefit from acquiring your company?
Now think about how your industry will change in the next two years and what these companies will need from your company. Perhaps it’s access to your client database, or your skilled and knowledgeable employees, or your IP, or your brand? So work on strengthening those assets. The more value an acquirer can see in such assets, the higher the price they’ll be willing to pay for your company.

Secondly, monitor and track industry developments. Competitive intelligence technology has progressed to the stage where you can set up news and company alerts on every mover in your industry. What announcements have they made? How has their website changed? What product innovations have been made in your industry and how are they impacting the market? What related industries are slowly aligning themselves with your industry? What substitute products and services are becoming available that could threaten your industry? There’s a wide range of electronic tools for sophisticated tracking. Some are free like Google Alerts, others like D&B 360 and IBISWorld are subscription based, but a sophisticated M&A company like LINK Corporate can utilise these tools on your behalf.

Thirdly, be flexible with the terms of the deal. When the time comes to sell, don’t be in a hurry to depart. Even if you’ve done your job correctly, and worked hard to restructure your company to lessen the dependency on you, a smart acquirer is buying on the basis of synergies – i.e. 1+1=3.

Their motivation behind the acquisition is that they can see opportunities to increase the profits of your company and the profits of their core operations. To achieve that they’ll need your expertise and experience in transitioning, in maintaining the loyalty of your key people and in ensuring that the strengths of the two sides of the merged operation flow through to the other. Consequently, you may not receive the full sale price on exchange of contract, and deferred payments may well be linked to future performance. Accept this reality and enjoy the challenge of being a pivotal person in the merged operation.

Good luck with the next few, inevitably bumpy years and remember the three key messages in a successful sale – plan ahead, monitor and track industry developments and prepared to be flexible with the deal and your eventual exit.

Mark Ostryn
M&A Advisor
LINK Corporate, Sydney
0411 742 400

Middle Market M&A in Australia – Mid Year Update

Stated Reasons for Acquisition

I’ve now updated my report on all MidMarket M&A transactions ($1m to approx $100m) that have had media coverage this year.

Key Findings:
* There were 136 traceable transactions -around 1 per day since mid-January.
* In 45% of those transactions, one party was international.
* In 30% of those transactions, part of the sale price was deferred and based on future performance goals.
* Regarding buyer motivations, more than 20 were provided. Predominant reasons include: Geographic Extension (24%), Broaden Products & Services (19%), Access to Technology (12%) and Access to Customers (12%)

Here’s my full report. –
Please excuse any errors or admissions.
Please let me know if there are any other announce able transactions.

Mark Ostryn

Business Valuation – Fact or Fiction?

Historic financial reports form the basis of all business valuations, but there is always a wide discrepancy between the theoretical value of a business and its actual selling price.  This is because there are a number of criteria, most of which are unquantifiable in a traditional modelling sense that can radically change the attractiveness of a business.

One key one is its future potential for profits, and involves likely future buyer demand, competition, changes in the value chain and a wide range of other factors. LINK’S sophisticated Valuation Tool takes into account the following weighting factors:

  • Barriers to Entry

Would it be easy for a competitor to become established in this industry?

  • Risk Profile of the Business

Does the business rely on a small number of clients, or relies on the owner?

  • Length of Time in Operation

Is this an established business?

  • Uniqueness of the Business

Does the business have a well-defined niche?

  • Risk Profile of the Industry

What is the vulnerability of the industry as a whole?

  • Location of the Business

Close to major markets for its products and services?

  • Likely Buyer Demand

Is this business likely to attract few or many buyers at the current time?

Through LINK Corporate’s access to a wide range of company sales data, the results are then matched against comparable sale transactions in a similar industry.  This gives a true “market based” indication of the value of a business.  Once sellers can offer a realistic market asking price it increases the chances on a sale.

Victor Whiteley & Mark Ostryn

To arrange a business valuation, please call me on 0411 742 400

More information –

What’s My Business Worth? Unsolicited Approaches from Acquirers.

Ever received an offer from an unsolicited buyer?

The most common question I’m asked by a potential seller, is “what’s my business worth?” It’s also the toughest question to answer, as it depends on the industry, size of company, its historic and future profitability and the availability of sufficient buyers to create competitive tension to drive the price up.  The calculation is further complicated by the increasing use of deferred payments and future performance hurdles.

An indication of a “quality” business is the fact that they may well receive approaches from acquirers.    The Sellability Score recently analysed 5,364 businesses with a $1m+ turnover that had received such overtures in the USA, UK and Australia.  Their results are interesting:

Average Multiple of Pre-Tax Profit Characteristic
3.5x Across all businesses approached
4.3x Where the business had a historic profit growth rate of more than 20%
5.4x For those companies to have a unique product or service for which they have a virtual monopoly

Why so high for the latter?  Look at the perspective of a large company, who can both afford and justify such multiples. They will place less value on the turnover derived from products and services that you have in common. They will argue that their economies of scale put them in a better position to sell the things that you both offer today.

Likewise, they will pay the largest premium to get access to a new product or service they can sell to their customers. Big, mature companies have customers and systems, but they sometimes lack innovation; and many choose a strategy of acquisition as a way to buy their innovation.

Prepare to Sell Your Company to a Potential Acquirer

Here’s what typically happens.  You’ve spent years building up your company to where it is now.  You’ve got a buyer who seems interested.  You’ve met, you’ve made some small talk, presented the business briefly and the prospective buyer seems to like it otherwise they wouldn’t have requested a second meeting.

Time to be asked some serious questions.  But what?

As a matter of course, I prep my sellers for this encounter with an extensive role-play prior to the meeting.  Here are some of the typical buyer questions that I will seek a response to:

Questions Buyers Ask

The best way to frame your answers is to try to understand what is in the buyer’s mind. You can start to frame their perceptions by doing some preparatory research on their website, or any other published data e.g. financial reports, trade magazines prior to their meeting.

  • What do your believe their SWOT (strengths, weaknesses, opportunities and threats)’to be?
  • What do you think they have to gain from purchasing you?

Many of the questions in this grid are best answered by seeing the situation through their eyes.  So, don’t be afraid to ask questions of your own.  You may soon discover their Achilles heel, what is it that they really desire about your company?

Finally think also about the eventual merger.  It’s not just fixing the price for the sale; it’s the value of the services you may have to provide after the sale.  How much is your expertise required to successfully integrate the companies? To transfer the skill sets of your operation? To maintain the peace amongst your own management team and staff.  All the best and good luck!

To determine how sellable your company is, please try our free, simple and confidential 16 minute questionnaire and receive a custom report.

Mark Ostryn
December 2013
0411 742400

Acquiring a Company – Sample Transaction Process

In recent months, I’ve detected an increase in the number of SME’s contacting me seeking to acquire companies of a similar size in order to capitalise on their client base, technology or strengths in the supply chain.

It’s often said that an economic downturn present the best opportunities to buy fellow industry participants who may be struggling, but the complexities of the acquirer ensuring that the acquisition is successful are often overlooked.

Over the coming weeks  i’ve committed myself to explaining how best a potential acquirer can prospect for, negotiate, close and ensure that the merged entity is as successful as possible.

Naturally, I’ve included a 14 set diagrammatic process that helps illustrate the steps.


Getting Great Returns on your Business Sale

I presented a three hour interactive workshop in Parramatta on the above.

Here’s the link to the presentation

and the blurb:

This presentation is for any business owner planning to build and sell their business, or simply wanting to increase its value. More than 40% of business owners will try to sell their businesses over the next five years as a result of the baby boomer generation going into retirement and it is absolutely imperative that if your business is to received its deserved “return on investment” that steps are taken now to make the buisness attractive and desirable for potential purchasers.

The presentation covers:

1. PLANNING AHEAD: How will key industries evolve over the next five years. Some tools to assist you with strategic foresight.

2. UNDERSTANDING THE MARKET: when is the best time to sell? Understanding how a business is valued, and the difference between a strategic investor and a owner / operator buyer.

3. PREPARING FOR SALE: what strategic and tactical actions can you take to improve the value of your business prior to sale.

4. FINDING BUYERS: A guide to making the most of the acquisition process, ranging from defining your target audience through to buyer due diligence.

Due Diligence – What to Expect

Due Diligence can be the most stressful part of selling your company.  A number of people have asked me for a definitive list of what they arImagee likely to be asked for by the prospective vendor.

Due Diligence is a process undertaken by a buyer of a business in order to determine the attractiveness, risk and issues of that potential acquisition.  A good Due Diligence will be either external (assessing the future potential of that company in a competitive marketplace) or internal (assessing the key legal, financial and managerial issues within the company).  I can email you a detailed list of due diligence considerations  – just call!

Selling Your Growth Story To Investors

You’ve decided that growth is most easily achieved through acquisition.  The funds for your acquisitions may likely come from investors.  What are some tips for success in the all important written business proposal and presentation?

For fifteen years, I’ve participated in various roles as literally hundreds of proposals have been submitted and presented  Here are some of my observations:

  • Most important of all, express yourself clearly. Before submitting the proposal, have your most critical friend pretend they don’t know you and read it from scratch.  Is it clear what business you are in now and what its future is?  Above all can they maintain their interest while they are reading it?  If they switch off while reading a section – put a line through that section!
  • Investors and boards receive many proposals and have a limited time to read each one. Your content has to stand out. So you have to be exceptionally clear and concise. Whatever you have to say, give it to them right in the first sentence, in the simplest possible terms.  Use the KISS principle.
  • However, with the presentation, assume that the investors have read the proposal.  The show and talk should be only be a few minutes reviewing the written document and for the rest of the time be prepared to answer their questions.  Ask the investors what their “pain points” are that would make them want to purchase your product.  Story tell your businesses development to date.  Get the whole team involved.  Show some flair and have a little fun!
  • With almost every proposal there is a failure to address a customer retention strategy.  There’s always a focus on how to get new customer, but rarely a description about how to maintain the existing ones.  The existing customers are the lifeblood of the business existence, the easiest to up-sell future services, maintenance packages, upgrades to in the future.  They are the ones that will recommend you to their friends, rave in blogs about you.
  • Get properly acquainted with the technology behind the documents that you produce to make them more appealing to read.   Can you say in a single chart everything that you would put in a long winded text description?  Better still, outsource their production, but don’t forget to copy check!
  • Remember this is a strategic plan for your business, not an operations manual for how your business currently operates.  Investors don’t need to know what you do for every hour of the day, what insurance policies your company has, or even a list of every competitor.  On the subject of competitors, they’re more interested in what your strategy is for beating, merging or simply understanding your competitors, than they are about just obtaining a list of them.
  • So with competitors, like so many other issues, the description must answer the “so what” question.  What will be their impact on the products you sell or the margins you obtain from them?  How will their growth strategy undermine your capacity to growth?  Does their direction create any synergies that you could mutually pursue through a future partnership or alliance?
  • With the financial proposal, the key information such as turnover, profit , cash position of company must not be buried in 6 point type at the bottom of a detailed model.  It needs to be made obvious through the narrative.  The profitability of the business and the probability that things are going to turn out that way are fundamental to the plan.  The alternative i.e. should I just close the doors and go and get a job now needs to be considered on the light of this?  If you want to further strengthen your plan describe some alternative scenarios e.g. failure to gain funding versus success gaining funding and talk about what your financial model will look like under each.
  • If you have a technology that is patented you need to consider within the plan how it can gain the greatest market traction in the shortest period of time.  While a direct sales route may be unaffordable, creative consideration can be given to licensing, distribution etc.  A more rapid expansion will usually also result in a per unit cost reduction through economies of scale in manufacture.
  • Finally, an investors greatest concern is whether you have been able to visualize what your market will look like in five years time.  What overall macro and micro-economic trends will occur, how will consumer behavior change, how will your industry change as a result etc?  Speculate that the world will move even faster in the next five years and think about what you will have to do to reach your ideal marketing position – perhaps ready for your own exit?

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