Have now updated my report on all MidMarket M&A transactions ($1m to approx $100m) that have had media coverage in 2014.
* 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. - http://goo.gl/KZjRIx
Please excuse any errors or admissions.
Please let me know if there are any other announce able transactions.
’ve just completed analysis on the 36 M&A deals (price $1-100m) that have been publicised in Australia so far in 2014.
The complete ( I hope) deal list and analysis can be downloaded here.
To summarise the 36 deals:
- 50% have had both an Australian buyer and seller.
- 42% have had an international acquirer.
- 8% have been Australian buyers acquiring international concerns.
In the publicised reason for buying:
- 31% have stated that its access to customers in new geographies.
- 19% is to broaden the acquirers range of products and services
- 17% is to enable access to sellers technologies
Finally, the disclaimer – Much of the information here has been scooped from public domain data. I don’t take any responsibility for the accuracy of such data, but welcome corrections. Some of my opinions may be speculative. Consequently, please feel free to contact me to set the record straight.
Hope it’s useful!
Strategic Company Sales
A post-Xmas flourish of pent-up press releases or an indication of increased activity in the sector?40% of deals involved overseas buyer or seller.
List of deals, rumours and comments attached.
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 Caroline Didier on 02 9899 1999
More information – http://linkcorporate.com.au/services/business-market-calculating/
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
Across all businesses approached
Where the business had a historic profit growth rate of more than 20%
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.
You can get your own Sellability Score, and see how you compare on the eight key drivers of sellability, by taking our confidential and free 13-minute survey here.
Produced in association with John Warrillow and Sellability Score.
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:
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.
You’re contemplating buying a company because you believe that you can improve the financial performance of not just that company, but your own as well. That’s called synergies or more crudely 1 + 1 = 3.
Well, first of all have a think about how best your own company can grow. Once you’ve got a plan and a framework for how best to achieve this you are in a better position to determine what kind of company you need to acquire (alternatively, you may find that internal / organic growth, or growth through collaboration / 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:
- What are your key strengths, weaknesses, opportunities and threats) list? In particular, what do you need to have your opportunities come to fruition? Also how do you mitigate against threats to your business?
- 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 solved and what impact (if any) is government policy, technology or the environment likely to have?
- 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?
- How will you make money from the opportunity? How can you best set up this opportunity in a risk averse way, then make money from it, and then continue to capitalise on it or build and maintain entry barriers?
- Looking at the transaction 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?
- How would you strengthen your Value Chain and ensure optimal performance from manufacturers, distributors, imports and exporters, wholesalers and retailers?
- 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?
- What financial projections do you have? What cash flow issues do you have particularly pertaining to investing in capital or personnel, or customer or supplier payment terms?
- What alternative scenarios could take place as you implement your plan? How would you cope with a best or worse case scenario (e.g. the initiative is more / less successful than anticipated?
- What is your eventual exit strategy?
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.
Listened to a fascinating podcast today, downloadable here
Idea is that -in the 20th century humanity consumed products faster than ever, but this way of living is no longer sustainable.
But technological advances are driving forms of ‘collaborative consumption’ which will change forever the ways in which we interact both with businesses and with each other.
- The average lawn mower is used for four hours a year.
- The average power drill is used for only twenty minutes in its entire lifespan.
- The average car is unused for 22 hours a day, and even when it is being used there are normally three empty seats.
Surely there must be a way to get the benefit out of things like mowers, drills and even cars, without having to carry the huge up-front costs of ownership? There is indeed. Collaborative consumption is not just a buzzword, it is a new win-win way of life.
Rachel Botsman and Roo Rogers have written a book drawing together the many strands of Collaborative Consumption into an argument to show that the way we did business and consumerism in the 20th century is not the way we will do it in the 21st century.
As I prepare for my marathon, I’ve got a lot of spare time to train and listen to audio books (audible.com – a great source for people needing craving brainfood).
Although I’m not a big fan of American business thought leaders biographies, I really recommend Tony Hsieh’s new book, Delivering Happiness, A Path to Profits, Passion and Purpose. For those of us on the right side of the Pacific Ocean & thus not as well informed about zappos.com, Tony was a 25 year old son of Taiwanese migrants who in 1999 turned a struggling online shoestore into a $1 billion plus sale to Amazon, ten years later. From recall, most of his key messages were around how absolutely essential great customer service was – going so far as to say that CS IS the brand!
- Divert your budget from marketing to customer service
- 75% of orders come from repeat customers
- Put your phone number on every page of your website, and relish every incoming call.
- Don’t give call centre people a script and don’t pressure (or even allow) them to upsell. Don’t put time limits on their calls.
- Customers (and suppliers, and other stakeholders) will remember you if you deliver them some WOW. WOW can be anything positive!