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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.

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

marko@linkcorporate.com.au
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.

Image

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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