Mergers and Acquisitions: Of Two Points of View, One REALLY Matters
Copyright Jack Mixner. 714 449 1040. www.mixnerstrategy.com
In a perfect world, you have realized for some time that there is a perfect acquirer for your company, you have discussed with them the possibilities, they agree with you, they have offered you a fair deal and, finally, they are ready to pay you cash now with no requirement for you to stick around to make things work. Not likely to happen, is it? There are things you should do now that will make things more advantageous for an acquirer down the road.
Spending some time thinking through an acquirer's point of view long in advance of a sale will probably help increase the value of your company. In their mind there should be two prime questions:
- Is the deal commercially attractive?
- Are we capable of realizing the targeted value (Adolph, page 21)?
Let's assume you are in the same market as your acquirer. One big question for them is estimating the combined competitive position of the two companies sometime in the future. They need to take into account customers, competitors and overall market dynamics.
Another question is, internally, after the two firms combined, does the management team have the capability to realize the targeted value within the targeted time frame?
Key words so far:
- Competitive position
- Customers
- Competitors
- Market dynamics
- Management team
- Targeted value
- Targeted time frame.
Some Questions to Consider:
Competitive Position
- What is your competitive position right now?
- Are you a leader in your field?
- Follower?
- Relative market share?
- Relative market growth rate?
- Are you selling off-the-shelf products or are they custom? Does that impact competitive position?
Customers
- Business concentrated in a single large customer?
- Do you know who your customers are?
- Are you geographically constrained? By design?
- Are there related sectors you could approach now to increase sales?
Competitors
- Where do you stand in your industry? Number one or two in the industry, or among the multitudes?
- With a little effort, could you increase you market standing?
- Do your prime competitors have deep pockets?
- How does your marketing compare to theirs?
Market Dynamics
- Is yours a growing marketplace across the board, or in specific segments?
- What do the next three years hold for your market? Ten years?
- Is the market leader at risk? Could you lead a charge against it?
- If you are number two, what would it take to become number one?
- If you are a minor competitor, how could you increase share? Would you have to grow the market to do it, or could you steal share from someone else?
- What are the long term prospects for your industry?
Management Team
- How would an acquirer rate your management team?
- How much does your team depend upon you for direction?
- Are you ready to give up control of your company to professional management? Have you done it already?
- What slots remain unfilled, waiting for growth to afford to fill them?
Target Value
- Without you on board, is your company capable of generating enough income to make a sensible investment return for your acquirer?
- How long will it take to change things for that revenue stream to kick in?
Targeted Time-frame
- How long do you reckon an acquirer will give a consolidation strategy to work?
- Is that enough time for you to create adequate return for the investor?
- Standing back, have you considered if your estimates are realistic? If you were acquiring your company, would you believe your own estimates?
As you prepare to sell your company, your point of view is crucial. Practice "walking in the shoes" of an acquirer. That new point of view should generate questions the answers to which will increase the likelihood of your eventual sale, and your valuation.
Reference
Adolph, Gerald, Simon Gillies and Joerg Krings. Strategic Due Diligence: A Foundation for M&A Success. Sisk, Michael and Andrew Sambrook, editors. The Whole Deal Fulfilling the Promise of Acquisitions and Mergers. Booz Allen Hamilton. 2006.