Successful Acquistions
Successful Acquistions

Successful Acquistions

The seller’s equation refers to the configuration of benefits, which usually goes beyond price, for which an owner will let go of his or her company. (Location 231)

we focused the negotiations on our vision for the future rather than the price of the deal. (Location 238)

company. Now, I’m running a business,” he replied. Like so many founder-entrepreneurs, when Terry had owned the company, he had suffered the frustrations of everyday firefighting—worrying about the computers, the payroll, health insurance, and repairs to the building. (Location 241)

What business are we in? What is our core competency? What are we not? Where is our pain? What are our dreams? What is our risk tolerance? What is our company DNA? (Location 320)

You need to define your business in a way that sets a trajectory broad enough for expansion and focused enough to stay on track. (Location 346)

question of core competencies, we discovered he was really a peddler—and a very good one, too. (Location 364)

The point is that companies, like people, often have mistaken ideas about where they truly excel. (Location 370)

What do you do differently and better than your nearest competitors? What do clients seek you out for? Why do they stay? Is it something about the product itself or a quality of your service and how you deliver? (Location 381)

you see your strength in technology or product, take a close look to see if you have the best technology or the winning technology. (Location 384)

The winning technology is the one that does the job and is coupled with an effective marketing strategy that installs it as the solution of choice. (Location 387)

Knowing your core competency and the associated strengths is a truly critical factor in building your growth strategy. (Location 395)

Your strengths are part of the story that will make a seller take interest in a potential union. (Location 399)

“What are we not?” Look at what business you are in and where your core competencies are. Identify the closest cousins that surround those core essentials. Make a list of the business activities and sectors closest to your own. You are now staring at a list of pitfalls—pitfalls that could become opportunities, but only if you proceed with eyes wide open. (Location 415)

What stands in the way of your reaching that next, elusive level? (Location 420)

Correctly identifying your company pain, like diagnosing a physical malady, may best be done with the help of an outside expert who has no history, no agenda, and no investment one way or the other in a particular solution. (Location 443)

You couldn’t call Gates’s dream a goal. It was too remote and unreasonable. (Location 451)

an idea of the possible. (Location 452)

Few entrepreneurs I know are introspective by nature, and this exercise in self-examination may be a little hard to take if you are impatient to get immediately into action. To underline just how important is the injunction “Know thyself,” let me point to two very different examples, one in my own experience dealing with mid-market companies and one in the public domain. (Location 517)

Here is the root of the problem. The management team couldn’t agree on a plan for growth because they couldn’t agree on who they are now. (Location 530)

can be true. I prefer to see growth strategy as a way to recalibrate the company, bringing it into closer alignment with its inherent purpose and current market conditions. Recalibration is a continual necessity today, because economic and technological changes are remapping the business environment at such (Location 562)

I pull their attention away from their competition and onto their market. (Location 600)

self-evident, once you pause to think about it. Ultimately, your growth depends on your success in meeting the needs of customers you have yet to capture. (Location 605)

What will they want in the future? Business winners are the ones who best answer these two questions, especially the second. (Location 606)

First, a sound franchise operation must have exceptionally well-defined systems. You want to be offering your franchisees a “plug and play” operation that they can get going the moment they assume ownership. So before you even consider the franchise operation, make sure you have a tightly documented and thoroughly tested system for every aspect of the business, from accounting to distribution, from marketing to production, from how the phone is answered to how taxes get filed. (Location 773)

Second, the franchise must have a strong brand. This represents a significant percentage of what the franchisee is paying for. So an essential preparatory step is to invest in a rigorous brand strategy, not just a nice logo. This defines exactly how your company is to be perceived in the marketplace and how that perception is to be managed on every front, including but not limited to the visual presentation. (Location 777)

An instinctive objection arises when we raise the possibility of minority interest purchases with clients: “But we want to control the company we are buying.” They think of minority ownership as a kind of passive investment where you effectively have no decision power over what happens. (Location 802)

There is another way you can indirectly, but powerfully, exercise control. Build into the agreement the option for purchasing further shares or a complete buyout, and make this option contingent on performance conditions that you set. Walmart uses this strategy extensively. It will buy 30 percent of a manufacturer in China, for example, with an option to purchase the remaining 70 percent when the manufacturer has reached certain production targets. Walmart might stipulate some quite mundane but essential ingredients like getting the factories up to fire code. That way, Walmart doesn’t have to manage a difficult situation in an alien territory: It can step in and complete the purchase when the target has evolved to a “Walmart-friendly” condition. (Location 809)

We begin by looking for a convincing answer to this question: What outcomes do you hope to achieve from an acquisition that you could not realize otherwise? The answer to this lays the strategic foundation on which you build your acquisition process. (Location 849)

I strongly believe that each of your strategic needs, each piece of the puzzle—whether it is location, technology, customers, talent, finance, or something else—requires a separate acquisition strategy. In other words, every time you head down the path of acquisition, you should be looking to identify and meet just one strategic need with each company you buy. (Location 900)

The scale of your projected acquisition is an important question you need to settle early on. Your objective is growth, and it would be easy to deduce from this that the bigger your purchase, the better. Not so. You’ve heard the familiar question “How do you eat an elephant?” with the equally familiar answer, “One bite at a time.” That’s the optimum mindset to adopt when strategizing your external growth. (Location 932)

Also, with for-sale companies, there are often multiple potential buyers (including your competitors), which may drive up the price. (Location 942)

There are compelling reasons for researching markets before individual companies, derived from the “demand-driven” philosophy of growth I have already advocated. You might find a wonderful company with strong financials, but if it is operating in a shrinking market where the future demand for its products and services looks unpromising, you risk buying a lemon. In other words, the focus on markets is really a focus on future demand—specifically on demand that you and your new partner can confidently meet. (Location 971)

Generally speaking, if you are starting from scratch and following the steps laid out in this book, you should be able to close on your first acquisition within twelve to eighteen months. If you push any faster, it is unlikely that you will have time to do the necessary research and examine a sufficient volume of markets and prospects. (See Figure 3-2 for a typical timeline for an acquisition.) (Location 1000)

The entire acquisition team will be recruited right at the beginning, and every key player will be involved throughout the entire process—in other words, “from beginning to beginning.” Our A-Team is more than a succession of experts: It’s a brain trust, a mastermind forum for decision making that develops a collective understanding of the whole acquisition process. (Location 1032)

initiate the courtship, your third-party adviser has the skills to get through the door and then open the conversation without provoking a preemptive “no.” (Location 1168)

From my perspective of largely successful acquisitions, the missing piece in many of these stories is the presence of an “outside insider” who can unearth hidden intelligence, resolve stubborn conflicts, help cooler heads prevail, and maintain a strategic perspective from beginning to beginning. (Location 1177)

A pertinent example of the power of the “markets first” philosophy can be seen in one of my clients, a publicly traded specialty engineering company making products for the thermal management market. (Location 1208)

we began the search for a market where his company could be recognized as a clear leader. (Location 1215)

The basis of the system we will be using is what I call the Prospect Funnel. Anyone familiar with the traditional sales funnel will recognize the principle at play here: a progressive narrowing of focus from the many to the few. (Location 1464)

These are companies that a CEO believes are a great deal because she has access to a special information source (such as a brother-in-law inside the organization). When we research companies like this, we often find that they do not smell as sweet as our client believes. By applying rigorous and systematic research to the prospect criteria, we are able to demonstrate that the juicy information may not indicate such a great fit. (Location 1527)

Your initial prospect list usually comes from a few different sources. First, you can include the companies you uncovered during your market research. In Chapter 5, I recommended you make note of any promising companies you came across during your market research. This stage is where the discipline pays off. (Location 1556)

Second, you should have a discussion with your A-Team about significant players in the market(s) you have chosen. Since your team members are drawn from different departments in your company, they may have encountered a variety of interesting companies. Team members should in turn consult other employees for their input. Because of the nature of their work, sales and marketing personnel in particular are often familiar with a wide range of companies. (Location 1558)

More efficient than search engines, though, are business databases such as OneSource or LexisNexis. In addition to company names, they provide information like revenue estimates and executive lists, as well as news articles and industry data. This can be enough information for you to begin completing the metrics for your prospect criteria. Another advantage of these databases is that they often list “similar” companies, immediately expanding your pool. (Location 1574)

Different owners may also have different pressures on them from family or the community. Take careful note if a number of family members are employed (Location 1731)

All of these factors—history, age, family, community—shape an owner’s mindset and affect his initial response to your approach. (Location 1733)

but the owner can sell his company only once. (Location 1738)

One common reason owners sell is to “take some chips off the table.” They may have much of their net worth invested in the business, and selling could give them a degree of security moving forward. (Location 1744)

The company (or the owner) may be in financial trouble, and selling is a way out. (Location 1746)

Owners frequently sell because they see bigger opportunities for their company as part of a larger organization. (Location 1749)

The owner is the one who has the final say on whether to sell or not, so this is the person you must hook with your vision of partnership. (Location 1758)

Briefly outline your understanding of the company and why you think the combination of the two companies would be a good strategic fit. Ask her, given this rationale, if she could see value in a union—even on a provisional basis. If she says “no,” keep the conversation going by asking “Why not?” (Location 1775)

As you begin to uncover the owner’s concerns (her hot buttons), you can start identifying possible variables in the sale equation. (Location 1778)

it pays to be nimble and to avoid yes-or-no questions. (Location 1779)

If you did actually get an immediate yes, this might well indicate weakness on the part of the prospect. (Location 1786)

Most often, though, the responses you are most likely to hear are “probably not,” “not right now,” or flat out “no, thanks.” (Location 1788)

It means “solve my problem.” Second, what closes the deal is not the right price but the right equation. And third, an intermediary can sometimes initiate a relationship that would be barred to you from the start. (Location 1801)

As for the conversation itself, the key is unfolding an enticing vision and not being discouraged by the first, second, or even third “no.” (Location 1809)

Trust means far more than exchanging nondisclosure agreements. It also involves establishing a rapport between buyer and seller, which is always better accomplished in person. (Location 1821)

I have previously described the inherent asymmetry of “buy often, sell once.” (Location 1828)

Understanding the owner’s situation and the company history is the key to creating trust. (Location 1829)

you are really trying to sell the vision of a union between two companies with all the resultant benefits and synergies. (Location 1833)

to send, well in advance, introductory material on your company. (Location 1836)

Why are you looking for acquisitions (your “one reason”)? Where do you see opportunity? What is the ultimate goal that you have for the acquisition? All of these questions were answered in your strategic planning. Now you need to present them for consumption by the prospect. (Location 1838)

Second, the adviser has attended dozens, even hundreds, of these types of meetings, so she knows how to keep the conversation focused. (Location 1854)

There is a reason for this step. You will be amazed at how much you can learn by making the owner feel like he is the host of the visit. (Location 1857)

From this, we knew we were dealing with an enthusiastic, savvy owner, and we went on to have an extremely productive meeting. (Location 1864)

make. One owner forgot to make hotel reservations, while another actually forgot about the meeting entirely and had left for a business trip to Mexico by the time we arrived. (Location 1865)

You are not trying to perform your entire due diligence in this first meeting. (Location 1872)

I had a client who wanted to show eighty slides devoted entirely to what was wonderful about his own company. (Location 1880)

Three slides about your own organization are quite enough, and they should come at the end of the presentation. (Location 1881)

Our Understanding of Your Company Why We Are Here Next Steps About Our Company (Location 1884)

For example, if company size is an important criterion, include a slide that estimates the prospect’s revenue. (Location 1890)

In fact, I suggest that the initial visit consist of no more than dinner the night before and a three-hour meeting the next morning. (Location 1909)

If you spend too long with the owner, you will end up talking about subjects you’d rather not have broached, or you will find yourself having to fill dead space. (Location 1911)

As for the meeting itself, it should not run beyond three hours in total. (Location 1926)

“I understand you are not for sale—you’ve made that clear, and we didn’t think you were for sale. What we want to do today is spend some time having a dialogue about why we think a union makes sense, explain our interest, and explore some possibilities with you.” (Location 1932)

You can get a sense of the management team simply by listening to how the owner describes them. Even who gets mentioned first can give you clues. For example, if you say, “Tell us about your people,” and the owner launches into describing the fantastic new floor manager whom he just hired away from a competitor, it (Location 1942)

From a dinner plus a three-hour conference and tour, you should have acquired a good sense of what the company is about and how it is run. (Location 1956)

EVALUATION VS. VALUATION Evaluation answers two key questions: Is this company a good strategic fit? Does this company match my one reason to buy? (Location 1988)

The Negotiation Platform is derived from your answers to six key questions: (Location 2249)

find that sellers are often disarmed when we insist on getting the strategy right before we enter into discussions of price. It is often the owners who raise the issue first, sometimes apprehensively asking, “So . . . when are we going to talk dollars?” (Location 2345)

This point goes back to the idea of “selling the vision.” You want the owner to be inspired and excited by the prospect of this new, more powerful entity. (Location 2357)

After intense negotiations on the framework of the business, and even with everything written down, there are sometimes miscommunications or misunderstandings on issues. (Location 2409)

In fact, it should be part of your work from the beginning of the entire acquisition process—way back when you develop your initial strategic plan. (Location 2590)

Very simply, once the LOI is signed, you should be confirming—not learning. (Location 2595)

The details you discover will suggest valuable new ways to combine the acquired entity with your company. (Location 2598)

advise them that their responsibility is to ensure that the new company that emerges from the acquisition will be the best it can be. (Location 2616)

For example, if you find a manager in the seller’s organization who does a better job than her counterpart in your own organization, there should be no assumption that it is your employee who will remain. (Location 2618)

Perhaps the biggest secret to due diligence is knowing when to stop. This process can go on forever if you let it. (Location 2690)

comprehensive list of initial questions and then one list of follow-ups. (Location 2692)