What to Look for in an M&A Advisor

Finding the right M&A advisor is key to successfully meeting your goals. The first step in establishing such a relationship is to understand the role that an advisor plays. While the term varies from region to region, the typical advisor positions their client – a selling company – as a strategic fit for target buyers, communicates the opportunity to various buyers, and manages the process in accordance with a detailed timeline in order to generate a sale.

Given all of these responsibilities, it is not recommended to try to sell a company without the help of an expert. The selling process can take several months to several years, so it is important to recruit an advisor who will work well with you and your company over the course the relationship.

These factors below are what you should look for in an M&A advisor.

Experience

Selling a company takes time and expertise. While it is easy to equate the number of years your advisor has been in the industry with success, this is not a straight-forward indicator. Yes, you should ensure that your advisor has a strong track record of successful deals, but you should also be certain that they have achieved premium valuations for other companies within your industry.

Reputation

Reputation matters. It is critical to do your research before making a selection. Look into past client testimonials and contact other professionals an advisor may work with, including attorneys, accountants, and bankers. It may also be helpful to ask about the advisor’s professional affiliations and participation in continuing education seminars to make sure that they are up-to-date with the latest M&A industry trends.

Strategy

As mentioned previously, you will be working with your advisor for an extended period of time. You want to find someone who is detailed, organized, and who has a results-oriented attitude. It’s a good idea to sit down with the advisor beforehand and have them walk you through their strategic rationales of pursuing international scale, filling portfolio gaps, or building a third leg of the portfolio. 

Communication

While the bulk of the work will be left to the M&A advisor, it is important that they provide high levels of communication and advice to you so that you can make informed decisions during the process. You should also be confident in how the advisor communicates with their own team to get the job done as seamlessly as possible.

M&A transactions can be complicated and overwhelming – but they don’t have to be. Symmetrical is here to help. Our team not only has years of experience in the industry, but a track record to prove our abilities. Contact us for more information about our M&A services.

Business owners are often focused on the present moment, creating short-term goals to get them where they want to go fast; but what about a company’s long-term goal, as well as the owner’s future?

An exit plan is one of the most overlooked components of owning a business. Aside from the initial start-up actions, you must also think about questions like how long you want to work in the business, what annual after-tax income you want and need for retirement, and to whom you may want to transfer the company to. While these may seem to be far off questions, thinking about them from the start maximizes value, minimizes risk, and maintains control of your business.

Our team rounded up the top 3 reasons why every business owner needs an exit plan:

Maximize Value

In the eyes of investors, a business with an established exit plan is very attractive. With an increase in equity investments, your business can ensure financial health and maintain profitable sales even in a buyers’ market until the time is right to make your exit.

Minimize Risk

Being prepared with an exit plan is also important in the face of unforeseen or catastrophic events. If for whatever reason you find yourself needing to leave your business, it will take less time and effort to do so if you already have a plan in place.

Maintain Control

With a business usually being an owner’s biggest asset, it is extremely important to remain in control in order to get the most out of the eventual transfer or sale. Having a plan previously setup will allow you to know every step and prepare you for when it is time to sell.

While many people love to reference the quote “live in the moment”, it may not be the best strategy for business owners. Creating an exit plan from the start will save you time, money, and a whole lot of stress when you’re “living in the moment” later on.

Symmetrical works with privately held, mid-market companies, helping business owners understand their current situation and create strategic plans to achieve their business goals. For more information on our team and services, please contact us at info@sym-inv.com.

Symmetrical Managing Partner Chad Byers is the Chair of the 2016 AM&AA Summer Conference. Recently AM&AA asked Chad why this conference is a must-attend event for middle market M&A professionals. Read Chad’s letter to the AM&AA community below:

AM&AA Summer Conference 2016 Banner

From the Chair

Dear Fellow M&A Professionals,

On behalf of the AM&AA Conference Committee and the AM&AA Advisory Board, we would like to personally invite you to join us at our upcoming Summer Conference in Chicago, July 27-29, 2016.  This event is a must attend for middle market M&A professionals. We expect in excess of 450 attendees, including investment bankers and intermediaries, private equity, corporate investors, lenders, CPAs, consultants, attorneys, and other M&A professionals. Look no further to find your next deal than this event!

The conference will feature second to none panel discussions and dynamic dialogue among M&A deal professionals. And of course, what would the AM&AA Summer Conference be without networking and Deal Bash? The conference will also continue to build on the powerful focused networking and deal sourcing activities you have come to expect from the AM&AA.

There will be a full line up of networking sessions, in-depth discussions, case studies, market updates, and expositions. Be sure to join us for powerful networking at our opening reception and the other fun events we are planning. The Conference Committee and the AM&AA Advisory Board are committed to supporting value-added opportunities to enrich our careers and professional development. This conference provides valuable deal-making and growth opportunities to our AM&AA members and colleagues.

I hope you’ll join us, and look forward to seeing you in Chicago in July!

Best Wishes,

Chad Byers

Managing Partner
Symmetrical Investments, LLC

Chair
2016 AM&AA Summer Conference

Most investors are aware of the intricacies of equity and building value when it comes to publicly-traded companies, however few can offer advice for private companies. When developing a plan for your private company, you should consider how your plan could help your company grow to reach your long-term financial goals. Here are a few tips that can help build value in a private company:

1. Consider your Target Net Proceeds

If selling your company is important in the future, be sure to focus on EBITDA. Although revenue is important, if you are looking to sell, buyers often focus on your earnings. Streamlining your business, improving your margins and increasing earnings is always more important than growing your sales without the corresponding profitability.

2. Diversify

In any company, risks can threaten the success and valuation of a business. One of the most common risks a private company faces is becoming dependent and reliant on one customer, vendor, or product type. In order to avoid this risk, companies must diversify.

By diversifying your business, it reduces risk and sets your company up in the long run. If one vendor goes out of business, your company can continue to operate without having a major impact on your success. Similarly, diversifying can provide your business with additional bargaining power.

To still receive a premium valuation when selling a company, top customers should be less than 15-20% of total revenues.

3. Understand the Quality of Earnings

When looking at a company’s revenue and cash flow, it is important to have some consistency in your business. Creating a source of recurring revenue is a good way to ensure a high quality of earnings and helps you to evaluate your cash flow and potential earnings.

Similarly, buyers analyze predictability of revenues and profits in order to assess the value of a company.

Whether you are looking to sell your business today or decades down the road, building your business to sell will help you create value and ultimately, wealth.

Symmetrical works with privately held, mid-market companies, representing both buyers and sellers. Acting as a trusted advisor, we often help business owners and executives implement strategic changes that add value to their company. For more information on how your business could build value, please contact us at info@sym-inv.com

 

Every year billions of dollars in mergers and acquisitions take place. 2015 was the biggest year ever for mergers and acquisitions to date and 2016 has already seen seven “megadeals”, or deals greater than $1 billion. While most deals are fractions of this size, they can reveal insights about the mid-market level.

The number of megadeals is on the rise – the first quarter of 2016 alone saw some of the largest M&A deals in the past few years. This is telling of the mid-market sector too, as deals in this space continue to grow in number. At the mid-market level, dealmakers also expect to increase their number of acquisitions in 2016, which we saw happening late last year as market volume picked up in the final months of 2015.

For large deals, healthcare and technology vied for the No. 1 sector, which jives with the mid-market, as these two industries as especially active when it comes to consolidation and M&A activity.

Deals both mega and mid-size happened when the company for sale was positioned properly. Using strategic advisors was critical in ensuring the deal’s terms were agreeable to both parties. The use of accountants, lawyers, financial advisors, M&A consultants, and other experts was consistent for deals both large and small.

Without further ado, here is a roundup of the top megadeals so far in 2016:

1. $32 Billion Shire plc mergers with Baxalta Incorporated

In early January, the board of directors from Shire plc and Baxalta Incorporated agreed to merge the two companies. This merge marks the creation of the global leader in rare diseases and projects that the company will earn over $20 billion in annual revenues by 2020.

 2. $15 Billion Apollo acquisition of ADT Corp

After much negotiation, ADT has agreed to sell to Apollo. With the acquisition, Apollo plans to then merge ADT with Protection 1 and ASG Security to create a company with annual revenue greater than $4.2 billion.

 3. $10.2 Billion TransCanada acquisition of Columbia Pipeline Group

In March, TransCanada announced a natural gas acquisition of Columbia Pipeline Group for $13 billion. The all cash deal makes the Canadian company one of the largest distributors of natural gas in the northeastern United States.

4. $11.3 Billion Fortis acquisition of ITC Holdings

In February, Canada’s Fortis announced the acquisition of ITC Holdings, a U.S. based electricity-transmission company, for $11.3 billion. In the deal Fortis plans to retain all ITC employees and Fortis will continue to operate as a stand-alone company.

5. $6 Billion Virginia’s Dominion acquisition of Questar

In February, Virginia-based Dominion Resources acquired Questar Corp. to make one utility giant. The combined entity will serve 2.5 million electric customers and 2.3 million gas customers from Virginia to Utah.

6. $3.8 Billion Comcast acquires DreamWorks Animation

In April, Philadelphia-based Comcast proposed to acquire DreamWorks Animation studio. Comcast plans to make DreamWorks part of the Universal Filmed Entertainment Group and sees this acquisition as an opportunity to expand the company.

 

While you may not be working on the next megadeal, Symmetrical provides a full range of services to middle market companies, and is here to advise you whether you are thinking about selling your company, buying another, or simply need to see more opportunities for your fund or family office.

 

First of all, what is a Leveraged Buyout (LBO)?

A leveraged buyout (LBO) is when a company uses leverage, mostly debt, to acquire another company or one of its parts. Private equity groups generally invest a portion of their equity and then use leverage, like debt, to fund the remainder of the purchase. While this process may seem daunting, when broken down into steps this becomes a more manageable and understandable process.

The process of a completing an LBO can be both complicated and full of risks. When considering an LBO, a company must do research to understand the cost, risk, and strategy for the company. The following steps are crucial in the LBO process:

1.     Determine the Cost

It is important to determine what the maximum purchase price is based on leverage levels and projected returns. You need to build a model. If you have never build a model before, start with a software such as Business ValueXpress. BVX integrates Price, Terms and Deal Structure, and uses optimization techniques to satisfy the needs of all parties to an M&A transaction.

2.     Determine the Buyout Scenario

Although buyouts can occur in a variety of scenarios, it is important to consider what type of plan your LBO is. Four of the more popular plans are repacking, splitting up, portfolio plan, and the savior:

– Repackaging a company is the process of buying up the remainder of a corporations stock in order to make it private. Once the company is repackaged into a more successful model, it can be returned to the market at an increased multiple. See Multiple Arbitrage.

– Split Up is a strategy where it is determined that a company’s parts are more value than its sum. In this instance a company will be dismantled and each portion will be sold for a higher profit.

– Portfolio Plan is when the acquired company and the current company are more valuable when combined. This is essentially merging both companies’ best aspects to make one stronger corporation.

– The Savior Plan, usually regarded as risky and too late, occurs when a company is in distress and a white knight comes in to turn the company around. If done properly, this can be very lucrative. If done improperly, this can lead to disaster.

These are just four LBO plans of many. Most importantly, knowing which direction you will take the company post-transaction is crucial in creating a plan and setting goals for a successful LBO.

3.     Set a Target Exit time

On average, the holding period for a company that has gone through an LBO with an institutional buyer is three to seven years. It’s critical to understand your objectives and determine where you’re trying to go. Your exit timing will need to include the 6-12 months that it will likely take to divest your investment.

4.     Consider Exit Strategies

Based on the chosen buyout scenario and exit time, it is important to consider what the exit strategy will be. Two of the most popular exit strategies include, sale to a strategic buyer or another LBO.

Sale to a strategic buyer is very common and is viewed as quick and simple. This buyout occurs because the strategic buyer will determine that the company offers synergy to its existing business.

– Another leveraged buyout is a strategy in which a different private equity group, family office, or high net-worth individual buys the company in the same manner the original did. This strategy can be difficult as the new sponsor will be more challenging to bargain with.

 

Understanding the complexities of an LBO is important. There are many risks in taking on such a project; however, if done effectively in a strong market it can yield significant rewards. Following these steps and analyzing the business acquisition can make the LBO process easier to navigate and understand.

In the simplest terms, working capital can be defined as current assets less current liabilities but ultimately it is the amount of operating liquidity or cash available to a business at a given point in time. Working capital is an essential part of the day to day operations of a business and is just as important as employees and physical assets.

When selling a business the buyer will often require a normalized level of working capital so that the business can continue operating seamlessly and fulfill obligations to customers and creditors post-acquisition.

In a merger or acquisition, one of the most difficult parts of the transaction is often negotiating the amount of working capital that remains with the original business. Naturally this can be an emotional topic for the seller, and should be taken care of as early as possible. In nearly all transactions there will be some form of working capital adjustment as part of the purchase price agreement. A mergers and acquisitions advisor is instrumental in getting both parties to agree on the way working capital will be calculated, making for a much smoother transaction.

What is considered in a working capital adjustment?

Advisors will begin by looking at the selling company’s current assets over current liabilities on a monthly basis. Typically this process will start with the current month and go backwards over the most recent twelve trailing months but could go back as far as the past thirty-six months. It will be critical to understand the accounts receivables and how quickly the company collects revenue (and if all of this A/R will actually come in). It is also imperative to understand the current liabilities and the relationships associated with these debts. Advisors will keep in mind the type of business, industry, demand, market changes, competition, seasonality, and more.

How does this affect the sale price?

We can best illustrate this using a hypothetical example. For instance, a transaction may have a purchase price of $25M based on the seller including $4M of working capital at closing. The purchase price would depend upon the final amount of working capital provided by the seller. If the seller delivers only $3M of working capital, instead of the original $4M, the purchase price would be adjusted down to $24M. Similarly, if there was $5M of working capital at closing, the transaction would increase to $26M or the seller would be allowed to remove $1M of assets from the business and retain the $25M transaction value. Note: sometimes buyers and sellers will agree to a range or band and if the working capital falls within this range, there is no adjustment. Using the same example above, if the Working Capital came in within $1M of the $4M Working Capital Target (in either direction), there would be no adjustment.

Working capital is involved in every merger or acquisition transaction. It is vital to have a trustworthy advisor working on your behalf. Armed with decades of knowledge and your best interest at heart, the right advisory can ensure you walk away satisfied with your deal.

Get the Latest

Subscribe to our newsletter to learn more about current mergers & acquisitions strategies