Acquiring a company always involves some level of risk. The best course foundation for a successful investment is a comprehensive due diligence process, which reduces the risk inherent to the transaction, facilitates more informed decision making, and leads to the potential for higher returns down the road. Before you move forward with an offer to purchase a company, it’s important to understand the steps involved in the due diligence process, so that you’re prepared for what lies ahead. Here’s what you need to consider:
Investment Thesis
To start, it’s essential to decide how purchasing a company will make your existing business more valuable? Developing your investment thesis forces you to consider the anticipated outcome of the investment. Outline your strategic goals and map out how this deal will help you achieve them – make sure that you document this in writing. Then communicate this thesis with your team and advisors, so that it’s clear to everyone involved what key components are truly driving the deal.
Competitive Position
One of your strategic goals in terms of the investment may be to boost your position within the industry. But, regardless of whether or not that is a direct goal of the investment, you should analyze the effect that the deal will have on your standing in the marketplace. The value of the deal may be dependent on the growth rate of the company and its current and projected performance. If this acquisition doesn’t strengthen your business’ basis of competition, it may be necessary to reevaluate the deal.
Strength and Stability
To alleviate the chance of failure, you need to thoroughly examine the health of the business – and that includes the potential for growth and its customer base. If its profitability is deemed stable, you need to then consider the strength of the business’ current management. Would its profitability depend upon the existing management to remain stable? It’s also crucial to identify if there is a good cultural fit between yourself and the target company. You’ll want the acquisition to go as smoothly as possible between your teams.
Revenue Synergy
Revenue synergy is achieved when the revenue of the two companies combined (yours and the acquired company) is greater than their individual parts. Determining the potential synergy requires comprehensive research and preparation to accurately project future performance. This is perhaps the most important aspect of the due diligence process. While you gather data, it’s imperative to be realistic and consider potential dis-synergies that would prove unfavorable.
Integration
The final part of the due diligence process should be to outline the appropriate course for integrating the businesses. Even if the deal proves favorable, you could quickly lose value if the acquisition plan isn’t outlined to capture the most value, anticipating potential risks and preparing to mitigate them quickly and seamlessly.
Our team specializes in working closely with middle market mergers and acquisitions. If you want to talk to us about a situation that you are working on, contact us today.
As every business owner knows, there comes a time to sell. Whether it be years after starting your business or months after purchasing it, one of the main outcomes owners hope for is a high-value sale. While this may be a typical desire, many owners fail to put in the due diligence necessary to take their business from A to B when it comes to maximizing the value during a transaction.
With decades of experience in providing clients with transaction advice, our team knows the importance of preparation prior to embarking upon a sale. In order to maximize your return on investment, you should develop an exit strategy well in advance, with these key things in mind:
Who to Sell To
Prospective buyers range from strategic investors, institutional private equity groups otherwise known as financial buyers, management, family, and maybe even friends, etc. That being said, you must decide what your priorities are. While not always the case, selling to someone within your company’s management or family may leave you sacrificing price for the preservation of your legacy and culture.
If you’re more focused on selling for value, you may want to look into strategic and financial buyers. Strategic buyers could be either private or public companies. Most are hoping to grow by diversifying product offerings, expanding customer bases, enlarging geographic reach, and increasing productivity and profitability. Financial buyers, on the other hand, focus on investing in companies with the goal of building value and reselling. Often times, these buyers tend to seek a minority or majority stake and develop a partnership with current owners in order to focus on recapitalization.
Researching prospective buyers prior to making a deal will allow you to identify those individuals who will offer the best value.
Terms to Accept
When it comes to selling a business, owners often get caught up in the initial numbers. While this is obviously an important aspect, overlooking terms, deal structure, and net proceeds after taxes can lead to financial conflicts down the line. By remaining flexible with prospective buyers and weighing the factors of contingent payments, you may be able to increase the total value of the transaction.
It is especially important to take a look at your tax liability since you may be able to minimize or defer your taxes, which could result in significant savings.
Timing of Sale
Choosing the right time to sell can also increase your company’s value. In a strong economy, it is easier for buyers to obtain credit, thus allowing them to take on increased debt thus paying for the company. Other variables that affect a buyer’s ability to pay you what you are looking for include your company’s financial performance, current capital environments, and industry growth.
While a growing industry promotes higher demand for companies in that area, consolidation periods are also beneficial in that larger competitors may be interested in buying your company at a competitive price.
There is a lot to consider when selling your business, especially if you’re looking to maximize your company’s value. It is critical to assemble the right team of professional advisors that have experience and can provide guidance on an array of issues. Our team at Symmetrical will help you evaluate multiple options and get you in the direction of achieving your financial exit goals. #turningequityintoliquidity
Contact us today to get started.
Growing up we were constantly reminded of the importance of being organized and prepared and making sure that our responsibilities were being fulfilled. These two concepts have followed us now into our daily tasks both at home and in the workplace, but how well do we abide by them?
These attributes are important for any business owner, especially when a transfer of ownership is approaching. Making sure you have all of the necessary documents, including accounting, legal, and insurance paperwork will allow you to not only save time, but also increase your business’s valuation upon transfer.
Below we have listed some tips on how to ease the transfer process and get the most out of your business:
Identify proper documentation
Before you can organize anything, you must first know what it is that you will need for the transfer. Ask your M&A Intermediary a detailed Due Diligence List, so that you don’t waste time and energy gathering items that won’t add value in the long run.
Streamline your documents
Once you identify the necessary documentation, you need to organize your documents and systems. This means keeping financial records up-to-date (audited statements are ideal but if you are not going to go to that level, at least provide hard monthly closes), gathering contracts and revisiting corporate documents. Try to keep all of this information digital so that it can be easily shared. Building a Virtual Deal Room is ideal.
Create an advisory council
Professionals who know your business inside and out will be the most helpful when it comes time to transfer your company. Consider setting up a strong management team or advisory council to stay on top of transaction requirements. This will allow you to stay on track with your daily tasks, while still looking out for your business’s future.
It is no wonder that business value increases when owners have all of their documents aggregated, including easy access to accounting, legal, insurance, and other information necessary for a transaction. Make sure that you are prepared and organized in order to get the most out of your business. Bottom line is that ease of transferability equates to increased valuation.
Our team has significant experience helping business owners prepare for and complete transactions, including mergers, acquisitions, and management buyouts. Contact us to learn more.