Articles – Category Posts from The Forbes M+A Group. Research via our Knowledge Base and get access to M&A articles, news, and other info.
The Forbes M+A Group was proud to be a Platinum Sponsor for Colorado Companies to Watch 2017. As entrepreneurs ourselves, we understand the perseverance and creativity it takes to create and sustain a thriving, successful business. We sincerely congratulate all of this year’s winners. Read the full press release.
Mergers and Acquisitions (M&A) Failure Rates Between 70% and 90% (Harvard Business Review).
How to avoid failed transactions was the topic of a recent panel presentation co-sponsored by The Forbes M+A Group; Anton Collins Mitchell, LLP (ACM); Brownstein Hyatt Farber Schreck, LLP and U.S. Trust. During the invite-only presentation, three top business panelists shared their first-hand experiences on the complexities of divestitures and advice on how to avoid common M&A pitfalls.
Moderator Bill Nack, a Managing Director for The Forbes M+A Group, began the discussion by asking panelists to provide an overview of their recent transactions and what made them successful.
Kevin Durban, former owner of Performance Mobility, acquired his company in 2006 as a single store operation. Under his leadership, Performance Mobility expanded to 9 stores in four states, strengthened the management team, and implemented a phantom stock program for employees. In 2016, he was ready to take some chips off the table and the economy made the timing favorable. In 2017, Performance Mobility was successfully acquired by United Access of St. Louis, Missouri. Kevin shared that maintaining clean records and financials was key in the success of his sale. “Many owners treat their companies as personal checking accounts. We were always deliberate about keeping these separate.”
by Jon Wiley, Managing Director, The Forbes M+A Group
Companies grow in one of two ways: organically and through acquisition. Organic growth is achieved through the normal course of operations. New customers are added from sales and marketing and expansion to new territories. New products and/or services are added through R&D, product extension and updates. Most companies are continually pursuing organic growth.
The alternative is growth by acquisition. At a time when organic growth may be slowed due to lack of discretionary spending, limited access to working capital and general uncertainty in the market, acquisition(s) might be worth consideration for many companies.
What are some of the reasons companies make acquisitions?
• Add customers: For some companies, the sales cycle to add new customers can be extremely long and expensive. I have worked with companies that have viewed growing customers by acquiring another business to be less expensive and more reliable than the normal sales and marketing approach.
You may hear the word “goodwill” thrown around a lot, but what does it really mean? When it comes to selling a company, the term refers to all the effort that the seller put into a business over the year. Defining goodwill can be thought of as the difference between the various tangible assets that a business has and the overall purchase price.
Investopedia defines goodwill in the following way, “Goodwill is an intangible asset that arises as a result of the acquisition of one company by another for a premium value. The value of a company’s brand name, solid customer base, good customer relations, good employee relations and any patents or proprietary technology represent goodwill. Goodwill is considered an intangible asset because it is not a physical asset like buildings or equipment. The goodwill account can be found in the assets portion of a company’s balance sheet.”
Goodwill vs. Going-Concern
Now, it is important not to confuse goodwill value with “going-concern value,” as the two are definitely not the same. Going-concern value is typically defined by experts, as the fact that the business will continue to operate in a manner that is consistent with its intended purpose as opposed to failing or being liquidated. For most business owners, goodwill is seen as good service, products and reputation, all of which, of course, matters greatly.
Below is a list of some of the items that can be listed under the term “goodwill.” As you will notice, the list is surprisingly diverse.
One of the most significant reasons why Tom Chi was able to invent Google Glass, self-driving cars, Project Loon, and hundreds of game-changing inventions so fast is this…Tom learns fast and tries often, making small variations until he succeeds.
Ensuring that your employees stay on course during your ownership transition should be one of your key areas of focus. There are many key steps that you should take during this delicate time. Let’s explore the best tips for keeping your employees engaged throughout the entire ownership transition process.
One of the most significant reasons why Tom Chi was able to invent Google Glass, self-driving cars, Project Loon, and hundreds of game-changing inventions so fast is this…Tom learns fast and tries often, making small variations until he succeeds.
What could our generous community of leaders accomplish – individually and collectively – if we become masters of staging and testing new ideas, learning rapidly, and increasing how many new things we try?
Anything is possible, and we invite you to click the image to the right and dig deeper to discover what prototype thinking can do for you!
Ensuring that your employees stay on course during your ownership transition should be one of your key areas of focus. There are many key steps that you should take during this delicate time. Let’s explore the best tips for keeping your employees engaged throughout the entire ownership transition process.
Step 1 – Establish and Implement a Training Program Early On
If you are selling your business, then be certain that you train replacements early on in the process. Failure to do so can result in significant disruptions. Additionally, if you are buying a business it is of paramount importance that you are 100% confident that there are competent people staying on board after the sale.
Step 2 – Address Employee Concerns
No matter what your employees say or how they act, you must assume that they are worried about the future. After all, if you were them wouldn’t you be concerned at the prospect of a sale? The best way to address these concerns is to meet with employees in small groups and discuss their concerns.
Step 3 – Don’t Make Drastic Changes
Above all else, you want a smooth and fluid transition period. A key way to ensure that this time is as trouble-free as possible is to refrain from making any drastic changes before or after the transition. Remember the sale of the business is, in and of itself, shocking enough.
You don’t want to add yet more disruption into the process by making changes that could be confusing or unsettling. In other words, keep the waters as calm as possible. Drastic changes could lead to employees quitting or worst of all, going to work for a competitor.
Step 4 – Focus on the Benefits
If possible focus on the benefits to your employees. It is your job as the new business owner to outline how the sale will benefit everyone. Don’t let your employees’ imaginations run wild with speculation. Unfortunately, this is exactly what happens when employees and management feel as though they are not receiving any information about the sale. So don’t be mysterious or cryptic. Instead provide your employees with information, and keep the focus on how the changes will benefit them both personally and professionally.
Implementing these four steps will go a very long way towards helping to ensure a smooth transition period. Transition periods can be handled adeptly; it just takes preparation and patience.
Quite often sellers don’t give much thought to whether or not they are ready to sell. But this can be a mistake. The emotional components of both buying and selling a business are quite significant and should never be overlooked. If you are overly emotional about selling, then this fact can have serious ramifications on your outcomes. Many sellers who are not emotionally ready, will inadvertently take steps that undermine their progress.
Selling a business, especially one that you have put a tremendous amount of effort into over a period of years, can be an emotional experience even for those who feel they are more stoic by nature. Before you jump in and put your business up for sale, take a moment and reflect on how the idea of no longer owning your business makes you feel.
Emotional Factor #1 – Employees
It is not uncommon for business owners to form friendships and bonds with employees, especially those who have been with them long-term. However, many business owners are either unaware or unwilling to face just how deep the attachments sometimes go.
While having such feeling towards your team members shows a great deal of loyalty, it could negatively impact your behavior during the sales process. Is it possible you might interfere with the sale because you’re worried about future outcomes for your staff members? Are you concerned about breaking up your team and no longer being able to spend time with certain individuals? It is necessary ultimately to separate your business from your personal relationships.
Emotional Factor #2 – Do You Have a Plan for the Future?
Typically, business owners spend a great deal of their time and energy being concerned with their businesses. It is a common experience that most owners share. Just as no longer being with your employees every day may create an emotional void, the same may also hold true for no longer running or owning your business.
Your business is a key focal point of your entire life. No longer having that source of focus can be unnerving. It is important to have a plan for the future so that you are not left feeling directionless or confused. What will you do after you sell your business and how does that make you feel? Before you sell, make sure that you have something new and positive to focus on with your time.
Emotional Factor #3 – Are You Sure?
Are you sure that you can really let your business go? At the end of the day many business owners discover that deep down they are just not ready to move on. Are you sure you are ready for a new future? If not, perhaps it makes sense to wait until you’re in a more secure position.
Addressing these three emotional factors is an investment in your future well-being and happiness. It is also potentially an investment in determining how smoothly the sale of your business will be and whether or not you receive top dollar
If you’ve heard the term EBITDA thrown around and not truly understood what it means, now is the time to take a closer look, as it can be used to determine the value of your business. That stated, there are some issues that one has to keep in mind while using this revenue calculation. Here is a closer look at the EBITDA and how best to proceed in using it.
EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization. It can be used to compare the financial strength of two different companies. That stated, many people don’t feel that EBITDA should be given the importance that is frequently attributed to it.
Divided Opinion on EBITDA
If there is disagreement on EBITDA being able to determine the value of a business, then why is it used so often? This calculation’s somewhat ubiquitous nature is due, in part, to the fact that EBITDA takes a very complicated subject, determining and comparing the value of businesses, and distills it down to an easy to understand and implement formula. This formula is intended to generate a single number.
EBITDA Ignores Many Key Factors
One of the key concerns when using or considering a EBITDA number is that it is often used as something of a substitute for cash flow, which, of course, can make it dangerous. It is vital to remember that earnings and cash earnings are not necessarily one in the same.
Adding to the potential confusion is the fact that EBITDA does not factor in interest, taxes, depreciation or amortization. In short, a lot of vital information is ignored.
Achieving Optimal Results
In the end, you simply don’t want to place too much importance or emphasis on EBITDA when determining the strength of a business. The calculation overlooks too many factors that could influence future growth and prosperity of a business.
Business brokers have been trained to handle valuations to determine the approximate value of a business. Since valuations take many more factors into consideration, they also tend to be far more accurate.
THE FORBES M+A GROUP
8480 E. Orchard Rd., Suite 2400
Greenwood Village, CO 80111
p (303) 770-6017
f (720) 496-4976
e info@forbesma.com
© 2017 THE FORBES M+A GROUP