Punching Out! Making the Process Easy (M&A Process Engineering)

We all like to work with companies that make it easy and enjoyable to do business with. Whether we are buying an iced coffee or a car, we like to have a quick, easy, hassle-free experience. As business owners, we try to keep our customers happy, and we like to buy from suppliers who are professional, consistent, and easy to work with. We often only think of our best suppliers when they are generous with the baseball and football tickets. If there is a problem, they take care of it quickly.

In the M&A world, there are companies that make it easy (or at least easier) and those that make it difficult. By making the process easier, sellers should see better valuations and terms, and have a smoother deal process.

Preparation

The best way to ensure a smooth process is to be prepared. Work with your internal and external team to get the company ready for a sale. Financials should be in order (audited or reviewed by a CPA), and the company’s reporting system should be ready to answer questions quickly and accurately. Legal documents should be in order, and all major contracts reviewed. A pre-sale due diligence check should be performed to determine what steps should be taken before going to market. Major issues, such as customer concentration and key person risk, take years to resolve, so it is best to start early.

Realistic Expectations

Owners should have a solid understanding of how the process works, and realistic expectations for valuation, terms, and conditions. If the owner needs more than the projected value to retire, it is better to work on improving the business’s value rather than going to market with unrealistic expectations. Also, be prepared to answer a lot of questions, and possibly for some ups and downs during the process.

Goals

It is important for the owner to understand their goals for the sale of the business, as well as for post-retirement. If the owner wishes to donate to charity or set up trusts for relatives, it is important to set up those early. A clearly set plan for retirement not only helps the owner know if the sale proceeds will be sufficient, but will also help prepare for taxes. A post-retirement plan, such as travel or volunteer work, will help the owner look forward to completing the process.

Advisors

A good team will help the owner prepare for the sale, as well as guide the company through the process. It is good to involve key management, as they can help with preparation. Also, most buyers will want to meet top management, so having them on board early will help. Key advisors include an M&A attorney, a CPA, an investment banker/business broker, a tax advisor, and an estate attorney.

Keeping a Steady Keel

Just like in business, during a sale process there will be ups and downs. It is especially difficult the first time through. The advisors have been through plenty of deals, but most owners only go through it once. Try to keep emotions out of it; it’s just business.

Business Stability

One of the biggest deal killers is a sales or profits slump in the middle of a process. Buyers will likely lower the price, or at least move more of the value to deferred compensation. Keep your eye on the business during the sale process, and if there is any bad news, be sure to communicate it with the buyer as soon as possible. Keep up with CapEx, maintenance, and other regular expenses, as buyers get suspicious about window dressing prior to a sale.

Know the Buyer

It is important to do buyer due diligence, not only on their experience and financial ability, but on their culture and personality. Some buyers like to negotiate endlessly, and others make one offer and that’s it. Some buyers have a tolerance for negotiating, and/or flexibility depending on the sellers’ needs. Work with your advisors to determine your tolerance level and style, and let the advisors help you determine the right strategy to take with the buyer. Often, one side can over-negotiate over terms that are not that important and kill a deal, or settle for an initial offer and leave money on the table.

Get on the Same Page

Once an owner has determined to go to market, it is important to get on the same page with all shareholders and stakeholders. Stakeholders can include partners, spouses, children, employees, key advisors, and others. Discuss goals and responsibilities early, as any late surprises can delay or derail a deal. You might think that everyone is on board with the expected value, terms, process, and timing, but you never know until you check.

Focus on the Goal

Although the process may take longer than expected, and there may be several twists and turns, it is important for the owner to keep focused on the goal of closing. A well-prepared business should have a smooth sale process, but there are only so many things that are under the owner’s control. For example, some owners get caught up in speculating on the buyer’s true intentions, or in keeping score. By focusing on the goal and not on the noise and obstacles, the owner can help guide the process through to closing. 

Many business owners have business plans, sales goals, employee development, and other goals, but enter the sales process woefully unprepared. In the M&A business, an educated client is absolutely the best client, therefore, careful preparation is a key factor. While in no way would we recommend that an owner roll over and accept all buyers’ requests, we do think that making a business ‘easy’ to acquire will help increase valuation, will lead to better terms and conditions, and will help ensure a smooth sale process.

Tom Kastner is the President of GP Ventures, an M&A advisory services firm focused on the tech and electronics industries. Securities transactions are conducted through StillPoint Capital LLC, Tampa, Florida, member FINRA and SIPC. To read past columns or to contact Kastner, click here.

Back

2017

Punching Out! Making the Process Easy (M&A Process Engineering)

09-06-2017

In the M&A world, there are companies that make it easy (or at least easier) and those that make it difficult. By making the process easier, sellers should see better valuations and terms, and have a smoother deal process.

View Story

Punching Out! Bridging the Valuation Gap Between Buyer and Seller

06-13-2017

PCB acquisitions in the U.S. are down so far in the first five months of 2017, with only two announced deals (HT Global Circuits’ acquisition of Pho-Tronics in April; American Standard Circuits’ acquisition of Camtech in May); and one anonymous deal that I am aware of that has not been announced. This compares with 11 announced deals in 2016. There are a variety of reasons for the decline, but one reason could certainly be the valuation gap between buyer and seller.

View Story

Punching Out! How to Put a Wrench in the Rumor Mill During the Sale of a Company

05-23-2017

When selling a house, the owner’s agent puts a sign in the front yard, posts info on the Web, and invites buyers over for an open house. When selling a car, we put a sign on the windshield and take out an ad with our phone number on it. However, when selling a business, some owners do not even tell their spouses.

View Story

Punching Out! Selling a Company—Seeing it as a Triumph, Not a Defeat

04-25-2017

Somehow, there is a still a stigma that selling a company is a negative for the owner. Many people think that there must be something wrong, otherwise, they would not be selling. In reality, exiting a business should be looked at as a triumph for the owner, not a defeat.

View Story

Punching Out! 10 Ways to Increase the Value of Your PCB/PCBA Shop

03-22-2017

I have worked with a wide range of companies in the PCB, PCBA, and other tech and electronics sectors. Through the years, I have developed some ideas on how companies can improve their valuation. Some of these ideas are simple and involve little cost, other ideas are more long-term and involve more effort or investment.

View Story

Punching Out! When Should I Call an Investment Banker?

02-20-2017

The quick answer is ASAP. Even if you are not considering the sale of the company for 5−10 years, it is best to be educated and prepared. Give your advisor (or a few advisors) a call to discuss what can be done to get the company ready for a future sale. The worst time to call an i-banker or business broker is when you are forced to sell due to poor performance, health issues, pending bankruptcy, or dispute with a partner or manager.

View Story

Punching Out! Types of Company Buyers in the PCB and EMS Sectors

01-09-2017

Mergers and acquisitions in the U.S. PCB sector have been in the news recently, with at least 12 deals completed over the past year, and several more in the works. In contrast, the EMS sector has been relatively quiet, but that may change now that the presidential election is over.

View Story
Back

2016

War Stories from the Front Lines of Deal-Making

09-16-2016

Here are some war stories from my experience in working on M&A deals in the PCB, EMS, and electronics fields. The names and details have been changed to protect the innocent.

View Story

Timing: When is the Best Time to Sell?

08-18-2016

A few of the top questions we receive relate to the timing of the sale of a business. The first is, "Is now a good time?" The second one is, "How are market conditions?" These are the top FAQs.

View Story

The PCB Sector—What Buyers Look for and Recent Deals

07-14-2016

The past few months have seen a rash of PCB deals in North America, for a variety of reasons.

View Story

What the Heck is Adjusted EBITDA?

06-07-2016

If you are looking to sell or buy a business, you will most likely come across the term ‘adjusted EBITDA.’ Other common terms are adjusted cash flow, owner’s discretionary earnings, earnings after add-backs, etc. What do these terms mean, and why are they important?

View Story

The Additive Process: Tips on How to Buy a Board Shop or Assembly House

05-14-2016

One of the quickest ways to grow a business is to acquire another business. At the same time, acquiring a business can be risky, and a really bad deal may put your original business in jeopardy. Here are some tips on how to make acquisitions.

View Story

Your Baby’s Ugly, Now Get Over it (How to Work with Buyers)

04-14-2016

Here’s a scenario: An owner has gone to market and is starting to get feedback from buyers, and shockingly, not everyone appreciates the hard work and achievements that went into the business. Buyers may not understand the business, or they may be trying to position things for a low offer. In any case, it is important to know how to work with buyers.

View Story

Putting Together the Deal Team

03-21-2016

When preparing to sell, remember the old saying, “He who represents himself has a fool for a client.” While many owners might be tempted to go it alone, in my experience it pays to have a deal team to help prepare a company (and the owner) for a sale

View Story

Punching Out: How to Sell Your PCB/Assembly Shop

02-04-2016

You are thinking of selling your PCB or assembly shop. Perhaps you are contemplating retirement, you have no successors, and the thought of going to the office on Monday is driving you crazy. This column is designed to help your planning efforts. Future columns will go deeper into each subject

View Story
Copyright © 2017 I-Connect007. All rights reserved.