The Top 10 Reasons or Motivations for buying your company

Posted by Chris on March 6th, 2010

Some time ago ( after I built this blog ) I came across a company called BCMS who had had a lot of experience in selling companies. I read the information on their website, downloaded various other information and ordered a copy of their excellent book  ” A refreshingly different approach to selling your business for maximum value “.

Later on I attended one of their excellent seminars. ( Very refreshing for Business Owners but a bit damning of normal accountants and lawyers !! )

In this presentation they highlighted the Top 10 reasons/motivations for company purchase ( in order of importance )

Source http://www.bcmscorporate.com/ ( NB. worth downloading their book ” Selling your business for maximum value ” )

Recently I have been working with a number of clients who are selling their businesses or who are still building their businesses with a view to exiting and I have emphasized these reasons and motivations to them and advised them to emphasize these points in a sale and keep these points in mind as they build their  businesses:
1. Client Base ( This is a dominant factor )
The quality of the customer base and repeatable and guaranteed business from those clients is a primary factor.
2. Potential for growth ( This is another dominant factor )
The potential for growth through the existing customer base and via new customers at home and abroad is also a primary factor.
3. Globalisation/regionalisation
We live in a globally connected world. Companies from India and China are looking to acquire in the U.K. and other countries. You must consider the applicability of your company to buyers from India, China and the U.S.A. at the very least. They will buy you because they have a global strategy or because they want to get into a particular region.
4. Ability to generate cash
Cash is King !! ( We didn’t need to say that eh ?? )
5. Development of products and services
If you have processes to ensure that you are ALWAYS at the forefront of your market this carries a high value.
6. Patents and IPR
If you have protected the patents and Intellectual Property Rights of your products and services this is valuable.
7. Operational and/or Financial synergies
You look at the operational and financial synergies and the costs that may be taken out and the additional profits and value that you bring to the purchaser.
8. Skilled workforce
The effort that you have put in to training and developing your workforce now comes to the fore.
9. Profit/ROI/multiples ( LAST )
Yes, amazingly, the very thing that the average accountant ( and probably some of the interested parties Financial Directors and advisers ) will value you on turns out not to be the thing that is held in most value – in fact it is the last !!
This is true now and will be true in n years time when your purchaser comes to do the same thing.
Companies will buy for strategic reasons NOT for multiples of profit or revenue.
When considering the value of your company consider it’s value to the potential purchaser 1 -3 years AFTER they have bought you.

Looking for SaaS companies that may want to sell.

Posted by Chris on February 12th, 2010

I have a client who is looking for SaaS companies that might fit into it’s Buy and Build Portfolio. They will deliver solutions for the public and private sectors.

If you know of any such companies please let me know asap.

Selling a High Tech Business in Birmingham

Posted by Chris on February 5th, 2010

If you are selling a high tech business in Birmingham then the M&A Rainmaker blogsite has some useful information about the process to use

I sold the national Cisco Internet and Networking company Voyager Networks in 1999 and more recently the global Cisco Unified Communications company 5i Limited in 2009 and worked with Ernst & Young in 1999 and Nortons Corporate Finance in 2009.

Both times we used a similar process to sell the companies. It made absolutely no difference that one sale was at the height of the dotcom boom whilst the other was at the bottom of the global recession.

The process is outlined here

http://mandarainmaker.co.uk/wordpress/selling-your-business-2/

along with other useful, related sections.

As values rise, high-tech entrepreneurs grapple with build-or-sell dilemma

Posted by Chris on February 5th, 2010

An interesting article from 2007 in USA Today
http://www.usatoday.com/money/industries/technology/2007-02-23-facebook_x.htm?POE=MONISVA

Creating Business Value before disposal

Posted by Chris on February 1st, 2010

After I wrote the main ” Selling a Business ” section of the M&A Rainmaker blog I came across the BCMS Corporate website here

http://www.bcmscorporate.com/

BCMS Corporate are a fabulous, family owned professional services  business focussed on the SMB sector and helping them acquire and dispose of businesses. They have a great downloadable book on thier website which I highly recommend.

They have considerable experience in the sector and I found that thier approach and sales process had many similarities with the one that I used and have advocated here.

There is no doubt that maximising the value of a business requires that you approach large numbers of companies, globally, many of whom would not have been in acquisition mode. If the potential acquirer( through skillful analysis and salesmanship ) is then convinced of the synergy and accretive nature of the acquisition they will be inclined to pay more than simple financial valuations indicate.

If, in addition, emotive considerations come into play, such as ” There will only be one chance to buy this company ” or ” I have to buy this company before my competitors do ” the the valuations will climb further.

So, I am entirely supportive of the BCMS Corporate approach ( and I might not have outlined all thier special processes here ) and the fact that it helps to maximise valuations.

What I try to get over to companies is the fact that you have to be thinking about maximising valuations well before you decide to sell. BCMS Corporate ( or any other M&A or Corporate Finance house ) basically do thier very best with the hand that they are dealt. They probably have about 6-9 months to ” clean-up ” the company.

This is not enough for real value creation and for addressing all the factors that can inhibit the value of your company such as lack of succession planning.

The conundrum is how to begin addressing these issues at least 3 years BEFORE you decide to exit. It is likely that if the business is an ” exit route business ” value creation ( and all that goes with it ) will be built into the strategic plan. Lifestyle businesses that decide to exit some time into thier business life are a different matter.

One of the reasons for creating this blog was to make business owners aware IN ADVANCE of the need to prepare a business for exit years before the event. Clearly this is a bit of a challenge because if you are not thinking of an exit you are not likely to be spending any time or money planning for it !!

Actually this is happening ! My colleagues and I are working with some businesses who are planning for an exit some years away. They have said to us ” What do we need to do to maximise the value of our company if we sell in about 3-5 years ” ??? Clever people eh ??

I am not going to describe all the things that can be done if you have that much notice but let us mention a few:

– One big one involves crystal ball gazing !!! There is general agreement that you want to sell before your business reaches the peak of it’s lifecycle so that there is life and growth in the business for your acquirer. To do this you need to understand your market and your business cycle.

– More crystal ball gazing is involved in attempting to predict what acquirers will be looking for 3-5 years hence and who those acquirers might be. This is just hard – it is not necessarily impossible !!

– You should try to be providing what the industry regards as ” sexy ” or ” fashionable ” products and services ( I keep my eye on Gartners predictions for the High Tech market )

– Ideally you need to show scalability and replicatability in your products and services

– Ideally you should have global possibilities for the sale of your products and services

– You should have clearly defined processes within your business eg dealing with support issues, forecasting sales

– You should ideally have Intellectual Property ( I.P. ) , something unique that you have invented

– You should have recurring business ( eg maintenance and support contracts )

– You should have a succession plan for all the main management ( I call this the ” If we all go down in a plane test ” )

There are many others but hopefully this gives a sample.

My colleagues and I spend our time helping companies with these and other ” business valuation drivers “.

When you combine these with the correct disposal approach you will almost certainly have a great result.

Selling a High Tech Business

Posted by Chris on February 1st, 2010

The original and still the most important purpose of the M&A Rainmaker blog was to impart the lessons that I learned in selling businesses, particularly High Tech businesses.

The process is discussed here

http://mandarainmaker.co.uk/wordpress/selling-your-business-2/

in some detail.

I use the sale of 2 of my businesses Voyager Networks and 5i as particular examples in the selling your business process. One of the reasons for this is that one, Voyager Networks, was sold at the height of the High Tech, Dot Com Boom in 1999/2000 and the other, 5i, was sold in the depth’s of the global economic recession in 2008/9. Yet they both sold and sold well.

A very similar process was used in both cases although there were differences other than the economic backdrop.

When we started Voyager we had no clear strategy for it being a lifestyle business or an exit route business. It only became an exit route business after my meeting with Investec and after innumerable approaches to buy us. This was something like 1996, 3 years into the life of the business.

5i, on the other hand, was started with the clear intention of exiting ( sale or float ) 3-5 years later.

In fact both businesses sold around 7 years after thier start and in conversations with other people who have sold High Tech businesses this seems to be a typical lifetime for a business before it is sold.

In both cases we conducted a ” Beauty Parade ” to find the right M&A ( Mergers and Acquisitions ) partner. In the first case settling on Ernst & Young and in the second Norton Corporate Finance. ( Actually it was probably thier Rainmakers and thier teams that we settled on aswell as the companies ).

I remember that in the case of Voyager we discussed who was going to sell the company ( after we had decided to sell ) and put into the pot Deloitte & Touche, Ernst & Young and one other ( who I forget ). To get to the short list the three partners each put out feelers amongst thier contacts and 3 were chosen for presentations. Our accountants and our lawyers were consulted ( D & T were our accountants ). We ended up using Ernst and Young and our lawyers ( from Leeds ).

With 5i the lawyers and accountants were consulted; board members and shareholders put forward suggestions and a process was followed which resulted in Nortons Corporate Finance being selected.

I have to say that in my opinion both firms were exactly the right ones for us. The Nortons process and culture was similar to the one at Ernst & Young and this was a factor in the decision to go for Nortons.

Now, there are a great number of Corporate Finance and M & A companies to choose from and it is very important to find the right partner with the right processes and capabilities.

It is possible that the right people to use are your own accountants and lawyers but probably not. Or, at the very least, you should look for alternatives. If you are very experienced at selling companies then you may well have lawyers and accountants that you have used on a number of occassions. My advice is directed at people who have not had these opportunities.

In an ideal world you want to have decided wether you are a lifestyle business or an exit route business as early as possible. Also in an ideal world, you want to give yourself time to select the right legal and accountancy M&A partners for you and your business.

Selling Businesses in good times is one thing, selling them in bad is entirely another – or is it ??

Posted by Chris on October 13th, 2009

The sale of Voyager at the height of the dotcom boom is sometimes dismissed as “ just lucky “. Clearly it was fortunate to have built just the right business to sell at just the right time.

The sale of 5i earlier this year is also regarded by some people with something close to disbelief. When you realise that the sale process was underway at the time that the banking system was close to meltdown ( mid 2008 to mid 2009 ) and that the bank funding for the purchaser came from RBS – probably one of the first deals that they funded in 2009 after becoming largely owned by the government, the sale begins to rake on mythical qualities !!!

Actually there is no mystery to achieving the successful sale of a company but we might look at the sale of 5i as an example of how to maximise value in the worst of all times.

It has to be said that in 5i we have a company that ticks all the “ P “ boxes. It has, for many years, been a highly profitable, cash generative business.

It has superb People starting with the management tean headed by M.D. Peter Howells ( formerly Sales Director at Voyager Networks and M.D. at Spider Networks – who Voyager bought in 2006 ) and F.D. Clive Orchard.

It has massive Potential , being positioned in the high growth Unified Communications market, working with Cisco and Microsoft. It’s influence extends globally and it is regarded by Cisco as a “ market maker “ and a facilitator in moving it’s channel toward a more solutions orientated model.

It has a Plan to achieve that Potential in a Profitable way. It has established proven Processes that were initially developed in Spider, Shiva and Voyager and then further honed in the early years of 5i’s life.

So, one of the reasons why a sale could be achieved at a time of dire economic crisis was that it was and is a very great company. The other reason is that it adopted the company sale process that I have outlined in this blogsite, which was also used in the sale of Voyager.

5i selected M & A adviser, Nortons, after discussion with key shareholders and other advisers. Nortons came out of the “ beauty parade process “ as being the most suitable M & A partner. The selection of the right M & A partner was very key.

The other key decision was that most of the sale work would be done by Peter and Clive working with Nortons whilst the other Directors concentrated on running the business, providing input where and when required. Even so, Peter and Clive had to contribute to the running of the business alongside the sale activity.

The M & A team at Nortons, as we have mentioned elsewhere, was an excellent combination of an accountant who had become an M & A adviser and a lawyer who had been involved in an Internet buy and build.

So, the main team, comprising of 2 people from Nortons and 2 from 5i, was of the very highest calibre. It was, therefore, no real surprise that the Teaser and the business Sale Proposal were a very high standard, as were the presentations and discussions with potential suitors.

It is probably becoming clear that, apart from the economic backdrop, which nobody could do anything about , everything else was exactly right – almost perfect.

Again, as discussed in the Selling a Business section here, a dynamic potential buyer list was established and maintained throughout the process. The net was cast wide initially – and this meant globally – India, China, the Middle East and North America.

In some cases middlemen, local contacts in each country, were established. In the end the buyer came from the U.k. but useful discussions were held with people from other countries. ( Actually what emerged from the global investigations was the fact that 5i’s model and it’s relationship with Cisco in the U.K. and E.M.E.A. was ground breaking and leading edge. Whilst we sometimes think that what happens in the U.S. happens here 6-12 months later, this is not always true. Often the U.K. leads the world in establishing new thinking. In many ways the rest of the world was only just becoming ready for the 5i model a year ago. Without going into detail the list of potential buyers was whittled down to a few, very suitable partners and Impera Group Plc ( now renamed 365iT Plc ) emerged as the most appropriate partner.

It is not at all surprising that 365iT is itself run by a very experienced team headed by Peter McLean ( formerly of Guardian IT ). 5i has become part of a Buy and Build strategy. 5i adds key technical specialisation to the 365iT mix. 365iT is for example a “ Virtualisation “ and “ hosting “ specialist and this goes hand in hand with 5i’s Unified Communications expertise. Overall 365iT has a business capability that covers many of the fastest growing areas of ICT. Hence the final result of the sale process was to find a partner that was an excellent strategic fit. 365iT Plc will be a company to watch as we approach 2010.

  

Is Ariadne Capital selling Ecademy ??

Posted by Chris on October 6th, 2009

According to The Independant ( April 2009 ) , Julie Meyer, of Dragons Den and Ariadne Capital, has been retained to sell Ecademy as it is looking for a parent or partner to help it grow to the next stage. If true, as this report is now a few months old, this seems a very logical move to me.  These things take time though and particularly with the economic backdrop as it is.

I wonder what the selection process was to get to Julie Meyer and what the selection process is to get to the right buyer ??

It should broadly follow the Sales Process that I have outlined here at M & A Rainmaker.

http://www.independent.co.uk/news/business/news/networking-site-ecademy-looks-for-new-owner-1667406.html

Objective Parties

Posted by Chris on September 9th, 2009

During a sale process the Boards of the acquiring company and it’s advisers are typically involved in the detail of the deal and certainly there can be emotion involved in the respective Boards views.

Chairmen, Non-Executive Directors and other investors in the company may be able to provide useful objectivity during the process. Sometimes they are not objective as they are too deeply involved or affected themselves but other times they are experienced, objective parties – which is why they hold the roles that they do. They will, more than likely, have seen it all before. They can calm or highlight certain situations from a position of detached perspective.

It is useful to have people like this around if you can find them.

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This blog post is a part of a series of posts describing The Sales Process – you can access the other parts of the series from the links below:

Offers

Posted by Chris on September 9th, 2009

Given the allowance for the prospective buyers to digest what has been presented and then present back to you, you want to see indicative offers.

You should make it absolutely clear that there is a deadline time and date for receipt of indicative offers.

People may come back with a whole range of reasons why they cannot make that deadline, some reasonable and valid and some not.

It does not matter to you – you have a process underway and timescales that you are working to and if people can’t make it then they can’t make it.

He who hesitates is lost !!

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This blog post is a part of a series of posts describing The Sales Process – you can access the other parts of the series from the links below:


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