M & A Rainmaker

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.

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.