Merger & Acquisition Statistics
- 80% of all business that are for sale with revenues < $10MM do not sell because the business was not prepared properly – Source: SBA
- The Federal Reserve has reported that U.S. families have approximately $5.7 trillion in net worth tied up in private businesses
Six Reasons Why Deals Fail
- Over-indulgent optimism
- Poor post-organizational structural engineering
- Inefficient organizational integration
- Insufficient time allocation
- Inability to execute business plan
- Lack of proper data preparation
Services
Merger & Acquisition (M&A) Advisory Services
For growing or exiting your business
If you are in the market to either grow your business through acquisition or exit your business through a third party sale, Compass Point’s M&A Advisory Services is your solution.
Growth Stage Services
Acquiring a Competitive or Complementary Business
Many closely held and family businesses see organic growth as the only option to grow. In so doing, many end up creating excess capacity. Such excess capacity is rampant across all business sectors and most business owners see “price” as the culprit. In other words, increasing capacity is a function of lowering price. Unfortunately, this tactic is short–lived and usually backfires. It also diminishes the value of the company, which will fund your retirement someday.
However, one of the most powerful yet least understood growth strategies involves acquisition of a competitor or complementary business. This can be the shortest and least expensive strategy to expand your capacity, revenue, and profits without sacrificing margins.
Why does this strategy make sense? Purchasing a competitor is function of “Fit.” The optimum acquisition is one that offers a synergistic product/service line that enables the acquirer to cross-sell across both customer bases. Secondarily, the acquisition should provide economies of scale or cost consolidation. Bringing two companies together and shedding duplicate expenses results in earlier profitability and potential pricing advantages. Best of all, this strategy typically increases the underlying value of the acquiring company by a factor of 2 x or more. That’s right - the post consolidation value of the acquiring company may be several times the original value of that company plus the cost to acquire the new! It’s truly a ‘win-win’ scenario.
Many successful acquisitions involve two direct competitors that sell the same product-service line(s) into the same industry. Here still is an opportunity to expand your customer base, take advantage of cost consolidation, improve profitability and utilize excess capacity.
Even companies that are ineligible to borrow from a bank “as is” will find lenders beating a path to their door to finance an acquisition for the same reasons stated above!
Post Integration Services
For small to medium-sized businesses considering acquisitions, it is not always about finding the perfect market fit. The success of any acquisition is ultimately driven by the determination of the parties involved to make it work for their strategic vision.
Yes, your next acquisition should align to your long-term intentions for the business. Yes, your next acquisition should withstand the careful scrutiny of your due diligence process. But the important thing to keep in mind is that success ultimately depends on whether management is completely committed to the work that will be required after the papers are signed and the deal is complete.
At Compass Point, we utilize a 5-step process to help companies navigate the post integration process.
- Orientation Program
- New/Updated Business Plan
- HR SWAT Team
- PR to Manage the New Message
- Systems Integration
If you can’t integrate the disparate businesses, cultures, and logistical interests of the two entities, all the fancy deal making, expert legal advice and high-minded strategic thinking is for naught. Let Compass Point help you navigate this critical period.
Exit Stage Services
Selling Your Business
One of the exit options available that we review in Ownership Planning™ is sale of the business to a third party. This is a complicated, nerve testing process that needs professionals with deal experience to protect and guide you through the process. You typically only get one chance to exit…it is no place to learn on-the-job.
The challenge that most lower, mid-market companies ($2MM to $40MM) face when looking for M&A services is that they turn to their accountant or attorney to sell their business. Although the accountant and attorney have a significant role in the process, they are not typically M&A professionals who find the buyer who will pay the most for your business. The other mistake many owners make in this market is to hire a Business Broker, who basically sells the business similar to the process of selling a home (list it and hope they will come). That is not how you maximize selling price in a lower, mid-market, closely held business or family business.
Our process includes a Summary Fair Market Valuation of the business being sold or acquired so our client has a price range of what the market will likely pay. If this does not meet the goals and objectives of the owner, we go back to strategy to discuss how we can grow the company and position it better to improve its value. This process helps avoid a lot of wasted time, frustration, and money on our client’s behalf.
Making the Deal Through Professionals
Compass Point uses a unique approach of utilizing our strategic partner, Mid Cap Advisors, to conduct the M&A process. Throughout the process we maintain an ‘arm's length’ relationship with Mid Cap so that we can continue to objectively advise our client. This allows our client to feel comfortable that he or she has an advisor who is not motivated by the deal, but is motivated by the his or her objectives.
We choose Mid Cap because they are a team of investment bankers and analysts who are savvy M&A professionals. They will go to the market and actively find your buyer or seller versus simply advertising and hoping the buyer or seller will show up. Their reach into the marketplace of potential buyers and sellers extends across the US and into foreign markets. They are experienced deal makers, and can bring different forms of capital to the deal to make the transaction work. Best of all, they understand the Ownership Planning™ process, and will not try to shove a deal down your throat if it doesn’t make sense.
Mid Cap’s process for selling a business is known as a ‘controlled auction’ in which at least three or four qualified buyers are brought to the table to bid on your business. Buyers are sought who best fit the profile for acquiring your business, leading to real and motivated buyers. Furthermore, buyers are qualified as follows:
- Financial ability
- The potential acquisition fits their strategy
- We understand the buyer’s typical deal structure:
- Multiples paid on EBITDA
- Cash down
- Hold backs