Category: News and Articles

The Story
It’s no secret that, like fashion, industries and sectors have trends. Fundraising follows a similar pattern. What’s “hot” one year may not be hot the next year, and so forth. Trends come and go, sometimes very quickly. Back in 2021 when the pandemic was raging, people were staying home and ordering tons of stuff online. Logistics / fulfillment was a hot and rapidly growing sector. Ecommerce companies, large and small, were clamoring for solutions to get their goods delivered quickly and efficiently to their customers. Logistics was booming! And investors were eager to get a healthy slice of the action.

Enter company “XYZ” that provided last-mile logistics services. XYZ was a family business that had grown modestly over the years. When the pandemic hit, their business exploded overnight, rapidly adding new ecommerce customers (including a very large one). With the need for expanded, bi-coastal facilities and the desire to ‘take some chips off the table’ the family decided by mid-2022 that it was time to seek an equity capital infusion.

Jan Robertson speaks on ACG national panel April 8^th , part of a four part series on Trends in Tech M&A Dealmaking. In this series of short clips, Jan provides an update on the blockbuster Q1 2021 for M&A deals – best on record since early 1980s – what’s driving this robust dealmaking activity, plus some cautionary notes as to what factors (e.g. tax increases!) might chill this activity later this year. Watch the videos below.

Recently, I had the pleasure of interviewing a client whom we worked closely with for several months on the sale of a software company he had co-founded with a couple of partners. He had graciously agreed to do a webinar with us to tell his story of selling a business, from a client’s perspective. During the interview, I asked him why he and his partners engaged our firm.

One of his answers surprised me – Personal Chemistry! Yes, he cited many of the usual qualities we tout: deep M&A dealmaking experience especially with technology companies, knowledge of the software sector, international reach, and senior professional attention. However, the one that surprised me was his emphasis on the importance of Personal Chemistry in making their decision to work with us.

What did he mean by Personal Chemistry? As a serial entrepreneur who had seen multiple company ‘exits’ over the years, he had a seasoned perspective. He said he knew there inevitably would be some ups and downs along the way, and they wanted to work with a team they liked and trusted. One they could work collaboratively with to solve problems and handle challenges together as they arose. He was right there were challenges – as there are in every M&A deal – but we worked harmoniously with them and their legal and other advisors, to overcome these challenges and successfully close their transaction.

This conversation got me thinking about all the ways in which Personal Chemistry is a key ingredient in M&A dealmaking. Here are a few examples where it is vital:

• Outreaching to Potential Buyers – the initial contact, a tailored email addressing specifics as to why they should be interested in the opportunity from their Company’s perspective, followed up with a phone call, are critical steps in establishing credibility and generating interest in the opportunity.
• Negotiations – it helps to establish a rapport with the buyer(s) first, and develop a level of trust early on, prior to delving into the deal negotiations. 
• Due Diligence – assembling and disclosing the mountain of information requests and responding to the myriad of follow up questions, additional information and analysis needed, takes not only attention to detail but also day-to-day handholding and emotional support throughout the process to reach the closing with sanity preserved!  Upfront preparedness makes all the difference so you’re playing offense not defense.
• Driving to Closing – fostering the give and take on numerous deal points, working with differing agendas and personalities on both sides takes diplomacy, thoughtfulness, and trust to work through the inevitable deal ‘speed bumps’ along the way and achieve the desired goal of closing a mutually rewarding transaction.

While dealmaking experience, financial acumen, and industry knowledge are essential to a successful M&A process, the importance of Personal Chemistry in orchestrating the best outcome for all cannot be underestimated!

Jan Robertson is Managing Partner & Co-Founder of SiVal Advisors, a Silicon Valley-based technology M&A advisory firm. Click here to access clips from her interview with SiVal client Arif Janjua, former Chairman and shareholder of software company Citilabs Inc. which was acquired by Bentley Systems in 2019.

Working with SiVal on the M&A Process

Lessons Learned & Tips for Other Business Owners in Selling Their Business

Making The Decision To Sell

Why Work With an M&A Firm

Perhaps you have been thinking about selling your business in the next year or two, having heard about the robust M&A market and high sale values in recent times. You may have even begun some planning in this regard.

However, with the COVID-19 pandemic continuing its spread, impacting our lives and businesses, it is difficult to focus on anything but the immediate day-to-day challenges, let alone exit planning.

We have witnessed many business downturns over the years; the difference this time is the enormous uncertainty of the health crisis, how long it will take to abate, and how much longer it will take global businesses to recover.

The silver lining is that there are some concrete steps business owners can take, even in this uncertain environment, to preserve the health and value of your business and prepare for an ultimate sale.

First Some Background on Current Markets….

The Federal Reserve and other central banks around the world have been aggressively pumping liquidity into their respective economies to stabilize stock markets. In the US, the Fed has unleashed measures that have outstripped its 2008 efforts during the financial crisis, with rates cuts, asset purchases and expanded lending facilities.

Congress has approved a stimulus package worth close to $3 trillion starting with the $2.2 trillion Cares Act followed by an additional funding package of ~$600 million to top up the small business loans program. These interventions have proven to be a potent lever on markets, halting the sharp decline in March propelling April to post the best gains on record since 1987. The economy, however, is suffering with a record first quarter 4.8% drop in GDP, the worst since 2008.

How does this all affect the M&A market?

While there is usually some correlation between stock market values and private business valuations, in these times of massive monetary policy interventions propping up stock markets in the face of a decimated economy, this correlation diverges. Private businesses are struggling to see ahead a week or so at a time, much less be able to create a credible 3-year forecast for valuation purposes.

During an uncertain economy, buyers typically sit on the sidelines waiting for things to settle. For strategic buyers who have adequate capital reserves, many will view this as an opportunity to seek out desirable acquisitions that fulfill a particular need, such as a sought-after geography, customer base or technology. However, their perceptions of value will reflect the inherent riskiness of the economic environment and business outlook. Private equity buyers are continuing to evaluate add-on acquisitions which augment existing portfolio investments.

We are still seeing interest for well-located, technology-driven operations, but buyers are being a lot more selective, are value-focused, and taking longer to act.

Steps Business Owners Can Take Now to Prepare & Preserve Value

In weathering downturns over the years, acting fast and decisively, and having a ‘plan B’ to adjust as circumstances change, is paramount. Revenues and cash levels usually fall faster than expenses – so bear this in mind as you chart your course in turbulent waters.

1. Sustain Operations – as best you can continue to provide essential services to customers; they may have weathered previous downturns with you and are likely suffering this as well. Where possible, consider giving additional grace periods on normal business terms. Be flexible and adaptable – as the world changes, so must you.
2. Strategic Plan – for how your business will survive through supply chain disruptions, revenue slowdown, etc. Imagine a range of possible scenarios and have a plan for each contingency.
3. Sales Forecasts – deals that seem likely to close may be delayed or put on hold indefinitely. Even loyal customers may need to drastically alter their buying practices, so don’t assume past behavior will continue.
4. Cash Resources – how much runway do you have to sustain possibly several quarters of business declines? Take stock of where you might be able to trim expenses and conserve cash, both in the near term and longer if needed. Plan for contingencies.
5. Funding Sources – do you have access to additional equity or debt funding should you need it? With interest rates at record lows (and heading lower as central banks make further cuts) and more SBA loans being made available, your bank may be an important partner to keep your business afloat. Best to have these conversations sooner vs. later as the need becomes more acute.
6. Team – focus on motivating your team and keeping them engaged as you implement ‘work from home’ routines. Recognize the need to accommodate parents who may need to do double duty caring for children whose schools have closed. Not all businesses can do this, such as manufacturing and certain services, but many can. Cease or minimize business travel where feasible.
7. Discretionary Spend – you may want to reconsider marketing and customer acquisition budgets and establish a higher target “ROI” for such expenditures. Re-examine capital expenditure plans, and decide whether to wait until you have more visibility on the economic picture OR whether it makes sense to forge ahead regardless (assuming sufficient capital reserves) perhaps gaining an edge on your competition as you emerge well-positioned in the eventual economic and business recovery.
8. Hunker Down – this could last longer than you think. Conserve cash, plan for the worst and be strategic with every decision. In these Darwinian times, “survival of the fittest” is the modus operandi where the most adaptable species will prevail. Businesses that do so successfully will emerge from this crisis, stronger, fitter and more valuable, making them more attractive to buyers when the M&A markets return to normalcy.

If you have any questions on the impact of COVID-19 on your business or the potential saleability of your business, don’t hesitate to reach out.

Written by Jan Robertson, SiVal Advisors LLC, jrobertson@sivaladvisors.com May 2020

Perhaps you have been thinking about selling your business in the next year or two, having heard about the robust M&A market and high sale values in recent times. You may have even begun some planning in this regard. However, with the covid-19 pandemic continuing its spread, impacting our lives and businesses, it’s difficult to focus on anything but the immediate day-to-day challenges, let alone exit planning. We have witnessed many business downturns over the years; the difference this time is the enormous uncertainty of the health crisis, how long it will take to abate, and how much longer it will take global businesses to recover. The silver lining is that there are some concrete steps business owners can take, even in this uncertain environment, to preserve the health and value of your business and prepare for an ultimate sale.

First Some Background on Current M&A Markets….

Time will tell whether the Fed and other central banks around the world can stabilize stock markets. There’s not much room to go with rate cuts so perhaps injecting money into the system will prove to be a more potent lever. So far, such measures appear ineffective in stemming falling stock prices. Regardless, public company valuations have been significantly impacted, which normally creates a ripple effect through to private company valuations. How does this all affect the M&A market? Usually, during uncertainty, buyers sit on the sidelines waiting for things to settle. For strategic buyers who have adequate capital reserves, many will view this as an opportunity to seek out desirable acquisitions that fulfill a particular need, such as a sought-after geography, customer base or technology. Private equity buyers are continuing to evaluate add-on acquisitions which augment existing portfolio investments. We are still seeing interest for well-located, technology-driven operations, but buyers are being a lot more selective, are value-focused, and taking longer to act.

Steps Business Owners Can Take Now to Prepare & Preserve Value

In weathering downturns over the years, acting fast and decisively, and having a ‘plan B’ to adjust as circumstances change, is paramount. Revenues and cash levels usually fall faster than expenses – so bear this in mind as you chart your course in turbulent waters.

1. Sustain Operations – as best you can continue to provide essential services to customers; they may have weathered previous downturns with you and are likely suffering this as well. Where possible, consider giving additional grace periods on normal business terms. Be flexible and adaptable – as the world changes, so must you.
2. Strategic Plan – for how your business will survive through supply chain disruptions, revenue slowdown, etc. Imagine a range of possible scenarios and have a plan for each contingency.
3. Sales Forecasts – deals that seem likely to close may be delayed or put on hold indefinitely. Even loyal customers may need to drastically alter their buying practices, so don’t assume past behavior will continue.
4. Cash Resources – how much runway do you have to sustain possibly several quarters of business declines? Take stock of where you might be able to trim expenses and conserve cash, both in the near term and longer if needed. Plan for contingencies.
5. Funding Sources – do you have access to additional equity or debt funding should you need it? With interest rates at record lows (and heading lower as central banks make further cuts) your bank may be an important partner to keep your business afloat. Best to have these conversations sooner vs. later as the need becomes more acute.
6. Team – focus on motivating your team and implement ‘work from home’ routines to the extent possible – both as a disease prevention measure and to accommodate parents who may need to do double duty caring for children whose schools have closed. Not all businesses can do this, such as manufacturing and certain services, but many can. Minimize business travel where feasible.
7. Discretionary Spend – you may want to reconsider marketing and customer acquisition budgets and establish a higher target “ROI” for such expenditures. Re-examine capital expenditure plans, and decide whether to wait until you have more visibility on the economic picture OR whether it makes sense to forge ahead regardless (assuming sufficient capital reserves) perhaps gaining an edge on your competition as you emerge well-positioned in the eventual economic and business recovery.
8. Hunker Down – this could last longer than you think. Conserve cash, plan for the worst and be strategic with every decision. In these Darwinian times, “survival of the fittest” is the modus operandi where the most adaptable species will prevail. Businesses that do so successfully will emerge from this crisis, stronger, fitter and more valuable, making them more attractive to buyers when the M&A markets return to normalcy.

Welcome to the third in a series concerning the challenges of selling a family-owned or closely held business. If you have not read the previous articles, part 1 is available here and you can find part 2 here.

If what you see here looks familiar, the time to act is now. Many of these issues take time to resolve and should be addressed if you are considering an outside investment, sale, merger, or other exit for your business. The examples we discuss are based on situations from actual client work we have done at SiVal. If your business faces any of these challenges, please contact us at SiVal to learn how we can help.

Challenge 7 – Compliance Issues

Today’s business environment is loaded with potholes coming from every direction. Employment regulations, different levels of tax rules and requirements, and environmental concerns can lurk hidden from view. Add a layer of a constantly moving regulatory environments spanning localities, states, and countries and it’s amazing that anyone can keep up with the complexity. Paying attention to and addressing the compliance issues that can directly and immediately affect your business is important. Don’t let a potential time bomb delay your M&A efforts or impact its sale value. Buyers will most certainly uncover these in due diligence, so better to fix these well in advance.

Challenge 8 – Balance Sheet

One of the first items a potential acquirer will ask for are several years of prior and forecasted financials. This includes balance sheets, cash flows and profit / loss statements. The corporate balance sheet can reveal good things and not-so-positive things about your business. An undercapitalized business may stem from a past reluctance or inability to raise capital. That lack of capital may have hampered growth and innovation thus negatively impacting value. Obsolete or consignment inventory that is overvalued can add to valuation challenges. Owners that have deferred salary and entered that deferral on the books as a loan can distort balance sheet liabilities. If you run a software business or similar company where subscription, maintenance, or partial payments are a factor, understanding and being able to explain deferred revenue, license liability, and their impact on revenue will be important, especially if a potential acquirer is from outside your industry.

Challenge 9 – Intellectual Property Issues

Does your company have clear rights to its intellectual property? Are patents owned or licensed? Do they actually matter to the business? Does IP from a prior business have the potential to cause problems? IP can be a tricky matter. Your M&A advisor can help you find a good IP lawyer to look at and resolve any potential issues.

Challenge 10 – Unrealistic Valuation Expectations

Every business owner and manager would like to think their business is unique and worth more than any business in its sector. Unfortunately, in the vast majority of businesses, it simply isn’t so. The perceptions of company value can be influenced unrealistically by the success and valuations of larger and more profitable competitors. In some cases, a business may be trying to move into new markets or transition to new business models that are higher growth, yet a track record of proving those markets and models simply doesn’t exist. At this point it’s hard to demonstrate the probability of success. Deal valuations and even probability of completion can be impacted. The gap in valuation expectations between seller and buyer(s) can sometimes be closed with earn-outs or other creative structures; however, there are risks for both sides in these types of deals. Best to have sound professional advice on valuation in advance of going to the market.

Bonus Challenge – What About You?

Are you ready personally and professionally for a deal to happen? What’s the next stage of your life? What about that great team you have built? How do you make the transition? Now is the time to start thinking about these things. A good M&A advisor can help you address these issues and all these challenges.

Contact SiVal Advisors to learn more. One of our experienced team members is ready to hear from you. Let’s talk.