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Before I entered the world of investment banking, I spent most of my career in sales, marketing, and executive positions in the enterprise software space. One event that happened frequently was the product demo. Most ranged from the mediocre to the truly awful. What I learned from those experiences is that the quickest way not to sell a product is to demo it. What a demo is attempting to do in most cases is to validate that what one thinks about a product is true. A demo really isn’t a very good selling tool. What really matters is that a bad demo can be a reason not to buy a product. The opposite isn’t true. A good demo is simply validation, not selling.

The same thing can largely be said for the due diligence efforts that are part of the M&A process. By the time the Letter of Intent (LOI) is signed and you are getting into detailed due diligence, the company on the other side wants to buy your company. They are now looking for items that could cause problems after the transaction is completed. It’s rare that due diligence increases the valuation of the company being acquired. More likely, the valuation gets lowered, new escrows and warranties pop up, or the transaction gets called off all together. Due diligence can be a dangerous time. This is one reason you need the help of a good M&A advisor.

So how do you survive the treacherous ordeal called due diligence?

Start early. The day you start on the M&A journey is the day you start working on due diligence. You are going to be collecting lots of information, documents, and other materials. Chances are some of that info is missing or never existed in the first place. It will take time to find or create what’s missing or to gather what is there.

Be prepared. You will be asked to supply a wide range of information ranging from the Articles of Incorporation when the business started to minutes of the board meetings, audited financials, copies of employment agreements, … You get the idea. If you are a private company and have never had an audit, talk to your accountants about an audit or at least a review. Your M&A advisors should have a comprehensive list of items you will likely need. Work with them to collect and organize the information.

Clean up things. Pending lawsuits, unclear licensing agreements, past due payments are just a few items that potential acquirers do not want to see. If you are a software company and you use open source software in your product, make sure you have the right licenses and understand the provenance of that code. That boat out on the lake listed on the company balance sheet probably really isn’t a company asset and your two kids on the payroll who rarely come into the office need to be dealt with. I wish I were making this stuff up, but these are real examples we’ve seen.

Be honest. If something doesn’t exist or you find issues, lying or trying to cover things up shouldn’t be done. If issues don’t get uncovered in the acquisition process, they may arise after the deal closes and you will pay then. That’s why purchasers ask for escrow periods, warranties, and other guarantees. It’s better to deal with the issues up front.

Look at the situation from the other side. If you were buying a company, what would you want to know? What kinds of risk would you want to assume?

Focus on growing your business. It’s nearly impossible to keep your business growing and to sell it at the same time. Your job as CEO is to keep adding value to the organization so that the acquirer sees that value. M&A deals have become unraveled or valuations slashed because company management took their eyes off the road and hit a speed bump or pothole.

Get the right help. The prior point may be the primary reason to engage a good M&A investment banking advisor. An experienced M&A team can guide you through the steps that need to be taken to prepare the company, find buyers, get through due diligence, and negotiate a deal. Selling your company, including surviving due diligence, is too complex to go it alone.

Need to understand the M&A process more? Like to find out if your company is ready? Contact SiVal Advisors to learn more.

The journey that you take to buy or to sell an enterprise is quite complex and can span months. During that time, it’s easy to take your eyes off the business. That’s one of the reasons that people engage M&A investment bankers like the people here at SiVal Advisors. When you are trying to sell your business, the last thing that you want is for results to suffer and make your business less valuable.

More importantly, you should focus on the most important person involved with your enterprise – the customer. Whether a single individual or a global company, that customer is largely the reason that someone wants to acquire your company. So what the customer thinks when they hear you are being acquired can make or break the successful outcome you desire. The lesson here is to have the customer a part of the planning and execution of your M&A process.

Start with the reason that someone is a customer. Why do they give you money? You must be solving some mega-problem or be making them more profitable. You are helping them explore new opportunities or just making life easier for them. Some product, service, or combination of the two is making what they do better and they love you for it. Keep that idea in your mind as we move to the next step.

When your company has been acquired, what will change? You can’t say nothing otherwise you wouldn’t be doing the deal. Will the acquisition mean better service, more products, higher quality, and lower prices? All of those things are good. Does it mean cuts, increased costs, decreased response, or something not so good? In any case, you should know before the M&A event is announced.

Put yourself in the customer’s shoes. When you hear the news, would you jump up and down ecstatically? Would you jump off the nearest bridge? Would you immediately want to switch vendors? If so, where would you go? Would you just not care? You would like your customers to be as excited about this as you are. You are your customers are on a journey together. Why should it stop? Again, you need to know the answer to this.

What can you do? Here are some ideas to get and keep the customers involved.

• Create a plan to deal with the customers. Don’t make customer reaction an afterthought.
• Preview the deal under NDA with important strategic customers. You will need to do this under almost all circumstances as part of the buyer due diligence process. Turn it into a chance to get real feedback.
• Prepare your own troops. Many reasons exist why you need to keep the knowledge of the M&A process limited to few, selected people. Those reasons range from employee morale to staying out of jail for securities law violations. You can still create a special hit squad to deal with customer concerns when the news hits. You should have a similar hit squad for your own people, by the way.
• Have real information about how the new combined enterprise will make the customer’s life even better than it is today. This is not press release filler. You need real answers framed by real customer situations.
• Hopefully, the vast majority of customers will be happy. Get set in your mind that no matter how hard you try, you’re going to make some people mad and disappoint others. If that happens, make the separation as painless as possible. Remember that those people may come back to you one day.

The reason that your company exists is because of your customers. Without the customers, you have an empty shell that cannot reach its potential. Make the customer a key part of your M&A journey.

Need some help understanding that journey? Contact the professionals at SiVal Advisors to get the insight you need to be successful.

You have spent a lifetime building your business. The journey has been a labor of love. Why did you succeed when others failed? Most likely because you understood the customer’s problem or need, and you created a product or service which solved the problem or fulfilled the need better than others. You built something that had long-term value and a set of customers that trust you and that built a relationship with your team.

Now it’s time to showcase your company to prospective buyers as you view an exit as appropriate in the near term. You plan to help with a successful transition to a new owner who has plans to take your company to an even higher level with additional capital and resources.

How do you start?

As with any process, you need to create a plan and execute it. It is important to be realistic and to start months ahead to position your business to maximize its value in a sale process.

Whether you are bootstrapped or venture backed, you need to prepare your business for an orderly and efficient sale process to highlight your strengths and showcase your expertise. You will have to show buyers that there is a long runway ahead with or without you in the future.

Buyers are willing to pay more for well-run businesses. Take a careful look at your business:

• Analyze the last 3 years of your business activities:
  • Revenue growth trends
  • Customer patterns, including customer concentration – an area of intense scrutiny by buyers
  • EBITDA levels and growth
  • Expense infrastructure – by key category: Sales, Marketing, G&A, Operations
  • Overall payroll
  • Employee turnover – double digit trends are generally bad
  • Be sure your receivables are current and collected
  • Evaluate sales cycles and backlog
  • Review sales pipeline and conversion rates.
• Create a business plan for the current year – detailed and future 3 years at a high level.
• Review key elements of the business and ensure documentation is on hand:
  • Highlight mid-management talent to delegate key responsibilities to and which form a basis for expansion with additional capital or acquisitions
  • Secure necessary IP protections, if applicable
  • Delineate real barriers to entry
  • Evaluate or secure long-term customer contracts
  • Update competitive analyses of your key competitors
  • Ensure your sales and marketing materials are impressive and continue to showcase your business in its best light.
• Understand how customers perceive you – are you critical to them going forward?
• Be able to demonstrate how well positioned  you and your team are in the industry: articles written, customer testimonials on your website, be engaged in social media outreach campaigns (LinkedIn, Facebook, Twitter, YouTube).
• Make sure your financial and legal matters will face scrutiny:
  • Legal documents up to date, including any employment agreements, and incentive or option plans for key employees
  • Break out all personal assets, expenses and debts to segregate them from the business going forward
  • Identify specific one-time expenses (add-backs to EBITDA)
  • Have your financial statements audited or at a minimum, reviewed by a professional CPA firm.

Be Ready for The M&A Journey

Organization and readiness is paramount; it can set you apart from other companies. Hiring a professional advisor when you are ready to embark on a sale process will also provide you with a trusted advisor to shepherd you through a detailed and broad sales process. They will work closely with your tax, legal and accounting advisors and enable you to continue to run the business during the 6-9 month timeline it takes to get an M&A event complete.

The most important element for you as the owner is to continue to run your business smoothly, efficiently, and profitably during the process. If you’re ready, organized and prepared, your Advisors will take it from there and guide you to a successful exit, maximizing your value.

Want to learm more about the M&A process and what you need to do? Contact SiVal Advisors to discuss how ready you are.

Probably the most common question we’re asked from business owners is, “What’s my business worth?”. Sometimes this is prompted by a business owner seeing other companies in his/her industry being acquired for handsome amounts. Rumors about multiples of earnings or revenues received by others circulate in an industry, fueling speculation and assumptions about one’s own company’s valuation.

In reality, no two businesses are alike, and although the industry sector is an important factor in assessing a company’s market value, it is only one factor, and not necessarily predominant. Many other factors come into play in estimating a possible range of values that a business owner might obtain if the business were properly described and carefully presented to the right set of potential buyers.

What makes a company valuable and of potential interest to buyers? Why do some businesses attract many buyers who bid aggressively for it, while other businesses fail to attract buyer interest?

From experience, we know the following factors are important in estimating a company’s value:

Growth – A company experiencing high growth in recent years and continuing that trajectory in the current year will command a higher price than a company whose growth has flattened, or worse, declined. Regardless of the reasons for flat or declining growth, buyers will be less interested in and generally pay lower multiples for such a company. Conversely, high growth signals a robust, well-managed business with momentum to continue on that path going forward.

Profitability – This matters to most, but not all, buyers. Unless a buyer immediately sees significant opportunity to cut costs and return the business to profitability, then lack of profits will reduce the field of interested buyers. Exceptions exist. For example, in a fast- growing, capital intensive sector where a business has been investing heavily in R&D, but has not yet built sales to match, the business may drive a higher value. It depends…

Market/Customer Traction – Usually a well-diversified, long-tenured, recurring customer base contributes to a more attractive value; however, there are exceptions. We have sold businesses having a high degree of concentration with few (sometimes only one!) customers. While it’s more challenging to find the right group of interested buyers, we have seen competitors, who covet key customer relationships, pay well for even a highly-concentrated business.

IP – If protected by patents, intellectual property (IP) often adds value to a business. If a business has IP but no market/customer traction, then IP alone is not usually sufficient for an attractive sale value.

Revenue – Size matters! Generally, the higher the revenue level and profit margin, the higher the multiple range that will be used by buyers to value a business. Ideally, revenues are recurring and diversified as well. Multiples can vary widely based on many other factors too, so using ‘rules of thumb’ can be misleading. Buyers look at their expected return on investment (ROI) and payback period, as well as strategic factors, to arrive at the price they are willing to pay for a business.

Team – A business that has an established team willing to stay in place once the transaction is complete will have greater value and ‘sale-ability’ than a business that is highly dependent on a few key people. This is especially true if the owner has a skilled team with a clear successor identified.

Summary – Valuation is a complex issue, dependent on quantitative & qualitative factors that relate to each business, its industry sector, market conditions, and – ultimately – how a sale process is conducted. A business needs careful review and thoughtful analysis in order to reasonably assess its potential value to prospective buyers.

So the next time you’re wondering ‘What’s My Business Worth?’ when you hear about others selling their businesses and thinking maybe it’s time to explore, give us a call!

One bit of urban folklore that we have all heard is attributed to Willie Sutton. When asked why he robbed banks, he supposedly said, “Because that’s where the money is.” Sutton later denied originating the saying but like Dooley Wilson, Edward Murphy, and others, he will be remembered for what was said rather than what was done. (Extra points if you know whom Dooley Wilson and Edward Murphy were.)

What does all this have to do with mergers and acquisitions? Simply said, M&A in this age is international. Why? Because that’s where the money is. A Mergermarket report in 2017 found that only 44% of the deal value in M&A for the first half of 2017 was in North America. Additionally, deal value in Europe was up 30% while deal value in North America was only up 6%. Not including parties outside the US in a search for potential buyers is leaving serious opportunity and money on the table.

A non-US company searching to make acquisitions is more likely to be a strategic buyer rather than a purely financial buyer like a private equity firm. A strategic buyer is looking to expand its customer base, add to its product line, or maybe even take out a competitor. Not that PE firms don’t make strategic acquisitions; some PE firms will use acquisitions to complement companies already in their portfolio. The net result is higher valuations in the deal usually come from strategic buyers.

There’s more to international M&A than just money. Understanding the culture is important. Another bit of urban folklore has a deal in France fall apart because the companies could not agree to use tu/toi, the informal version of you, or vous, the formal version of you in the office. In the past we at SiVal saw a Japanese firm get outmaneuvered in deal by a Swiss firm simply because the culture in the Japanese firm prevented the management team from moving fast enough to make the deal happen. Making the culture work for you can make a deal that much more successful.

What motivates non-US buyers? Access to US customers is still a huge attraction for companies with some success outside the US. In many cases, the non-US firm is looking for additional technology, intellectual property, customer access, or products that complement their existing product lines. Having a U.S. based operation, particularly a Silicon Valley one, opens up many market opportunities for overseas companies. Transforming a company outside the US into a US-based company can create additional opportunities for an exit later in the life of the company. Additional success in the US can make a non-US entity that much more diversified and attractive. As long as we are on clichés, “If I can make it there, I can make it anywhere.”

Not all aspects of international M&A are favorable. Some add to the complexity. The legal and process issue becomes more complex in cross-border deals. Deciding the country that has jurisdiction over the transaction can be daunting. Understanding who, besides the shareholders, needs to approve a deal can be more complex outside the US due to regulatory concerns and ownership structures that management in the US would rarely encounter. International deals may be more complex but opening access to additional buyers, sellers, and partners can make the extra effort worthwhile.

What does this mean for you? Even if you are a small to mid-market firm, including international buyers in your M&A process is critically important in today’s market. Not thinking outside the borders of the US is leaving opportunity, value, and ideas behind. To potentially maximize your return, look for an M&A advisor who has the knowledge, experience, and capability to drive a process that canvasses the globe.

To learn more about how SiVal Advisors can work with you to make your M&A more successful, please contact us. We would like to learn more about your challenges and opportunities.

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Solution to Extra Point question: Dooley Wilson was Sam, the piano player in Casablanca. Ingrid Bergman never said “Play it again, Sam.” Edward Murphy was an engineer who developed technology used in aeronautics and the space program. He is remembered for the law attributed to him rather than for what he did.

If you live in Silicon Valley and you are fortunate to own a home, several times a week you will receive a flyer in the mail or the front door offering to buy your house. The flyer will show you all of the houses in the neighborhood that sold at astronomical levels with time on the market measured in microseconds. It’s easy to look at this info and imagine what you do with all the money you would receive if you sold your house. You ask yourself, “Do I sell?”

The same thing can happen if you are the CEO or owner of a company. You are working, the company is going great, and customers love you. Then it happens. You get a call. The person on the other end asks if you have considered selling your company and that person is a buyer looking to make acquisitions. What do you do now?

Stop, take a deep breath, and think. Ask yourself a few key questions.

What is going on in my industry or in the world that prompted this call? You are successful at running your business so you have a good handle on what customers and competitors are doing. Have recent changes in the market, the technology, or the economy generated some things that could impact your business positively or negatively? Returning to the house example, what’s going on in my neighborhood?

At what stage is my business? Is the business growing, flat, or declining? Are those recent events changing the way my customers and prospects see my company? What do my employees and other stakeholders think? Maybe market conditions, technology, customers, or other items are indicating that a disruption is coming. Is my house desirable enough that someone would want it?

Where can I find help? Chances are you can’t answer all these questions. You need some help. You are running a business that you think will continue for many years. That business needs your focus. This is where a good merger and acquisition (M&A) advisor can step in. If you have ever bought or sold a house, you know how complex the process can be. You also know that you probably can’t or shouldn’t try to manage the process by yourself. Not only can too many things go wrong, you may not get the full value you expect or deserve.

What do I do next? If the idea of listening to a pitch to sell your business is even a little interesting, ask for help. A M&A advisor will help you understand the process, the risks, the rewards, and the other factors you need to consider. More importantly, the M&A advisors can manage the process while you continue to run your business.

Responding to an incoming call to sell your company can be the start of a life-changing event. The right M&A advisor can help you respond to make the most of the call.

Getting those calls? Interested in learning more? Contact Sival Advisors to learn how to navigate the sales process to make the most of your efforts.

You have spent many years and countless hours building your business and it’s your core asset.  You may be the sole owner or have partners in the business and/or outside investors who helped provide capital.  As an entrepreneur and a founder you’ve heard all along that selling your company could be your out, or exit strategy; now you’ve reached a critical juncture and are contemplating a sale.  But how?  To whom?

Before we talk about choosing an M&A banker, let’s look closer at whether you are ready to sell your business.

Are You Ready to Sell Your Business?

·      Is your business of sufficient size and scale to warrant a formal sale process?

·      Have you created a management team ready to take on greater responsibility?

·      Do you want to stay on for a few more years as CEO or Chairperson?

·      Do you have a successor you have been grooming?

·      Are you ready to give up control?  Are you contemplating a minority investment or a change of control?

·      Have you been preparing your business and its financial statements for this event?  Have your financials been reviewed or audited over the past 3 years?

·      Have you maximized the value of your business?

·      Are you realistic about its value?

·      Are you ready to work with a team to do the necessary up-front preparation to showcase your business?

If you can answer “yes” to most of the above, and especially to the last question, you are ready to consider choosing an M&A investment banking firm to guide you through a sale process.

5 Tips for Choosing Your M&A Investment Banking Team

Successful company sales are achieved through teamwork, collaboration, diligent planning, focus, and execution. Your M&A investment banking team is one of the most critical pieces of this process.

Let’s say your business is in a specific technology vertical.

1) Niche Specialty Firm, or Broad-based Technology Firm?

There is no right or wrong answer to this question, but here’s what you should consider:

·       Look for a team with senior partners who have diverse backgrounds and experience and a demonstrable track record of completing transactions. They should have strong reputations and be able to understand the fundamentals of your business. Do they seem like they will serve you diligently, or do they treat you like just another transaction?

·       I think it’s most important that the firm understands that its client is YOU. Larger firms are more likely to owe favors or focus on their buyers and treat you like a trading chip.

·       Specialty firms can tend to have a few favorite buyers and may not pursue a broad process to find the right buyer for you.  If you’re hearing: “I know the perfect buyer” or “I’ve sold a few businesses to XYZ and the deals have all worked out”…You should be asking: Perfect for whom? Worked out for whom? This may not be the right firm for you!

·       It’s all about the people. This may sound trite, but it’s true. Can you build a rapport and work with these people for six months or more? Different backgrounds yield different dimensions in thinking. A wise Morgan Stanley client once said to me, “I like that you think creatively. Everyone else in your industry thinks the same way!” Be open to fresh ideas and perspectives.

As I alluded to, there should be good chemistry between you and your prospective I-banking team. They should inspire confidence and bond with you.

2) Seek the Best Outcome

Your team should be focused on seeking the best outcome. This may seem obvious, but it isn’t always the case. They must have expertise in running a broad process to showcase your business to relevant targets to create competitive bidding.  It’s an auction, remember, and the aim of any blind auction is to have multiple parties competing over the same asset – your company.  These include domestic and international corporations, private equity and family offices.  Depending on certain desires you have, some may be a better fit than others…more on this later.

Another point to be sure to clarify is whether the “A” team you are hiring has the bandwidth to focus on your deal.  You do not want the customary “bait and switch” where they pass you off to some junior folks after they win the deal.

Throughout the preliminary discussions you should feel the team is truly LISTENING to you and trying to understand your objectives and desired outcome.  Factors such as selling a minority position, majority sale and your ongoing role for what duration are all important elements that should set the stage. The I-bankers should provide constructive feedback and tailor the process they will undertake accordingly.

3) Framing the Story

It is imperative the team understands technology, trends and positioning.  Framing the business as important within its ecosystem and being able to paint a vision for its future growth potential and expansion are essential to appealing to potential buyers.  This includes your current market segment as well as thinking about adjacent market segments, both vertical and horizontal.

As you present to different groups, e.g., a strategic corporate buyer vs. a private equity firm, there are different elements which need to be highlighted to make each one feel they MUST own you.  For a strategic buyer it may be showing that you are the missing link in their organization that could help them win bigger deals or for a private equity firm it may be how you can integrate tuck-in acquisitions and become the “big fish” in your market segment.  It takes careful planning to understand what is driving a given potential buyer and customizing your benefits to them.  You always want to present yourself as a Must Have vs Nice to Have company.  It’s a tough business climate and everyone wants a leader with a vision…it may just be capital which has hindered you from taking on a bigger trajectory to date and the new owner can provide the fuel.

4) Collaborative Third-Party Specialists

Getting to “sold” requires a collaborative effort with a group of top-notch advisors and the earlier the better.  A strong M&A banker should be able to introduce you to, on an as-needed basis, a presentation coach, marketing/sales specialists, and financial, tax, legal and wealth guidance advisors.  The latter will help you with the “you” side of the estate planning.

Be mindful that going through a sale process is draining and requires you to focus your attention on achieving financial targets during the process.  Your I-bankers are there to guide you with establishing realistic and defensible projections (there may be earn-outs).  The I-bankers will ensure data room and presentation materials are ready to go at launch.  They will be there throughout to provide attention to detail and adherence to the game plan set forth.

It’s all about staying motivated, inspiring confidence and persevering through ups and downs.  A successful outcome will come from all this hard work, diligent planning and execution.

5) Pitfalls to Avoid

It may sound simple to go it alone – perhaps you’ve had inquiries already.  Be mindful that selling your company is a full-time task to do it right and it’s not your area of expertise.  A lone buyer will have all the leverage and will low ball your value.  It’s also harder to recover from a botched process.

Also please do not fall for an M&A banker who “hypes” you with unrealistic valuations and timeline.  There’s an old M&A banker saying – “Never lose a deal on proposed valuation” because what they tell you matters not – it’s what they can truly deliver that matters, and just because they say they can get $1.5m does not make it so. Valuations and relevant comparable company exit values matter.  Lastly, do not take your eye off the ball and lose momentum in your business during the process, as the outcome will suffer.

Success Comes to those Who Earn it

Selling the company you’ve built is a big decision. It’s also a lot of work and requires a great deal of attention. To ensure success, you need teamwork, collaboration, planning, focus and execution. You also require the skillset and knowledge of an experienced investment banker. It’s a team sport—choose your M&A banking partner wisely!