MERGERS & ACQUISITIONS
The only reason to go into business is to eventually sell it. The time, energy, skill and capital invested into your business needs to generate a financial return for you via an exit. There are many ways of exiting your business. You can sell it. You can merge it with another business. You can go through an IPO in some cases and you can also pass it on to a family member.
Most business owners exit their businesses via a sale, either to a competitor, a new market entrant, a financial buyer or an individual or individuals, either inside the business already or external.
Sadly, only 1 in 13 small businesses that try to sell, actually do. Most business owners are just not ready. Their business ends up in an orderly liquidation that often costs them dearly, with a painful loss to their customers, suppliers, and employees as well. The investor offering a ‘safe pair of hands’ to perpetuate and grow their legacy just doesn’t show up in time.
We are in a position to offer you a fair value for your business and that safe pair of hands. For a confidential discussion about your exit strategy, please contact us today.
Helping entrepreneurs create sustainable businesses growth is our passion… With a heart for genuine authenticity driving us, we strive to build wealth without compromise and do no harm.
We will work with you to determine what you truly want and then develop the most efficient and cost effective solution to achieve that vision. We will advise and counsel you on your full range of options.
When the time comes to exit your business we will help groom your business so that it’s highly attractive to your preferred buyer type, before marketing your business for sale in a controlled, professional process. We will create all the deal marketing documents, control the flow of business information, arrange meetings and solicit offers before advising you on the best options.
All Businesses Need Capital… Capital to either start a new business or finance the growth and prosperity of an existing one. Capital can be in many different forms, from equity investment, commercial debt or a mixture of the two.
Regardless of your capital requirements, we will guide you through the various options and secure the required finance for you and your business. Here are some of the questions a financier will ask and we will work with you to answer them in the most compelling way:
1) What’s your vision, mission statement and strategic objective?
What is the business, why will you (or why did you) set it up, how is it independent of you, the owner/founder and how will your business form part of your life goals? Your strategic objective is clarifying exactly what you will do and what you will not do. It’s a carefully defined and detailed plan to achieve all your long-term objectives.
2) Who are you and your two tribes?
Think of your mission and the two teams of people who will go with you. The first team is your internal tribe. This includes your management team (if you have one) and your employees.
The second is your external tribe and this needs to be comprised of people outside your business that can help you. This can be a formal Board of Directors or if you are a very small business, this could be an informal advisory board comprising a key customer, supplier, your accountant and/or lawyer, your banker and even self-employed consultants who are complimenting you or your employees and filling skill gaps if you are in the early stages of development or cannot financially justify a full-time employee.
3) What’s your market niche and edge?
What’s important to an investor or lender is what exactly does your business do and why. In your chosen market niche, which segment(s) of the market do you address and what’s your competitive edge and unique selling point (USP)? This provides investors and lenders with the link into the customer and competition.
4) Why will a customer buy from you and not someone else (direct and indirect competitor)?
The customer and competitor questions are critical. I have lost count of the number of businesses that have told me they have no competition. In my experience, if you have no competition, you have no business. Even if you are lucky enough to have a product or service that is truly unique, you still have indirect competition for the other products and services that compete for the budget your prospective customer has to do business with you. I call this share of wallet and you need to clearly define any direct or indirect competition you have and how you will beat them. Defining the sales proposition is also critical to an investor. We all remember the story of the drill and hole. People don’t buy drills (this is a feature) they buy the ability to drill a hole into a wall (an advantage) and this will allow them to hang up a picture to enhance their homes (a benefit). Investors will drill you on what I term the F.A.B – Features, Advantages and Benefits and look to invest in, or lend to a business that has something people want – – something that will solve a pain problem or assist in the achievement of a critical goal. Customers will not buy a product from you just because YOU think it’s cool, it must be something they desperately need. This will form a critical section of the business plan.
5) How do you get your product or service into the hands of the customer, who will benefit from it?
Once you have a clearly defined product or service that someone desperately needs, you need to determine how you will place that value in the customer’s hands. What are your routes to market or distribution channels? Who exactly is your customer? Take Intel as an example. Intel doesn’t sell microprocessors to the public although its consumers and businesses that receive the benefit. Intel must sell its products to computer manufacturers, who then build a laptop or other device around the chip. Understanding your supply chain and value chain is critical.
6) Can you build a systematic, automated business that is independent of you so you can sell it?
As we will discuss in question 1, the only reason you go into business is to eventually exit. There isn’t a business founder in history that has stayed with their business forever. You either exit in a programmed way, or you pass away, or the business fails and you close the doors. An investor will not invest in your business if you cannot show an exit strategy, and I have seen 1,000’s of businesses where the owner running the business, really is the business and it relies totally on that individual. So, if that is you and you sell the business, it cannot operate in the same way. Some owner managers control and influence all the sales relationships, so if another business suddenly acquires it, the customer goes elsewhere since the personal connection is now broken. Similarly, in operations when the owner or manager keeps all the processes and systems in their head, when under new ownership, things just don’t work the same way. You cannot sell a business if it’s not independent from you, the owner.
7) What’s the financial return?
Investors and lenders love numbers, as you can imagine. What is your forecasted profit and loss over the next five years and beyond, what will your balance sheet look like and what will the cash flows be? As the business grows, is the cash flow generated sufficient to fuel the growth, or will additional funding be required? What is the valuation of the business and if someone invests, what will the return on that investment be in say three, five or ten years’ time, when you come to eventually sell it? For a lender, can the business service the debt and make all necessary interest and capital payments over the term of the loan? What are covenants and why must you comply with them?
You also need to understand how investors think and how you sell your business proposition to them. All small business owners must sell two things: their products and services and their businesses ability to generate a limited risk return to investors and lenders.
8) What’s the risk?
In all businesses, there are risks. The 96% failure rate (inside of 10 years) is a testament to that. There are two elements to the risk question:
Financial risk – how can you de-risk the investor or lender losing all their money? How will the investor or lender perceive risk and more importantly: how do you overcome it?
Operational risk – what can go wrong in your business and what are your contingency plans to stop these events crippling you and your business.
9) Why do you need the funding?
One of the most common omissions in business plans for equity investment or debt funding is exactly what do you need the money for? Hiring new employees, buying assets to help the business grow, working capital, research and development, acquisitions are all great ways to spend the funds you raise. Extortionate salaries, dividends or luxury items are a big turn off for all forms of the investor. You need to generate your shopping list of essential items and why they are all critical to the growth and evolution of your business.
10) What’s the exit strategy?
As we mentioned earlier, you must have an exit strategy. What are the types of exit and how do you plan for them?