Do Buyers really know what Sellers want when being acquired?

March 4th, 2013

Reasons to Sell

There are many good reasons for selling a staffing firm. Some sellers are thinking about retirement or at least liquefying what is often their largest asset so they can take some chips off the table. Others may feel they have grown the business as much as they can on their own and to reach the next level for their business they will need a well-suited, deep-pocketed partner.

 Some owners as they age become more risk averse and are reluctant to continue to invest their retirement funds to grow their business. Additionally, there are some owners that would prefer to tap into an acquirers’ existing infrastructure and distribution network then try to create their own.

 Other drivers are the lack of available, reasonably priced growth capital, the lack of reasonably priced insurance protection, access to certain volume purchasers of staffing services through VMS or other purchasing methods that can dictate lower margins and less direct customer contact on a staffing supplier.

 These are the general reasons that motivate Sellers. What are the specific reasons that may encourage a Seller to choose your firm?

 Why sell to you?

Certainly a high purchase price, with 50%-70% cash on closing and a good upside potential for growth will be huge plus factors for a seller to consider. 

Sellers prefer notes for the balance especially if they are not active or not remaining with the business. Buyers generally prefer earn outs if the owners are staying on, to share the risk going forward. Since many current transactions contain earn outs, why would a buyer want to create an environment that impairs the seller’s ability to improve profits?

 A wise Seller will look most seriously at the Buyer who offers their business the best opportunity to continue to succeed as they have thus far.

It may be surprising that a wise Seller will often choose his acquirer by his/her determination of which acquirer will create the least amount of internal and external changes. Changes mean uncertainty and sometimes disruption that can add to the risk of success for both buyer and seller. Change also increases the need for communication so staff members can be sold on the benefits of the change.

In fact, an acquirer would do well to avoid any change that is not absolutely necessarily by law and slowly introduce other “branding” type changes on a scale that the acquired staff can handle without a loss of staff or business.

It is always interesting to see Buyers rave about the staff and culture of an acquisition target firm only to destroy its very value and essence within a short time period post acquisition by introducing unnecessary changes so the acquired firm will look like all the other branches in the acquirer’s system. This is often precisely the fear the acquired staff had about being acquired in the first place.

When acquired staff is unhappy they tend to polish up their resumes and dig out the card of their favorite industry recruiter and see what is available. Of course, the most talented are often the most mobile. Consequently, the acquirer may lose some key performers through their actions and then blame the process or the acquired, often anyone but themselves.

For a complimentary discussion on any M & A Topic, contact us.

Bob Cohen and Sam Sacco run R.A.Cohen Consulting, a trusted industry M&A advisory service.  The partners have advised on over 140 successful industry transactions. 

 They can be reached at (416) 229-6462, (910) 509-0691, respectively, or bob@racohenconsulting.com and sam@racohenconsulting.com.

 For more information: www.racohenconsulting.com

 

Do Buyers really know what Sellers want when being acquired?

March 3rd, 2013

Reasons to Sell

There are many good reasons for selling a staffing firm. Some sellers are thinking about retirement or at least liquefying what is often their largest asset so they can take some chips off the table. Others may feel they have grown the business as much as they can on their own and to reach the next level for their business they will need a well-suited, deep-pocketed partner.

 Some owners as they age become more risk averse and are reluctant to continue to invest their retirement funds to grow their business. Additionally, there are some owners that would prefer to tap into an acquirers’ existing infrastructure and distribution network then try to create their own.

 Other drivers are the lack of available, reasonably priced growth capital, the lack of reasonably priced insurance protection, access to certain volume purchasers of staffing services through VMS or other purchasing methods that can dictate lower margins and less direct customer contact on a staffing supplier.

 These are the general reasons that motivate Sellers. What are the specific reasons that may encourage a Seller to choose your firm?

 Why sell to you?

Certainly a high purchase price, with 50%-70% cash on closing and a good upside potential for growth will be huge plus factors for a seller to consider. 

Sellers prefer notes for the balance especially if they are not active or not remaining with the business. Buyers generally prefer earn outs if the owners are staying on, to share the risk going forward. Since many current transactions contain earn outs, why would a buyer want to create an environment that impairs the seller’s ability to improve profits?

 A wise Seller will look most seriously at the Buyer who offers their business the best opportunity to continue to succeed as they have thus far.

It may be surprising that a wise Seller will often choose his acquirer by his/her determination of which acquirer will create the least amount of internal and external changes. Changes mean uncertainty and sometimes disruption that can add to the risk of success for both buyer and seller. Change also increases the need for communication so staff members can be sold on the benefits of the change.

In fact, an acquirer would do well to avoid any change that is not absolutely necessarily by law and slowly introduce other “branding” type changes on a scale that the acquired staff can handle without a loss of staff or business.

It is always interesting to see Buyers rave about the staff and culture of an acquisition target firm only to destroy its very value and essence within a short time period post acquisition by introducing unnecessary changes so the acquired firm will look like all the other branches in the acquirer’s system. This is often precisely the fear the acquired staff had about being acquired in the first place.

When acquired staff is unhappy they tend to polish up their resumes and dig out the card of their favorite industry recruiter and see what is available. Of course, the most talented are often the most mobile. Consequently, the acquirer may lose some key performers through their actions and then blame the process or the acquired, often anyone but themselves.

For a complimentary discussion on any M & A Topic, contact us.

Bob Cohen and Sam Sacco run R.A.Cohen Consulting, a trusted industry M&A advisory service.  The partners have advised on over 140 successful industry transactions. 

 They can be reached at (416) 229-6462, (910) 509-0691, respectively, or bob@racohenconsulting.com and sam@racohenconsulting.com.

 For more information: www.racohenconsulting.com

 

Why Some Transactions Fall Apart- Part 2

July 16th, 2012

Why Some Transactions Fall Apart- Part 2

In Part 1, we discussed two other common causes of why some transactions fall apart. Skeletons in the Closet and the Surfacing of new (and often negative) Financial Issues. Please see last week’s Blog or write to us to get a copy of Part 1.

A Personality Clash

Chemistry between buyer and seller is very important. If it is not established, or is fragile, the skeletons and roadblocks that might come up could destroy the deal. A casual dinner between buyer and seller can go a long way in working out problems along the way. There must be mutual trust typically before both sides are prepared to complete a deal. The buyer or Seller are not expected to become best friends, they are expected to maintain a professional relationship with mutual respect so whatever communication is necessary can be handled with comfort on both sides.

Lack of Flexibility in Negotiating

If either party becomes inflexible in the negotiations, the deal could crater. An unreasonable demand half-way through the deal could sink it. The seller decides midway that he wants the carry-back notes collateralized. Or the buyer wants the seller to warranty the client contracts. Major issues should be revealed prior to a letter of intent being drafted. If either side has a non-negotiable item, it should be broached initially.

Great chemistry won’t solve all problems. However, being sure you are focusing on the big picture and not getting caught up in the emotion of the negotiating process can go a long way toward getting a deal done; sometimes one party or the other has to rise about the noise and remain focused on achieving the main objectives of the sale. We urge you to think twice before issuing “ultimatum type’ challenges to the other side. Even, when resolved those ultimatums can scar a relationship going forward, which is never a good idea.

Using the services of an experienced and professional intermediary can eliminate, or at least lessen, some of these issues before the parties get too involved in the deal-making process.

For more information or a complimentary confidential discussion, contact:

Bob Cohen at 416-229-6462 or Sam Sacco at 910-509-0691. We can also be reached at bob@racohenconsulting.com or sam@racohenconsulting.com.

Sam and Bob have successfully completed over 130 staffing industry transactions. Visit our website for more articles and information at: www.racohenconsulting.com

Why Some Transactions Fall Apart- Part 1

July 10th, 2012

Skeletons in the Closet

Selling a staffing company can be a challenging task. This is why we highly recommend hiring an M & A advisor to help you with this extremely important step on your way to retirement or another career. We would like you to hire us, however you should interview a few of us and decide who you feel most comfortable with handling one of your larget assets. Ask for references and please contact them. We are sure you will make a good decision even if you choose someone else. Its most important not to go it alone.

An undisclosed material fact discovered during the due diligence phase or just before closing can crater a deal quickly. Every business has its own good, bad and uglies – items that are less than perfect, pending litigation, warranty problems, back tax issues, etc. The buyer may discover that workers comp expenses are under reported or that certain key employees are not under a non-compete agreement.

The deal could be blown if the seller discovers that the cost of replacement employees will force a reduction in the purchase price or the buyer is unwilling to invest additional funds to correct the workers comp errors. These are not hypothetical we have the scars from each of these challenges as a reminder of how important it is to reveal everything to your Advisor, an experienced Advisor will know how and when to address the issue (s) to minimize its impact.

The best way to handle skeletons in the closet is to reveal them from the very beginning of the deal. Buyers (and sellers) hate surprises. Addressing them from the beginning with a plausible explanation should eliminate this problem. Sellers should realize that the skeletons will come out of the closet somewhere along the line. Since you “can’t conceal it”, be upfront about “revealing it” and build trust.

Financial Issues Surface

A major deal breaker occurs when sales and/or earnings suddenly drop. If the buyer has been made aware of a drop – for example, decreased sales due to seasonal business – most likely, no problem. But, if there is no apparent reason, the buyer could become spooked and either lower their offering price or drop the deal all together. It is important that management continue to run the business effectively during the sales process.

 The other financial issue that may surface involves the seller getting cold feet. All of a sudden, the seller realizes that the proceeds from the sale are not what he or she expected. After paying off suppliers, bank debt, taxes, etc., the seller realizes that it really doesn’t pay to sell and the deal craters. A seller should sit down with his accountant and intermediary and go through the numbers to determine just what the real proceeds will be preferably before a decision to go on the market is taken and certainly before an LOI or Term Sheet is signed.

Part 2 will follow next week and will discuss two other common causes for M & A deals falling apart.

For more information or a complimentary confidential discussion, contact:

Bob Cohen at 416-229-6462 or Sam Sacco at 910-509-0691. We can also be reached at bob@racohenconsulting.com or sam@racohenconsulting.com.

Sam and Bob have successfully completed over 130 staffing industry transactions. Visit our website for more articles and information at: www.racohenconsulting.com

 

Characteristics of impactful M & A deals!

July 3rd, 2012

Take a Chance and find new Opportunities through Staffing M & A!

Learn about how to succeed with High Stakes: Seven Bets that Matter

A successful merger or acquisition (M&A) deal is the one that can open doors of opportunities in new markets, fill talent gaps, improve operational performance and grow shareholder value. For many organizations the M&A deal can be the most significant event in their history. And, for many leaders an M&A transaction may be the biggest opportunity of their career.

One critical factor that makes any deal go beyond stakeholder expectations is the management ability to lead the deal successfully through the transformation. That requires making effective bets each step of the way.

“This deal could be the most significant event in your company’s history— and potentially, the biggest opportunity of your career.”

Deloitte Consulting LLP’s latest paper, calls it, High stakes M&A: Seven bets that matter, discusses the below seven areas that professionals should focus upon for an effective M&A transaction:

1)    Focus on five critical activities that senior leaders can use to demonstrate leadership, create enthusiasm and build momentum.

2)    Identify three challenges that should be presented to the leadership team for delivering full potential value of a transaction.

3)    Identify people ideally from both organizations to attend a leadership summit, outline an agenda that can engage them in creating the vision of the future organization and set a date. Be careful who you leave behind, they may think you don’t see them in a future role.

4)    Develop the hypothesis for the combined organization’s operating strategy that will be presented to the leadership team.

5)    Develop a common message for everyone to hear while simultaneously customizing this message to present the opportunities available for each major audience.

6)    Select a leader to own the plan for identifying and engaging critical talent-related capabilities.

7)    Identify the three things that the leadership team should be asked to do differently to demonstrate the desired the culture.

Deloitte Consulting is quite certain of this approach, what do you think?

For more information or a complimentary confidential discussion, contact:

Bob Cohen at 416-229-6462 or Sam Sacco at 910-509-0691. We can also be reached at bob@racohenconsulting.com or sam@racohenconsulting.com.

Sam and Bob have successfully completed over 130 staffing industry transactions. Visit our website for more articles and information at:

www.racohenconsulting.com

Preparing for Transition Day- The first day(s) under new ownership!

June 25th, 2012

Down and Dirty Check List

Think about how the following will be impacted by your merger or acquisition:

  • Name change
  • Accounts receivable
  • Accounts payable
  • Vendor notification
  • Service contracts on equipment
  • Invoices
  • Final paychecks for temporary employees
  •  Timesheets
  • Facilities: leases, security, parking, keys, signage
  • When to notify branch manager and staff
  • Action plan Day One, Week One
  • Memo to transitioned temporary employees
  • Letter to clients  Contract accounts (careful with government contracts)
  • Incentive plans to retain accounts
  • Phones – keep their numbers, forward, timing; voicemail
  • Advertising contracts
  • Website
  • E-mail addresses
  • W-2’s  or T4’s
  • Business hours
  • Press release
  • Job descriptions and comp plans
  • Systems training
  • Passwords, access codes on everything
  • DatabaseBenefits: internal and temp staff
  • Holiday pay
  • Vacation pay
  • 3 month budget
  • Auto allowances
  • Mileage rate
  • Screening policies: background checks, drug testing
  • Insurance policies

For more information or a complimentary confidential discussion, contact:

Bob Cohen at 416-229-6462 or Sam Sacco at 910-509-0691. We can also be reached at bob@racohenconsulting.com or sam@racohenconsulting.com.

Sam and Bob have successfully completed over 130 staffing industry transactions. Visit our website for more articles under Resources Tab and Archives and for information at:

www.racohenconsulting.com

Strategies for Successful Integration of your Acquisition Part 2

May 21st, 2012

First 100 days

  • Implement a tracking program to determine how critical functions are performing within the new company
  • Develop a process for identifying process improvements

Process improvements

  • If time allows, consider letting both companies run independently to identify best practices
  • Evaluate differences between the two companies and what can be adopted into the new company

There are several common issues that often derail mergers, including a lack of planning, underestimating the scope of the initiative and failure to communicate. These issues can become apparent within any facet of integration, and can result in inefficiency during the process and an increase in costs involved.

Cultural considerations are also often underestimated in a merger environment, and it cannot be assumed that synergies are going to be achieved quickly. What the merger is going to mean to the people involved such as employees, customers and vendors, tends to be overlooked and can be a significant concern, if not addressed proactively.

Management must be upfront in communicating the goals for the merger as well as how business processes will change in the combined company.

Concerns regarding topics such as relocation, the shifting of job roles and any new tools or software that will need to be learned are often prevalent in a merger environment.

The fear of the unknown can be very real for those affected by the merger, and it can have a significant effect on productivity.

To achieve successful merger integration, many companies turn to a third party or if they are active acquirers have an internal “Integration Task Force” to help implement strategic plans and track progress toward goals. Your internal employees have a day job and it is difficult for them to dedicate the time that is necessary to manage such an important endeavor.

Mergers and Acquisitions Update for the Staffing Industry

May 19th, 2012

During the first half of 2012 we have noted several factors that have impacted the current state of the M & A market for Staffing firms

  • More buyers are prepared to pay reasonable values;
  • More sellers are recovering value lost in late 2008 and 2009;
  • It is clear that Private Equity money is available;
  • Sellers have stronger resolve with valuations recovering;
  • Buyers are stepping up for quality staffing firms;
  • It often, but not always takes longer than usual to close a deal;
  • Perhaps, most importantly, more deals are being completed;
  • Sellers are getting better multiples, if they are growing;
  • Buyers are still being cautious with worrying about the seller’s business disappearing; perhaps this is contributing in part to the longer time frames it takes to close deals;
  • Buyers still prefer to use earn outs to share the risk;
  • Deal term lengths are getting shorter as buyers don’t want to pay sellers too much for the buyers investment in the growth of the acquired business, especially if the seller is no longer there;
  • More sellers are coming on the market each month in 2012;
  • While there is no sign of market saturation, the market for M & A can be volatile and change quickly; we could do without any more negative economic news from Europe;
  • Market looks to remain strong through year end at least, if we can survive the upcoming elections;
 For more information or a complimentary confidential discussion, contact: Bob Cohen at 416-229-6462 or Sam Sacco at 910-509-0691. We can also be reached at bob@racohenconsulting.com or sam@racohenconsulting.com.  

 

Strategies for Successful Integration of your Acquisition Part 1

May 14th, 2012

Businesses routinely look at Mergers and Acquisitions as a growth strategy to expand into new markets, lower operating costs, increase shareholder value, or even to realize tax benefits.

When executed successfully, a merger can be a significant benefit to a company’s bottom line; however, the majority of acquisitions fail to deliver on their expected value.

Often, it is less a than ideal integration process that holds back the synergies. What can your company do to help ensure that your merger integration is successful?

Merger integration is a complex process; therefore, a comprehensive plan should be developed and implemented to manage difficult decisions and help maximize the potential of the new organization.

The main objective is to move quickly without missing opportunities and with a minimum number of disruptions to the organization.

There are several aspects that companies should focus on during integration, incorporating key milestones related to day one readiness and during the first quarter of operations. Those include:

Day one readiness

  • Prepare early, optimally during the due diligence phase
  • Perform a full process review to identify best practices and potential process improvements
  • Develop a day one plan that incorporates regulatory and organizational components as well as a communication plan for key stakeholders
  • Prioritize key elements for day one such as financial reporting and cash management while relegating non-critical functions to phase two initiatives.                                  Part 2 of this post will appear in our next Blog.

Are Mergers and Acquisitions in your future? Part 2

May 7th, 2012

Why Consider a Merger or Acquisition?

The reasons to consider a merger or acquisition are many and include:

  • To gain economies of scale
  • To increase financial growth
  • To achieve vertical integration
  • To eliminate competition
  • To acquire new assets
  • To hedge a counter-cyclical business
  • To gain Intellectual Property (IP)
  • To expand into new markets
  • To expand into complimentary products and services
  • To eliminate emerging IP and product threats
  • To acquire new customers
  • The need or desire to acquire or merge is always present in the business world but the challenges are many.

Challenges of Mergers and Acquisitions

When it comes to mergers, the merging companies must become fully integrated, meaning cultures must be meshed, operations brought together, and core competencies of the resulting organization improved.  Mergers are most common when an industry begins to consolidate in order to survive. Such is the case with the consolidation occurring right now within the airline industry.  This fight for survival brings up a whole other set of business and psychological issues and challenges that must be managed along the way.

In the case of acquisitions, the challenge turns to how the buying company will handle the acquired company.  Whether to integrate or leave the company as an autonomous unit is the most common initial concern.  Cultural, financial, operational, and strategic questions and concerns abound in the process.