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

 

Do you want to buy a Business? Part 2

February 18th, 2013

Part 2- Buying Considerations Continued

In Part 1- we began the discussion on Buying Considerations by asking you to consider:

1. What are your goals in acquiring?

2. What are your acquisition criteria?

3. How will your acquisitions be funded?

Are you looking for top-shelf well run companies or distressed properties? What resources are you better equipped to offer, financial, operational or human? This may influence the type of business you can integrate most successfully.

4. In choosing an acquisition target buyers often look to create value for themselves by:

  • Lowering unit costs through economies of scale and better cost management

If you would like to read Part 1 in its entirety please go to www.racohenconsulting.com go to Resources you will see a hyperlink to our current post (Blog) and the bottom right of that page has all our previous Blog posts.

Continuing on with our questions to help you determine which opportunities will best fit your growth needs.

5.  What do you need to see in a target opportunity?

All of these factors listed below would be nice to have, but it’s important to prioritize as companies like people are rarely perfect:

  • Strategic fit
  • Compatible culture
  • Talented management
  • Sustainable growth
  • High Gross and Operating Margins
  • Operating focus, single or blended 

6.  How will you identify target firms to acquire?

  • Use industry directories to develop a target list
  • Call or write to this target contact list
  • Ask your Staff to identify their best independent local competitors
  • Contact respected industry M & A Advisors & Intermediaries
  • Engage an intermediary to bring you suitable targets

7.  What will you buy:  assets, stock, either? What are the income / capital gains tax issues for you as they relate to each of these acquisition structures?

8.  What deal structure best suits your needs?

  • % of cash on closing?
  • Will you use notes? What interest rate will you offer?
  • Earn outs? If so, for how long? How will you structure upsides and downsides?
  • Will you use Stock?

9. Who will be on your acquisition assessment team?

  • Internal staff members
  • Outside experts /advisors

 10.  Who will negotiate your transactions? Are you aware of?

  • Current deal pricing?
  • Various deal structures?
  • Tax consequences for buyer and seller?
  • How best to negotiate with a future employee of your firm?
  • How to work with the seller’s professional advisors? 

For smooth sailing during the transaction these are areas that should be thought through in advance. Many deals are lost due to inflexibility on one or both sides of a transaction. You rarely will get a seller to agree to everything you want (if they did, you’d be suspicious). So decide what you really need and pick your fights around vital issues with high value for you.

11. What will you require for Due Diligence?

You’re Financial/Legal and if you choose a Business advisor should be able to assist you in developing an appropriate list of items to examine and review. Some items would include:

  • A complete set of financial statements for the last 3 years
  • Tax returns covering the same period
  • Most recent month’s Balance Sheet
  • Property Leases
  • Equipment Leases
  • Staff personnel records-Organization chart
  • Description of all Employee Benefit plans
  • Detailed Accounts Receivables Listing-Bad Debt History
  • Schedules of furniture, office equipment, computer hardware/software, telephones
  • Budgets for current and future years
  • A variety of schedules detailing assignments/projects with clients
  • Reports from outside Accountants/Auditors

12. What is your timetable?

How will you integrate the acquired businesses?

  • Fully with your brand name
  • Partially as a (your brand) company, i.e. ABC a Mega firm Company
  • Autonomously as an entity appearing to be independent

Integration is usually the most critical area for a successful acquisition.  Blending cultures is often the key to a successful transition. It will be addressed in a future post.

For more information on Staffing M & A or a quick and accurate complimentary Valuation of your business or a 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 140 staffing industry transactions. Visit our website for more articles and information at:  www.racohenconsulting.com

 

Why Some Mergers Will Fail…but only if you let them!

October 29th, 2012

In an acquisition, people may be overwhelmed by a tsunami of change. If you’re managing the acquisition, you’re probably expecting some talent run off. However, it doesn’t have to happen; your involvement in the integration can make all the difference. But here’s what you’re not expecting.

The Predictable Dynamics of Change

It’s where the buyer misses the point. You’ve studied the target, opportunistically going after them because the target looks inexpensive, or a good value. Maybe this competitor looks good to you because they’re not growing as fast as you are, in this  economy. So buyers say, “They’re in the same space as we are, the same industry, we’ve competed for decades, we use similar suppliers and understand the same customers, why not consolidate now, reduce our costs and take advantage of volume discounts and share suppliers?” It certainly sounds good on paper.

What buyers miss is that the organization must still go through all the predictable change dynamics – the change curve. Any change that you make, anywhere, in any organization – family, church, or business – will always cause a bit of bruising.

The same thing occurs when you switch exercise machines during your workout. Your muscles go through what’s called a change-up: they’re not as effective initially as they begin to adapt from one change to another. Blood flow is not as efficient. It takes time to integrate what you’re doing.

The same thing happens to organizations going through an acquisition. Their business may not be going as well as yours is, that’s why you were interested in the first place.

But buyers think that their acquisition can somehow do the same business, service the same customers, do everything the same during the transition, when they are actually going through this change-up. The predictable dynamic is that organizational chaos begins. Much of this confusion can be avoided by communication and more communication; inherited employees must understand their role, why they are valuable and needed and why they have an ongoing role in their new organization. Make them feel secure if not, you will lose the best ones first and a downward morale spiral will set in like a dark cloud.

Otherwise, here’s what it could look like. The acquisition just can’t seem to get traction; acquired employees can’t understand their new role, even though you tell them time and again, even though they’re selling to the same customers and servicing the same way. Why?

Each person in the acquisition still doesn’t understand what the transition means to them personally and their “me-issues” surface. Often their allegiance is to the previous organization and now they are part of the competition, which they were selling against before.

Picture this change curve in a U shape. At top left is betrayal, lower down is denial, and at the bottom of the curve is an outright identity crisis. As the U shape rises on the right, there begins a search for solutions, and eventually, acceptance. We all go through these change dynamics whenever we go through any major changes in life.

The concept of emotional stages was first developed by Dr. Elisabeth Kubler-Ross (death and dying stages) and in business, the curves are the same. If individuals go through it, why wouldn’t organizations go through it too?

Be prepared and you can avoid failure, act early, communicate constantly and warmly welcome your acquired employees to create a happy ending.

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.