Posts Tagged ‘selling businesses’

Assessing M&A Advice

Monday, October 22nd, 2018

How would you know your Corporate Finance Adviser is making progress or success with selling your business or raising money if you have no metrics in place? The answer of course is you won’t, it is all conjecture (cobbling together loose assumptions of interest) until you pass the winning post. Here is the counter-intuitive point, the onus is on the entrepreneur or founder to agree them BEFORE approving the Adviser’s proposal or making the initial payment.

What should they contain? Let’s keep it simple, focus on hard evidence and observed behaviour. Here is a quick primer. 

  1. Attracting buyers or capital sources. Are our target lists increasingly stocked with “ideal buyers or capital partners” or a largely undifferentiated group of candidates? That assumes you have first developed a clear and specific picture of what ideal looks like, sounds like, and acts like (traits). Are we definitively providing valuable insights, ideas, and information to them in a timely manner? Are we highly organised such that our week is increasingly filled with in-person meetings with our ideal buyers and capital partners in various environments? (one-to-one, networking events, public speaking, hosted events)   
  2. Converting interest to firm commitment. Targets must become bidders or investors bringing firm offers. Are you increasingly seeing responses that validate the tremendous return on investment, the pragmatic value you are offering, and a peer-level trusting relationship, resulting in agreements to present a proposal? Is there demonstrable momentum in the quality and quantity of those proposals leading to firm offers, in a timely manner? 
  3. Firm commitments to an agreed preferred option.  Are you able to preserve the critical and highly important points (valuation, mix and timing of proceeds, future roles etc)  while compromising on moderate or low important issues with your buyer or capital partner? Are you able to resolve conflicts over outcomes or alternatives quickly and with minimal impact on your relationships? Do your advisers have preventative and contingent actions in place for an agreed offer (failure to raise financing in a timely manner, backup plan if deal collapses at a late stage and so on)?
  4. Implementation of the deal. Are your adviser’s meeting or exceeding your expectations with clear metrics for the strategic fit, ease of implementation, benefits and cost impact on your business? Are they meeting or exceeding your personal priorities (financial, non-financial, peace of mind, time use and so on)?  
  5. Growth. During the engagement are your adviser’s creating new value for you in return for additional remuneration? For example, this might be new businesses opportunities outside of the immediate deal, where you are selling and exiting your business entirely, repeat opportunities for fresh investment at the next stage of the firm’s growth or referrals to people of mutual interest (private bankers, investors, entrepreneurs, social or philanthropic connections). 

Focus your assessment on these five areas and the ease with which you progress. Keep it simple. 

With any initiative and adviser, where is your “process” today?  

Losing The Potential Investor

Monday, November 7th, 2016

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Why do so many executives and entrepreneurs lose control of discussions with potential investors at an early stage in the capital raising process? Most don’t have a route map. A set of small steps that starts from the first approach direct or by their adviser and takes them through and beyond committed capital into the value creation phase. Since they have no way of knowing where they are, they don’t know when they are lost.

Here is three common mistakes, and quick ways to avoid the landmines:

  1. A Failure to Identify the “Economic Investor”. Definition: The individual within the investment firm with the ability to approve the investment, the ability to sign off on the terms sheet, whose fund  will support the investment into your business, who will be held accountable for success or failure and so forth. In large firms, private offices and funds, of course, there may well be multiple “economic investors”. Obstacle: Too much time is spent with non-investors or worse, you are caste as a peer of the junior folks, never welcome in the inner sanctum. Next Step: It is your job and that of your adviser BEFORE you enter the conversation ideally to know, who the economic investors are specifically and to work out the ideal conditions (warm referral) in which they will respond favourably to your request to meet. Thereafter, the goal is to build a comfort level and sufficient trust that an informal or informal relationship can ensue.
  2. Hiccup or Fatal Diversions. Having broken the ice with the “economic investor” in a first call or meeting, he or she asks that you meet with some of his junior analysts to qualify the investment opportunity, as he is currently “travelling / busy this week / unable to respond quickly” (code: you are not my priority). You have two options: say, “No, quite frankly, we are both first, making a strategic decision on whether to invest in a potential relationship, unless I am wrong we don’t need others to decide that for us. If not now, when can we meet or talk next?” or “Yes, we will happily agree to talk to them but we must have a definitive time and date for us to speak again. Specifically, to compare notes on what we hear and more importantly, to agree the nature and direction of our relationship.” The mistake many entrepreneurs make is once they meet the junior folks with a propensity to please them, they start engaging in a more detailed conversation (sharing follow-up information with them, agreeing to their next steps). They are now a “plaything” of the junior people, which is great for them but potentially deadly for you. The economic investor watching from the sidelines is quite happy to allow this to happen because it is one less priority for them, creates distance (another layer of protection) and the unpleasantness of rejecting your proposal. You have now descended from the executive floor to the second floor, not only had a conversation when the elevator doors open, you are now following them through the corridors on the second floor, at their speed and direction, getting further away from the executive’s office. I find that entrepreneurs of an amiable disposition or those that somehow feel fortunate to be in the building are most susceptible. There is also a cadre of restless entrepreneurs, who won’t take heed of their adviser’s warnings. Bye bye!
  3. Talking About Valuation Before Defining The Investor’s Objectives – I see this so often it is almost laughable. Unlike a game of monopoly or snakes and ladders, this isn’t bad luck, this is self-inflicted pain. You know the question is coming your way, you either choose to neatly sidestep it, by re-framing the conversation in the investor’s self-interest or you allow yourself to tread on it at your peril. Think about this way. How many times does the investor respond, “Wow, you are massively undervaluing your business” or “That is an eminently sensible valuation”? Perhaps, 1 in a 100. I’d say, 30% respond “that’s way too rich for us” (immediate termination), 40% respond “we are struggling with those kind of valuations”  (highly probable termination) and the final 29% “tell me where did you get that valuation from” (needs a lot of convincing). You are left constantly defending rather than explaining your approach to making your investors money. If it comes up early on, you are wise to say, “it would be unfair to throw a valuation at you without first explaining how we intend to accomplish your objectives and secondly,  determining whether a relationship is in both of our best interests. If you are willing to listen, we’ll happily address it at the appropriate moment.” (Note, if they won’t listen, they almost certainly see you as a commodity. Do you need that kind of investor relationship?).

© James Berkeley 2016. All Rights Reserved.