Transaction OVerview
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Mastering Corporate Direction for Success
Strategy
Strategic planning is crucial to any enterprise. Whether expanding or contracting, planning begins with the board of directors and the company’s advisory team.
Strategies vary based on the size of the enterprise and its goals for the future.
Corporate Strategy calls for putting together several strategic businesses that have similar or complimentary operating elements, such as location, marketing, technology, and intellectual property, under common management. The cash flow from these companies is usually reallocated internally to maximize long term return. Adapting such a strategy usually means constantly seeking new investment opportunities, while entertaining divestiture of both high and low performing components.
Sector (Group) Strategy calls for assembling, under one corporate group, operating units that have commonality to them all. Cash flows are allocated and reallocated back out to the individual business units, or into new internal or external investments.
Business Unit Strategy calls for acquiring, under common management those product lines that have commonalities. In most cases marketing and manufacturing are the common elements. In this case cash flows are reinvested into the most promising units from the acquisition of new product lines or start-up operations.
Product-line Strategy is based on the theory of supplementing or replacing aging products whose life cycle is showing decreasing profitability with new or add-on products.
Functional Strategy addresses looking for lower labor rates, new methods of manufacturing, availability of raw materials, benefit packages, and any other methods of decreasing expense, increasing profitability, and addressing new market needs.
Business owners should account for the company’s strategic direction. Strategic planning provides the opportunity to create and position the business to leverage a competitive advantage in the future. For closely held businesses experiencing growth, the plan should ideally address the next three to five years. For the business preparing to sell, succession and exit strategies need to be addressed in the more immediate future.
Target Evaluation
- Sector or Industry
- Size
- Price
This type of screening approach can be accomplished in a manner whereby fundamental information and research is presented by a VR intermediary to the client, reflecting all potential goals and requirements.
Thousands of companies are open to acquisition and divestiture. However, unless the needs of the parties are focused, finding the correct transaction may be an impossibility. A well designed and executed plan of evaluating targets can result in a steady stream of possibilities for a company. Separating attractive opportunities from the many available, requires strict attention to the developed criteria for target evaluation.
That being said, the search and screen process justifies only so much time in the world of lower middle and mid-market transactions, since the parties have to be prepared to take action quickly.
As mentioned above, sector / industry, size, and price are the key criteria used for the initial screening. Screening for additional attributes will involve us working more closely with you, our client.
Due Diligence
The basic function of due diligence is to assess the benefits and liabilities of a proposed transaction by inquiring into all relevant aspects of the past, present, and forecast future of the business being considered. Due diligence plays a critical role in the acquisition process.
Many operate under the theory that once the “handshake” has taken place the deal is complete. In reality, the work has just begun. To determine whether a transaction is as good as it appears, an investigation, “due diligence”, and verification of all representations needs to be completed with the help of professionals.
The scope of due diligence may range from a small effort (reviewing available financial information, visiting facilities, and discussions with management) to a maximum effort that involves a comprehensive investigation and audit. Depth depends on the size and significance of the transaction, price, available audited financials, and the amount of inherent risk present.
A sampling of areas of investigation that should be taken into consideration:
- Company background and history
- Principle locations and facilities
- Management and executive teams
- Competition and competitive strategies
- Industry growth rates and profitability
- M & A activity in the industry and sector
- Government regulations
- Patents, trademarks, and copyrights
- Financial and accounting information
- Taxes and timing issues
- Major products, new product development, and obsolescence
- Sales histories and trends
- Market share, product life cycles, and technologies
Some common problems or exposure areas that need to be further investigated:
- Inventory distortions and overvaluation
- Litigation
- Dressing up of financial statements
- Receivables not collectible
- Sufficient information and background on management
- Tax contingencies
- Unrecorded liabilities and related-party transactions
- Poor financial controls and future expenditures
- Regulatory problems and foreign operations
Acquisition
Why Choose Us
VR Has Sold More Businesses In The World Than Anyone.®
VR intermediaries have made the commitment to help their clients through the maze of acquiring a business. By acknowledging the importance of our role, and combining the dedication and professionalism mandated for success, choose the organization that puts people first. Choose VR Mergers & Acquisitions.
Divestiture / Sale
Even the most difficult divestiture / sale obstacles can be overcome through extensive preparation. Becoming a prepared seller can help maximize value and reduce risk. For the acquirer, the prepared seller’s assets are more valuable since they are able to quickly execute the transaction and immediately focus on capturing synergy.
To become a prepared seller a divestiture / sale process plan should be developed prior to contemplating a transaction. Both transaction and separation readiness are key in preparing for a sale and execute simultaneously.
Transaction readiness includes selecting an optimization strategy, preparing financial statements, planning for tax efficiency, and establishing a voice for the business. Separation readiness includes establishing a definitive separation strategy, assessing functional impacts, eliminating stranded costs, and creating a “Day One” readiness team.
Engaging these considerations – among others, in advance of a divestiture / sale, can enable a company to become a better prepared seller.
Transaction Execution
Value is gained through a successful transaction, and can be enhanced through seamless and rapid execution. VR’s detailed focus on planning, communications, and executing, maintains business continuity for clients, employees, investors, and shareholders.
As lower middle and mid-market companies continue to demonstrate their importance to the overall world economy, they also are demonstrating resilience and adaptability. The dynamics of the marketplace may change from year to year, but the same basic factors are always present. Owners want liquidity, families disagree about the future, rapidly growing organizations need capital and other resources, industries consolidate, and corporate divisions are divested. The private lower middle and mid-market transaction has special characteristics and requires a special approach different from the merger of two large, publicly owned enterprises.
VR Mergers & Acquisitions specializes in privately held lower middle and mid-market transactions.
Integration
Integration plans should be formulated even before negotiations finalize. To ease the transition an internal team whose function is focused on integration should establish which managers will be directly responsible for specific activities after the acquisition.
Key areas that should be addressed by the integration team can include:
- Planning for possible incentive compensation programs to motivate and assure retention of key executives of the target company
- Developing probable reporting relationships
- Analyzing which functions will be integrated and which will remain autonomous
- Preparing for potential personnel conflicts
- Combining productive assets
The exact forms of integration needed will depend upon the type of acquisition completed. After all, an acquisition is based on the premise that gains from the transaction will exceed the premium paid for the acquired organization.
Since 1979, VR Mergers & Acquisitions has specialized in the advising privately held lower middle and mid-market companies navigate the transactional process.
Unlimited Potential in the Lower Middle and
Mid-Market as a VR Franchisee. Learn more now!
The future is now. Build a VR business that has the potential to build a pipeline of successful sales in the lower middle and mid-market (transactions with enterprise value from $3 to $25 million, but there is truly no limit with proper training). A simple conversation can explain the excitement surrounding our growth in this market.
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Today’s Business Owner® (TBO) is VR’s Monthly Electronic Magazine that publishes relevant business articles and completed transactions to establish you as an industry expert.
