All posts by Mike Zycinski

Public Company Multiples: Good Proxy for Value?

Often I find myself discussing valuation with private business owners and many times they will bring up market multiples of their larger, public competitors as a point of reference. Unfortunately, this often provides an unrealistic view of value for their smaller, middle-market business as private companies have an inherent liquidity discount that public companies do not have.

 

Public companies also have the benefit of size and scale which contributes to higher valuation multiples. Other attributes like the ability to buy and sell shares in the open market and raise capital through equity offerings further support these valuation premiums.

Continue reading

Buying Assets vs. Stock

When buying a business, deciding on how to structure the transaction plays a very important factor for both buyer and seller. Typically, buyers prefer to buy assets and sellers prefer to sell stock. However, since often each party benefits from the opposite structure, it is important to understand the dynamics of each structure as they relate to both buyer and seller.

Continue reading

Common Synergy Pitfalls

Over the last several years, acquisition activity has been strong among corporate buyers. Many companies are looking to grow beyond their traditional organic growth rates and are turning to acquisitions to meet these goals. Synergies can be the competitive advantage for a “strategic” buyer and the story that is used to explain the strategic objectives of the transaction to the board, shareholders or market. Since synergies can come in many different forms, it is important to understand what exactly constitutes synergies. Synergies are defined as the present value of the net, additional cash flow that is generated by the combination of two companies that could not have been generated by either company on its own. The term “net” is important because companies need to factor in the incremental costs associated with achieving their identified synergies.

 

Strategic buyers should have a plan for identifying and capturing synergies prior to negotiating with the sellers. It is very common for strategic buyers to identify revenue and cost synergies and incorporate them into their valuations; however, capturing and implementing the synergies can provide a new list of challenges. Acquirers need to understand the potential magnitude and timing of the synergies, and their impact on cash flow, in order to understand the value that the company represents to them. More often, the biggest contributor to an unsuccessful acquisition is the acquirer overlooking the implementation side of a transaction and failure to capture the synergies they originally identified.

Continue reading

Why Strategic Acquisitions Fail to Enhance Shareholder Value

If you were to ask a corporate executive, “did your recent acquisition create or destroy shareholder value,” you may be surprised at their response. Recently, KPMG commissioned a global study which indicated that 69% of surveyed corporate buyers did not enhance shareholder value from acquisitions made over a 2 ½ year period.   My experiences over the years representing both buyers and sellers give me considerable insight into why some acquirers are able to enhance shareholder value, while others fail. In this article, I will focus on some of the key factors that may hurt the outcome of your transactions; however, the good news is that all of these factors can be overcome with proper planning and organization. Continue reading

Managing Due Diligence Red Flags

As buy-side advisors we often help navigate our corporate clients through the due diligence process. This process typically uncovers issues that may impact the offer that our client had originally proposed in their letter of intent. Rarely have I experienced an issue that would be considered a “deal killer”, however, most material issues will require some delicate negotiations as they will impact the seller in a negative way. If you have a motivated buyer and seller, these issues are commonly addressed through a change in the price or terms of the acquisition or managed legally through the purchase agreement. Two of the most common issues that arise from due diligence include quality of earnings and environmental liabilities.

Continue reading