Category Archives: Acquisitions

Earnouts Can Bring Value Beyond Filling a Valuation Gap

In my experience, earnouts are often used where there is a gap in price between what a buyer is willing to pay and what a seller is willing to accept. In these cases, buyers and sellers can often have legitimate differing opinions as to the current and future value of the target company. Additionally, the metrics of the earnout often require the seller to deliver strong financial results in the future in order to justify the payments on the earnout.

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Three Integration Priorities When Acquiring a Services Business

My experience as a Corporate Development Director was with a product company, which was the foundation for my hands on integration experience. The complexity of the integration always revolved around such things as product registrations, sales and manufacturing continuity, and transition of management.


At Third Coast Capital Advisors, I’ve encountered various client business models, which has exposed me to different integration priorities. In recent months, I’ve been engaged with Haskell, a design-build firm based in Jacksonville, Florida that has acquired several services businesses. For specific insights on integrating a services business I turned to Brad Slappey, CFO of Haskell.


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Have You Sanity-Checked the Valuation Multiple?

I’m talking about the valuation multiple on the company you think you’d like to acquire.


Several months back I was talking the owner of a company, one of my client’s acquisition targets, about valuation. The conversation was similar to one I’ve had many times. He felt that his company was worth 7x trailing twelve months operating income, or based on my best estimate, about 5.6x EBITDA which is on the high side for an industry that is seeing similar transactions in the range of 4-5x EBITDA. His rational was that the company, at about $15 million in revenue, was achieving 20% operating margins–he suggested that I go try to make that kind of profit in the stock market. He also indicated that there had been offers in the past that were south of 7x operating income, and he felt he could do better.

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Securing Your Base – Ensure Employee Support after Acquiring a Company

Since our firm typically works with corporate clients in making strategic acquisitions, we have a unique perspective on the entire process, from initial contact through execution and integration. The following are some best practices that we have seen used effectively by our clients to garner employee support as they integrate an acquisition.

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Focus on What Matters Most in Integration

A couple of years ago, before joining Third Coast Capital, I was in the thick of due diligence as Corporate Development Director on a major international acquisition project.  At the same time, I was traveling globally to facilitate strategic planning and trying to juggle other acquisition opportunities.  I had a bandwidth problem, so I hired Larry Radowski from Integrated Project Management Company (IPM) to augment my team.  IPM got up speed quickly and delivered on their expertise.


Naturally, when approaching this topic I thought of IPM.  I asked Larry what three things he thought were the most critical in any integration project.  His answer: alignment of the acquisition objectives, tradeoffs between operational efficiency and long-term growth, and application of a consistent, proven management process.  I’d like to explore each of these in more detail below.
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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.

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Drafting an Effective Letter of Intent

A few years back, in my role as Corporate Development Director, I found myself in the middle of the most contentious letter of intent negotiations of my career. The sellers didn’t want to disclose the deal to employees until closing and they were concerned that due diligence would result in leaks. So the sellers insisted on a very detailed letter of intent before launching into due diligence. I spent several months negotiating that LOI and spent nearly as much on legal fees as I would on a purchase agreement. It was a long and frustrating experience, and not an approach I would recommend. That was one negative experience of many positive experiences using the LOI as a mechanism to move acquisition negotiations forward.


I recently reflected on this topic with Laura Lo Bianco of Fennemore Craig (Top 3 Law firm in Phoenix). We would like to share with you what we view as a few best practices around drafting a LOI.


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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.

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