Tag Archives: acquisition

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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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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5 Tips to Selecting Buy-Side M&A Counsel

There are a myriad articles out there about choosing a sell-side M&A attorney, but very few that address the other side of the deal. Our middle-market acquisition clients and prospective clients run the gamut when it comes to M&A experience. For those that may be newer to M&A, I propose 5 tips to help you choose M&A counsel and ramp your acquisition program.
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How to Solve the Integration Manager Dilemma

If you’re relatively new to acquisitions, you either have yet to discover the challenges you will face while managing your integration, or you’ve already discovered that integration can be downright difficult.

 

When preparing for an integration, one of the first questions you may ask yourself is, “who”?

 

  • Who inside your company has plenty of downtime in their current role, or can take a hiatus from their job for 2 to 4 months or perhaps even longer to manage your integration project?
  • Who do you trust to integrate the current acquisition, and to establish your integration playbook for the future, assuming you don’t want to reinvent the wheel every time you acquire and integrate a company?
  • Who has managed complex projects, and is familiar with project management best practices?
  • Who is senior enough to require performance of the integration team, while maintaining frequent and fluid communication with upper management?
  • Who can manage the project objectively, without focusing too much on their own functional background?

 

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Protecting Acquired Intellectual Property

If you are anything like most of my buy-side clients, you typically handle IP diligence internally. This is partially because the middle market companies I work with often acquire businesses with minimal patented IP (though there are always other types of IP in a deal), but it is also due to the potentially high cost of outsourced legal diligence.

 

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