Tuesday, October 31, 2017

Article Summary: Using Customer Due Diligence to Chart a Winning Innovation Roadmap | Axial

Anthony Bahr Strategex | October 31, 2017

I have summarized the key points from the article below. To read the entire article, click the link at the bottom of my summary - Eric Gall.

Customer due diligence should be done prior to closing a deal.
Many customer due diligence programs are cursory checks with no added value.
It’s a missed opportunity to engage with customers and derive insights for post-close growth.
A well-designed customer due diligence program should:

Be based on Voice of the Customer (VOC).
Include quantitative and qualitative customer feedback.

Feedback can help mitigate risk and accelerate value creation post-close.
A VOC-based customer due diligence program is scalable and customizable.

You can determine the strength and stability of customer relationships.
You can address a variety of deal-specific objectives on the buy- or sell-side.

Case Study

A PEG was looking to acquire a global manufacturer of specialized chemistry solutions. The acquisition target was investing in the R&D for new products.
Customers were not expressing strong interest in new offerings.
This led to poor ROI on the R&D investment and compressed margins.
The seller suspected customers were not innovating leading to limited demand for a broader portfolio of products.

If true, the PEG would have confidence to reduce R&D investment post-close.
If false, VOC would provide alternative explanations and present opportunities to evolve the company’s new product development approach.

Strategex partnered with the PEG and developed a VOC program to:

Improve market share by measuring and identifying opportunities to improve customer loyalty.
Boost customer satisfaction by uncovering opportunities to enhance the customer experience.
Reinforce competitive advantages and shore up weaknesses by benchmarking against key purchase criteria.
Determine if an ongoing innovation program was worthwhile by validating or invalidating the hypothesis.
Develop an approach to innovation more likely to succeed by securing a robust understanding of each customers’ internal innovation efforts, outlook for the category, and unmet needs.

The Approach

Strategex conducted 49 customer interviews across 34 top accounts.
All interviews were conducted by phone and lasted about 45 minutes.
Interviewers used a discussion guide prepared with the PEG.
Transcripts were provided to the client after the interviews.
The data was aggregated, coded and synthesized.
The management report outlined key themes and recommendations.
The report also included analysis of the data and customer commentary across a variety of segments.

The Results

In respect to the innovation question, the revealed that:

The hypothesis was false. Customers thought they were being innovative. 16 of 34 accounts considered themselves to be highly innovative.
The approach to innovation was out of touch with customer needs. Customers little interest in new products was because they were not relevant to their needs.
There was no shortage of innovation opportunities. Customers identified over 200 potential innovation opportunities.

Armed with these insights, the PEG:

Closed the deal;
Increased the R&D budget; and
Implemented joint innovation programs with key accounts.

This led to the development of new products that were highly relevant and in high demand.
The deal ended up being highly successful.
The customer due diligence provided the management team with a launch pad for value creation. It also bridged the innovation gap between the portfolio company and its most valuable customers.

Article LINK

For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall, CBI, CM&AP at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com. To search for Florida Businesses for Sale: CLICK HERE

Monday, October 30, 2017

Article Summary: Maximize Your Selling Price by Finding the Right Buyers | Divestopedia

Dave Kauppi | October 16, 2017

I have summarized the key points in the article below. To read the entire article, click on the link at the bottom of my summary - Eric.

Maximize Your Selling Price by Finding the Right Buyers

Takeaway: Not every offer will be a reasonable one. If you're using business-for-sale websites, you will likely receive lowball offers. Avoid them with these tips.

Most companies deciding to sell have characteristics that drive down their value, such as customer concentration or management all from the owner's family. This article discusses how to minimize discounting by locating the right buyers.

Selling Process

The author discusses the sale of a Human Resources Consulting company. They contacted several industry players, but buyers dropped out because the seller's entire management team was comprised of family members. They took the company off the market and brought in one non-family executive who had the authority to run the company.

The business is counter-cyclical and grew during the economic downturn. It was difficult to determine how much improvement was due to the new manager.

The business was put back on the market. One buyer was particularly interested and asked to put together his letter of intent.

He started by giving all the reasons to discount the price, e.g., fear of losing key employees, no recurring revenue, etc.. He was provided a chart showing recurring revenue from the top 20 clients to demonstrate consistency and predictability of revenues.

He then focused on the prior year's upward spike and said, "I am just going to use 2015's revenues as my basis for my offer." The author asked how he would have made an offer if last year was unusually bad, but the prior five years were strong. He did not answer, but it is expected he would have made his offer based on the new trend.

Stand Strong

These kind of buyers are common. A famous residential real estate investor wrote a book on investing; his philosophy was to find 100 people with their homes for sale, approach them aggressively, make a lowball offer, and one will take it.

The buyer inquired from a business for sale website - a perfect platform for this philosophy.

Get multiple buyers involved in the process. If you just post on one of the Business-for-Sale websites, you may get multiple buyers interested, but they are the buyers contacting 100 sellers very efficiently in order to make lowball offers.

Six other industry buyers were contacted. All were looking for acquisitions based on acquiring new customers, adding a product offering, or leveraging their sales force or install base. Their motivation was not to buy a company with a lowball offer.

Encourage Fair Offers

The way to encourage buyers to make fair offers is to conduct outbound marketing to industry buyers that have strategic reasons for making acquisitions. If a business seller only attracts inbound, bargain seeker buyers from websites, they will be getting low ball offers and waste time.

Article LINK

Monday, October 23, 2017

Capital Superabundance is Transforming Middle Market M&A | Axial

Peter Lehrman Axial | October 18, 2017

Bain & Company coined the term “Capital Superabundance” to describe a flush dealmaking environment in which the availability of financial capital is at record highs while the weighted average cost of capital for companies is experiencing record lows. What follows is how this environment is affecting American middle market M&A and its three major participants: private equity and corporate buyers, investment bankers, and exit-ready or “exit-curious” private companies.

To begin, look at the charts below:

The chart from Bain reveals the near 500% growth since 2003 in ongoing dry powder in the global private equity markets.

When demand rises faster than supply, prices tend to rise.

The chart below details U.S. leveraged buyout purchase prices as a multiple of EBITDA for the past 20 years. Source: Capital IQ.

These macro charts provide the framing for a discussion about the most meaningful effects of Capital Superabundance on its participants in middle market M&A.

Top three effects of Capital Superabundance on private equity investors and corporate buyers:

A respected and highly memorable brand has become a major advantage. Capital Superabundance is rewarding organizations with differentiated brands aligned to credible value creation strategies.
“Business Development” has gone from an afterthought to top of the strategic agenda. BD excellence has become just as strategic to private equity and corporate development teams as sales and marketing excellence is inside companies.

Source: BCG
Revenue-oriented value creation. It is often easier to cut costs than to find sustainable methods to drive revenue growth. Capital Superabundance’s upward pressure on purchase price multiples is rendering cost reductions insufficient. Buyers have responded to this reality with increased expertise around buy-and-build value creation models. These approaches play to buyers’ transaction expertise and utilize the increasingly popular “operating partner” model.

Top three effects of Capital Superabundance on investment bankers:

The “personal Rolodex” approach to winning clients and creating great client outcomes is ancient history. Investment bankers are incorporating modern data services to discover buyers, research real-time buyer intent and engage buyers more intelligently.
Capital superabundance has made investment banking economic for sub-10M EBITDA opportunities. Combining Capital Superabundance with some of the regulatory changes that have eliminated or relaxed broker dealer capital and oversight requirements for the execution of private M&A, establishing one’s own “micro-boutique” investment bank is easier than ever. Growth in micro-boutiques confirms this.
The brand of an investment bank is more important than ever. Investment banks are leveraging well-established content marketing strategies to disseminate their expertise, clarify areas of focus, and create an inbound funnel of prospective clients. Similar to PE, sector and transaction specialist bankers are outflanking generalists with more memorable and more focused brands.

Top three effects of Capital Superabundance on middle market companies:

It’s the most attractive and sustained seller’s market in at least half a century. Multiples are at record highs for businesses across nearly every sector.
Middle market companies have unusually high amounts of strategic choice and freedom. Capital Superabundance has created a new set of choices for entrepreneurs running middle market businesses. They shouldn’t assume conventional approaches are the only way to realize their liquidity goals.
M&A educational information is more widely available for entrepreneurs than ever. Free and affordable solutions for entrepreneurs such as BizEquity’s software-powered valuation tool, Axial’s online deal network and The Salability Score are examples of online solutions that educate and serve private companies that are considering a financing or exit event.

Article LINK

Thursday, October 12, 2017

Fort Myers 7th Fastest Growing City in U.S. For Economic Growth

WalletHub has named the City of Fort Myers as 2017’s seventh fastest growing city in America, based on local economic growth. To determine where the fastest local economic growth has occurred, WalletHub’s analysts compared 515 cities based on 15 measures over a period of seven years. The metrics were based on two key dimensions: Sociodemographics, which includes population growth factors; and jobs and economy, which studied factors like job growth, new businesses, regional GDP and home prices. Fort Myers experienced the nation’s highest decrease in the poverty rate, declining 2.92 percent during the seven-year study period. Fort Myers also earned the nation’s top ranking in job growth and median house price growth, along with a ninth-place ranking in population growth. In total, 40 Florida municipalities were included in the study, including Cape Coral at No. 15.

Monday, October 9, 2017

Article Summary: Biggest Lessons Learned From Selling My Business | Divestopedia

Noah Rosenfarb , September 23, 2013

Takeaway: Cory Janssen, co-founder of Investopedia and Divestopedia, shares his nuggets of wisdom learned from selling Investopedia to Forbes.

Biggest Lessons Learned From Selling My Business

Cory Janssen co-founded Investopedia.com in 1999 and helped grow it into one of the Web's largest financial sites devoted to investor education. In April 2007, the company was sold to Forbes Media.

1. We were very careful about not building the company around our personalities so eventually, we could sell it if we wanted to.

2. We interviewed brokers and selected a firm in Silicon Valley who had done some similar deals and started a formal process with them.

3. After two months of preparation, the broker put the offer out to 40 to 50 organizations. After four months, we narrowed the list to ten firms who came to visit us.

4. LOIs were requested and we further narrowed the list to three companies. We visited the three companies at their locations and closed with Forbes in April, nine months after we initiated the process.

5. The biggest lesson I didn’t realize beforehand is you have to manage your team differently at different stages of the process. Early on, the investment banker is your best friend because they are incented to get your idea in front of the right people. However, your lawyer is your worst enemy because he’s just racking up your bill.

6. Later in the process, it flips at the point there where the broker figures they got you as much as they can, so at that point, your lawyer is your best friend because your broker doesn’t care about everything you’re doing in the legal agreement.

7. You have to manage the exit team, e.g, tax planners, accountant and other exit planners. They are all on your team, they’re all for you, but you need to treat and manage each differently based on where you are in the deal.

8. You want to align your interests. Before selling my partners and I wrote down our goals for the deal. It helped ground us near the end of the deal when things are going back and forth and you can’t keep your head straight, it grounded us.

9. We also gave the broker an above-market fee over a certain dollar to incent him. Alignment of interests works for whether you’re trying to hire a sales person or whether you’re trying to sell a business.

10. Looking back, we could have made the deal much smoother by having a better exit plan. I didn't know what an exit plan was at the time, to be honest.

Article LINK