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Hundreds of businesses are bought and sold everyday. Each “deal” is different. Everyacquisition candidateneeds to be systematically evaluated prior to purchase as to its existing competitiveness within their targeted markets to determine what strategic augmentations need to be made to maximize eventual return on investment.
As a business buyer you will need to estimate anticipated financial return on your investment based on how the purchased company will improve its strategic competitiveness within its targeted markets or enter new markets after you purchase the company.
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If you own small business or lead a FORTUNE 500, multi-national company, most business leaders ultimately want to leverage previous successes and eliminate causes of prior failures. This is a difficult and complex process that begins with strategic planning.
Sometimes it is not enough to focus on day to day operations, leaders must have the discipline to take the time and effort to clearly define where the organization is now and best determine where the organization must be within a specific timeline.
Today’s business environment is very dynamic. Changes in the marketplace are faster and more diverse than ever. Intensifying competition and rapid technology advances make for constant worry of your organization’s eventual obsolescence. Ultimately your customers are never satisfied and will go elsewhere if you do not give them what they want!
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Traditional New Year’s fitness resolutions will also apply to participants of the Mergers and Acquisitions industry, “M&A”. Those who make their living within M&A must be “leaner and meaner” to be successful in 2010. Our current US economic atrophy has had an immediate and momentous impact on business investment and sales.
M&A industry participants; business buyers, company sellers and M&A intermediaries are justifiably more skeptical of reaching company purchase transaction closures. Deal pessimism has overridden deal confidence.
Assorted excuses for M&A deal breakdowns and delays have emerged from bona fide financing challenges, negative national economy perceptions or anxiety over anticipated near term US government policy transitions.
The M&A transaction selling cycle now takes longer because of “hyper-sifting” of viable deal participants and their qualifications on both sides of the deal.
Sharing vigilant perceptions of the current condition of our M&A industry from 100’s of its participants should help us understand how fit we have to be to compete in 2010.
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If you are considering entering a new target market, with an existing or new product or service, it makes sense to first systematically analyze the market in question via some fundamental market evaluation criteria. It is not only rational but most cost effective to determine if a new market pursuit makes sense for your company before any significant resources are further applied to the effort.
A “pass or fail” test of your targeted market is recommended with your company’s core management team collective involvement. Discussing the attributes of a given market and further analyzing the business logic behind your intention to participate in a new market will generate some very enlightening conversation among your key decision makers. Having various management functions present for the discussion generates the most effective, broad base perspective, appropriate “next step” for this strategic decision.
Besides further justifying or reducing your intentions to enter a new market, weighing all the same attributes of any one targeted market candidate against another target markets of consideration can lead to a pivotal decision for the future direction of your company. The opportunity cost of choosing the “wrong” or “least rewarding” target market, given limited corporate human and financial resources, can make or break your collective ability to meet or exceed your company’s short and long term growth objectives. Again, effectively utilizing a simple, systematic evaluation checklist made up of some of the market attributes listed below can be most time efficient and cost effective.
Our list of market attributes cover various business sectors and should not be considered a complete listing. To make this evaluation exercise most productive for your management team, first evaluate this list for relevancy and then add whatever number of additional categories or attributes that correlate to your company’s collective business priorities, resources, risk/ reward tolerance levels and growth objectives.
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If you have just decided to start the process of buying your first company or if you are a seasoned mergers and acquisitionsprofessional, you as a business buyer, need to utilize a disciplined, structured approach to purchase the best business acquisition possible. This article will give you a shortcut to incorporating most of the elements you must have to systematically qualify and “bias” the business purchase negotiations in your favor with the business seller.
Buying a business is a “one off”, iterative process in that each purchase opportunity is unique and different with regard to its sense of urgency from the seller’s perspective. However, as each purchase situation is different, if you do many business acquisitions over time you quickly see that there are fundamental elements to the location, qualification and negotiation processes of buying a business, that once learned, can be leveraged repeatedly from one business purchase opportunity to another.
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"A needle in the haystack!” or “A diamond in the rough”, both popular saying’s apply to what’s involved in finding your ideal company to buy! Any seasoned business buyer will tell you that finding viable companies that can be purchased for reasonable terms is a “numbers game”.
Thousands of company purchase candidates defined, that lead to hundreds of contacts to be made, resulting in tens of acquisition conversations that hopefully lead to ONE company acquisition! Many merger and acquisition veterans will tell you “It takes 100 potential opportunities to get one good deal” … a numbers game.
At any point in the business buyer’s purchase process, for any number of valid or invalid reasons, either the business buyer or the business seller can call off the potential deal. Most potential business mergers and acquisitions pursuits do fall apart. The human and financial costs to both parties involved can be significant, sometimes devastating.
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If you have just decided to start looking for a company to buy you will need to understand the fundamental assumptions involved before you make your first step to purchase the “right” company
This article will give you a quick “fly-over” of basic business acquisition insights learned over many years of pursuit of finding the ideal company that meets one’s EXACT purchase criteria. Purchasing a business can be a complex, iterative process made up of many steps. Most steps within the process should be implemented in a logical sequence to achieve maximum desired results. The very first step in any business acquisition effort is understanding some of the basic realities of what to expect within the anticipated business procurement process.
There are basic or “practical” assumptions and specific or “subjective” assumptions one must make in every business purchase effort. Practical assumptions can be best defined as anticipated realities that make sense to understand no matter the potential business transaction. Subjective assumptions are anticipated challenges and events that correlate to your own personal perspectives based firmly within your own purchase criteria, prior business experiences, accumulated knowledge and developed risk/reward tolerance levels.
Like most complex business challenges it is best to make some fundamental assumptions about the task at hand. These assumptions are not inclusive and are documented to facilitate develop of more thoughts and ideas prior to implementation of any initial step to find a business.
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When you actually get involved in pursuing a company purchase, you quickly realize that your success rate of finding your “ideal” company to purchase is a direct result of your ability to effectively locate viable potential acquisition candidates and cost effectively DIS-qualify them via your own, “well honed” business purchase criteria checklist.
One of the first things you want to do in the development of your business purchase process is establish a list of “initial” DIS qualification questions for use with business owners.
We use the term disqualification because you clearly throw away a lot of hay to get to the needle in the stack! This list of questions will add a tremendous amount of efficiency to your business purchase methodology and make the job of your merger and acquisition intermediary of choice much easier.
For simplicity of use, we have listed our most practical questions categorically. You are encouraged to edit, add or delete any of our listed questions. Our list of questions cover many fundamental business attributes, but not many of the subjective benchmarks to be considered in any business purchase disqualification process. Again, you can add whatever number of questions that correlate to your own personal purchase criteria or preferences, business experiences, knowledge and risk/ reward tolerance levels.
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As in any area of business we can learn many things from our mistakes. There is no better way to refine your selling craft than to do a candid analysis of how or why you lost a specific sale to a competitor.
Every sales professional wants to leverage previous sales successes while minimizing repetition of prior strategic and tactical selling mistakes. It’s the true professional who constantly looks for ways to remain at the top of their game and effectively eliminate most of his competition. Loosing a sale now and then can offer reminders and/or specific insights into how to further improve your chances on closing your next deal.
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The selling profession is one where continued success is typically based on results. A salesperson’s sales revenues are relatively easy to measure and document. This business function is often the most measured job in any company. There is many a salesperson that has wished and said aloud “Why can’t everyone’s job results be so easily publicized or effectively tracked?” … if everyone’s job was “by the numbers”, like a salesperson’s is, there would be much more professional accountability in the business world.
That said, a selling professional often believes their importance to their employer is only as high as his or her next sale. A salesperson needs to clearly understand the time cycles associated within their selling process steps. This ultimately allows for realistic understanding of where their sales numbers are going to come in at and particularly how much selling prospecting they must do to reach their expected sales quotas.
For the purpose of this article we will simply break the selling process into four fundamental steps: prospecting, appointment setting, presenting and closing. Let us assume completion of all four components of the selling process average 100 calendar days. This would be based on a representative number of actual prior closed selling events.
Not all steps in the selling process take the same amount of time. For this example, let us assume a relatively complex sale of a technical product with multi purchase decision makers; prospecting takes 20 days, first appointment setting takes 10 days, setting up another appoint and presenting takes another 25 days and final purchase decision making or closing takes 45 days. All four of these steps again total 100 calendar days.
Thus, the typical selling cycle is defined, 100 days from beginning to end, including all the components of same.
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No matter the business-for-sale situation, there will eventually be a business buyer and always a business seller. Both parties to the process have reasons to complete the transaction. Both parties need to clearly know the other’s reasons and priority of each reason to make the deal happen.
A business buyer can never assume the seller always knows why he is selling his business. Sometimes the seller’s intentions need to be systematically developed by the potential buyer via a well planned and probing interview of the seller. Not only does the buyer need to eventually define all the seller’s motivations, but the buyer must be particularly tenacious to understand the seller’s priority of each communicated reason to sell. A business buyer should never consider purchasing a company without a complete understanding of why the business owner(s) want to sell.
Below is a comprehensive list of reasons why professional business buyers purchase companies. This list is from the business buyer’s perspective – NOT THE SELLERS. Buyers generally have more than one reason to purchase a specific company, so a combination of any one of these justifications would typically apply.
Obviously, business sellers and their representatives need to thoroughly understand what specific reasons a buyer wants to purchase their company and be able to accurately put a relative weight to each purchase reason to maximize their negotiations with the potential buyer.
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The National Association of Realtors estimates that over 60% of home buyers search the internet for homes for sale first before they pursue traditional means of house hunting. It is logical to assume that buyers of business would also consider the same internet based search approach.
If you have decided it is time to put your business up for sale and you want to take advantage of the various business-for-sale listing websites, this article will give the fundamental company information areas you’ll need to cover within your posting.
Professional business buyers always want to know the same fundamental elements of information about a company within a new business-for-sale listing, they are:
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Often business buyers and sellers include a seller non-compete agreement within the business purchase terms. Because a non- compete covenant can be considered an acquired intangible asset from the seller and be amortized for cost recovery for federal tax purposes, a savvy business buyer needs to understand the importance of this business purchase agreement component.
