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How Do I, as a Potential First-time Buyer, Value a Business?

For an academic, this may be an easy answer: prepare a discounted cash flow, look at comparable transaction numbers, or use comparable trading prices of public companies with appropriate discounts. But for an individual on the verge of potentially making their first acquisition, that is all far from useful advice.

In reality, the answers are more complex for an individual buyer. While these academic procedures are well defined in textbooks and on various websites and can certainly be of assistance, our experience indicates there are a few more meaningful yardsticks for assessing the value you might offer on a lower-middle market or middle-market business. These include the following questions:

What will I do with the business? As the academic methods of valuation are all either based on historical performance or rely heavily on historical performance to paint a picture of future cash flows (and thus value), you as a new owner are not likely to run any acquired business the way the selling owners have done it. If you cannot squeeze more growth, margins, and/or cash flow out of the business than the current owners, the two of you are not likely to (and in fact should not) be able to agree on a value for the business. If you cannot bring something to the table that is going to make the business worth more in your hands than it is in their hands, your valuation—however derived—should be lower than their valuation. In other words, every business has a different value in the hands of different owners. You should place whatever unique competitive advantage you would infuse into the business into your valuation.

 

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How do I account for the risk of taking over a business? Another mantra of the academic community holds that the riskier the investment, the higher the required return is on that investment. It is typically fairly easy to account for the risk inherent in any business you may be looking to acquire, but the actual act of acquiring itself carries its own risks. Your valuation must take into account these risks as well. Unlike the inherent risks in any ongoing business, these risks tend to be short-term in nature. For example, the changes you may make in culture may cause personnel issues and the handoff of key customer and supplier relationships may result in some turbulence. Understanding these risks and structuring your transaction correctly can mitigate these risks significantly but both the risks and the desired structuring will play a factor in your valuation. 

How much can I afford? While you may be able to calculate a valuation on paper, if you lack the wherewithal to come up with the required funding, the business actually has no value to you. It is actually quite surprising how little “cash down” is necessary to purchase a business in today’s markets. The high valuations that abound only add to the concern here. However, to take one example in the United States, Small Business Administration loan guarantees are often used to cover up to 80% of the purchase price of a business. The SBA and the lending institution will typically allow another 10% to be “seller financed” meaning that the buyer can pay that amount out later, using the cash flow generated by the business itself to pay up to 90% of the purchase price. While this is an extreme example of leverage, we have seen this and similar structures work on many occasions to the mutual benefit of the seller and buyer.

How do I structure the deal at the right value but avoid a cash crunch?  “Cash is king,” say business school professors. And in this case they are speaking both in academic and practical terms. Your valuation must take into account the cash flow needs of both the business and yourself. The fastest car in the world can’t win a race if it runs out of gas. Financial statements, income, and EBITDA are important, but cash flow is the company’s (and your family’s) true fuel. Missing a mortgage payment at home or a payroll in the office can be a one-time event that is catastrophic. But again, thanks to the ability to structure an acquisition, the struggle between strong cash flow and valuation is not a zero sum game. With proper structure, an attractive offer need not lead you to be overexposed.

Interestingly, all these valuation issues point in one direction: valuation cannot be thought of in a vacuum. If a company is to be bought with 100% cash at close (which sellers love) then the right valuation for you is probably lower than would be the case if you were able to work in some fair structural enhancements to your offer. Unfortunately, most sellers are not up to speed on all the ins and outs of various available structuring options. When looking for a company to acquire, it therefore makes sense to look at represented companies like those in Benchmark International’s portfolios. While we will always represent and work solely for the seller, we have been hired by that seller to help get a deal done. To achieve that objective, we bring our structuring expertise to bear on each and every transaction. If there is a deal to be had but a gap in valuation, you can count on our involvement to find ways to bridge that gap and get that business into your hands with the right valuation for both you and our client.

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What Drives The Need For Companies To Consider Mergers And Acquisitions

Mergers and acquisitions (M&A) are an ideal pathway to stimulating positive results for businesses such as creating growth, gaining a competitive advantage, boosting market share, or improving supply chains via the consolidation of companies.

Growth Creation

A merger or acquisition is an extremely effective method for growing a company’s market share or creating stability in the market. When one business either buys out or combines with another business, it can result in increased productivity, sales and brand loyalty, as well as improved cost synergy. Having a larger share of the market usually means a company can raise their prices and generate more profits. Growth can be created by access to emerging markets, new geographies, new technologies and the acquisition of intellectual property.

Competitive Edge

In many cases, M&A transactions enable acquirers to grow their market share by eliminating the competition through the purchase of a competing company. In today’s technologically savvy world, the aim to improve tech capabilities and drive innovation is a huge driver of consolidation.

 

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Acquisition of Talent

In many industries, there is an ongoing shortage of talent. These shortages can obstruct a company’s ability to grow and hamper its ability to serve existing customers. A business can address their pressing need for talent by purchasing another company that has the type and amount of talent that can address their needs. It can also be a faster route to getting the needed talent versus trying to develop it organically.

Economies of Scale

When two companies combine forces to create synergy, the pooling of their strengths tends to bolster overall performance and lower operating costs. This can be especially beneficial in industries that have high fixed costs and require large amounts of capital such as airlines, auto manufacturers, and pharmaceutical companies.

Supply Chain Power

When a business acquires one of its suppliers or distributors, an entire layer of costs can be eliminated. Buying out a supplier is known as a vertical merger. It allows a company to save money on the margins the supplier was adding to its costs. Buying out a distributor enables a business to ship products at a lower cost. These changes can translate to lower costs for consumers, which can increase sales.

Another benefit of a vertical merger is that it gives the acquiring company more control over supply, eliminating the risk of price gouging by suppliers. Depending on the type of business, a vertical merger can also result in improved technologies or expertise.

 

Feel like it's a good time to sell?

 

Increased R&D

When a company acquires another company, they can often make more investment into the areas research and development. Studies show that M&A activity strongly increases the incentive of companies to conduct R&D. This is less so for large firms, as they may buy smaller firms to gain their technology.

Social or Political Influence

In certain industries, there can be a motive to increase social or political influence by gaining a greater stake and, therefore, more of a voice. This can pertain to media companies, newspapers and the like. An M&A transaction can also change public perception of a company. If a company has struggled with negative publicity, an acquisition by a company with a stronger, more positive image can alter public perception of the business.

Bankruptcy Solution

An M&A strategy can be employed to prevent a firm going into bankruptcy and being liquidated, often referred to as distressed M&A. A thriving company may wish to acquire a struggling company with the objective of turning it around and making it profitable. These transactions can be particularly risky, as well as legally and financially complicated.

Research indicates that M&A in bankruptcy is more likely at times when the cost of financing a stand-alone reorganization is expensive relative to the cost of selling the company’s assets to a buyer with internally generated funds or lower capital costs.

Is an M&A Strategy Right for You?

If you are considering selling or growing your company, our M&A experts at Benchmark International would love to hear from you. Our globally connected team is dedicated to helping business owners maximize the value of their companies and complete deals that go above and beyond expectations. Setting you on the path to the future of your dreams is what drives us to do great things.

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Why Owners Call Benchmark International after M&A Firms and Business Brokers Fail

We recently noticed the fact that a significant number of deals we’ve closed this year involved clients that had been to market with other M&A firms and business brokers. This led us to look internally at our processes and to contact some of these former clients to identify a few of the key factors that drove successful outcomes for our clients that had been previously snubbed by the market.

Our approach to outreach. Benchmark International has always prided itself on having the most robust and broad outreach in the market. Each client’s team includes four outreach specialists dedicated solely to distributing teasers far and wide, securing executed non-disclosure agreements, and conveying those expressions of initial interest to their client. We’ve long known that this sets us aside from the competition and is a key to our success but what we didn’t know:

  • Other M&A firms and business brokers build a single buyer list near the initiation of the process.
    • They don’t have anyone dedicated to continuously update that list with new ideas and market feedback.
    • They don’t have an internal feedback loop that allows other team members assisting the client to easily offer new insights to the outreach professionals.
    • They build their buyer list too early in the process, before they actually understand each of the value propositions the client can offer potential buyers and they thus miss out on large categories of potential acquirers willing to pay top dollar.
    • Similarly, some do not get to know the client’s business well enough to identify all of those value drivers, regardless of when they “build their list”.
    • They have a “usual suspects” approach to buyers. We find this particularly problematic for our clients when they were with “industry specialist” brokers. Given our process, we find that the best buyers for our clients are actually very rarely the “usual suspects” but instead are buyers for whom we have identified a particular need which our client can satisfy for them. As they say, “You can’t find what you’re not looking for.”
  • Many lack the software and systems to conduct and execute a thorough outreach process.
    • Outreach can be mundane, there is no getting around it. For each hour spent on outreach, the broker will have more than a few doors slammed in their face. Accountability is thus key to achieving top results. Other M&A firms and business brokers typically lack the necessary hierarchical team approach and the software necessary to monitor and motivate outreach professionals.
    • Building a list using a variety of ideas arising from as many investment theses as possible for the client requires access to vast data bases of buyers. Benchmark International has built up a proprietary data base of buyers built over 30 years of experience in the market and over 1,000 closed deals. In addition, we pay significant license fees for the world’s leading M&A acquirer data bases. We ensure that our outreach professionals have access to these best-in-class resources and the training necessary to exploit them to their maximum benefit.
    • For any individual engaged in a broad outreach effort, keeping track of who’s been reached, who’s been left messages, who’s responded, etc… is a daunting task. It can’t be efficiently performed with pen and paper or even spreadsheets. Only an interface specifically designed for the task can ensure that all buyers on the list are contacted, follow ups occur at optimal times, responses are not only captured but also analyzed for insights into the outreach effort, and nothing falls through the cracks.
  • Lack of a global approach limits results.
    • There are actually very few clients that need a “local buyer”. Yet we learned that many of our smaller clients had been marketed solely via local contacts, country clubs and Rotary meetings, and local online portals.  But taking the US as an example, Benchmark International has sold clients from the smaller end of its portfolio from Miami to a buyer from Sri Lanka, and an “as-seen-on-TV” business to a buyer from France.
    • The key here is not just having access to a global buyer base but more importantly running the process with the philosophy that the buyer can and will come from any corner of the globe.

 

Ready to explore your exit and growth options?

 

Our handling of acquirers. Though they could not fully explain why, our clients stated that they noted a distinct difference in buyers’ interactions with both them and the broker when Benchmark International was the introducing party as opposed to their former broker. When describing the differences on their initial calls with buyers and, for those who had gotten that far with the prior broker, their negotiations with buyers; our clients referred to being treated by the buyers more as peers, having a more cordial relationship and being more comfortable, getting more quickly to the key issues, and seeing quicker term around times from buyers. To augment our clients’ insights as to the sources of these differences, we also then reached out to a few recent acquirers of our clients and, putting all the inputs together, learned the following.  

  • The markets have gotten more complicated.
    • We continue to see more complex deal terms and structures filtering down to smaller and smaller deals. Since the global financial crisis of 2008, many M&A professionals that formerly ran larger, perhaps publicly-traded, deals in the billions have moved “down-market” and are now doing deals in the millions. They have brought with them all their complex financial training and tricks. As a result, buyers have gotten sharper, and deals have gotten harder and longer.
    • Our clients tell us that their former M&A firm or business brokers weren’t up to speed on these new issues, couldn’t stand toe-to-toe with the sophisticated buyers, and even that they “didn’t speak the same language” as the buyers. Most significantly, they couldn’t bridge the gap between the seller’s understanding of the process and the buyer’s.
    • Getting deals done at today’s high multiples requires knowing how to use these new tools to find win-win solutions for buyer and seller. Our clients tell us that they saw their former M&A firm or business brokers utilizing the old-fashioned bazaar mentality of zero-sum-game negotiating and when they saw how Benchmark International handled the negotiation process, they could tell that our process was built on a different foundation.
  • The broker’s reputation with buyers matters.
    • Our clients described their former M&A firm or business brokers as aggressive, antagonistic, and even “churlish” when negotiating with buyers. That’s not our style. Our style is to build respect and goodwill with buyers. The respect is there to be preserved and used to allow buyers to make a leap of faith with us when necessary.  The goodwill is to be burnt strategical and only if and when required to get the client the right result.
    • Because of the number of deal teams we field, the quality of the clients we bring, and the experience buyers have had with us in the past, they take our calls and they read our confidential information memorandums. They know that we have great “deal flow” to show them, that we only bring serious clients, and that our clients are prepared for the process. Buyers have told us time and time again how important these three factors are to their decision to return our call first, open our outreach emails, and sign our non-disclosure agreements.
    • M&A firms and business brokers who burn their bridges on deal after (broken) deal aren’t doing any of their clients a favor. If the buyer can’t trust the broker – or even worse, won’t take their call – deals don’t get done.
    • Being a household name is important. But if your name is bad, its important in a bad way. Smaller M&A firms and business brokers aren’t a household name and many larger ones lack the quality control across their offices to ensure that the name is a good one. So say a few private equity funds Benchmark International contacted on this point.
  • Thinking like a buyer is important.
    • While Benchmark International is a sell-side only firm, many of our professionals have worked for trade buyers, private equity funds, venture capital firms, and the like. They are not only staffed on many of our clients’ sales but have also provided input into our processes and training to ensure cross-pollination of their insights. This allows us great visibility into their needs, their negotiating techniques, and their next moves. It also helps us relate to them, build trust, and (as mentioned above) truly “speak their language”.
    • While some brokerages provide both sell-side and buy-side services, serving in this capacity is not the same as being a buyer or having been a buyer. Unlike sellers, buyers are experienced in setting up and executing M&A transactions because, among other reasons, they do it repetitively. As a result, buy-side M&A firms and business brokers don’t typically get in there and get their hands dirty molding the clay of an introduction into the statue of a closed deal. They are more in the nature of “finders” or introducers, leaving the heavy lifting to their buy-side clients (i.e., the people many of our professionals used to be).
    • Empathy and emotional intelligence are important for managing the relationship that is formed during the sale of a business. Our clients have been telling us for years that they appreciated our attention to the personal side of the deal often manifested in family issues, a strong attachment to the business, the occasionally irrationality that pops up in this high stress situation, etc…. But undertaking this process of determining what distinguished us from other M&A firms and business brokers led us to realize that our emphasis on these aspects of each transaction has a spill over to the nature of our interactions with buyers. While they like to give the appearance of detached, entirely-rational Vulcans; they are in fact people too and bring their own subtext to every deal. Based on our conversations with acquirers, building a process that can absorb such unavoidable distractions – from both sides – is perhaps Benchmark International’s single largest distinguishing characteristic. They tell us its an intangible that would be almost impossible for other M&A firms and business brokers to match unless their firms were built from the same DNA as ours.

 

Feeling unfulfilled? Explore your options...

 

Lastly comes a point we here at Benchmark International already knew. We hire people who seek challenges to overcome, the bigger the better. Knowing that a client has come to us disappointed by a prior process, whether they focus that disappointment on the market or the broker, fires us up.  Anyone can sell a business that is easy to sell for a normal multiple to a decent buyer. But true satisfaction comes to us only from selling the difficult business, achieving the aspirational valuation, or finding the perfect buyer. So the last answer to the question set out in the title above is  - we rise to the challenge.

 

Author
Clinton Johnston
Managing Partner
Benchmark International

T: +1 813 898 2350
E: Johnston@benchmarkcorporate.com

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Benchmark International Successfully Facilitated a Transaction Between Pioneer Realty Capital, LLC and Luxon Realty Services

Benchmark International has successfully facilitated a transaction between Pioneer Realty Capital, LLC and Luxon Realty Services. Pioneer Realty Capital is an Arlington, Texas-based business that provides underwriting services along with debt and equity brokerage, primarily for the development of commercial real estate.

Luxon Realty Services is an Austin-based real estate brokerage, property management, and advisory firm founded in 2006. The firm actively manages real estate assets and provides consulting and advisory services nationwide. The principals of the firm have over 20 years experience as a real estate professional, and has key relationships with national capital providers with whom they work hand-in-hand with to identify and execute on capital market opportunities with demonstrable growth characteristics.

Ready to explore your exit and growth options?

J.P. Santos, Associate Director at Benchmark International shared, “Benchmark International’s Austin team enjoyed working with Charles Williams and the Pioneer Realty Capital team. We were able to work towards coming to terms that were ideal for Charles’ goals for his firm. This deal shows Benchmark’s dynamic market position and our understanding of the wants and needs of our clients and how to formulate a strategy that helps accomplish our clients' goals from the transaction. Charles was looking for a partner that could provide him a broader array of products and services to offer his existing clients as well as a means to obtain a new business. The team did a formidable job at negotiating a deal that would fit this objective and allow Charles several options regarding the long-term direction of Pioneer Realty Capital. Charles was a true professional to work with, and we are excited about what the future holds for Pioneer Realty Capital.”

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Benchmark International has Successfully Facilitated the Acquisition of Biggie Best (PTY) LTD to Coricraft (PTY) LTD

Benchmark International is pleased to have successfully facilitated the acquisition of Biggie Best (Pty) Ltd to Coricraft (Pty) Ltd.

Biggie Best (Pty) Ltd is an instantly recognised brand active in the wholesale and retail of exclusive home décor textiles and homeware. The wholesale operation supplies fabric by the metre to independent decorators and shop owners, as well as, textiles and homeware to a select number of independent retailers. The retail operation comprises nine outlets offering fabric, homeware, and a make-to-order service in upmarket shopping precincts in the major cities of South Africa.

Ready to explore your exit and growth options?

For more than 20 years, Coricraft (Pty) Ltd has been a preferred choice for exceptional value top-quality furniture. Over two decades, the brand has grown from a single store to a chain of almost 50 outlets in South Africa, Namibia and Botswana. The company boasts manufacturing facilities in both Cape Town and Johannesburg, where they manufacture a range of luxury couches. Beyond this substantial manufacturing presence lies a sophisticated retail infrastructure, with Coricraft stores located across the length and breadth of South Africa.

This transaction marks a new chapter for Biggie Best (Pty) Ltd as it finds a new home alongside one of the country's fastest-growing retail brands.

Commenting on this, Andre Bresler of Benchmark Corporate South Africa said: “It is a true privilege to have had a hand in the marriage of these iconic South African brands. This is a transaction that is a testament to the fact that good assets sell regardless of perceptions around the prevailing sector performance and macro-economic conditions.”

On behalf of everyone at Benchmark International, we would like to wish both parties every success for the future.

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Benchmark International has Advised on the Sale of Manor Renewable Energy to a Consortium of Investors

Benchmark International is pleased to announce the transaction between Manor Renewable Energy and a consortium of investors led by Moulton Goodies Limited and Castle Mill Equity Partners Limited. The transaction also involved Manor Marine, a wholly owned subsidiary of Manor Renewable Energy.

Ready to explore your exit and growth options?

Manor Renewable Energy was founded in 2013 and is the leading provider in offshore temporary power and engineering solutions to the wind farm industry. Manor Marine, which began trading in 1991, provides vessel construction and maintenance services.

The deal facilitated the exit of a founder shareholder and provides backing for the team to continue its high-growth plan. Going forward, the investors will support the existing management team with strategic and commercial expertise as the business seeks to broaden its offering by investing in its operations and maintenance division.

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How Proper Exit Planning Benefits Both Seller and Buyer

Value For Sellers

Proper exit planning is critical for any business owner that intends to sell their company. When you are going to sell, you must know the amount of money that you will need to have on hand in order to make a comfortable exit, which involves assessing your cost of living. You may need to formulate a plan to decrease your annual cost of living, for example, by downsizing your living arrangements or selling unnecessary luxuries such as cars, boats, or vacation properties.

Selling a company is a complicated venture. There are complex considerations from financial, legal, tax, estate, operational, personal, family, and legacy perspectives. Having professional assistance from a reputable M&A advisor can help you navigate these matters and ensure that nothing is overlooked. They can also help to make the process less stressful and give you peace of mind that your exit plan is a sound one. They will also help you maximize the value of your business in a sale and prevent you from making costly mistakes.

 

Ready to explore your exit and growth options?

 

Also, once you know your number, you can take steps to increase the profitability of the business and make it more attractive. The more marketable your company is, the more prospective buyers you will entice, and they will be higher quality buyers. Another reason that having a solid exit strategy in place will make your company more appealing to buyers is because it shows them that you are serious and have been smart about how you run your business.

There are several options for your exit strategy. You can sell to an outside buyer, sell to an inside buyer, do a partial sale, pass the company onto family, or liquidate the business altogether or over time. Astute exit planning can help you figure out which course of action is right for you.   

Value For Buyers

Exit planning simply primes a business for easier transfer in ownership. An acquirer wants to know what they are getting into regarding how the business will operate after the sale.

  • How involved will they need to be?
  • How much work will be required on their part to grow the business?
  • Will existing customers and clients remain in the relationship?
  • What is the state of the management team and will it remain in place?

A buyer is going to prefer to take on a business that will continue to run seamlessly through and after the transaction.

 

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Smart for Everyone

When done properly, exit planning gives the seller a clear plan for their retirement and mitigates risk for the buyer so that both parties can feel good about closing a deal. The entire process is about setting concrete goals and following a timeline to keep your exit plan on track so that you can exit on your own terms. Failure to have this plan in place can result in disastrous circumstances, such as:

  • Being forced to sell at an unfavorable time by unexpected events
  • Having your business undervalued and leaving money on the table in a fire sale
  • Wasting time and money on transactions that fail
  • Failing to fulfill your retirement goals
  • Burdening family with matters they are unprepared for and undercutting your legacy
  • Paying more taxes than necessary

Is it Time to Plan Your Exit?

Even if you do not foresee retirement in the near future, it is never too soon to have a plan for the future. It is also extremely prudent and can protect you and your company from unforeseen circumstances. Take the time to do it right. Contact our experts at Benchmark International and begin the conversation about selling your company and your exit plan options. We will work at your pace to achieve your goals and lay out a blueprint for a future that you can feel wonderful about.  

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Benchmark International is Returning to Sponsor Real Deals

Benchmark International is pleased to announce that it will be returning to sponsor the Real Deals Mid-Market event taking place on 24th January 2020 at the London Marriott Hotel, Regents Park.

In its eleventh year, Real Deals is a key event for private equity in the UK with hundreds of the most recognisable names in private equity attending, providing Benchmark International with a unique opportunity to showcase the opportunities it currently represents.

As well as networking opportunities, the event also includes panel discussions, on-stage interviews and exclusive case studies, with the event examining the futureproofing of the whole of the investment cycle to ensure the continuous success of a dynamic industry.

Do you want to be featured and showcased in front of leading dealmakers? Naturally, we present only a select number of companies for each event, so we would encourage you to contact us now to ensure your business is included.

Schedule A Call

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Benchmark International has Successfully Facilitated the Transaction Between Euro Business Solutions and Cloudstream Technology

Benchmark International is pleased to announce the transaction between Euro Business Solutions and Cloudstream Technology.

Do you have an exit or growth strategy in place?

Euro Business Solutions is an IT support specialist established in 1997. It provides consultancy services and hardware and software sales to corporate clients. Services include various external managed services, consultancy work, written recommendations, data recovery and recycling.

Cloudstream, a division of the TechStream Group, is an innovative and diverse talent solutions provider, dedicated to providing advanced technology and transformation skills across consulting, start-up or enterprise environments. This represents a strategic acquisition for Cloudstream, as it allows the company to bolt-on Euro Business Solutions’ services to its own.

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Why Cultural Synergy Is Imperative When Selling Your Business

When selling a company, of course the numbers are important. You want to obtain the most value in a sale and it can be easy to get caught up in revenue potential and expansion goals. But if you are truly concerned about the completion of a deal and the long-term success of the business, cultural fit between the converging companies is something that should never be underestimated or overlooked. 

M&A Culture Shock

The culture affects everyone in the company, from the CEO and management down to every last employee. Values matter, communication is critical, morale is extremely influential when it comes to productivity, and these topics become even more important in cross-border transactions. Synergy in this respect can directly impact the bottom line of the business. Culture clash can utterly shatter the prospects of the merger or acquisition’s success.Research shows that complementary competencies contribute significantly to the enhanced overall M&A performance.This is why cultural integration must be considered before a deal is done, and why many savvy acquirers have formulas in place to address the fusion of two organizations’ cultures.

 

Ready to explore your exit and growth options?

 

What Defines Company Culture?

The culture of a company is typically outlined by certain key factors:

  • How the company defines essential capabilities and competitive strategies
  • The normal behaviors of leadership and staff members
  • The business’s operating model including structure, accountability, supervisory systems, and day-to-day operation guidelines
  • National and regional customs, observances, language barriers, dress codes, work ethics and ideologies  

Talent Retention is Key

Talent is a major factor in the acquisition of a company, as is the retention of that talent. Cultural fit has proven to be a critical factor in the retaining key talent after a sale due to issues related to autonomy and disruption—all things that should be negotiated upon a transaction. Research demonstrates that giving decision-making autonomy to the acquired business can improve integration and overall acquisition performance. Routines, relationships, and processes that are already embedded in a target company’s culture need to be understood by a buyer to avoid potential disruptions and ensure performance that is conducive to success. This can be especially important in the acquisition of high-tech companies.

Studies have indicated that if national and corporate cultural differences are not properly addressed during pre- and post-acquisition integration, it can have disastrous consequences on the overall success of the M&A transaction.

How Cultural Differences Can Actually Help

Cultural differences in cross-border transactions are not always a bad thing. It has been demonstrated that these differences can actually enhance the competitive advantage of the combined firms when cultural integration is properly handled. These benefits include:

  • Access to distinct and valuable capabilities that may be rooted in the different cultural environment
  • Development of deeper knowledge structures
  • Lessened inactivity within the organization
  • Excellent source of learning, innovation and value creation
  • Greater manager involvement in social and cultural factors that are sometimes overlooked in domestic M&As 

“Cultural learning” can change negative stereotypes, create positive attitudes, and improve communication between the two companies. For this process to work, there should be a controlled dispersion of information between parties that enables them to obtain accurate information about each other in a constructive way. This eliminates misconceptions and shines a light on actual differences that can be seen as the best aspects of both cultures.

 

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Culture & the Due Diligence Process

Due diligence is crucial to every M&A deal, and this includes assessment of the cultural factors that may have impacts on the transaction and its success. Some questions to consider include:

  • Does the target company have the right talent to carry out the acquisition strategy?
  • Which team members are essential to continued value?
  • What are potential deficiencies within management that can hinder long-term success?
  • What is the overall cultural compatibility between the two organizations?

Cultural differences that can be deal killers need to be identified as early in the process as possible, keeping in mind that cultural differences can, in some cases, be beneficial. In any case, cultural differences should never be disregarded. Because they are so important to the success of a deal, they must always be evaluated and effectively managed.

Ready to Sell?

If you feel the time has come to sell your company, start the process off right by reaching out to the M&A experts at Benchmark International. Not only will we help you craft a winning exit strategy and use our global connections and proprietary methodologies to find the very best match for an acquirer of your business, but we can also ensure that you achieve cultural synergy before a sale. As a global company, we understand the importance of culture and know exactly what to look for in the alignment of two organizations.

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Benchmark International has Successfully Facilitated the Transaction Between Circum Limited and EA-RS Fire Engineering Limited

Benchmark International is pleased to announce the transaction between engineering and construction firms Circum and EA-RS Fire Engineering.

Circum designs, supplies, installs, commissions and maintains active fire protection systems including wet and dry sprinklers, wet and dry risers, hose reels, and gas and mist suppression systems.

EA-RS Fire Engineering provides a turnkey solution for clients’ fire safety and regulatory requirements. It is one of only five UK fire systems providers with the various accreditations to supply mechanical and electrical packages in one single client order.

Ready to explore your exit and growth options?

This transaction is of a strategic nature, allowing EA-RS Fire Engineering to expand its current service offering and grow inorganically.

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Check Out Our Newly REDesigned Website!

Benchmark International is very excited to announce the launch of our newly redesigned website - https://www.benchmarkintl.com/ 

Featuring a brand new look, and more customized information, we have built our new website with you in mind!

The streamlined user interface allows you to find the information you are looking for more quickly and efficiently than ever before! You can browse the website based on your interests and goals, meet our team, learn more about our services and success, and see how we give back to our communities. You can also browse resources, webinars, workshops, and articles relevant to you within just a few clicks. 

Check out our new website here

We can't wait for you to dive in and explore the new website. We hope you enjoy the fresh look and find that this portal serves as a valuable resource for you. 

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Benchmark International has Successfully Facilitated the Transaction Between Richlyn Systems Limited and Pennine Holdings Ltd

Benchmark International has advised on the transaction between bespoke software provider, Richlyn Systems, and Sheffield-based Pennine Holdings.

Established in 1983, Richlyn Systems is a specialist software and web developer, providing industry tailored software development, standalone software packages and contractual software maintenance to a diverse range of niche B2B clients in industries such as commercial property, health, manufacturing and distribution.

Do you have an exit or growth strategy in place?

Pennine Holdings focuses on acquiring and developing IT related businesses with a view to creating synergies and improving performance.

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Benchmark International Facilitated the Transaction of BobCAD CAM, Inc. to Harris Computer Corporation

Benchmark International has facilitated the transaction of BobCAD CAM, Inc. to Harris Computer Corporation.

BobCAD-CAM, Inc. based in Clearwater, FL, is a leader in CNC programming software for milling, turning, routing, and wire EDM. It combines CAD (computer-aided-design) and CAM (computer-aided-manufacture) functionality into a single interface. Through its proprietary software, the company provides manufacturers a powerful and easy to use CNC (computer numerical control) programming software.

Larry Pendleton, CEO of BobCAD Cam, Inc. commented regarding the transaction, “We are excited to enter this new phase of our company’s growth. We’re especially thankful to the entire Benchmark International team that supported us in the process. As our M&A advisors, they were extremely knowledgeable, thorough and professional during the entire transaction. The Benchmark International team helped us secure multiple offers from strategic, financial, domestic and international buyers, and we couldn’t have gotten this transaction done without them."

Ready to explore your exit and growth options?

Harris Computer Corporation provides mission critical software solutions for utilities, healthcare, local governments, public safety, and schools throughout the U.S. and Canada. Harris has offices throughout North America. Harris is a wholly owned subsidiary of Constellation Software, Inc. CSI is a publicly traded company on the Toronto Stock Exchange. Trading symbol CSU.

This acquisition represents a tremendous opportunity for both businesses and their teams to strategically accelerate the rate of profitable growth.

Benchmark International's Transaction Director, Leo Vanderschuur commented, "It was a pleasure to represent BobCAD CAM in this transaction. Throughout the process, Larry and his team were exceptionally responsive, diligent, and professional. This acquisition represents a tremendous opportunity for both businesses and their teams to strategically accelerate the rate of profitable growth. On behalf of the numerous Benchmark International personnel that worked on this opportunity, we congratulate both teams on reaching this goal."

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M&A And The Big Data Industry

“Big data” has revolutionized the once traditional methods of analyzing data, making it possible to source more data at a much faster rate and with a great deal of variables. Companies that curate these massive databases do so to help businesses across all industries make more carefully calculated business decisions.

Big data sources revenue from software, hardware and professional services. It encompasses security, storage, infrastructure, networking, discovery tools, applications, and analytics, just to name a few.

The power of big data has grown with the widespread use of smartphones, social media and apps, and its technology continues to grow into edge environments, such as network nodes and industrial machines. Data is flowing between organizations of all sizes to help save time, save money, improve relationships, provide valuable insights, and advance technology. Big data is a major player in automation, artificial intelligence, cloud computing, and the Internet of things—innovations that are impacting virtually every industry in the world.

In an increasingly digitized society, everyone is looking to get a piece of the data pie. Technology companies are built on and around data. Advertising agencies look to acquire data companies in order to gain a competitive edge when it comes to understanding consumer behavior and targeting ads to audiences. Healthcare companies are spending billions on data companies to transform everything from precision medicine to medical records. In education, teaching and learning methodologies are being transformed by the use of big data. Mergers and acquisitions firms are using big data to improve target company searches and results. Essentially, there is no industry that is not somehow touched by the use of big data, and that results in sweeping opportunities for M&A transactions.

 

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Big Data’s Impact on M&A

While individuals, companies and governments across many different business sectors are using big data more frequently, new techniques are making it possible to analyze big data more effectively. This can have a significant effect on certain areas of M&A, such as strategy, business model validation, and valuation.

  • M&A strategies include value creation, operational synergies, risk arbitrage, and company turnaround. An M&A strategy is defined by the goals of the company, the skillsets of the M&A team members, and market factors that determine timing and viability. These factors are becoming more data driven in the making of strategic choices.
  • Big data is greatly improving M&A target searches and screening processes. Better screening can lead to better matching of buyers and sellers, leading to a higher percentage of successful deal closings.
  • Big data is making it possible to get a more detailed analysis of a company’s core business model regarding growth, market patterns, customer preferences, and market reaction to products.
  • Combining big data with market-based valuation techniques will make it possible to extract multiples from much wider market databases. It will also make it faster and more reliable to compare a target company and the company’s valuation reference set.

Regulatory and Privacy Issues

While big data offers major benefits for companies of all industries—with benefits that are passed on to customers through a heightened understanding of their needs—there can be certain challenges when it comes to legal issues that concern privacy, government regulations, international access, and increased scrutiny of information collection practices. 

A prime example of what big data must contend with is the changing privacy laws in Europe. In 2018, the European Union’s General Data Protection Regulation (GDPR)replaced an older law from 1995, creating a new regulation for privacy that affects organizations within the E.U., as well as organizations outside of the E.U. that offer goods and services to residents of the E.U. In addition to requiring clear privacy notices for users, the law also requires that organizations give 72-hours notice of a data breach. Users must also be given certain information about how their data will be used and are allowed to request deletion of their content.

The GDPR law is limited in that it only regulates data pertaining to individuals and not organizations, but it does have the potential to limit the type of data gathered. With such a rapidly growing industry that affects so many people and industries, it can be expected that other countries will take similar actions to regulate the use of big data, especially in the United States.

 

Ready to explore your exit and growth options?

 

Contact Us

We do things differently. Please reach out to our M&A specialists at Benchmark International if you are thinking of selling a company in the middle and lower middle markets. We will formulate a partnership that works in your best interests, using our unique databases to thoroughly identify every possible option until we find the perfect solution for you and your business.

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Don’t Delay Your Exit Strategy

In the latest to happen in the rollercoaster that is Brexit, another delay has been granted to the UK with EU members agreeing to an extension until the 31st January.

Meanwhile, reports from the EU are warning that economies may be falling into a recession with the potential decline in part due to Brexit, with countries particularly struggling when dependent on exports.

Despite this, M&A activity has not halted as there are still plenty of opportunities as it’s a way for companies to grow and develop and dealmakers are always on the lookout for strategic acquisitions. In fact, while dealmakers may be cautious and their timelines may be extended on deals, the uncertainty caused by Brexit has carved opportunities for dealmakers as they are ready to take advantage of factors such as the weak pound sterling making for cheap UK assets. This has resulted in the corporate mid-market remaining relatively robust with last year’s figures at record highs.

Feel like it's a good time to sell?

Therefore, if thinking of an exit strategy the time to act is now before it is too late. Potential recession could be a sign of things to come and while M&A has prospered so far despite Brexit, too many business owners are leaving their planning for Brexit until the last minute to wait for certainty from politicians. If certainty is guaranteed, this could lead to the market becoming saturated once a deal has been agreed or, if uncertainty continues to persist more and more economies could fall into recession – so it’s best to strike while the iron is hot.

Still unsure if now is the best time to sell? Read the below: 

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There is a Buyer for Every Business

“I am in a niche market space.” “Who would want to buy my business?” These are just a couple of the concerns that owners have when putting their business on the market for sale, which often leads them to limit the types of prospective buyers. However, business owners should not limit themselves to one particular type of buyer. The various buyer types often have different acquisition strategies and end goals. Receiving offers from each type enables sellers to explore the best of all options. Investment banks commonly group buyers into three main categories: Strategic, Financial, and Individual.

Strategic Buyer

Strategic buyers are typically the first group that owners will think of when deciding who will have an interest in acquiring their business. These are businesses that are similar to the seller’s and can include competitors. Within this category, horizontally-integrating strategic buyers seek to increase their market share through segment expansion, such as adding new regions, new markets, or a new customer base. This could be a buyer that is located on the opposite side of the country seeking expansion through acquisition to reach a new customer base. On the other hand, Vertically-integrating strategic buyers desire to expand their internal capabilities, such as bringing a portion of the supply chain in-house. For instance, a distributor may be seeking expansion by bringing manufacturing in-house. This allows the company to reduce costs and become less reliant on critical or high-risk suppliers. This works for all levels of the supply chain from the manufacturer to the service provider. A strategic buyer can come in many forms, each with their unique set of goals for a transaction, which will drive deal value.

 

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Financial Buyer

Financial buyers are the next main type of prospects buying businesses. The most common buyers in this category are private equity groups. Private equity buyers seek a return on the invested capital for their investors. A private equity group can bring resources that a strategic buyer may not have access to, such as growth capital, strategic management resources, and new growth opportunities. While some of these groups aim to grow the business for a period and then resell the expanded operations for a gain, others seek to buy and hold, with no plans to resell. Typically, these buyers will invest in industries where they have experience and can bring new ideas and opportunities to a business. Sellers often think that private equity groups only look at very large businesses to acquire but that is not the case. Private equity buyers often seek add-on acquisition of all sizes. The add-on can be any business that has synergies with their larger platform companies, which can expand operations, geographic coverage, or fill small gaps in the portfolio. For example, a private equity firm that has a large HVAC platform business may add on several smaller HVAC companies throughout the supply chain. The private equity buyer that is adding on to an existing platform has similar operations in place and can therefore be thought of as both a financial and strategic buyer.

Individual Buyer

The third category of buyers that play a role in the M&A community is an Individual Buyer. These buyers seek businesses to own and sometimes also to operate. Individual buyers span all industries and have various goals for the acquisition. There are many ways an individual can finance a transaction, including high net worth, commercial bank loans, SBA loans, and investment sponsors. When the individual buyer is an entrepreneur that uses funds from investors in order to search for, acquire, and personally operate one company, this is referred to as a “Search Fund” model.  Search Fund investment vehicles often have several operators, sometimes referred to an entrepreneur in residence, simultaneously seeking businesses in which they can take a day-to-day leadership role. The goals, value propositions, synergies and valuations of this buyer group varies significantly, and can often produce the best cultural fit for a departing seller.

There are companies, investors, firms, and individuals, both domestically and internationally, seeking to acquire businesses in all industries and of all sizes. Likewise, sellers have varied goals for a transaction and no single buyer type is guaranteed to align with those goals. There are countless prospective buyers and, by considering all types, a seller and his or her broker will uncover the right buyer.

 

Feeling unfulfilled? Explore your options...

 

Contact Us

Contact Benchmark International today if you are ready to sell your company, grow your company, or explore your M&A strategies. Our team of M&A experts will guide you every step of the way and will make you feel at ease that you are going to get the best deal possible.

 

Author
Nick Woodyard
Associate
Benchmark International

T: +1 813 898 2350
E: woodyard@benchmarkcorporate.com

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Benchmark International is proud to be a part of the OCFO Founders Conference 2019

Benchmark International is proud to be a part of the 2019 OCFO Founders Conference, taking place on November 7th at the Ideas Cartel in Cape Town, South Africa, during Global Entrepreneurship Week.

The conference aims to bring together the top business people, investors and entrepreneurs in South Africa for an evening of meaningful networking, learning and inspiration.

As part of the event, Dustin Graham, Managing Partner of Transactions for Benchmark International's South Africa offices will be speaking on the topic of preparing one's business to go to market and extracting its true value.

We wish the hosts and attendees well during the event.

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