Buying or selling a business – how to approach?

First and foremost, it is very important to know how to deal with the M&A. Over the decades, the market has shaped the M&A process to such extent that it consists of the most optimal activities. It reflects the knowledge and experience of all participants who have dealt with mergers and acquisitions in the past. Therefore, going for a non-standard approach is unlikely to pay off. Information exchange, process dynamics, risk perception, and last but not least, trust gaps critically affect the likelihood of M&A deal success. Consequently, the misconduct of M&A process & M&A best practice is often just a waste of time and money.

Businesses for sale or businesses looking to acquire need a professional. They need someone to prepare them for the M&A process. Not only in terms of documentation, but also in terms of forming beliefs. The expert can be an internal or an external person. Since such transactions are more of a one-off nature than a continuous approach, companies usually seek the help of specialized financial advisers. The key to choosing the right expert is to have the right knowledge, experience and most importantly – your trust. Statistically, more than 60% of business acquisitions are unsuccessful from the perspective of shareholders’ value creation. Therefore, M&A deals are more than obviously very delicate, so critical assessment of the opportunity is of crucial importance.

Key hints LINKED TO BuyING or sellING businessES

Due to the complexity of M&A transactions, matching the needs and expectations of parties involved usually lasts and requires considerable effort. Changes in the business environment of the subject business, one-off events or something else normally require updates of financials, further explanations, etc. The latter is often seen as a burden. Motivation plays an important role in M&A deal-making, so don’t give up too fast!

Expectations of participants should be formed on a well-founded basis. Too big difference in expectations and perceived value is often negatively accepted by the opposite party. Such behavior does not improve the negotiating position, as many people think, but rather repels the potential investors. For that reason, more serious M&A players expect from the other party to engage the M&A consultant to conduct services such as due diligence and corporate valuation.

Many are surprised by the fact that a typical company is sold on average over a period of one to two years. Time depends on many factors, including equity share size and characteristics, attractiveness of the company and the industry, plans and activities of the controlling owner, capabilities of the management, profitability, growth, financial position, hedging options, dividend policy, general market conditions, etc. Due to that matter, ownership changes require preparation and vision. Especially for those older owners who may even be involved in running a business, it is crucial that they start thinking about transferring ownership on time.

Successfully executed mergers & acquisitions also require a great deal of tact and flexibility. The analysis of comparable transactions serves to determine the valuation and payment terms, but also provides a great insight into the individual M&A transaction structures and the specifics that participants have explicitly addressed in certain ways in the past. It is therefore possible to identify in advance how atypical the participants’ individual expectations are and to assess how likely they will be accepted by the counter party. Not being flexible may compensate through the loss of value, so make sure that you are aware what is realistic and what are the related boundaries.

No matter how much the participants of the M&A process strive towards rational behavior, it is always possible to detect involvement of some emotions. There is nothing wrong with it, as long parties are not misled. Some major fails can be linked to lack of proper control over individual’s weak points, unsuccessful prevention of extremely negative/positive thinking, no mechanisms to prevent irresponsible behavior, poor coping with pressure etc.

Business value is derived from discounted future benefits in the numerator and risks in the denominator. From that perspective, actively addressing probabilities of negative business surprises and unwanted operation turmoil is a must. To be more concrete, investors often appreciate the willingness of executives to remain on board, at least in the foreseeable future, after the stock purchase agreement (SPA) or asset purchase agreement (APA) is signed. If existing executives no longer see themselves working for the subject business, the M&A deal may easily fail. For this reason, it is important to understand how all parties see major risks and come up with mutually acceptable options of ownership transition.

M&A best practice business cases prove that integrity, objectivity and transparency importantly contribute to building the prerequisite trust among participants in the M&A process. The information should thus be presented as it is. For example, what does a SWOT analysis tell you if it mostly lists strengths and opportunities, although in reality the subject business also has plenty weaknesses and threats? It is likely that after one realizes the biased approach, he or she will be more suspicious about the information you will share next. Participants, however, appreciate that certain information also comes from the right mouth. Hiding things can have very negative consequences even after the M&A deal is done.

The prerequisite to successfully close the M&A deal is also to adequately inform the counter party. However, participants should also be aware of the sensitive nature of the M&A process and information. It is therefore necessary to responsibly agree terms and limitations of sharing and use of information. There is often a fine line between responsible handling and complication. From this point of view, coordination between participants is sometimes challenging and knowledge of standard practices is inevitable.

Mergers & acquisitions are usually of more significant importance to parties involved. Decisions made are therefore not really a matter of reckless behavior. Both sides play own tactical game to maximize benefits. Regardless of different views, respectful and professional communication is expected. Often, the M&A process progresses faster, when neutral person intermediates, interprets, complements and guides both parties.

One of the most important things we all too often forget is that the bargaining power of buyers and sellers throughout the M&A process is not always the same. In the initial stages of the M&A process, when more potential buyers are on the horizon, the seller is in a much better position than the buyer, but towards the end of the process, when only a few are given the opportunity to advance, the situation is reversed. Due to that, any missed opportunities are difficult to make up for. For example, the letter of intent often comes incomplete, also as a reflection of the desire to continue with “more serious” activities. The seller should strive to point out the LOI deficiencies immediately, since the bargaining power is in this stage at its highest levels. Nonetheless, the way how the letter of intent is drafted also very well indicates the true motivation for the party and the level of experience.

Source: Consilue analysis.

To successfully target the potential investors, one needs to be aware of the situation that best describes subject businesses for sale. Are we talking about the growth capital, succession, MBO, carve-outs, spin-offs, distressed business or others?

Potential strategic acquirers typically focus their attention on consolidation of business entities or business assets. In other words, generation of synergies through economies of scale, diversification, resource transfer or a combination of the above plays an important role. The more synergies there are, the higher the appeal to buy certain business. Finding the right players and informing them properly about the investment opportunity is therefore crucial to successfully complete M&A transactions.

It is important that participants enter the M&A process well-informed, determined and with clear expectations. The following is of extreme importance especially when skillful buyer leverages its negotiation power and agrees on exclusivity period in exchange for resources invested in due diligence, corporate valuation and negotiations. For the seller, this is often seen as a sort of a bet, since the decision has to be made on the pre-formed sense of the market.

WHEN TO Buy or sell business?

Competition today is increasing. More and more companies and industries are entering in the mature phase of their life cycle, which reinforces the need for inorganic growth. This is the reason why lots of them nowadays have M&As even as part of their strategies. In the mature phase smart M&As often boost shareholders’ value creation more than organic growth.

Source: IMAA. Consilue analysis.

Despite the increasing number of M&A transactions, times to sell or buy a business are not always appropriate. It is important to be aware of where we are on the M&A activity curve and what are the factors that influence this situation. Currently (in 2019), the EU M&A market is positively affected by relatively attractive corporate valuations, high liquidity, easy access to credit and others. The graph clearly shows that current levels are lower in value terms than they were before the financial crisis, which is not the case for the United States. As Europe loses on its competitiveness, it also becomes less and less attractive in terms of consolidation trends. However, it is true that every industry and every market has its own specifics of movement and it is good that the participants are aware of them.

Our success in mergers and acquisitions is also significantly influenced by M&A trends. Recently, for example, investors have been giving an increasingly important role to technology. Then there are unexpected tariffs initiated by the US, which caused a wave of Chinese investment in Europe and so on.

HOW TO DECIDE WHETHER OR NOT TO Buy or sell business?

The decision to sell or buy a business must be made rationally. Every business opportunity has its own life cycle in the eyes of every individual. But also times are good and bad in the eyes of every individual. The market requires more each day. Wiser ones use their ability to adapt as their advantage, others don’t. The important thing is, that we either take the opportunities or we begin to lose. There is no room to debate when selling and buying businesses. Investing is not politics. Selling or buying a business is not a bad decision. Not making a progress when running a business is. The market sooner or later eliminates those that operate below its requirements, so it is wise to realize this as soon as possible and take action.

It may happen that one is forced to make an investment decision (buy or sell business) due to third factors, so knowing the probabilities of such events is important. Sometimes it is better to take a preventive action as well, especially when we are on the edge of major macroeconomic or geopolitical concussion.

Corporate owners often get asked how much their business is worth. Most of them are not able to answer this question properly. Such ignorance is detrimental and can also be a reason for lost opportunity. Behind many such questions there is a potential acquirer, so it’s always good to be aware of your investment’s value.

Investment decisions, in knowledge, in technology, in assets, or something else, tailor our destiny. What we invest in today impacts our yield tomorrow. Compound interest is the thing that makes us, or not, more successful in time. According to Albert Einstein, this is the most powerful force in our universe, so it is nonsense to oppose it.

Are you interested in the M&A support that we can offer? Share with us some data through web form – Mergers and Acquisitions – M&A consulting!

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WORLD-LEADING CORPORATES CONTINUALLY SURPRISE US. IN ORDER TO STAY IN THE ELITE THEY COMMUNICATE MORE AND MORE VISIONARY IDEAS. THEIR MARKET CAPITALIZATION IS LARGELY IMPACTED BY THE PERCEIVED SCOPE AND GROWTH OF FUTURE OPERATIONS, SO THE MORE ABSTRACT & DARING THEY ARE, THE MORE INTEREST THEY RAISE AND HIGHER IS THEIR POTENTIAL. THE WINNERS ARE THOSE WHO RISK A LOT, BUT IN A SMART WAY – CASE OF ALPHABET INC.

Alphabet Inc. is a financial holding, the epicenter of creativity and innovation of incredible scope. Google Inc. currently represents the majority of this holding, while other companies are still in relatively early phases of their development. These are Access, Calico, CapitalG, GV, Nest, Verily, Waymo, X and many other projects, which are about to be spin-offs / carve-outs in the near future. The activity focus is on information organization, investment banking, IT infrastructure, biology and aging, healthcare, home management, transport and logistics, television etc.

Already the name (Alphabet Inc.) symbolizes the organization’s mission, placement of so called »alpha bets«. Albert Einstein once said: »The best investment is investment in one’s knowledge.« and it seems that Alphabet Inc. took this statement seriously. They bet more and more intensively on the combination of technology and learning – machine learning and artificial intelligence.

The potential of these two technologies can be well understood from a simple chess experiment. The computer was given the game instructions and develop its own knowledge of playing based on own iterations. In less than 4h of playing the cumulative knowledge already exceeded the amount of cumulative chess knowledge developed by people through centuries of playing this game. Chess is only one of the examples, in reality there are numerous potential applications. Speaking from the monetary perspective, the value of the market is estimated in trillions of US dollars. The two technologies may result in a double digit GDP growth of the world.

We are probably not even aware of the progress that is about to be made in next years. The cumulative knowledge base will get new dimensions, since the knowledge begins to grow at significantly faster pace. Practically, in line with the IT infrastructure development. Inventions such as Quantum computers, however, will speed things up. New knowledge will open the door to a world of completely different life.

A well-known Chinese magnate and businessman, Jack Ma, at one of the public speeches said: “It is more important that you are the first one, than that you do things perfectly.” With this statement he highlights the importance of the »first mover effect«, the entrepreneurs are still under-aware. Not only that Alphabet Inc. is normally among the ground-beakers, its innovation in combination with market dominance actively address also the so-called »trend setting«.

If so far Google Search was considered as the leading tool for searching information on computers, phones, tablets and other media; the company is opening a new, even more promising chapter. With the integration of artificial intelligence and machine learning they a targeting a more strategic role in one’s life, becoming personal assistants. This will drastically improve the role Google Inc. plays in our lives and of course simplify our operationally challenging everyday. Despite the fact that Amazon’s Alexa and Apple’s Siri came first and were until recently leading by active users, it appears that the winner of this battle is going to be Google Inc., also due to the cross-product synergies.

Innovation is just a base. In order to make an idea a success story, much more is needed. Among others, also the ability of market penetration. Recall how Google Inc. in the past used not only organic approaches, but also corporate acquisitions to speed up the market integration at just the right time. Today, Android probably would not be so well-known and widely used if Motorola Mobility acquisition would not take place back then ($ 12.5 billion, 2012) and accelerate the penetration. The same applies to the acquisition of Nest Labs (USD 3.2 billion, 2014), which enabled the company to develop its presence in households in the IoT segment; and the acquisition of YouTube ($ 1.7 billion, 2006), which enabled Google Inc. to successfully responded to the transfer of traditional television to the world wide web and significantly increase its advertising potential. Mind also the takeover of the Israeli company Waze ($ 1.15 billion, 2013), which significantly improved the Google Maps with more advanced travel time calculation, suggesting the most optimal routes, etc .; or the acquisition of the HTC Pixel Smartphone Division ($ 1.1 billion, 2017), which strengthened the development team in some critical areas and may seriously jeopardize Apple’s Iphone profit cake. Advanced strategic management and bold thinking result in more than 200 other corporate acquisitions made in the last 10 years – Gradient Ventures and the Google Assistant Investment Program play an increasingly important role.

Alphabet Inc. understands very well how important it is to actively monitor and set trends. People’s habits are changing rapidly all the time, opening up new market opportunities. Being the first in key segments such as machine learning and artificial intelligence opens the door to the potential of enormous value generation in the future. Capital un-intensive business requires management to focus its efforts on growth – thus the tendency to focus on end users, user experience, brand perception, customer loyalty, customer satisfaction, etc.

Past financial figures confirm that the tactics is right. Past growth rates are high (Net sales CAGR2014-17: 18.9%; EBIT CAGR2014-17: 16.6%), which partly also reflects smart allocation of resources and the increasingly active penetration of emerging emerging markets such as India, South Asia, China and others.

Source: Alphabet Inc. Consilue analysis.

Despite impressive financial statements, many investors believe in hidden reserves. The complaints relate to the monetization of solutions, excessive share of more expensive equity in the financial structure, unnecessary exposure with short-term financial investments, etc. As a result, the capital market position of the company is not optimal. Measures of protection against hostile takeovers, such as, the issue of multi-class shares with different management rights, which give the founders the main managing role in the company, additionally worsen the situation.

Source: Alphabet Inc. Consilue analysis.

The chart above shows year-on-year increase in surplus cash »Money and short-term financial investments« (31 Dec 2017: USD 102 billion) and its financing. In other words, a substantial portion of equity is used to invest in US bonds and similar short-term liquid instruments. For some stupidity, for others a masterpiece. The fact is that it is very difficult to judge the situation on limited outer data. One of the theories that advocates the current management’s behavior is that the reasons for the significant surplus should be sought in the context of tax benefits. Companies like Alphabet Inc., Apple Inc., Microsoft Inc., Cisco Inc. and others hold a cumulative 0.5 trillion dollars of surplus cash in their balance sheets. Their bargaining power against the tax regulator is strengthening every year and call for a more favored one-time tax treatment, co called »tax holidays«. They wisely wait for the right moment to come. In times of crisis, the saying »Money is the king.« is well-known.

Critics respond with counter-arguments. One of them, for example, is that Google Inc. is with its balance sheet full of surplus funds becoming an important player in the world of investment banking, a world of sharks. Investor doubt in safety of these funds, due to the company mysterious behavior and (little) amount of attention.

From the value point of view, the lever of Alphabet Inc. (Google Inc.) is not really the amount of excess cash, but rather the ability to invest it in a very smart way. Not only within the technology sector, but also wider. The financial holding has a unique weapon in their hands – Google search queries. The latter can be demonstrated with, for example, comparing the number of Google search queries and the Bitcoin (BTC) price development. The correlation between one and the other is extremely high and, as in many other cases, provides a good basis for investment decision making.

Source: Alphabet Inc. Consilue analysis.

Corporate strategy – it is about our path. How we are achieving our goals. How wide and open we look at things. How capable we are to appropriately address macro trends. How we recognize and manage advantages, weaknesses, opportunities and dangers. How we strengthen purchasing power within the industry. How we make advantage of our corporate competences, competitive advantages, capabilities etc.

Google’s strategic management is in many views exceptional. Advanced future-thinking, technology, innovation and creativity. In everyday life, things are of course much more complex than the chess game, but something is certain. Development goes on with the speed of light. The ideas we have been acquainted with a decade ago in science fiction movies are now part of our everyday life. But ideas are not all, they are only the beginnings. Its the corporate strategy who decides whether they will play an active role in our lives or not. Corporates need to do unique, break-through things. Today we need to think about how the life will look in twenty years. We need to think about the virtual reality, personal assistants, gene modification, molecular designing, personalized medicine, (cell)growing of meat etc. Dare to risk, but in a smart way – just as the leading companies do.

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TECHNOLOGY BRINGS REVOLUTIONARY CHANGES INTO THE BUSINESSES. IT ENABLES NEW DIMENSIONS OF COST OPTIMIZATION ON ONE SIDE, AND EXTREMELY FAST AND CHEAP EXPANSION ON THE OTHER SIDE. THIS CENTURY IS FOR SMART INVESTORS DEFINITELY A GOLDEN ERA. FROM THE PERSPECTIVE OF VALUE CREATION, MEGA INVESTMENT OPPORTUNITIES ARE SHOWING ON THE INVESTOR RADARS – CASE OF MASTERCARD INC.

Mastercard Inc. is a specialized technology company offering e-payment solutions to banks, governments and others. In other words, clients are offered super-fast network for processing end-users’ transactions. The company philosophy is to simplify and upgrade the payment process. Efforts of the company are built around the main concern – to offer safety and security. The company today has 1,8 billion cardholders around the world, mainly in USA, UK, Canada and Brazil. Their brands MasterCard, Maestro and Cirrus became known as synonym for non-monetary business.

Sustainable achieving of high margins in the long-term

Through decades of operations the company developed key competitive advantages, which guarantee today’s success and include strong brand, high level of trust and global network of partnerships. Strong brand impacts the demand, high level of trust as the element of differentiation enables high profit margins and global network of partnerships results in economies of scale and optimal cost structure of operations.

Financials confirm the superb performance of Mastercard Inc. Market share of the company in 2017 hit 17% (2016: 16%, 2015: 12%), while net sales reached 12,5 billion USD. Business performance is improving as a result of consumption rise and changing consumer habits. In terms of value creation, an important fact is linked to the ability to maintain high and stable margins. EBIT margin for years already exceeds 50,0%.

Chart: Net sales and EBIT developments of Mastercard Inc.

Shareholder value creation is what really counts!

The success story of Mastercard Inc. (or some other company operating in tech-sector) recognized by investors is actually a bit deeper. It is linked to the potential of future value generation, which is significantly impacted also by a relatively low operations growth financing needs.

Technology is an interesting phenomenon. It allows one to reach economies of scale fast and without significant investments in capital expenditures (CapEx) or Operating expenditures (OpEx).

The growth as such for Mastercard Inc. does not represent a significant financing burden (compared to non-tech sector companies). In other words, the operations can expand through the existing solutions and significantly impact the value created. If we additionally take into the account the fact that nowadays still 80% of transactions are in cash and the pace of changing consumer habits, we understand the true value drivers.

How easy it is for Mastercard Inc. to finance its existing operations is obvious even now. Despite the relatively high (16,0%) growth of net sales in 2017, the level of shareholder’s equity remained on the same levels. Net profits were paid out in full. The needs of increasing invested capital were addressed completely with increased levels of financial debt. Despite raising of the financial debt, the indebtedness ratios are actually improving, since the market value of equity increases faster than the financial debt.

Every company has its own specifics of shareholder value creation, so it is important to understand what boosts company value the most!

The CEO of Mastercard Inc. Ajay Banga says: »Our investments are focused on the safety, security and development of solutions that fuel high growth of our business.« He is well aware of the areas of the biggest risks and the biggest opportunities. This fact confirms also recent acquisitions, which are executed with a purpose to expand the capabilities of the company and take over the technical solutions, which are about to present a competitive edge for the company in the future. For example, with acquisition of VocaLink Holdings Limited company gained advanced know-how in the area of real-time account transaction processing; with acquisition of Brighterion, Inc. the company gained the AI technology to better understand the transaction flows and prevent the security and safety gaps.

Companies that continuously create value for shareholders have competitive advantage over competitors and wider, meaning in the industry. In case of Mastercard Inc. we talk about the combination of attractive industry and strong competitive advantages. The company stock outperforms even those with biggest potential, selection of NASDAQ index companies.

Chart: Performance of Mastercard Inc. stock vs NASDAQ index

The thoughts of Mastercard Inc. management are concentrated on the core value driver – company’s growth and securitisation of underlying risks. The tools used are exclusively of technological nature. Technology & competitive advantages are the answer to smart managing of companies in 21st century.

The pace at which the technology is brought into the daily operations is high. It requires introduction of new business models. Preparation of more advanced business strategies. Continuous restructuring of activities. Implementation of creative ideas etc. As a result, the capital market positions of the most active companies are drastically improving. They attract investors. Grow the value for shareholders.

What about you? Are you aware of potential that the technology has in the context of your operations? Do you consider its implementation? Do you know which investments are smart and which actually represent a burden for your company?

What are the other shareholder value creation success stories that we know?

Company Uber offers transportation services and has no cars; Facebook is a media company and creates no content; Alibaba is a trading company with no stocks; Airbnb markets real estate, which are in possession of others etc. All these companies master the technology and its impact on value creation. Technology is revolutionizing the whole industries, which is primarily the cause why many sectors stagnate.

The answer on how to “Uber-ize” many other businesses is hiding the potential for new billionaires!

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THE LEADING MULTINATIONAL COMPANIES EXPLOIT ADVANCED KNOWLEDGE OF STRATEGIC CORPORATE FINANCE (INCL. VALUE-BASED MANAGEMENT) TO MASTER THEIR DECISION-MAKING. WITH OPTIMAL OPERATIONS THEY BUILD THEIR WAY TO RECOGNIZED MILLION DOLLAR POTENTIALS.

Nowadays we are witnessing a serious competition among companies in the market. The world changes at extremely fast pace. Requires agile, self-learning businesses, flat organizational structures, innovativeness in the whole supply chain and wider, implementation of digital in all processes and many other characteristics, which are nowadays preliminary for the success of corporates. Doing business became complicated in its simplicity, while one of the crucial questions being asked today is “How the right decisions are made in the firm on every level?”

Value-based management became in last two decades the “religion” of the leading corporations around the world. It refers to the theory of corporate finance, focused on shareholder’s value maximization. The value is the only indicator that reflects information in a complete, comprehensive and non-biased way. What is more, value added approach enables one to address all processes and stakeholders in a simple way, with one single number.

»The only relevant KPI for owners is the value of their equity share.«

Value-based management – GOOD PRACTICE?

One of the cases where good practice of value-based management is present is Sika Group, a chemical producer giant with HQs in Switzerland. This multinational has 200 companies around the world and is present in 101 countries. It generates 6,25 bn CHF net sales and constantly brings 25%-30% return on invested capital (ROIC). Added value per employee is 115.000+ CHF. Under the umbrella brand Sika, 850+ product brands are promoted. The company persistently grows, organically and with M&As. Only in 2017 the company executed 7 acquisitions and registered 74 patents. And why this multinational is so successful? Definitely also thanks to strategic choice that EVA (Economic Value Added) analysis are performed for every strategically important decision being made.

Let’s look at the business of this multinational from another perspective. Sika Group is a collection of projects. Every project has its own returns and risks. Resources are limited, so decisions are rational. There is nothing wrong with the projects with relatively modest return, if very little is being risked. Also there is nothing wrong with high risks, if high returns are expected. To sum up, the company makes their decisions in line with the value generation and promotes those projects where most value is added with the underlying risks considered.

VBM decision-making in practice

Demonstration of value-based management findings in case of Turkish company acquisition (graphic is symbolic; numbers are not actual):

Commentary of value-based management findings: Acquisition of Turkish company generates significant economic value added (chart: 195 mio CHF). Management proceeds with the execution of the acquisition, since ΣEVA (PV) is positive and in terms of relative project performance among the Tier I projects.

Demonstration of value-based management findings in case of new production line implementation (graphic is symbolic; numbers are not actual):

Commentary of value-based management findings: Purchase of production line for the penetration of selected developed markets with new products is not confirmed, since this decision, due to the relatively low profitability, destroys the value for shareholders (chart: -5 mio CHF). Management seeks alternative business opportunities.

As it can be seen from the two examples above, understanding of the economic value added is simple. This is making value-based management a desired approach for the decision-making. Furthermore, it is a uniformed system, that clearly prioritizes best projects and thus defines priorities of the company. The approach makes sure that the company does the right things first and only then the efficiency of making these right things is considered. In this way the comparison of short-term, mid-term and long-term choices is simplified; only top-notch investments are preferred; allocation of resources is improved; transparency of operations is better etc.

Value-based management is due to its advanced nature more and more often also referred to as smart management tool. It leverages all the knowledge of the capital markets in combination with advance analysis of operations, industry and market opportunities. It helps companies strengthen their relative power. In the long term, using value-based management means heading the optimal way forward, heading in the direction of success. The advantages of value-based management are well understood by the leading multinationals, this is way value-based decision-making is their preferred approach for quite some time already.

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The post Case study: Preparing the niche industrial company for sale appeared first on Consilue.

The client is a small company, operating in the plastic industry, specializing in the next generation packaging solutions. The company works for prominent clients from cosmetic, chemical, food & beverage, pharma and medical industry worldwide. The company is about to expand its presence in the Latin America. As planned, strengthening the presence in the emerging markets would most likely result in the projected two digit growth rates and EBITDA margins.

The client has developed strategic partnership relationship with its indirect competition all over the globe. Intense cooperation resulted in cost synergies and sharing of a supplier-side know-how. The indirect competitor’s owner has experienced a serious financial problems and thus a decision to divest the business has been accepted.

Addressing the pain:

Firstly, the client has decided for a general overview of the indirect competitor’s past operations. Based on the preliminary findings, the client has decided to continue only with the acquisition process of the most valuable asset – the existing customer database.

Later on the advisor has prepared the client a revision of the competitor’s past projects and their profitability analysis. The findings served as a base for the determination of key variables and preparation of the financial projections, calculation of synergies and customer database valuation.

In order to be able to achieve the full potential as planned in the financial projections, the client has been advised to employ competitor’s key sales personnel.

Results:

The acquisition of the customer database and complementary activities are expected to result in significant revenue and cost synergies and geographic risk dispersion.

Client’s testimonial:

It is very important to be aware of the fact that valuing the customer database from the perspective of “as is” projections and from the perspective of our business (reflecting our business model) varies. It messages significant synergies. Furthermore, taking over customer database with key employees is “a must” – it is a good oportunity to gain new capabilities.

Advisor’s thought:

The client is about to gain short term and long term boost in its operations through new emerging market penetrations and risk diversification. Last but not least, fulfilling the sales capabilities gap will enhance the company’s position and its ability to compete with significantly larger global players.

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