CEO Advisor Newsletter April 2018
Making Successful Acquisitions
The key is having the right team of advisors consisting of an M&A/business advisor who will initiate and lead the team and work closely with the CEO, a seasoned corporate/transaction attorney and a CPA or tax advisor. The M&A/business advisor is the liason between the CEO, attorney and tax advisor. The M&A advisor also does all of the planning, creates a list of target companies, contacts these companies, requests initial information, creates and negotiates the Letter of Intent, coordinates the Due Diligence process and assists the CEO through the legal documents with the corporate/transaction attorney by negotiating business aspects of the acquisition.
An acquisition creates value through at least one of the following five strategies:
- Accelerates market access to products and services
- Improves the performance of the acquired company to build value in the acquiring company
- Eliminates competition from an industry
- Acquires expertise or technologies more quickly or at a lower cost than if they were built in-house
- Creates the opportunity for scalability.
The purpose or strategic rationale for an acquisition should be very clear. Accelerate and Expand Market Access to Products and ServicesSmall companies with innovative products have challenges reaching the potential market for their products and services. IBM pursed a similar strategy in its software business between 2010 - 2013 when it acquired 43 companies. By pushing the products of these companies through IBM's global sales force, IBM estimated that it was able to accelerate the acquired companies' revenues as much as 40% in the first two years after each acquisition.
Improve the Target Company's Performance Improving the performance of the target company is one of the most common strategies to create value. When you acquire a company to improve sales, marketing and its products, as well as, reduce costs and expenses to improve Gross Margins and cash flows, you substantially increase shareholder value. Keep in mind that it is easier to improve the performance of a company with low Gross Margins and low Net Profits than that of a high Gross Margin and high Net Profit company.
Eliminate Competition and Excess Capacity from the Industry As industries mature they typically develop extensive competition and excess capacity. By eliminating competition you also gain market share, increase sales and even expand your products and services. Additionally, you eliminate downward pricing pressure and create the opportunity to increase your Gross Margins company wide.
Acquiring Expertise or Technologies Faster or at a Lower Cost Technology companies acquire other companies that have expertise or technologies they need to enhance their own products and services. They can acquire the technology more quickly than developing it themselves, avoid royalty payments on patented technologies, and keep the technology away from competitors. They can also gain valuable expertise in a cohesive team with far more efficiencies than hiring individuals.
Acquiring a Business for Industry-specific Scalability Creating economies of scale are often a key source of value creation in mergers and acquisitions. Economies of scale can be important in creating value with purchasing power or other areas that can benefit from larger volumes. This can substantially increase Gross Margins, Net Profits and value of the business.By focusing on the types of acquisition strategies that have created value for acquirers in the past, CEOs can utilize acquisitions to create substantial value for their shareholders.
Negotiations in M&A deals are extremely different from any other negotiations of the day-to-day business world. With the right M&A advisor, you will feel completely comfortable pursing strategic, opportunistic acquisitions.
CEO Advisor, Inc. has the expertise and experience to help you through this challenging and exciting process. Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. at (949) 629-2520, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.
CEO Advisor, Inc. Advises Persimmony International on Growth, Strategy
Persimmony, located in Aliso Viejo, CA, provides a full suite of cloud-based case management software that securely and efficiently manages and tracks hundreds of thousands of cases for those in need on behalf of administrators and case managers in the Public Health sector of government.
Michael Kogus, CEO of Persimmony states, "CEO Advisor and Mark Hartsell have been a catalyst for Persimmony to make the needed changes to grow our business to the next level. Their expertise in strategy, planning and building an effective sales team, as well as, positioning our company for an optimal value will help us achieve our near term and long term goals."
As trusted business advisors since 2004, CEO Advisor, Inc. provides a hands-on, disciplined approach to working directly with CEOs, presidents and business owners of small and mid-market companies in technology, media and other industries. We advise CEOs by focusing on growth, business strategy, planning, sales strategy, marketing, finance, growth capital and mergers and acquisitions advisory services to grow their businesses to the next level, while increasing shareholder value for their future exit.
Mark Hartsell, President of CEO Advisor, Inc. states, "Persimmony has a unique skill set and technology, and they have carved out a valued and specialized niche in serving the public sector. Their software not only automates a large aspect of Public Health, but generates a tremendous return on investment by providing reimbursements to areas of the government that have a high value in our society. Their growth and expansion plans are impressive and we are putting in place the right team, processes and reporting to achieve their goals."
About PersimmonyPersimmony provides a full suite of software to securely and efficiently facilitate case management for administrators and case managers in the Public Health sector of State, County and local governments, as well as, customizable software solutions for First 5 and nonprofit organizations. For more information, contact Persimmony at (949) 770-5550 or visit www.Persimmony.com.
About CEO Advisor, Inc.CEO Advisor provides business consulting, growth capital and mergers and acquisition advisory services to effectively meet the specific needs of small to mid-size companies in a wide range of industries, including software, technology, media, printing, professional service firms, healthcare, manufacturing and many more.
CEO Advisor's mission is to advise CEOs, presidents, business owners and principal executives with the needed expertise and focus, coupled with hands-on advice and work performed to grow your business to the next level or realize your life's dream through a successful exit.
Contact Mark Hartsell, President of CEO Advisor, Inc. for a no cost initial consultation at (949) 629-2520, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.