CEO Advisor Newsletter September 2015
What Every CEO Should Know About Mergers and Acquisitions?
2. EPITDA Multiples Drive Deal Prices. Many deals are valued off financial metrics and completed deal comparables. EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, is the key metric for applying a multiple to derive the value of a company. Corporate M&A departments (strategic buyers) and financial buyers value deals based on EBITDA multiples depending on the company's industry, size of the market, revenue growth rate, gross profit margin, management team, recurring revenue, EBITDA, EBITDA growth rate and other factors.
3. You Have to Stay On. M&A isn't a one-time cash-out, at least not anymore. Most deals have a 2-3 year retention, seller notes and potentially a 2-3 year earn-out. Assume if you get acquired, you're committing to a minimum of 24 months with the acquiring company in a specific role.
4. Acquiring Companies Don't Buy Low or No-Growth Companies. A ten year old company that is growing 10% per year is of no interest to strategic buyers. A financial buyer, such as a Private Equity firm, may be interested if a strong fit, but at a depressed valuation. It is critical to fix your deficiencies and excel in all aspects of your business to optimize your value and attract buyers.
5. Knowing the "Value Drivers" is Critical. The acquirer will spend a huge amount of due diligence effort to identify the sources of value (Revenues, Gross Profit, Gross Profit Margin, Recurring Revenue, Technology and other Intellectual Properties, Management and Personnel, Brand, EBITDA, EBITDA Growth) from the deal. It is essential for you to maximize these value drivers and present hem to potential acquirers clearly and distinctly. CEO Advisor, Inc. provides mergers and acquisitions advisory services and business consulting services to CEOs, presidents and business owners of small and mid-size companies. We address your specific needs with hands-on action, expertise and seasoned advice. Contact Mark Hartsell, MBA, CEO of CEO Advisor, Inc. at (949) 629-2520, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.
Attention CEOs - Start Planning for 2016 Now
- Here are 7 key issues that typically cause major issues in a business or lead a CEO or business owner to decide to exit the business, usually through a sale or liquidation, in an unplanned sale or at less than desirable results. Planning now for 2016 will head off these issues for a more productive new year.
- 1. Lack of Operating Capital
- Lack of cash to meet short-term cash needs is a major burden and sometimes crippling to businesses and their CEOs. Also, cash shortages preclude funding essential for business growth. Serious cash needs also cause short-sighted actions and even bad decisions.
- 2. Management is Too Thin or Less Than Competent
- The CEO can be so tied to the business with no additional resources for the CEO to share management responsibilities. Thus decision-making, sales, marketing, operations and growth are restricted to the CEO's abilities and available time.
- 3. Lack of a Business Strategy and Business Planning
- There is no strategic business plan, financial forecast and goals to focus resources effectively toward results and to increase sales and profits. This is critical and rarely done consistently in small business today causing a whole range of problems.
- 4. The CEO is Seriously Ill or is Disabled
- Being prepared for the calamities that can ruin a business is a responsibility a lot of business owners do not take seriously enough. Insufficient financial and management preparation for the death or disability of the CEO can create chaos for those left to sort out the issues. A trusted business advisor familiar with the business can be an extremely valuable resource to any CEO or business owner to act in an Interim CEO role, as needed.
- 5. There is Disproportionate Risk through Personal Guarantees or Expenses Tied to the Business
- Because of personal financial guarantees required for the business or considerable fixed expenses, especially in an economic downturn, a major crisis could ruin the business owner.
- 6. The Business is No Longer Satisfying or CEO Fatigue Sets In
- Many CEOs and business owners reach a point where they no longer wish to endure the pressures of the business or the risks related to the business. They have lost their enthusiasm and commitment to continue to invest in and grow the business.
- This condition is not only an impediment to growth, but it often creates a downturn in the business that puts the company in a vulnerable position. An interim, part-time CEO or business advisor may be the alternative that works best outside of a sale of the business.
- 7. The Assets of the CEO or Business Owner are Unbalanced
- Most personal assets are in the value of the business. Little independent retirement savings have been established for the CEO/major shareholders in the event of a business downturn. In the absence of a strategic buyer, the sale of the business is required as a retirement alternative.
- CEO Advisor's business consulting services can help you overcome these issues enabling you to grow your business to the next level, or explore your alternatives. Contact CEO Advisor for a no cost, no obligation initial consultation at your office by calling Mark Hartsell, MBA, CEO at (949) 629-2520, by emailing MHartsell@CEOAdvisor.com, or visiting our web site at www.CEOAdvisor.com for more information.