Tag: mergers

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Authentic Deal-Making Deal-Driven Growth

K-Economy, M&A Trends, and 2021 Deals in Q4

K-economy: women shaking hands with a man
Thoughts for Deal-Making Buyers, Sellers, and Business Owners

If you listen to the show regularly, you know I like to periodically review M&A trends. Q4 of 2021 is no different! Right now, we’re seeing lots of interesting action. Deals have continued to be strong in this K-economy, which we saw throughout 2020 as well. Clearly some industries, like tech, logistics, and finance have been booming. Others, like restaurants, have struggled more.

If you were to search “2021 deals” right now, however, you’d find all sorts of positive reports. There is confidence in the economy right now. In addition, there is an unbelievable level of access to capital right now. Despite the fact that many deals have been done, the capital has not dried up.

No Good Deal Will Go Unfunded

I’ve heard this said multiple times in the last 18 months, and it continues to be true. There is available capital, and if a deal makes sense, it will get funded. From debt funder to minority and majority investors, money is moving in the deal-making world!

Interest rates have remained low, despite a bit of a push on inflation. That could be a blip, or that could indicate we are at the beginning of an inflationary period. Emerging from the pandemic could be creating a raise in prices, in addition to increases in wages and hiring difficulties. It’s impossible, at this point in time, to know if that will remain, worsen, or decrease.

We can see, however, that it has not put a damper on deals! Overall, this is a really strong period for M&A.

An Update on Capital Gains

There are those who have chosen to complete deals in 2021 based on the possibility that there will be an increase in capital gains rates in the coming year. This can be impactful at both a national and state level. 

For example, Washington state has historically not had a capital gains tax, but they will be adding one in the upcoming year. Various states have discussed raising tax rates to gain revenue in some way, and this may be on the table in a number of legislatures. It pays to be aware of what’s happening in your state!

There is, of course, also the possibility of the national rate increasing. If you already had a deal on the table, or if getting a deal closed in 2021 made sense for your business, then there’s no harm in getting it closed out. I usually recommend, however, not rushing into a deal because of fear of possible changes.

At this point, there is nothing in sight to indicate that deals are going to slow down significantly. In fact, the fundamental factors, such as available capital and low interest rates, still favor deals. Deal-making will likely continue to be strong in 2021!

High Valuations, Valuable Companies

If you’ve built a valuable company, or have received a high valuation, this is a great deal-making time. I’ve seen numbers on the table that are nearly double what might have been offered in different times. 

That makes selling or triggering your succession plan tempting!

There is definitely money on the table, and there might be deal-making opportunities available that you may not have anticipated a few years ago. It doesn’t hurt to be aware of all available options.

In fact, for the first time in my career, I’ve had multiple prospective clients who have come to me because the initial firm or connection they reached out to was too busy to take on their deal. I certainly respect their honesty in not taking on more than they can handle. (It’s also made me glad I’ve built a model that has the capacity to expand to accommodate additional deals when needed, and contract if needed as well.) What a sign of the times, however, when professionals are legitimately too busy to handle stepping into new profit or growth opportunities!

Successful Sectors

Finance, tech, and healthcare industries are absolutely booming right now, and they have been throughout the pandemic. 

In fact, we’re especially seeing healthcare activity diversify a bit more. Now that many emergency/in-the-moment responses for the pandemic have slowed down, there is more capacity to look around a bit.

We’ve also seen that the decreased pandemic pressure has increased deal-making activity around the globe. In fact, mega-deals in the multiple millions and billions of dollars have surpassed past annual numbers already. International deals are thriving, and it seems there is access to capital and a desire to forge deals throughout the world.

Buyer Discipline & Seller Decisions

In this market, buyer discipline is a key element of deal-making. After all, buying high and moving too fast can ultimately end in ruin for buyers who overextend or fail to read the market. We’ve seen that before in boom-and-bust cycles.

The competition for good deals is intense, and that can sometimes result in lower returns over time. For that reason, it’s essential that buyers practice discipline as they go about deal-making.

For sellers, if you were already planning to enter into succession or buyout plans within the next year or two, it makes sense to move ahead. If you’re younger, however, or were planning to run your business for 5, 10, 20 more years, it might make sense to retain your business.

There is no cut and dried answer, and hindsight will always be 20/20. Entrepreneurs and business owners should consider selling. First, however, it’s worthwhile to take a step back and identify where your thinking and decision making is coming from.

  • Ask where your identity is coming from.

Sometimes, a seller will be scared to let go of their company because they’ve become so enmeshed in being the CEO, founder, or operator that they don’t know who they would be without it. Choosing not to sell because you don’t know how to let go is not a strong position. Take the time to make sure you understand your identity apart from your business.

  • Consider what life you want to create.

It’s at least worth considering what life you could create without your business. What would the best case scenario of selling be? What happens if you keep it? Take the time to consider all the options, and to be open to things going differently than you had expected.

  • Don’t get hung up on chasing money.

Just because selling could be lucrative doesn’t mean it’s the right decision. I’ve seen people make great deals that ended very profitably, but they ended up disappointed because they ultimately hadn’t been ready to sell. They made a money-based decision that didn’t take their full needs and desires into consideration.

Remain Open to Possibility

Although this particular episode is focused on M&A, remember that those are only one type of deal! There are so many opportunities for deal-making, and there is no limit to what you can consider. If you’re priced out of the M&A market, you can look into other possibilities. In every market, there are ways to identify and complete deals. 

Listen to the full solo episode here.

Corey Kupfer is an expert strategist, negotiator and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

If you want to find out how deal-ready you are, take the Deal- Ready Assessment today!

 

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Authentic Business Relationships Authentic Deal-Making Deal-Driven Growth

Preparing for a Strong Exit

Preparing for a Strong Exit

Jay Offerdahl and his father, Brad, founded Viking Mergers & Acquisitions in Charlotte, NC in 1996. Now, Jay is the president, and he specializes in mergers & acquisitions, customized exit strategies, succession planning and seller representation. He’s a master of preparing businesses for a strong exit! In addition, Viking Mergers & Acquisitions also handles divestiture services for the mid-market company. They have dedicated and experienced advisors, and a passion for serving business owners. 

Since 1996, Viking’s team of professional advisors have successfully closed on sales of more than 600 businesses. Their team is uniquely positioned to help you navigate through a successful transaction. The majority of their advisors are former business owners themselves. They have been in your shoes and they know the unique challenges of buying and selling a business.

Listen to the DealQuest Podcast.

Following in His Dad’s Footsteps

Growing up, Jay remembers his dad buying and selling large machinery. Like many kids, he gravitated towards wanting to do what his dad did. Later, when his dad bought his first company and got into entrepreneurship, that appealed to Jay as well. He seemed to always believe that his own career would somehow connect to what his father did.

And, ultimately, it has! Not many people have actually co-founded a thriving business with a parent, but Jay and his dad have had great success with Viking Mergers & Acquisitions

By the time he was preparing to graduate from Appalachian State University, Jay did some job hunting and interviewing. However, he didn’t spend much time as an employee before becoming an entrepreneur. Like many, in hindsight he can see that he was spending way too much time working in his business. 

Having learned so many lessons about building a business from the ground up, Jay is very aware that his own experiences have made him especially successful at working with other entrepreneurs and business owners now.

First Deals

The first deal Jay remembers being a part of was setting up a candy store kiosk in a local mall. He thought he’d hit paydirt at 22 years old, and was thrilled to get started. Now, he laughs a bit about that and has fond memories of his humble beginnings.

One of his major takeaways is that there is no substitute for hands-on time on the job. You have to get in the trenches and learn what works and what doesn’t.

In every business he’s been a part of, Jay has seen things that really work, and things that don’t. He’s had to learn what his own philosophies and processes will be, and also what he doesn’t want to be part of his business.

Intentionality plays a large role in this, and that same intentionality has been a major part of determining who he serves, and what kind of deals he’ll take on today.

I Don’t Live to Work

Jay shares that he doesn’t want to get on a plane unless he’s doing it for leisure. He doesn’t want his advisors to have to do so either.

As a result, Viking has intentionally chosen to craft a business model that allows them to serve well, without pushing them to revert to “working to live”. So far, it seems to be working well!

Because of the nature of their work, Jay also shared that a “repeat” client might be someone they see every 10 years! Their clients are doing transactions, and in some ways the work that Jay’s team is doing is transactional as well. That doesn’t mean they aren’t building relationships, of course! It does mean, however, that they aren’t generating ongoing revenue from subscription-type models that enable you to build profits from repeatedly working with the same people or groups.

Instead, they have to continually pursue new deals with new organizations. After all, how many times does a single entrepreneur or owner have a company to sell that’s valued in the millions, or tens of millions, of dollars?

Why Do You Start a Business?

Having seen hundreds of transactions over the years, Jay notes that many entrepreneurs lose sight of the fact that the successful end to their business is to sell it for a profit. No one will be here forever, and the options available are to either close up shop, or to sell.

Being prepared to sell can ensure that your work will live on, and can also prepare you to enter your retirement years with a solid footing.

It’s essential that you’re thinking about the right time to turn equity into cash in your pocket. Some of this is based on feel, much like the stock market. 

Jay also jokes that nepotism can create problems here. It can be tempting to simply hand over the business you bootstrapped from the garage in its early days, but it’s often not the most helpful way to ensure success. He compares it to buying your teenager a brand new sports car on their 16th birthday. You could do it, but it’s likely not a great investment.

Instead, he recommends that you secure your own retirement first buy selling your business, then taking a percentage of those proceeds and use it as a down payment on a smaller business that you can plan to coach your heirs through building on their own.

The reality is, 2nd and 3rd generation businesses have profoundly poor outcomes. Some of that may be connected to the idea that a business should just be handed over to the incoming generations, without making payments. 

In fact, Jay notes that when his dad was ready to retire, he bought him out. It’s a legally completed deal, and Jay did have to take on debt, and risk, to make it happen. However, he thinks that’s an important part of ensuring that he’ll show up, go the extra mile, and be committed to achieving success in his own right long into the future.

The Deal-Making Table

Jay believes that a buyer is paying for what the seller has accomplished, but is buying because they see the opportunity to realize greater success. If a company seems perfect, that can also mean there is little to no room to actually grow, which is actually a downside.

I’ve seen deals fall apart because the buyer is attracted to a company, but isn’t able to see margin for improvement. There can be a sort of ceiling, or cap, that makes a potential sale seem less attractive, and that’s something to be aware.

Funny enough, even though growth margin is a good thing, sometimes the person selling their company can get offended or upset if weaknesses (which are also the growth areas) are named. The ego can get involved and want to insist that nothing is a problem.

Plus, going to market can feel emotional, even when ego isn’t a problem. Your business is incredibly close to your heart, and is often something you’ve poured years of sweat and tears into. Jay counsels clients to really focus on creating consistent results that are intentionally designed with an exit strategy in place. That way, you can go out on your terms, rather than having the sale dictated to you.

Do Your Due Diligence

Professionals know what buyers are looking for. Jay and I are both very familiar with what sorts of questions are going to come up. We’re also skilled at helping you navigate them.

As Jay notes, due diligence and preparing to sell can literally feel like a second full job. If you’re not prepared for that, you can quickly become overwhelmed. Due diligence is the opportunity for the buyer to really assess their risk. Understandably, most of them want to dig into the minutiae in order to ensure that your business will be a good fit for them.

No one wants a lemon, and failure to do due diligence can result in deals that should have never happened.

Listen in to learn more about Jay and I’s thoughts on due diligence and preparing for a strong exit.

Corey Kupfer is an expert strategist, negotiator and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

If you want to find out how deal-ready you are, take the Deal- Ready Assessment today!

 

Categories
Authentic Deal-Making Authentic Leadership Authentic Negotiating Deal-Driven Growth

Post Merger Integration

post merger integration
Matt Sonnen is the founder and CEO of PFI Advisors. He provides strategic operational consulting in the RIA industry. In addition, he helps existing RIAs tackle various operational and strategic issues that they encounter as they grow. Matt emphasizes how important it is to think through post merger integration as part of deal-making. The work is not done when the deal has been made!

Early Deal-Making Experiences

At age 8, Matt wanted to be the third baseman for the CA Angels. By age 18 he wanted to be Eddy Van Halen. He certainly hadn’t considered being a strategic operational consultant in the RIA industry!

An early deal he remembers is baseball card trading during recess. His deal-making prowess has certainly grown since those days.

Now, Matt is deeply involved in the RIA industry. PFI Advisors first went to market as breakaway specialists helping advisors start RIA’s. Recently, Matt noted that they’ve been receiving a lot of traffic from buyers who have just closed their first large RIA deal, and who don’t know what to do next. Billion+ dollar firms are buying million+ dollar RIAs, and finding they don’t know how to integrate. Systems are difference, specializations are different, and there are many details that aren’t considered until after the deal is done!

This is also the result of diversification. Large firms are looking to bring on RIAs that offer something different….but then find that almost everything is so different that integration becomes challenging. Matt sees this trend continuing into the future.

After The Fact Issues

Many firms report that just getting the deal done is often perceived as the challenge. Unfortunately, however, this means they are prioritizing the “yes” without considering the “how”. Once the deal is done, this leaves all sorts of issues on the table!

Matt notes that the actual work begins when it comes to fully integrating the new acquisitions. I see the integration conversation as being a fundamental part of due diligence, and encourage firms to be forward-thinking when considering possible deal opportunities.

After all, a successful outcome will mean you MUST successfully integrate. It makes sense to consider the logistics of that before you finalize a merger or deal.

Preparing for a Smooth Post Merger Integration

Matt suggests that firms can ask questions on the front end to help minimize back-end problems during a post merger acquisition process. Often, he notes that the buyers avoid in-depth questioning. This is often attributed to not wanting to “scare” the seller away by appearing bureaucratic or demanding.

However, forward thinking firms understand that the two sides do need to get on the same page. A mutual understanding of what changes might be coming around the bend, and what an integration may look like, create a foundation for a strong transition.

Operationally, things like branding, emails, tech stacks and more might all be on the table. Post merger integration really can come down to nitty gritty details. These are things that people hardly think about day-to-day. If asked to change, however, they may feel resistant, even after the deal is done.

Minimize Client Pain Points

Matt notes that core technology changes that are often connected to post merger integration include performance reporting tools, CRMs, financial planning tools, and client portals.

For efficiency’s sake, its preferable to choose a single platform/tool that each company will be using. That way employees and owner of each are familiar with the language and user experience, and are sharing a common experience.

Buyers who want to get in the M&A game really should be in relationship with the major custodians. That way the seller is able to keep their clients in the systems they are already using. (This applies in RIA-to-RIA deals). That prevents the need for the seller to repaper all their clients, which can be a huge sticking point.

Finding out during the post merger integration that repapering is going to be required is extremely frustrating. Ideally, this would be avoided!

Biggest Lessons Learned

Matt shares one major lesson he’s learned is that outsourcing is somewhat of a myth! What he’s found from experience is that, even when outsourcing, it is vital have someone in-house who understands what was outsourced and how it works. Your team needs to know how the data and systems work, and what options you have.

You can save yourself a lot of time by knowing how the major functions that you outsource actually work. Somebody (often the COO) needs to know how every system works! Ensure that an outside firm isn’t the only one who knows what you have going on.

Also, there are somethings that need to happen in-house or on-site. Practical, day-to-day implementation, monitoring, and application shouldn’t be so fully done be an external agency that the COO doesn’t have clarity around what is happening, and how. This is especially true when it comes to compliance and audits.

Strategy & Operations

If you want to get to the next level, your strategy and operations have to evolve. Matt notes that right after launching PFI Advisors, he read The Emyth Revisited. (He wished he had read it BEFORE he launched!) He recommends checking it out. You can listen in to some of his favorite examples from the book by listening to our full interview!

Owning an advisory business is a whole skill set onto its own. From tech stacks to workflows to management – Matt often sees that these areas get pushed to the side in new companies. This is partially because actual revenue generating activities are being prioritized. This is why, at some point, he often recommends bringing in a professional management company to ensure that all angles are covered. Matt finds this is especially key during times of growth.

Feel that administrative tasks are slowing things down, or that client needs are slipping through the cracks? It’s probably time to let your advisors focus solely on client services and business development. Obviously administration and management is still required! That’s where a professional management company comes in.

Sacrifices and Growth

In the RIA space, there is money to be made as a lifestyle business. If that’s your desire, you may not need to reevaluate your management needs. However, if you’re saying you want to grow and you’re serious about it…you may need to make some sacrifices. This is also something to consider if you’re looking to sell down the road.

Matt shares a great example of an owner who described the scrambling of the first year. That was followed by the up-leveled investments (using most of their profits) of the next years. Those were sacrifices that came into play before they finally started seeing huge growth. Short term sacrifices are often required before true, sustainable growth is achieved.

Listen in the full interview for more from Matt Sonnen!

Corey Kupfer is an expert strategist, negotiator and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author and professional speaker who is passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

If you want to find out how deal-ready you are, take the Deal-Ready Assessment today!