Tag Archive: mergers and acquisitions

  1. Optimize Your Data Room for Optimal M&A Results

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    Is Your Data Room Working for You?

    If you are preparing for potential mergers and acquisitions (M&A) activity on the sell side, or have done in the past, then you probably already know that it is way too easy to overwhelm potential buyers with the contents of your data room.

    Have you ever asked yourself if your data room is really working for you? And is it driving optimal results?

    If you have, it is probably because you were wondering if, instead of expecting buyers to work to discern, analyze, and validate an influx of information and disparate data sets, the data room could showcase the strengths of your business, and focus potential acquirers on value creation opportunities that will secure the best price / valuation for you.

    Eliminate unknowns and provide powerful answers

    Optimizing your data room can help eliminate unknowns for potential buyers and provide powerful answers to questions such as:

    • How quickly will the company be able to realize financial impact from value creation initiatives?
    • How sophisticated is the organization’s sales and marketing strategy?
    • How prepared is the business to react to changes in market dynamics?
    • How does the company use technology to boost efficiency and profitability?

    Using the data room to provide a clear window into your business gives buyers the visibility they need to feel confident investing their capital. Commercial clarity in turn yields increased interest in and competition for your business, driving higher multiples.

    Three ways to optimize your data room

    Here are three ways to demonstrate commercial excellence through an optimized data room that will reward your business with a higher valuation:

    Organize data to increase speed to impact

    Buyers will see immediate benefit from your organization’s efforts to integrate disparate data sources and create a data hierarchy: because you have already done the work of cleaning up data inconsistencies and developing an actionable data structure, they can focus on strategy, thus accelerating due diligence and reducing the time to execute and drive impact.

    Having a solid data foundation in place allows you and buyers to:

    • Identify quick wins to yield financial impact and increase enterprise value
    • Build momentum and demonstrate ability to drive margin improvement
    • Recognize change readiness of organization for value creation initiatives
    • Prioritize opportunities for the 100-day plan

    Time spent before go-live on organizing the data for your data room translates into time saved, and better results during the process.

    Drive segmentation into your commercial strategy

    Using your data to display the sophistication of your organization’s sales and marketing strategy helps build buyer conviction around growth initiatives.

    This can be achieved by structuring and segmenting your data to demonstrates to potential buyers that you don’t employ a one-size-fits all approach across offerings and customers, but rather strategies that recognize the opportunities presented by every channel, transaction, etc., with crafted and differentiated ways to maximize the profitability of each.

    Offering this kind of segmentation and visibility helps potential buyers:

    • Create customized, segmented pricing models based on key value drivers
    • Develop positioning strategies that target the appropriate customer segment with the right value proposition
    • Identify opportunities for cross-selling, roll-ups, etc. based on analysis of customer purchase patterns and product relationships
    • Recognize shifts in customer behaviors to head-off potential churn
    • Understand how cost to serve elements impact the profitability of each order

    Showcase your technology and tools infrastructure

    An optimized data room is a great way to showcase the technology and tools (such as ERP’s and CRM’s) you’ve invested in. This can be very important to potential buyers, who will be looking to maximize and increase the value of the acquired company.

    Equally, data and information that is rich in insights on sales, throughput, inventory, operations, productivity, key performance indicators, pricing, etc. gives potential buyers reassurance that your organization has the tools and capability to facilitate increases in effectiveness and achieve the synergies that post acquisition initiatives will target.

    During the due-diligence process, the more time that is spent collaborating and engaged in productive conversations versus sorting through reports and spreadsheets to answer basic questions, the better. So if you have good technology and tools, show it!

    Summary

    If you are preparing for M&A and your data room isn’t in good enough condition to be considered a selling point, Core Catalysts can help. Our team has the expertise to quickly make sense of vast amounts of data and information, offering you and potential buyers clarity and confidence during due diligence, leading to superior valuations.

    Core Catalysts will help you:

    • Set your business apart from other M&A opportunities
    • Make the contents of your data room easy to use and actionable
    • Showcase quick-win opportunities and next steps for EBITDA growth, margin improvement, and value creation for potential buyers
    • Justify higher multiples

    Find out more

    If you would like to find out more about how Core Catalysts can support your M&A activities, please reach out to us today!

    -Core Catalysts Staff

  2. Roll-Ups: Lessons for Private Equity

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    Core Catalysts works with Private Equity (PE) firms across a broad range of types of engagement, from strategy to due diligence, through to integration planning and operational improvement. Recently we have worked closely with multiple firms on their strategies for industry roll-ups. From this, we have distilled several lessons we thought it would be worthwhile to share.

    Lesson 1: Industry fragmentation is your friend.

    Roll-ups work best in heavily fragmented industries: the fewer local, regional, or nationally dominant players, the better.

    The first reason for this is simple: the more businesses there are in an industry, the more acquisition targets there are!

    A less obvious reason is that acquiring “mom-and-pop” businesses can be far easier (and cheaper) than targeting even mid-sized industry players and is also less likely to lead to inflated valuations.

    Focusing on mom-and-pops also capitalizes on one of the key challenges these kinds of businesses face: succession. The most stressful part of every “mom-and-pop business owners’ journey is achieving a successful exit, in particular if family members are not interested in carrying it on. PE firms pursuing roll-up strategies can make attractive offers that guarantee a successful exit while also ensuring the businesses that have been built will carry on and prosper.

    Equally, once the roll-up has achieved some scale, it gets even easier to convince other sellers they are better off joining you than remaining stand-alone. This is only possible if there are no or few large players waiting in the wings to compete for deals.

    Lesson 2: Boring and predictable is good.

    Funeral services, car washes, waste management, and HVAC repair are all examples of boring and predictable industries that have proven lucrative for PE roll-ups.

    There are multiple reasons why boring and predictable businesses work well for roll-ups. These include:

    • They are easy to understand.
    • They are easy to value.
    • There is less competition for deal flow.
    • They are simpler to integrate.

    Put simply:

    • Stable, reoccurring revenue is like catnip to PE firms. These businesses are easier to model and lenders can be made to feel comfortable with proposed levels of leverage, making financing easier.
    • The investment case for a roll-up often includes achieving meaningful economies of scale (such as increased purchasing power, greater brand recognition, lower capital costs, and more effective advertising): simple businesses are easier to merge and integrate, making these “synergies” that much easier to achieve.

    Bottom line: boring industries can deliver outstanding ROI.

    Lesson 3: Having a great platform company really helps.

    A platform company is the initial acquisition or “core company” that acts as the starting point for other roll-up acquisitions in the same industry.

    Merging and integrating acquired companies is a lot easier when you have a high-quality platform company.

    Why is this?

    Well firstly, a high-quality platform company is a great educator: you quickly learn what works and doesn’t work within your original roll-up strategy and can hone and refine your entire approach (from target list to due diligence approach, all the way through to integration strategies and synergy targets).

    More importantly, a great platform company gives you access to high-quality management and deep industry and operational experience, expertise, and know-how that can be leveraged to complement and enable your ongoing roll-up game plan.

    Quality platform companies also have good systems, processes, and procedures that can be implemented, duplicated, or modified in acquired companies. Having a proven, replicable, operational blueprint and playbook is frequently an asset during the execution of roll-up strategies.

    In summary: high-quality platform companies can lead to a proven operational formula that can be applied to acquired companies during integration.

    Lesson 4: Don’t be too aggressive in your roll-ups.

    Speed and driving (necessary) change are important in roll-ups, but too much change, too quickly, can be bad.

    First, roll-up strategies must factor in people, and the fact that different companies (that you are trying to merge or drive synergies between) have different cultures and personalities.

    Equally, change and uncertainty can paralyze organizations.

    As mentioned previously, good roll-ups have a sound operational formula that can be repeated over and over during integration.

    This formula should include robust communication strategies and an implementation plan that adopts a reasonable pace and cadence that is sensitive to people and change factors.

    Practically, what this means is that initially, the roll-up plan should focus purely on rolling up financials into one entity (or achieving an effective enterprise level data view) while operationally keeping the businesses running separately and largely the same as they were pre-deal.

    Then, gradually, back-office functions can be harmonized, integrated, and/or consolidated as applicable, focusing on delivering the most bang for the buck.

    Only once this is done should front-office integrations (such as cross-training sales teams, centralizing company-wide branding, etc.) be considered.

    Avoid the pitfalls:

    • Doing it all at once will most likely not work out as planned, and could result in disgruntled staff, key employees quitting, and revenues falling far short of plan (endangering debt service).
    • Think long-term (and don’t be greedy): loyal customers will sense that something is amiss if prices are increased too quickly and too much, new add-on products, services, and upgrades are suddenly aggressively marketed, or if service levels and availability are decreased significantly from what they’ve been used to.

    In roll-ups, there are many sure-fire ways to damage and destroy the very brand equity and customer loyalty that made these businesses good acquisitions in the first place. The consolidated company should be a vast improvement for each individual company involved, and for the key stakeholders each company relies upon.

    Making sure that any changes being implemented are actually improvements (versus taking advantage of potential reductions in competition), implementing them gradually, and focusing on maintaining and building employee and customer trust are all critical in roll-ups.

    Lesson 5: If you don’t love integration, roll-ups are not for you.

    PE firms are meant to deliver superior financial returns to their investors. PE firms are typically well-versed in all aspects of financial engineering and bring hawk-like focus to important considerations like cash flow and capital allocation.

    However, success in roll-ups is often less about finance and more about operations. Folding companies under one umbrella (back-office, front-office, or both) effectively demands that the acquirer become a merger integration specialist. They need to be willing to roll-up their sleeves, get involved in the operational fundamentals, and drive the day-to-day blocking and tackling and front-line work required to drive change and deliver effective integration.

    Even with good company level management in place, time and time again it has been proven that a strong appetite for operational challenges and a passion for integration (and doing integration right) are critical success factors for roll-ups.

    If you don’t have the right integration resources in-house, make sure you contract with partners who can bring the experience, expertise, and knowledge needed.

    Summary

    • Lesson 1: Industry fragmentation is your friend.
    • Lesson 2: Boring and predictable is good.
    • Lesson 3: Having a great platform company really helps.
    • Lesson 4: Don’t be too aggressive in your roll-ups.
    • Lesson 5: If you don’t love integration, roll-ups are not for you.

    If you need help with your roll-up strategy, or would like to learn more, please reach out!

    -Core Catalysts Team

  3. Executive on Demand: Why and How

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    Many people have asked me why we started the Executive on Demand offering here at Core Catalysts. Executive on Demand provides talented executives with skill sets ranging from COO, CFO, CIO, Sales/Marketing, and HR on a fractional, retained, or project basis.

    The need for this service offering came about because of two major trends.

    The first is the popularity of the Gig Economy.  The Gig Economy is the growing popularity of people who desire to be their own bosses, set up LLCs, and determine their schedules and work content.  The Gig Economy has been growing for many years and has become more accepted by people who either want the flexibility to work remote or to focus on a specialized skill set.  The availability and amount of people that want to work in the Gig economy has been growing due to many reasons:

    • Baby boomers in early retirement that still want to work; other workers requiring flexibility
    • Professionals coming back into the work force after time off for reasons such as starting a new family, taking care of elderly family, and military service to name a few
    • Availability of the internet to facilitate remote work environments
    • The growing services that allow people to market their skills and experiences to a much broader audience – Gerson Lehrman Group (www.GLG.it) for example

    The second is the acceptability for employers to use flexible or temporary resources as opposed to full time hiring and the time/expense it takes.  There are many drivers for employers to use flexible or temporary resources and include such things as:

    • Going through a Merger/Acquisition and need temporary leadership to get through these
    • Business growth, though not enough to support a full time executive until certain targets are met
    • Business wants much more seasoned expertise but cannot afford it on a full-time basis
    • Business has sudden need for a temporary executive caused by death/illness or unexpected departure
    • Corporate hiring processes for full time executives is long and expensive – often requiring outside executive search firms and fees
    • Corporate HR teams are stretched and not as well equipped to find executive level talent for a position in a short time.

    Here are some great examples of how clients have used our service offering:

    1. Client had to suddenly release its marketing executive and needed someone to come in and stabilize the group in the short term
    2. Client was launching a new business line and needed short term assistance with developing and supporting investor presentations
    3. Client had trouble with operations and needed CFO level talent to help diagnose and fix issues while supporting the current CFO
    4. Client was in turn-around mode and needed short term executives to make drastic changes and eventually turn back over the steady state operators

    In short, there is both a market need from employers and an availability of people that desire to work on a flexible basis. These factors combined to encourage Core Catalysts to launch a new service called Executive on Demand.

    Call us for more information at 913.752.9406 or visit our web site at www.corecatalaysts.com.

    —Jim Wadella, Owner/Founder

  4. Cash Management Post Lockdown

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    I don’t know about you, but if I hear another talking head on the TV using the phrase “new normal,” or read another newspaper article or blog post that suggests that anyone truly knows how business will change in the medium to long-term, I think I will explode. I plan to just build on my previous post on cash management and on the need to scenario plan as you continue to focus on cash-flow, which you and I both know is the lifeblood of every business. 

    Being too slow to cash is fatal for any business, and in the last two months most of you reading this will have already acted deliberately and quickly to take the necessary tactical steps to adapt your working capital, business expenses, and other cash outflows to be closer aligned with reduced short-term revenues and uncertainty around the immediate future, either to ensure the survival of your business, or as a sensible precaution during this national (and international) emergency. For many business owners, executive managers, and their employees, this was a very difficult time and required some tough decisions and sacrifice.  

    But as states begin to emerge from “lock-down” and you consider how you might ramp your business back up, you are probably coming to the conclusion that the next few months will be no less uncertain, and that navigating decision making in this (hopefully interim) environment may actually be even more difficult than what you had to go through during your initial pandemic response. 

    Therefore, let me offer up a few key things for you to consider as you try to model your cash projections for the rest of 2020 and beyond, and consider potential scenarios you may well face: 

     #1 Are you going to undertake M&A activity? 

    No judgement here: there may be a lot of good candidates for mergers or acquisitions at far lower prices than a few months ago that may represent good returns on investment and boost your top and/or bottom lines, or your current business situation might make you a good merger or acquisition target, or make you more open to merging or selling. 

    Outside of our typical cautions on the challenges of due-diligence and pre and post-merger integration, and of actually achieving projected synergies (meaning you will likely benefit from external help), you will need to factor M&A into your cash equations if it is potentially on the horizon. It might also be prudent to check in on your current and future potential credit lines, borrowing ability, and lending rates you might be able to achieve, bearing in mind that banks are starting to be more watchful in these areas, and have already factored large, pandemic related write-downs to their business loan portfolios in expectation of higher rates of business failure.  

    #2 Has the impact of changed Marketing Investment and Capex assumptions and budgets been reflected in other key assumptions? 

    If you have already made changes (i.e. reduced) your projected marketing spend or capital expenditures to manage cash flow, you have probably already captured the high-order effects of these changes in your cash position projections. However, you probably have not yet had the time to look at how these changes have affected other assumptions that have the previous capital expenditures embedded within them, such as Sales Growth, Cost of Goods, and Gross Margin. 

    If previously planned (but now cancelled or deferred) marketing spend or capital expenditures drove assumptions in the maintenance or achievement of positive improvements to your production or operational efficiency that then translated into top and/or bottom-line impacts in your original projections (and let’s assume they did, otherwise why were you planning to spend this money?), “backing-out” these embedded effects from your new projections to see how this affects your cash position might be a worthwhile exercise. This may well cause you to reassess your current best thinking on which projects to stop, slow, or carry on with, as you consider the strategic impacts, both internally and on your competitive situation, of your initial tactical moves to conserve cash. 

     #3 What if? (also known as “What else could go wrong”?) 

    In order to make future financial projections you will need to make assumptions (Like you haven’t already) on how key expense and revenue variables will grow and change as lockdowns begin to subside. 

    No doubt, these assumptions will be based on complex interrelationships across myriad factors, from the obvious (such as customer demand, pricing, and supply chain issues and changes) to the harder to predict or more intangible (such as oil prices, when a Covid-19 vaccine will be available, the strength of the economy in the meantime, etc.), and across multiple stakeholders (such as employees, business partners, regulators, your local communities etc.). 

    Therefore, the opportunity to arrive at imperfect assumptions is high, without even considering “what else could go wrong” (i.e. other “black-swan” type events).  

    So spend some time, or consider getting some outside help (from Core Catalysts of course) to model a few potential scenarios or “what-ifs,” such as: 

      • What if revenue rebounding takes twice as long as projected? 
      • What if revenue only returns to 50% / 75% / 90% of what it was before? 
      • What if raw materials inputs and supply chain prices stay where they are (versus where they were) or were to increase 5% / 10% / 15%? 

    Projecting the impacts of these and similar scenarios on the financial health of your business and considering the odds that any, a combination, or all of these might happen will give you a sense of the medium to long-term risks that you may be facing, and help you to determine, change, or optimize your cash management strategy in the near or ongoing term. 

     While certainly not easy, planning for and considering these three factors can position your company to emerge stronger and as soon as possible from the pandemic, with the capability to continue to make both strategic and opportunistic investments. If you think you might benefit from assistance in refining your post-lockdown cash management strategy, give us a call to see if we might be able to help you! 

     –Core Catalysts Team

  5. Consulting Services Delivered in Today’s Crazy World – Part 3 of 3

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    A frequent question with potential clients recently is the ability to deliver value in a virtual environment. While we are providing targeted value for all our current clients virtually today, we will explore some of the most demanded services with the current economic environment in the last part of our 3-part series.

    There are existing methods we use that make providing our services easily consumable and still provide huge value.  We highlighted this with the first of several examples in part 1 where we covered Assessments and in part 2 with Cash Management and Forecasting types of projects.  We show a few more relevant examples in this segment.

    Transformation initiatives – where companies are taking advantage of the current business climate by revamping how they operate their businesses and position for large growth as the economy comes back online.  These services are composed of linking the business strategy to organization change strategies, major initiative definition and prioritization and fanatic program management to drive to results.  This is all supported by effective change management strategies that communicate to the existing team members that are buried in their caves around the city working remote.

    These engagements are delivered via many methods previously discussed in Part 1 and they also draw on our Program and Project Management skills defined below.  The engagements also require more face to face or video enabled calls especially for the Change Management techniques employed.  In addition, there are typically layers of reporting/dashboards given the various audiences involved with these efforts.  It is not uncommon to have 3-4 different reporting documents since these types of initiatives can have Board of Director involvement down to line manager involvement.

    Some transformation initiatives are based on new business directions while some are based on the underlying technology required to enable massive change.  Other transformation efforts involve Mergers and Acquisitions that require integration of company culture and organizations.  Needless to say, the more complex these get, the more difficult it is to handle everything using only remote techniques.

    Program and project management services – usually underpinning most of our efforts discussed above and in Part 1 is a heavy dose of program and project management services (what we are known for).  This is sometimes not visible to the end client other than the final results.  In most cases however, there are easily observed artifacts that can be developed and shared in a remote environment.  Some examples include:

    • Project charter documents – typically MS word documents with embedded diagrams and tables
    • Project business cases – a combination of documents and spreadsheets
    • Project Plans – can be developed with various project management software tools based on client preferences
    • Risk management logs – typically MS Excel based
    • Project/Program status dashboards – can be built from various reporting tools and depends on client preferences
    • Status reports – standard report templates modified for client specific needs
    • Issue management logs – typically MS Excel based though in some cases can be enabled by a trouble ticketing software

    As we covered in our first segment, all of this is enabled by tools and work processes that have been put in place and perfected years ago.  Each of our consultants operates in world of ‘have laptop, will travel’ and is accustomed to working remotely or at the client site.  The common denominator is that our team is focused on the goals of the project regardless of how the work is delivered day to day.  Our reputation is built on successful delivery of projects and a high level of trust with our clients.  We take that trust extremely seriously.

    This demonstrates with examples how our consulting projects can be delivered in today’s changing business environment and we have many more success stories beyond these.  Please don’t just ask us though, ask our many clients for their views on the work our team does, how we do it and the business results we help to drive.

    – Jim Wadella, Managing Member

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