| KEYS TO SUCCESSFUL BUY-SIDE M&A TRANSACTIONS: Recently FOCUS Partner Mark Capaldini teamed with Paul D. Economon, member of the Washington, DC law firm of Koltun & King, P.C., to write an article for the Association for Corporate Growth’s Washington Business Journal supplement, “Paths to Corporate Growth 2005.” FOCUS Partner Doug Rodgers and Koltun & King member Lawrence Koltun also contributed to the article.
The resulting article, “Keys to Successful Buy-Side M&A Transactions,” is reprinted below. The authors conclude that attention to “mechanical” problems (both non-financial and financial) plus an appropriate “organizational commitment,” can--when combined with a solid, experienced team of professional advisors--lead to successful buy-side M&A transactions.
Koltun & King’s practice focuses on corporate and transaction-oriented business law, including corporate finance, purchases and sales of businesses, structuring, restructuring and corporate governance, product development, licensing and sales, and general business representation.
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Active FOCUS
Deals
Although our firm has over 23 years experience
across many verticals, FOCUS currently has active transaction
engagements in the following specific business sectors:
- Business Services
- Call Center Software
- Construction (multiple assignments)
- Consulting
- Digital Printing Services
- Government contracting (multiple assignments)
- Healthcare Business Services
- Information Management
- IT Outsourcing (multiple assignments)
- IT Services (multiple assignments)
- Leisure
- Library Services
- Luxury Residence Club
- Media
- RFID Technology
- Security (multiple assignments)
- Software
Our transaction process provides us with up-to-the-minute
market knowledge in these sectors that may be corporate development
of interest to you.
Inquiries should be addressed via e-mail to info@focusbankers.com,
by telephone to 202-785-9404, x 341 or by fax to 202-785-9413.
Pi Sigma Group Has Acquired VR Systems, Inc.
FOCUS initiated the transaction, acted as financial advisor to, and assisted with the negotiations as the representative of Pi Sigma Group (PSG). PSG and its subsidiaries in Maryland; Virginia; Copenhagen, Denmark; Lahore, Pakistan; and Islamabad, Pakistan provide IT consulting and development services to firms throughout the Mid-Atlantic. PSG operates on a highly efficient development model focused on optimal resource staffing, highly refined requirements delivery, rapid time to market, high level quality control, and visible cost efficiency.
VR Systems, Inc. (VRS) was founded as a client server consulting service through a partnership with Powersoft Corp. (now known as Sybase, Inc), providing IT services to companies like AT&T, ETS, McKesson Corp., Wells Fargo, and others. Around 1996, the company introduced a proprietary software application EZStaff, a service management tool, which enlarged the scope of its consulting services to provide full life cycle development services. Click here for the Pi Sigma Group/VR Systems Web Tombstone.
FOCUS Opens Southeastern Regional Office in Atlanta
Company Firmly Established in the Southeastern Marketplace
FOCUS Enterprises, Inc., a national investment banking firm providing merger, acquisition, and corporate finance services to emerging growth, middle market companies announced it has opened a new Southeastern regional office in the Buckhead business district of Atlanta. The Atlanta-based regional office is located in the Atlanta Financial Center at 3353 Peachtree Road, Suite 1160, Atlanta, GA 30326.
“Atlanta is a great business city, and the Atlanta Financial Center is the perfect location for our Southeastern Headquarters,” said George Shea, Regional Managing Partner. “The four seasoned Partners we’ve brought on board recently—Huxley Nixon, Jim Harper, Bill Inman, and Ulysses Knotts—all have deep roots and experience in the business community here and are accomplished dealmakers and advisors as well as former C-level operating executives.” John Slater, a new FOCUS Partner based in Memphis, also is part of the Southeastern regional team.
FOCUS Partners based in Atlanta are actively involved in deals with Atlanta area clients as well as with clients across the U.S. To date, the Atlanta team has nine active engagements in process, including two buy-side M&As, three sell-side M&As, and three corporate finance transaction in R&D, IT solutions, and the Leisure industry…more
Keys to Successful Buy-Side M&A Transactions
By Mark Capaldini and Paul D. Economon
Many investment bankers believe that buy-side M&A projects are more difficult than those on the sell-side and have a substantially lower probability of closing. Therefore, they avoid these projects altogether. While their concern is warranted in many situations, it arises from problems that, while understandable, can be addressed and avoided. The key is proper preparation, counseling, and commitment by the acquirer.
While in real estate the three keys to success are “location, location, and location,” for buy-side M&A assignments, the three keys to success are “strategy, strategy, and strategy.” The problems in buy-side M&A engagements often arise from a lack of clarity and discipline and generally fall into two categories: mechanical and organizational commitment.
Buy-Side “Mechanical” Problems
The “mechanical” problems have both financial and non-financial origins. An example of a non-financial mechanical problem is oversimplifying the strategic challenges faced by the prospective acquirer, such as lack of new product or service lines. The acquirer mistakenly concludes that an acquisition will “fix” what actually is a much more fundamental problem such as the lack of a competent sales force and/or a desired customer base.
Acquirers focusing heavily on increasing their desired customer base have a greater chance of success in their M&A projects. Such focus causes them to address fundamental strategic challenges and to place the proposed acquisition in proper perspective.
Another non-financial mechanical problem is the acquirer’s lack of clarity on “cultural fit” issues. Many acquirers fail to recognize and communicate the specific values, goals, and operating philosophies which are bedrocks for their organizations. In those instances, the seller may not understand the non-economic value of consummating the transaction.
On the other hand, when the acquirer clearly expresses these “soft considerations” in their initial communications to the seller, these considerations often become key attractions to the seller throughout the transaction process and act to “sell the seller” on why a transaction is attractive.
Financial mechanical problems arise when acquirers fail to assemble a team of M&A professionals in a timely and thoughtful manner before they begin their search. Not only do acquirers need an internal team of senior executives and corporate development specialists, they also should retain seasoned, outside advisors before they begin the acquisition process. Examples include attorneys specializing in M&A transactions, accounting and tax advisors, financing sources, and investment bankers or brokers.
Without such a team of M&A professionals, acquirers have less chance for a successful transaction because they do not define acceptable:
- Minimum and maximum sizes of targets,
- EBITDA rages
as a percentage of sales,
- Minimum and maximum purchase prices,
- Financing sources,
such as internal cash or stock, external debt sources,
or earn-outs.
Having an experienced team in place also can help acquirers
develop the financial metrics and analytical tools necessary
to examine the implications that a buy-side M&A transaction may have on the company’s income statement, balance sheet, and cash flow. The team also can assist the acquirer in developing a ranking process for the targets. An acquisition team sharpens the acquirer’s decision-making process so it does not lose attractive deals because it cannot promptly evaluate sellers.
Buy-Side “Organizational Commitment” Problems
“Organizational commitment” originates from the acquirer’s overall strategy and often from the CEO. If M&A activity is not an integral part of its growth plan, such as a key project with milestones that the CEO articulates with specific revenue, headcount, and/or customer expectations, then it is likely more of an “experiment” and destined to fail.
While the CEO can delegate substantial work to other senior executives, he or she must be directly involved, both in process oversight and direct interaction with targets in the later stages of courtship and negotiation. If the CEO is not directly involved, the acquirer is not committed, and the process rarely succeeds.
The acquiring company must understand and be committed to the process, as the time required to identify, contact, meet, analyze, filter, negotiate letters of intent with, perform due diligence on, and then execute definitive agreements with targets can feel like a marathon. Process fatigue can occur, especially if parts of the process are repeated with numerous targets. It is not uncommon for this process to take six months or more. The acquirer, its CEO, executive management team, and Board of Directors must have the stamina and a deep organizational commitment to endure this long process.
Note also that one qualified target is not enough -- two to four viable targets are typically required for a buy-side M&A project to succeed. All the key players must have realistic expectations about the process and the decision-making roles they will play, if any, to avoid unexpected and disastrous eleventh hour “commitment” issues.
The characteristics that successful acquirers often share include:
• A strong, closely coordinated team of executives and external advisors;
- A realistic and detailed project plan, with key
milestones and time frames for rapid decision-making;
- A comprehensive system for candidate research and identification
(usually over 100), so that the widest possible net is
cast to identify the most suitable targets (usually 2 to
4);
- An approach methodology that neutralizes the “noise” surrounding
frequent inquiries made by various intermediaries;
- A clear plan to identify and engage sellers who
may not have initiated a sales process yet.
Buy-side M&A transactions can be difficult and frustrating. Attention to the “mechanical” problems (both non-financial and financial), an appropriate “organizational commitment,” and a solid, experienced team of professional advisors can help acquirers create and follow a detailed and realistic process that can alleviate many typical problems and lead to successful buy-side M&A transactions. This article originally appeared in the May 13-15, 2005 Washington Business Journal’s Corporate Development Supplement, “Paths to Corporate Growth 2005.”
Mark Capaldini, a FOCUS Partner, can be reached at Mark.Capaldini@focusbankers.com.
Paul D. Economon is a member of the Washington, DC law firm of Koltun & King, P.C., which specializes in buy-side and sell-side M&A transactions, all levels of financing, and general business representation. Paul can be reached at info@koltunlaw.com. The firm’s Website is www.koltunlaw.com.
FOCUS Adds Nineteenth Partner—Gerald Turner
FOCUS Enterprises, Inc., a national investment banking firm providing merger, acquisition, and corporate finance services to middle market companies announced the addition of a nineteenth Partner, Gerald Turner, who will work from the firm’s Washington, DC office.
Marshall Graham, Chairman, FOCUS Enterprises, says,” Gerald will definitely be an asset to FOCUS. He has over twenty-five years of executive level experience in building and roofing materials, diverse financial services, direct marketing, specialty retailing, commercial data base management, and consumer brand marketing and packaging.”
About Gerald Turner
Prior to joining FOCUS, Mr. Turner co-founded and chaired Potomac Capital Group, LLP, a Northern Virginia based M&A firm. For over ten years, he was active in the United Kingdom, serving as Vice President and Chief Financial Officer and then Executive Vice President, Tarmac America Inc., a $600 million division of UK based Tarmac PLC. Also, for twenty years, Mr. Turner enjoyed a diverse career with the American Can Company.
Mr. Turner was educated at Oxford University, at the Wharton Graduate School of Business, where he was a Thouron Scholar, and at the Harvard Graduate School of Business…more.
FOCUS Web Watch: About Us
Learn about FOCUS in the ABOUT US section of the newly-designed Website (www.focusbankers.com). In the red navigation bar at the top of the Home Page, the ABOUT US button is second from the left. Click there to go directly to the following information:
About Us
In this section you will find a comprehensive overview of our firm, including our proven and disciplined process for transaction execution, detailed biographies of our professional staff, office locations, and complete contact information.
About FOCUS Enterprises,
Inc.
Headquartered in Washington DC, with offices in Atlanta, Chicago and San Francisco, FOCUS provides a range of investment banking services tailored to the needs of middle market and emerging companies. FOCUS specializes in transactions for entities with $5 to $100 million in revenues, serving entrepreneurs, corporate owners, public companies, private companies or operating units and various types of investors.
For 23 years, FOCUS has successfully integrated corporate development consulting and transactional expertise with its extensive research capability. The firm has long standing experience in completing mergers, acquisitions, divestitures, capital formation assignments, corporate development consulting projects and financial advisory engagements.
Operating nationally and internationally, twenty FOCUS Partners, Senior Advisors and Principals provide over two centuries of C-level operating experience in a variety of industries.
Please contact us at: info@focusbankers.com.
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