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Corporate Development 101

The largest companies, approximately $500 million plus revenue, typically employ their own Corporate Development teams. The team is typically made up of VPs, Directors and Analysts. The primary goal is to develop an acquisition strategy that is signed off by both the Executive Team and Board of Directors, and to close on those identified targets. From time to time, these teams will also execute on divestitures or other special projects that do not fit into other corporate functional groups.

Smaller companies still want to focus on Corporate Development, but due to budget constraints, the task is often given to the CFO. This generally comes up when banking contacts or other intermediaries inform the CFO of a potential acquisition.  Unfortunately, this approach is opportunistic and not strategic; it does not consider the universe of companies that fit the core strategy.  Additionally, it will put the company in the middle of an auction process.  Such processes are designed to create competition and inflate the selling price multiple.  Internal Corporate Development teams are much better positioned to develop proprietary deal flow and avoid a costly and stressful auction process.

Corporate Development Services at Sun Acquisitions is your outsourcing partner for companies lacking the capital and human resources to pursue a strategic approach.  Our process includes:

Strategy Development:

• Understanding target markets
• Developing a list of potential acquisition targets that fit the strategy
• Providing strategy summary presentation materials

Acquisitions:

• Calling on the target list and building the on-going relationship with those companies
• For actionable deals, providing initial deal pricing and presentation materials to Management and the Board
• Drafting and negotiation of the Letter of Intent
• Due Diligence support
• Final negotiations, pricing and presentation materials
• Integration advisory services

Divestitures:

• Preparing your business segment for sale
• Generating the suggested sale price and related presentation materials
• Confidentially marketing the business through our established sales channels and industry experts
• Active sale updates provided to Management and the Board
• Diligence and closing support

Process matters in every business function.  Large companies benefit from their scale to establish M&A teams and robust processes to develop and execute the strategy.  On the other hand, small companies generally use an ad hoc process that can be inefficient and costly.

Let our team of experienced Corporate Development professionals at Sun Acquisitions help drive your business to the next level.

Research shows that 53% of startups in the United States have planned to use an acquisition as their exit strategy. In 2019, there were 348 M&A deals valued between 25 and 49.9 million USD. It’s clear that the U.S. has a strong M&A tradition; however, not every story has a happy ending.

There are numerous reasons behind companies merging or getting acquired. The biggest goal is to achieve a synergetic relationship where the combined entities are more productive and financially sound than the sum of the individual entities. But, it’s no secret that such transactions can end up as disasters if the integration plans are not well thought out and planned. Culture clashes top the list as the leading factors of M&A failures.

So, how should prospective buyers and companies getting acquired manage the culture aspects of their intended M&A transaction?

1.   Research extensively before committing to anything

Mergers and acquisitions have been likened to a couple getting married – and with due reason. Before you marry anyone, there should be a significant amount of time spent getting to know the other party. Their likes and dislikes. What makes them tick and what puts them off. Business entities are similar. They have their own unique traits and characteristics. During the due diligence phase of M&A, attention must be paid to each aspect of the company and not just the financials. Whether you’re considering a horizontal, vertical, conglomerate or concentric merger it is imperative that the company as a whole is looked at.

2.   Conduct a formal cultural assessment of both companies

The process of due diligence will give a holistic overview of a company. However, this research may not be enough to fully understand and appreciate the core cultures of both entities. For this reason, a separate formal cultural assessment needs to take place. Not only of the company being acquired but also of the entity intending to buy the former. Going back to the marriage analogy, it is preferable for a person to understand who they are first before courting someone else. This increases the chances of a successful relationship. The same holds true for M&As.

3.   Appreciate the corporate cultures of both entities

One of the biggest reasons the Daimler Benz and Chrysler M&A dissolved in 2007 after less than 10 years was the failure on both sides to fully appreciate the different core cultures involved. Where Daimler had a more “conservative” culture, Chrysler was all about being “daring” and this led to the two automotive giants being at constant loggerheads with each other.

At times, even when a formal cultural assessment has been conducted, and especially in the event of a hostile takeover, many may be quick to dismiss culture as a minor aspect which can be dealt with later on. However, nothing is further from the truth and this is often reflected when skilled employees begin to leave the company. Thus, it is imperative to understand and appreciate that the corporate cultures of the merging companies are different.

4.   Define the objective of the M&A to employees on both ends

M&A can be a trying time for employees because their livelihoods are at stake. When companies merge, there may be significant impacts on personnel. As such, employees are generally emotionally tense during the entire process. This is worsened if there is no clear directive or communication coming from the top.

You cannot expect people to dance to the beat if they are not aware of what’s being discussed and where they stand in the new re-structuring process. You must remember that it’s people who set the tone of a company. It’s the talent in a company that defines its culture. Therefore, if you wish to avoid culture clashes, be clear and define the objective of the M&A and keep your people in the loop of things.

5.   Plan for a new corporate culture and inform your employees

In most cases, the end goal of an M&A is to create a new entity that’s stronger and better placed to dominate in the respective industry. A new business should mean a new corporate culture, however things don’t always flow as smoothly, and why is that? Because the dominant company almost always assumes that their corporate culture will be adopted. As highlighted before, culture is defined by people, and people are emotional creatures.

Ideally, a nouveau culture must be created and it ought to be addressed during the M&A process. And it should be a culture that combines aspects of both sides of the company. If people have been doing business in a certain way for decades and then are suddenly told they have to change, it will most certainly take some time to get used to the new culture.

6.   Have a clear strategy of how culture clashes will be handled

Pre-marital counseling is often recommended for engaged couples or those considering getting married. These sessions are designed to give the prospective couple an insight into the potential problems they will face within their marriage and also propose solutions of how to handle the disputes and clashes. A similar counseling process is needed for the entities considering an M&A to discuss how problems will be resolved.

There must be clear strategies in place on how culture clashes will be handled. It’s not a matter of if they arise but when such clashes happen, what will be done? Forewarned is forearmed. Take advantage of teams, such as Sun Acquisitions, that help companies find strategic solutions before the need arises. Having such strategies in place will help to diffuse tense situations and facilitate a smoother transition.

Get in touch with one of our friendly advisors to learn more about how Sun Acquisitions can help during business mergers and acquisitions.

Disclaimer: Any information provided in this blog is not intended to replace legal, financial or taxation advice given by qualified professionals.

Are you looking to acquire a new business? If statistics are anything to go by, there has been upsurge in the number of people selling businesses in the last couple of years. In fact, 2018 recorded the highest number of businesses sold in the last five years, with 10, 312 entities reportedly purchased. If you’re about to buy a business however, here are six questions you must first ask yourself.

1. Am I cut out to be a business owner?

Only you can answer this question by looking at your personality, assessing your temperament, risk tolerance, and career goals. Why do you want to buy this business? What are your underlying objectives? Be honest and truthful in this regard. If you simply want a business but are not prepared to run it, being honest enough to admit this will help you with the next set of questions.

2. Do I want to be a sole proprietor?

Being a sole proprietor means that you own the business outright. You bear all the risk and responsibility. Other business models that you can consider include partnering up with another person or others in a joint venture. Other possible structures include limited liability and corporation. The answer to this question may also be determined by the business you wish to buy.

3. Do I have the necessary experience to successfully operate the business?

Enthusiasm is good and so is belief in yourself and your abilities. However, businesses don’t run on talent and charisma. They require skill, knowledge and experience. When buying a business it is preferable to buy one in which you’ve had some sort of previous working experience. This is particularly true if you wish to acquire businesses that tend to be more technical and may in fact need certain licenses and qualifications like spas, medical centers and pharmacies.

4. What are the future prospects of this business?

Before you go ahead and purchase the business you’ve got your heart set on, it’s key to ask why the current owner is selling. Have you looked at the financials? Is everything in order? Is there a future for this business or there are hidden problems the owner isn’t being forthright about? How about the competition? You want to acquire a business that actually has a future, not one that’s already run into the ground. Remember, if it sounds too good to be true, and you smell a rat it’s probably a sign that you should stay away.

5. Am I in a position to buy the business at the proposed price?

When purchasing a business there are a lot of hidden costs that might not appear immediately. However, when you start processing paperwork and going through the legal channels, the costs can add up pretty fast. Financing options are indeed available and if you need to consult with an expert team consider Sun Acquisitions. Such teams can help you secure financing and complete the transaction. It’s imperative to get good advice before going ahead with such a purchase.

6. Do I want to acquire the entire business?

This aspect of business acquisitions is one that few are aware of. You don’t necessarily have to buy an entire business outright. You can select aspects of a business which are for sale and opt to purchase those instead. For example, you might not be interested in taking over the debts or liabilities of a particular company. Perhaps all you want is the equipment, real estate or contracts.

Taking time to answer these questions honestly will give you a good idea of where you stand in terms of purchasing any business.

Get in touch with one of our friendly members of staff to learn more about how Sun Acquisitions can help during business mergers and acquisitions.

Disclaimer: Any information provided in this blog is not intended to replace legal, financial or taxation advice given by qualified professionals.