mergers and acquisitions Archives

Sun Acquisitions has successfully facilitated Fairlight One’s acquisition of Homerun Technology

February 22, 2021 by Sun Acquisitions

Sun Acquisitions announced today the successful acquisition of Homerun Technology, a Midwest provider of customized electronic solutions, by Fairlight One, LLC. Fairlight One engaged Sun Acquisitions in a Chicago area search for a targeted services company to acquire and operate.

Tim Lahey, Founder of Fairlight One, stated, “I am very pleased to acquire Homerun Technology and continue to offer its high-quality products and services to our existing and future customers. I would also like to thank Sun Acquisitions for all their support and advice throughout the acquisition process.”

Larry Sanderman, Vice President of Buy Side Services with Sun Acquisitions, led this buy-side engagement for Fairlight One, which generated Homerun Technology as one of many proprietary deal flow opportunities.

About Homerun Technology

Founded in 2001, Homerun Technology offers varied custom electronic solutions to residential and commercial clients including: audio/visual distribution, automation, lighting control networking solutions, security systems and smart wiring. Homerun Technology has its offices on Belmont Ave in Chicago and support clients across the Midwest (http://homerun-tech.com/).

About Sun Acquisitions

Sun Acquisitions is a Chicago based mergers and acquisitions firm. We work with clients that are interested in the confidential sale, acquisition or valuation of privately held middle market and main street companies. Our professionals have significant experience and knowledge to thoroughly guide clients through each stage of the sale or acquisition process. Sun Acquisitions has successfully managed and handled engagements across all industries and is recognized as a leading M&A advisory firm in the Midwest.

If you are interested in buying or selling a business, contact us at (773)-243-1603 or email [email protected].

Why Larger Companies Get Larger Multiples

January 18, 2021 by Sun Acquisitions

Does the size of a company really matter where business valuation is concerned? To what extent does the size of an enterprise and its revenue affect valuation multiples?

To answer simply: Yes, size does matter in business valuation. In fact, where multiples are concerned – it matters a great deal.

One only has to study investors eyeing the public capital markets to see this at play.

Larger companies are more established and seen as less risky. This translates into more favorable valuations and subsequently higher price multiples.

For sellers preparing for mergers and acquisitions wondering why larger companies get larger multiples, this blog will give you the answers.

What are the valuation multiples?

Definition

The Corporate Finance Institute defines valuation multiples as:

“…financial measurement tools that evaluate one financial metric as a ratio of another, in order to make different companies more comparable. Multiples are the proportion of one financial metric (i.e. Share Price) to another financial metric (i.e. Earnings per Share).”

This is a sound definition. To put it in our words, valuation multiples are financial benchmarks against which companies can be compared to each other.

With our current economic climate, most sellers are seeking to understand the best ways to increase their multiples so they can position themselves for successful mergers or acquisitions.

Before understanding why larger companies get the larger multiples, let’s look at some of the various types of multiples that exist.

Types of valuation multiples

There exist two major types of valuation multiples and these are:

Enterprise Value Multiples
Equity Multiples

Enterprise Value Multiples

Where M&As are being discussed, analysts rely on Enterprise Value Multiples (EVM) to assess the financial standing of a company. The four major EVMs that are used are EV/Revenue, EV/EBITDAR, EV/EBITDA, and EV/Invested Capital.

Equity Multiples

Equity multiples are most often employed by investors seeking minority shareholding in enterprises. Common equity multiples that are applied in investment decision making include P/E Ratio, Price/Book Ratio, Dividend Yield, and Price/Sales.

Sun Acquisitions Announces the Sale of a Commercial IT Services Provider

December 16, 2020 by Ellen Park

Sun Acquisitions is pleased to announce the sale of an experienced commercial IT services provider, based in the Greater Chicago Area.

The company, founded 25 years ago, provides a full range of IT services and have implemented recurring revenue streams from a large majority of their client base, which include law firms, accounting firms, and professional service businesses. In addition, they are staffed with experienced and knowledgeable employees with the ability to meet any clients’ IT needs.

There are many opportunities present for the new ownership to continue the growth of this company including: increasing digital marketing efforts, expanding geographically to serve additional markets, and growing the business development team.

This company was sold in record time for the full asking price. Through marketing the business for sale, Sun Acquisitions generated over 100 inquires on the business within just a couple months, which led to multiple final offers. The business was acquired by a company currently in the industry conducting a strategic growth acquisition.

Tony Schiappa was the lead advisor and managed all aspects of this client engagement. After the sale of this business, Tony stated, “We are thrilled to provide our client with a quick and valuable sale, even during the tough times of COVID. The M&A market, despite contrary beliefs, has been incredibly active and we have cultivated a large network of buyers who are interested in acquiring firms in the IT Services Industry.” Tony is the Chief Business Development Officer and Senior Advisor for Sun Acquisitions.

Integration – Culture Consideration

October 21, 2020 by Sun Acquisitions

How important exactly is company culture in M&A transactions? Well, according to a study by Isaac Dixon, “Culture Management and Mergers and Acquisitions”, cultural incompatibilities are the root cause of 30% of failed M&A integrations. Despite this research, many executives are dismissive of culture, an outlook that places the responsibility of managing potential culture clashes on operating leaders. Company culture differences have the ability to undermine even carefully crafted mergers and acquisitions. Case in point the $35 billion Omnicom and Publicis merger that fell through in 2014. Given the importance of culture, what measures can CIOs take to address culture integration?

Culture Consideration Tip #1 Appoint corporate culture leaders

The complex nature of mergers and acquisitions necessitates input from a wide range of professionals. There is an obvious need to bring on board experienced culture change leaders. People with the ability to unite distinct corporate cultures. Experts who will not allow culture clashes to get in the way of realizing economies of scale or erode the value of the transaction. These leaders will be instrumental in charting a new hierarchy and structuring the new organization model.

Culture Consideration Tip #2 Embed culture integration into meetings

Culture integration must begin at the top. Senior executives must make the first efforts to display a united front so employees can follow suit. Corporate culture leaders must identify culture owners from the merged entities who will take ownership of promoting culture at inhouse meetings. These culture owners will ensure that at every scheduled meeting there is a moment given to the presentation of the new culture. These presentations should be well-structured and specific and not vague assertions of the need for collaboration and teamwork.

Culture Consideration Tip #3 Compromise: find the middle ground

Integration should not mean the annihilation of the culture of the acquired entity, even in a takeover. The cultural strengths of the merged companies should first and foremost be recognized then draw lessons from each company culture. Find the middle ground of how cultural strengths may be integrated and expressed.

Examples of companies that managed to get this right and turn their transactions into successful mergers and acquisitions include Google and Android, H.J. Heinz and Kraft Food, AT&T and BellSouth, Verizon and Vodafone, Disney and Pixar with Marvel, and Travelers Group and Citicorp.

Culture Consideration Tip #4 Select key decision-makers

The ability of a recently merged entity to respond quickly and make decisions is often hampered by associated styles or cultures of decision making. Even prior to the merger, the way decisions are made can be telling signs. Take the aforementioned Omnicom and Publicis deal that never saw the light of day.

Omnicom CEO John Wren said at the time, “There are strong corporate cultures in both companies that delayed us reaching an agreement.” This was an understatement because those delays caused a loss in revenue exceeding $1.5 billion.

By selecting key decision-makers who represent the interests of both companies, decisions can be made faster. One can avoid the bureaucratic mill which almost always slows down decision making.

Culture Consideration Tip #5 Be mindful of succession planning

One of the biggest mistakes often made during M&A transactions is paying little attention to employees. This plays a major role in the high turnovers that are characteristic of such transactions. If you wish to retain top talent, accord them the respect they deserve. Remember, how you treat them during this transition will affect their loyalty going forward.

If you’re keen to better understand why employees leave, assistant teaching professor at PennState Smeal College of Business, Jeffrey A. Krug can help. He makes an effort to explain this mass exodus in his Harvard Business Review article, “Why Do They Keep Leaving?”

He argues that while the majority of original executives do leave voluntarily within a few months, a third of them are forced out and another third opt to leave because their job status has been reduced. The departure is not restricted to executives only with even new hires departing in droves. What could possibly be the cause? Krug cites the underlying problem as the failure to respect and retain incumbent leaders which indirectly leads to demoralization among the already nervous workforce.

Culture Consideration Tip #6 Adopt an open-door policy

During a merger and acquisition, the best thing you can do for your employees is for team leaders to keep an open door policy. When information trickles down as gossip instead of direct conversations between leaders and employees there can be a lot of misunderstanding. In an already tense situation, keeping employees in the dark might not be the best move.

Engage your people during the process. Ask their input on how best to create synergy. When you keep lines of communication open, people feel part of the process. They will still be nervous but it will afford them an opportunity to be heard and to ask the tough questions they might have. Purposeful dialogue may help alleviate anxieties across the board.

Culture Consideration Tip #7 Develop resources for easy reference

When organizations merge, structures will be rearranged and hierarchies affected. The old way of doing business is gone. Some of the culture clashes that present themselves at the onset involve employees continuing in their pre-merger practices. It is not enough to simply ask them to change. Documents must be prepared ahead of time that outline unique roles and responsibilities to avoid conflict.

Schedule a free and confidential consultation with Sun Acquisitions

Are you anxious about the post-merger situation? Would you like to discuss how to handle potential culture clashes? Sun Acquisitions is Chicago’s leading business broker offering a host of advisory services to both sellers and buyers. Contact us to schedule a complimentary and confidential consultation with one of our certified advisors. Let’s discuss your business and review your goals.

Post Merger – Integration Checklist

October 14, 2020 by Sun Acquisitions

Do you have a post-merger integration (PMI) plan and checklist? Who is in charge of leading the PMI team? What are the respective PMI milestones?

Post-merger integration is as much a part of the M&A life cycle as due diligence, transaction approvals, and the final contract signing. “Ideally, you would start planning as soon as you decide to buy something. If you have no plan for the target company, you are going to pay the wrong price and you are not going to be ready to handle the integration,” says M&A author Danny A. Davis in his book Danny A. Davis on Planning Merger Integrations. “I would do a couple of days planning right at the start. At the latest, I would start building a full integration plan around 100 days before you believe the deal will take place.”

The case for developing a comprehensive PMI checklist

Mergers and acquisitions are hard enough already. Failing to have an adequate PMI checklist will result in additional problems that might be dismissed as a culture clash. “The reason people come down to culture and communications is that they are used as excuses when things go wrong. Rather than admitting they’ve done something wrong or that they had a bad strategy, people talk about culture. It is more important to think and plan the integration strategy for the companies, the products, and the people,” Danny A. Davis explains in his book.

A clear-cut PMI checklist will give direction from Day 1. It will define the roles of each employee to avoid ambiguity and will provide a timeline on when the board and management can expect to have integration complete. Simply put, it is an invaluable document that should detail each of the steps to be taken to promote the seamless integration of the merging entities. Assuming that things will somehow pan out alright without such a policy is the height of folly on the part of the buyers.

Fortunately, you don’t have to look too far for a solution. As experienced business brokers who’ve brokered hundreds of mergers & acquisitions, here are our top tips on how to establish a thorough PMI checklist.

Tip #1. Delegate responsibility to a designated PMI taskforce

It is not wise for the board and management to attempt to oversee the PMI by themselves. Instead, someone with the necessary experience, expertise, and clout should be selected to manage this integral part of the transition.

Such a person and their team will make up the PMI taskforce. They will carefully study the merger and acquisition details, company cultures, and resources to draft a robust PMI strategy. Included in their plan of action should be key integration milestones, their intended form of communication with the board, and when they hope to have integration completed.

Tip #2. PMI Taskforce should establish a new hiring policy

“In any merger, the biggest challenge is always the integration of human resources because the people who are coming in have a lot of apprehensions,” says former Chairperson of the State Bank of India, Arundhati Bhattacharya.

There will be a lot of upheaval at the start. The PMI taskforce must take the bull by the horns and get ahead of the situation by designing a new hiring process. This part of the checklist must detail how the newly formed entity will onboard new hires, prepare the documentation needed for their training, stipulate salaries, and bonuses to avoid any misunderstandings.

Tip #3. PMI Taskforce to formulate an offboarding procedure

The checklist must also include a detailed outline of how redundancies are going to be addressed. It is unfortunate, but there will be casualties post-merger. Consequently, a clear-cut policy on how to deal with laying people off, moving them to other departments, or firing them is mandatory. Severance documents should be prepared ahead of time.

This will not be easy as former CEO of Hewlett-Packard Carly Fiorina observed following what was then the biggest technology sector merger in history between HP and Compaq in 2002, “A merger is hard to pull off under any circumstances. It is even harder when everyone is against you”. In the first few months of the HP and Compaq merger at least 30, 000 employees were laid off. However, the tide would turn and thousands more would be hired in the next three years.

Tip #4. PMI Taskforce to integrate an IT system blueprint

Another very important element that should be on the checklist is the assimilation process of IT systems. This assimilation must be done tactfully and with a sense of utmost urgency because operations must continue with as little disruption as possible.

IT teams will need to be briefed about their new internal organization and hierarchy. Once this is done, the IT team must get to work establishing proper security access and securing the assets of all the new hires and former employees immediately.

Businesses are most vulnerable at such a moment as evidenced by the hacking of Hong Kong-based shipbrokers Anglo-Eastern in April 2020. This incident took place when the company was moving offices. Hackers took advantage of system weaknesses to penetrate and compromise internal systems in order to demand a ransom. This isn’t an isolated case. IBM reports that the average cost of a data breach is $3.9 million. What are we saying? Cyber threats are real, so prepare accordingly.

Tip #5. PMI Taskforce to create communication and performance protocols

How will you know that integration is on track if you don’t have performance indicators? On the checklist should be the creation of clear key performance indicators. These will help teams to know what their responsibilities are and what is expected.

Also, encourage team leaders to have an open-door policy so employees can approach them for open and honest discussions. Business management coach and author of the bestseller The Five Dysfunctions of a Team, Patrick Lencioni puts it this way, “Great teams do not hold back with one another. They are unafraid to air their dirty laundry. They admit their mistakes, weaknesses, and concerns without fear of reprisal.”

You must, therefore, generate a performance review system, a communication plan, and a training and development strategy.

Looking for qualified business brokers?

Sun Acquisitions is one of the leading business brokers in Chicago. Our advisory services include strategy development, divestitures, acquisitions, consultations, and business valuation. To discuss your integration checklist don’t hesitate to reach out to us. Contact us for more information.

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

Blog Posts

Breaking Barriers: Overcoming Challenges in Marketing Your Business for Sale

Closing the Deal: Finalizing the Sale of Your Business

Navigating the M&A Landscape: How to Maximize Return On Your Privately Held Business

Choosing the Right Path: Exploring Acquisition Strategies for Small to Mid-sized Enterprises

From Vision to Reality: The Art of Successful Mergers and Acquisitions for Privately Held Businesses