Mergers and acquisitions: Begin with the end in mind
November, 11th 2014
The business world has been witness to mergers and acquisitions for years, but it has never been as dramatic as what can be anticipated in the near future. The retiring baby boomer generation, those born between 1946 and 1964, are estimated to own more than 12 million businesses and more than 70 percent will change hands and not transfer to the next generation.
This will add approximately 378,000 businesses that will be put on the market through the year 2029. Add this to the current market of only 24,000, and it is apparent it will be a buyer's market. The sad reality for a seller is that less than 20 percent of the available businesses will be able to secure a buyer.
In order to strategically plan for this baby boomer tsunami, a business owner should start with "the end in mind" and plan for the desired result while there is time to make it happen with the greatest degree of success.
The first step is to determine the current business value. It is important to have a strong EBITDA, a positive cash flow and a track record of increasing revenues and profits. Take the time to have these evaluated by a professional that can also help in planning, implementation, profit maximization and managing the success team, while there is enough time for improvement and growth. The time invested in this phase will reap huge rewards at the bargaining table as every dollar that goes to the bottom line profits will be multiplied five to 20 times over in the sales price.
As the plan is being determined, it is time to select other members of the success team that can take you over the finish line. These players will consist of select members of your management team, your banker, tax adviser, attorney, insurance agent, CPA, business coach and a team manager. As the time draws nearer, you will also need an investment banker or M&A company and a wealth manager.
The plan will consist of many moving parts so it is really important that the CEO stays focused on moving the business forward profitably and incrementally. The CEO has chosen his trusted team and will need to empower them to move forward while he runs the business.
Their progress should be monitored as they move through the maze of gathering information, researching issues and history and looking towards the future for sustainable and purposeful growth. Once the value is established and growth targeted, time will make it happen.
Probably the biggest challenge to any merger or acquisition will be the long list of questions and answers any potential buyer will request. Due diligence can consist of up to 200 questions, probing anything and everything the business may have ever said, done, considered, reviewed, etc. The list is not only exhaustive, it can seem intrusive, which may readily spark some feelings of anxiety and even anger. It is best to be prepared for what can be expected and even compile the answers many months in advance. Again, this preview can once again provide time to create the best answer.
Being prepared for the largest sale of a lifetime can be a journey of celebration and success. Starting early and being prepared is the key to success.