Exit Planning in the 2012 Deal Market: Value Added Commitment

   “It’s not whether you get knocked down … it’s whether you get up”

  Vince Lombardi on Commitment

We know it’s been a rough and tough market to get deals done:  

• Values are down
• Buyers are interested, but worried
• Deal terms and conditions are different in today’s “new normal”
•  Financing remains uncertain, though improving

Yet, deals are getting done.  In the past 12-months, we’ve successfully settled 3 transactions (not bragging, just letting you know we’re persistent and active!). 

A recent survey (*) of the middle market “deal makers (i.e., buyers)” regarding their 2012 plans had some interesting findings:  

• 86% planned to complete 0-3 deals
• 79% planned to complete the same or more deals compared to 2011
• 51% reported that bank lending remains “tight’; 49% felt opportunities were improving
• 76% felt that the biggest challenge of getting a deal done was the purchase price (i.e., too pricey) and economic uncertainty
• The “hot markets” are technology, financial services and healthcare that combined represent 55% of the buyers interest
• 51% expect to finance their deals with a combination of cash, equity (stock of the buyer) and debt (bank, seller)

In our experience: the deal market is improving -- call it bubbling, but not yet boiling.  

So in a tough market, what’s the plan?  What are you going to do to add value to your company?  We’re all adjusting to the “new normal” as it is now called. To be honest, in our role as exit planning advisors, there is no magic plan; there are no new tricks.  It’s about remembering and emphasizing the good habits you had in the beginning that, over time, might be forgotten or overlooked.  Here is your opportunity to restart your business with a goal to increase the business value and prepare for your “exit”.  It’s basic business 101:

• Define your “brand”: narrow the market if needed, expand if there is an opportunity.  Revisit, reset, repeat as needed
• Diversify your customer base: right or wrong, buyers are “squeamish” when a handful of customers represent a large part of the business,
•  Customer contracts – are they “assignable”? Is that in writing?
•  Profit margins – “run your business” to improve (not minimize) profit margins.  The “profit is good enough” attitude needs to go away.  Even if you’re in a commoditized industry, you don’t have to be the cheapest in town (note:  revisit #1 above -- brand does matter)
• Recurring revenue/cash flow – if you have an opportunity to convert from single billing to repetitive monthly cash flow, consider making the change (e.g., HVAC contractors who have both preventive maintenance contracts vs. time and material). Buyers like balanced, recurring revenue streams even when it’s the same dollars
• Refresh, recharge the marketing look.  You’ve heard the expression you only get one time to make your first impression … website, tweets, social media advertising.  It’s predicted that by the end of 2012, 60% of the Fortune 500 companies will actively engage customers via Facebook marketing efforts.  Where are you?  What’s it look like?
• Management team – we get it. You’re the decision maker about everything.  Loosen the reins a little.  Your key people are most likely staying with the new owner.  Give them the flexibility and authority to make decisions you‘ve been making.  Remember, you’re creating value for your company and key people are just that … valuable!
• Management compensation plans, incentive plan:  Critical to buyers, and to your successful exit, is the ability to retain key management.  Take a fresh look at various incentive plans you could use now to retain the key staff in the event of a change in ownership.
• Debt – credit lines and other forms of debt.  Do you use them just because they are convenient?  Or is the debt really needed to provide working capital? If not needed, make it go away. 

There you go. We hope we triggered some “Aha” moments for some.  We spend a lot of time with owners and their advisors helping them plan for a successful exit. As always, if we can help you, just give a call.     

           

 by Ed Davis, Partner

 

* The Deal magazine and Merrill DataSite

Growing Your Business in Difficult Times - Sales and Marketing

The two most effective growth strategies we are seeing at this time are increasing sales and marketing budgets and acquiring weaker competitors. Often the two go hand-in-hand since the owner of the smaller company often becomes a salesperson for the acquirer. This month I will touch on sales and marketing. Next month, acquisitions.

Increasing Sales and Marketing - getting an early jump on sales and marketing in order to gain market share is a proven way to grow your business as the economy restarts. At the bottom of a recession businesses and consumers stop buying anything except essentials. Even essentials are often cut back.

For instance an industrial equipment servicing firm we work with has seen repair orders slow down. They are finding that often the client will have two or three machines that need repairs in addition to the one they have been called to fix. As demand picks up all of these machines will have to be serviced and then eventually replaced.

Getting in front of these prospects early (but not too early) will lead to more sales and sales growth. Remember in all your sales efforts that the initial need is usually created because of pain. Without pain your biggest competitor, “doing nothing” is hard to overcome. Once there is pain you must focus on how your product or service provides the most value to overcome the pain and then contribute to the future of the organization. That is not the same as lowest price. If it was lowest price everyone would have Walmart watches on their wrists for $4.99 or less.

If you are in sales (or are an owner doing sales) and have never taken a sales course, do so quickly. There is a defined process to find pain, qualify, create value, and generate profitable sales.

One other thought. Recently I attended a seminar on fast growing consulting firms. The data all supported that narrow / deep niche players expanded quicker and had higher profits than generalists. While it is logical that being a generalist and not letting anything out of the net seems like the fastest way to grow data does not support that.

As an owner/manager the most important thing you can do in the sales arena is provide training and manage the process. Managing the process means understanding and tracking your pipeline. For instance if you sell consulting and a typical sales cycle is 3 months, what activities should be happening at 1 month and 2 months to indicate that a pipeline is being built.

How can you apply statistics to track your salespeople’s progress? Perhaps you generally have a meeting to perform a needs analysis a week after the introductory phone call. How many of those meetings occurred last week? By tracking statistics and then managing your marketing and sales staff you can manage your sales progress and know what to expect. More importantly you can reduce spending or change course if the current programs are not producing.

Increasing your sales and marketing efforts is a very important way to grow.