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Let's
Make a Deal
Investment
bankers offer advice on buying and selling companies.
By
Joyce Romine
When
buying or selling a company, both sides often take a
gamble. Successful mergers and acquisitions take experienced
professionals--and often extraordinary patience--to
create that "magical moment" where companies find a
perfect match. Here's some advice from a few St. Louis
investment bankers who play matchmaker everyday.
Finding
the Right Fit
RL
Hulett, an investment banking firm, serves a broad
market when buying and selling companies. The investment
bankers take a strategic approach to finding companies
for their clients to buy or sell to, says Robert Hulett,
president of RL Hulett.
"First
we work to understand our client's business, its culture,
strengths and the market place," Hulett says. "We
look for a company that complements the client's strategies.
But we're cautious not to acquire something the client
can't manage."
Hulett
goes on an all-out search to find the right company
for a client to buy or sell to. The firm turns to
a list of influential people in the city, follows
employee leads, checks Dunn and Bradstreet listings
and uses their network of resources to develop a list
of potential companies.
With
a staff of 12, RL Hulett closes about 15 deals a year.
"One of our strengths is that our people bring a breadth
of experience in the industry, so we can close deals
that work," Hulett says. "For the company to continue
to thrive, the seller has to be happy. That's key
in this business."
Fister
and Associates focuses on helping companies sell their
businesses. Pat Fister, executive vice president of
the investment banking firm, says they look for companies
that are in an acquisition mode.
"A
good fit between a buyer and seller typically happens
when they are in the same industry or a parallel industry,
they share customers and the deal will bring additional
market share," Fister says.
Fister
and Associates specializes in selling family-owned
businesses. They sell about
six companies each year. "Sellers often have an emotional
attachment to the business, which can make negotiating
more difficult," he says. "Potential buyers come in
and kick the tires. If you own the company, you may
take criticism to heart. The value we bring is that
we can serve as the middleman and be a buffer for
our selling clients. We also can quickly investigate
concerns the buyers may have and offer advice to our
client so they can improve their standing in the deal."
Specializing
even further in the industry is Barnes Associates,
which focuses on buying and selling companies in
the security alarm industry. "Buyers and sellers
are well defined in our business, but we still need
to properly match up companies," says Michael Barnes,
president of Barnes Associates, which has offices
in St. Louis and Chicago.
He
says the steps to a successful fit include matching
companies where the customers or operating capital
have distinct value to the buyer; and assessing
the bid/ask spread to make sure the seller's price
is aligned with the buyer's.
"Because
we specialize in one industry, we're very familiar
with most of the major players
in the industry and know their operating philosophy
and culture," Barnes says. "We're cautious about
recommending a transaction that on the surface works
with numbers that support the deal but the cultures
of the two companies don't mesh."
He
says cultural fit is discussed much more today in
the mergers and acquisitions arena. "When culture
is overlooked, a company ends up losing people after
the sale, production slips, and there's more upheaval
assimilating than expected in operating performance,"
he says. "Smart buyers realize soft issues, like
people issues, have more impact than the numbers
in making a deal work."
Sealing
the Deal
"The
principle thing in determining if a deal is going
to work or not is by listening to both sides'
stories in a meeting," Hulett says. "Experienced
people can tell if a deal is going to work by
the story told."
He
says the first step in a successful deal is having
a willing buyer and seller. Then the professionals
have to make the financial ramifications work.
And finally, there has to be a proper fit.
|
Preparing
a Company to Be Sold
|
(Compiled
from our sources)
-
Talk
to a lawyer, accountant and intermediary
experienced in selling companies. Have
an exhaustive, open-ended conversation
with these professionals.
-
Review financial and tax planning issues.
-
Prepare
financial and operating statements.
-
Think
through personnel issues.
-
Contact
people in your industry who have sold
companies to get details about the process
and get a sense of your company's fair
market value.
-
Pay
down debt.
-
Clean
up the balance sheet.
-
Settle
any litigations.
-
Address
any environmental issues.
-
Realistically
assess your inventory.
-
Realize
selling can be a long, stressful process,
especially when you're trying to run
your business and sell it at the same
time.
|
Louis Pettinelli, vice president of Stone Carlie
Investment Banking, says relationship building
can also play a role in making a deal work.
"A number of companies may be interested in
buying a certain business so relationship building
is important, along with the structure of the
deal," he says. "There are so many issues to
discuss in a deal but if the buyer and seller
are comfortable with each other, it's easier
to work things out to mutual satisfaction."
Pettinelli
says it's often obvious a deal isn't going to
work if there are lots of issues upfront and
both sides are already arguing every point.
"Other warning signs are when a company's forecasting
numbers don't hit their mark but the seller
still wants the same purchasing price," he says.
"Another indicator of trouble is when a company
has tried to sell before and failed."
To
reduce the number of "no-deals," Pettinelli
says he and his staff of 10 investment bankers
make sure owners are not selling impulsively
or based on emotions.
"By taking proper steps to prepare the company
to be sold, we make sure there are no surprises,"
he says. "This not only speeds up the sale process,
it also can have an impact on the sale price."
(See sidebar on "Preparing A Company to Be Sold.")
"Overall
most deals settle at a fair price because
enough professionals are involved," Hulett
says. "When a company starts down the path
of an acquisition or sale, it must take it
seriously. They can't enter it with the idea
of simply finding out what's out there, because
that can undermine future efforts to buy or
sell."
He
continues: "The biggest challenge for the
buyer is to find a seller. The biggest challenge
for the seller is the structure of the deal.
When it's time to close the deal, a buyer
may not go through with it. There's a lot
of risk involved for the buyer."
The
seller also can bring the deal to a screeching
halt. Selling-side stumbling blocks
include a difference between the sides on
strategic plans or price or when the seller
comes to the table with something specific
in mind and it's not offered in the deal.
"Every
deal falls apart three times before it closes,"
Barnes says. "It's a difficult process.
The biggest mistake in selling a business
occurs when there's not enough planning
done to understand the process. But there's
always that rare magical moment when both
sides are motivated, there's a synergy where
both buyer and seller have a valid reason
for merging, and fair and reasonable negotiations
take place quickly.
Pettinelli
says business valuations are at their peak
and are showing signs of slowing down. "Now
is the time to sell," he says. "With interest
rates rising, money will become tighter so
sooner is better than later to sell a business."
Joyce
Romine is a St. Louis-based writer and owner of
Streamline Communications
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