Dwight Lester, a successful strategic finance executive, shares his expertise on mergers and acquisitions, continued from a previous discussion.
Why should I buy another business instead of starting my own?
There are several advantages to acquiring an existing business instead of starting a new business unit from scratch. First of all, existing companies have a proven concept and a proven track record. They have also developed a network of suppliers and customers, and they have built up the human capital to maintain business operations. Overall, the risk and effort required to acquire a company tend to be lower than for starting a new one.
How do I ensure the best price for my business during the acquisition process?
Enhance the value of your business on as many levels as possible. In addition to developing hard assets such as sales, cash flow, and market share, consider your intangibles. Name recognition will go a long way to increasing the purchase price, so develop relationships as broadly as possible within your industry. Also be sure to invest in management training, so that your staff brings expertise and knowledge that would be valuable to a potential buyer. These factors prove especially important in negotiating an advantageous price for a small business with few hard assets to offer.
Should we acquire the target company’s shares as well as its assets?
This depends on a wide range of factors. Tax considerations may sway your decisions one way or the other, but painstakingly thorough due diligence activities are the only way to ensure a correct decision on this matter. Sometimes, it is more advantageous to simply purchase the company’s assets. Other times, there may be a good reason to buy the shares.
How can we ensure our company’s values are maintained following a merger or acquisition?
No guarantees exist, but your best bet is to develop a comprehensive succession plan. Many small to medium businesses have little understanding of how the company will function after the owner or other chief executive leaves. Although succession planning can be an emotional experience, when done properly, it ensures that the company is built upon a solid foundation of interconnected operations, with multiple backups in place at every level. If such a structure is in place, M&A activities are less likely to completely transform the operations of the company.
Tuesday 26 April 2011
Mergers and Acquisitions FAQ, Part 1, by Dwight Lester
Finance and business strategy professional Dwight Lester provides insight on mergers and acquisitions, directed toward companies that are considering an M&A-based expansion and for those that are being courted for a merger or acquisition.
How is the price for an acquisition calculated?
Price is calculated partly through research and accounting work, and partly through negotiation. While the value of a company’s shares and assets can be determined by accountants, intangible assets are harder to assess. If the purpose of the acquisition is primarily to secure certain tangible assets and expand market share, then the price may be simpler to determine. However, if the purpose is to build upon the goodwill enjoyed by the target company in a given sector, the price may be somewhat more fluid.
Where do purchasers find financing for the transaction?
Traditional business loans may not be available for a merger or acquisition. If your company does not have the resources to pay cash for the transaction, a number of options are available. Some companies attempt to offer shares as part of the payment, but sellers are often reluctant to accept an all-stock offer. Sometimes, sellers lend the funds to the buyer for a specific term and fixed interest rate, often with balloon payments included. Other alternatives include mezzanine financing, or so-called earn-outs, where the buyer pays the seller over time based on performance.
Can acquisitions serve as an exit strategy?
Sometimes, though preparation is required. Following an acquisition, the buyer will usually want the seller’s senior management to stay, in order to assist with training and integration. This transition period may range from a few months to a year, and may transform into a permanent position. Business owners that want to sell their firms and leave need to develop a strong management framework capable of supporting the transitional period without additional guidance.
How is the price for an acquisition calculated?
Price is calculated partly through research and accounting work, and partly through negotiation. While the value of a company’s shares and assets can be determined by accountants, intangible assets are harder to assess. If the purpose of the acquisition is primarily to secure certain tangible assets and expand market share, then the price may be simpler to determine. However, if the purpose is to build upon the goodwill enjoyed by the target company in a given sector, the price may be somewhat more fluid.
Where do purchasers find financing for the transaction?
Traditional business loans may not be available for a merger or acquisition. If your company does not have the resources to pay cash for the transaction, a number of options are available. Some companies attempt to offer shares as part of the payment, but sellers are often reluctant to accept an all-stock offer. Sometimes, sellers lend the funds to the buyer for a specific term and fixed interest rate, often with balloon payments included. Other alternatives include mezzanine financing, or so-called earn-outs, where the buyer pays the seller over time based on performance.
Can acquisitions serve as an exit strategy?
Sometimes, though preparation is required. Following an acquisition, the buyer will usually want the seller’s senior management to stay, in order to assist with training and integration. This transition period may range from a few months to a year, and may transform into a permanent position. Business owners that want to sell their firms and leave need to develop a strong management framework capable of supporting the transitional period without additional guidance.
Friday 25 March 2011
About Dwight Lester!
Sherwood Park, Alberta, business executive Dwight Lester served the Calgary-Edmonton Corridor for nearly two decades in a wide selection of fields, including media and gaming. Dwight Lester primarily focuses on the financial areas of business, including securities filings, financial analysis and forecasting, cost controls, and development of financial governance structures. Other areas of management that Dwight Lester focuses on include strategic and tactical planning, oversight of publically traded companies on the Toronto Stock Exchange, mergers and acquisitions, and due diligence procedures. Dwight Lester holds various certifications in management and accounting on top of a Bachelor of Applied Business Administration from the Northern Alberta Institute of Technology in Edmonton.
Beginning his career in accounting, Dwight Lester spent five years as a Financial Accountant, serving the firm Precise Accounting & Management Services Ltd. Following this, Dwight Lester joined the media network Global Television Network in Edmonton in 1999, where he started as a Senior Financial Analyst for three non-broadcasting affiliates. Dwight Lester provided exceptional financial analysis and oversight of the subsidiaries' budgets while serving as Senior Financial Analyst and helped diversify these assets with due diligence. Promoted to Business Unit Manager in 2001, Dwight Lester oversaw the financial development of TV stations in Edmonton and Red Deer. The more involved aspects of Dwight Lester’s service at Global Television Network included optimizing cash flow in volatile situations, either during expansion periods, such as parent company Canwest Global Communications Corporation’ acquisition period, or recessionary times, such as folding a C$10 million company.
Dwight Lester also served as Director of Finance at two Alberta firms. At both of these companies, Dwight Lester created strong financial strategies and maintained exceptional profits for the firms. These elements of Dwight Lester’s talents were displayed while overseeing the financial strategy of gaming company Gateway Casinos during an extended labour dispute and by staffing retail chain easyhome Ltd.’s financial department with resourceful and experienced employees.
Beginning his career in accounting, Dwight Lester spent five years as a Financial Accountant, serving the firm Precise Accounting & Management Services Ltd. Following this, Dwight Lester joined the media network Global Television Network in Edmonton in 1999, where he started as a Senior Financial Analyst for three non-broadcasting affiliates. Dwight Lester provided exceptional financial analysis and oversight of the subsidiaries' budgets while serving as Senior Financial Analyst and helped diversify these assets with due diligence. Promoted to Business Unit Manager in 2001, Dwight Lester oversaw the financial development of TV stations in Edmonton and Red Deer. The more involved aspects of Dwight Lester’s service at Global Television Network included optimizing cash flow in volatile situations, either during expansion periods, such as parent company Canwest Global Communications Corporation’ acquisition period, or recessionary times, such as folding a C$10 million company.
Dwight Lester also served as Director of Finance at two Alberta firms. At both of these companies, Dwight Lester created strong financial strategies and maintained exceptional profits for the firms. These elements of Dwight Lester’s talents were displayed while overseeing the financial strategy of gaming company Gateway Casinos during an extended labour dispute and by staffing retail chain easyhome Ltd.’s financial department with resourceful and experienced employees.
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