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Acquisition Strategies – Think Small to Go Big

Acquisition Strategies – Think Small to Go Big On several occasions, I have met or worked with entrepreneurs that built valuable businesses by effectively executing several small acquisitions. These companies have been in industries such as staffing, insurance and financial services as well as electronic and light manufacturing. Several of these companies reached enterprise values of well over $30M+ by generating EBITDA %’s that were higher than their industry norms. Here are some key points to their collective acquisition strategies targeting smaller business: • Smaller revenue or cash flow businesses– many focused on companies with low revenue (less than $5M) […]

Corporate Financial Planning: The Value of a Process Change

Corporate Financial Planning: The Value of a Business Process Change The Value of a Business Process Change: When thinking about strategies that significantly increase enterprise value, our minds tend to immediately think of strategies that grow revenues like adding a new product, investing more in sales resources or acquiring another business. One strategy that often gets overlooked is implementing a business process change. However, since most companies are valued based on a multiple of cash flow not revenues, finding ways to improve existing business processes can lead to significant growth in enterprise value. Here’s are some added reasons why a business process […]

Another Exit Planning Option: Sell To Management

Internal Management Buyout: Another Exit Planning Option: Sell to Management The one exit planning strategy that most often gets overlooked is an internal management buyout but it’s an approach that has several advantages that owners should seriously consider. This post is a very short explanation of 1) how an internal management buyout works, 2) who an internal management buyout works best for, 3) benefits and 4) initial planning steps for those considering it. How an Internal Management Buyout works  In an internal management buyout the company borrows capital typically from bank or non-bank lenders that is then paid to the […]

MBO Management Buyout: PE vs No-PE

MBO Management Buyout: PE vs No-PE I have a client pursuing a MBO management buyout of his company from its public parent. As we assessed different management buyout financing options, he had a big decision to make. Did he want to partner with a private equity firm (PE) or do the financing on an all debt basis through a combination of bank and non-bank lenders (non-PE)? Here is the upside and downside of using private equity for management buyout financing and what he ultimately chose. Benefits of Private Equity Led Management Buyout PE firms run the closing process – Once […]

Growing by Acquisition: A key factor that drives successful acquisitions

Growing By Acquisiton: A Key Factor That Drives Successful Acquisitions. When targeting an acquisition it’s pretty easy to get lost in the numbers.  After all, financial analysis is critical for acquisition financing, valuing the acquisition and seeing how the Company can add financial or enterprise value to the current business.   When considering growing by acquisition, a harder question to assess is whether the acquisition is likely to successful in the long run.  A study*(see link below) done by PriceWaterhouseCoopers found that those acquisitions that provided a capability or strategic fit created on average 14% more value than those that […]

What Drives Up Multiples in Enterprise Value?

Corporate Financial Planning: What Drives up Multiples?  Last newsletter, I provided a short (as I could) explanation of how to calculate enterprise value (EV) and why EV is an important topic for internal planning, valuing private company acquisitions, management buyouts and partner buyouts. A common follow-up question I get related to EV is What factors can drive up the multiples used in the enterprise valuation calculation? I will try to try to briefly tackle that question.  Key Reminder  Before we get to far down the road, its important to remember actual selling price and enterprise value are two different things. Selling price is an actual value a willing buyer […]

Calculating Enterprise Value: Corporate Financial Planning

Corporate Financial Planning and Calculating Enterprise Value Calculating Enterprise Value:  A key aspect to corporate financial planning is looking beyond just driving revenue growth to ensure the Company is growing its value. There are multiple ways to value a business and they are all academically correct; however, there is one methodology, often called Enterprise Value, that is used more than others when valuing businesses, completing management buyouts, partner buyouts or raising capital.  Given its importance, here is a very brief description of enterprise value and a simple example. The Enterprise Value Formula  As shown below, enterprise value is basically a formula. That formula […]

What’s Your Available Cash? An important, overlooked Financial Key Performance Indicator (KPI)

Available Cash: What’s Your Available Cash?  An important, overlooked FINANCIAL KPI (Key Performance Indicator) Available Cash?  I recently got asked by a CFO a question, I thought worth sharing. “How much cash should we maintain on our balance sheet in our business’?  I believe its good for companies to have ‘available cash’ of a minimum of two months of operating expenses but ideally up to six months.  Here’s a look at that formula and why’s its important.  The formula for calculating “Available Cash” is as follows: Available Cash = (Cash + additional borrowing capacity) / Monthly operating expenses Defined as: […]

Leveraged Buyout Single Buyer – Get Quality Financial Projections!

Leveraged Buyout Single Buyer – Management Buyout Consulting Leveraged Buyout Single Buyer:  Provide Multi-Year Financial Projections: Owners of growing companies often get approached by prospective buyers, even when they are not looking to sell. Suddenly, they are faced with a leveraged buyout from a single buyer. But owners that engage in those discussions, often face a challenge as the talks intensify. The challenge is they are talking to a single potential buyer, so they can’t use competition (i.e. interest from multiple bidders) as a way to drive up the Company’s price during negotiation.  One way to create leverage in those situations […]

Getting More From Your Bank – Example

Getting More From Your Bank – Example In the last post, I made the point that if you want more capital from your bank and they won’t give it you, then then go out and get financing proposals from another bank and your existing bank is likely to step up and match it.  Now, I will share an example to illustrate the point.  Earlier this year, Lantern Capital Advisors had a client that was coming out of a downturn where they had generated losses the previous two years. The reasons for these losses were the result of ‘self inflicted’ strategy […]