October 2013

Volume 14: Issue 5

October 2013

Keys to Negotiating a Successful M&A Deal

Whether you're buying or selling a business, a few guidelines can help you negotiate a deal more effectively and improve your chances for an advantageous outcome. While you're probably already familiar with basic negotiation strategies, most parties to an M&A transaction can use a refresher course when it comes to what may be the biggest deal of their lives.

Know Yourself

Good negotiators start by knowing themselves. Before you enter into sale negotiations, take time to identify your goals and your tactics for achieving them. If you're buying, what's your "reservation price"-the most you're willing to pay? Would you be able to walk away from the deal if the seller refuses to budge on price?

If you're selling, similar questions apply:

What's the lowest offer you'll accept?
Are you in a hurry to sell?
What conditions will you require as part of the sale?

For example, the retention of certain employees may be a priority. Also be prepared to speak confidently about your business' strengths and address any perceived weaknesses. Since the buyer's negotiating leverage emphasizes your weaknesses, you need to be aware of them and ready to provide a solution that mitigates an adverse effect on the buyer's offering price.

Know the Other Party

Knowing the other side is as important as understanding your own priorities. This knowledge allows you to map out the negotiation ahead of time. As a buyer, you should have a thorough understanding of the business-gained through extensive due diligence.

If you're a seller, it's essential to know that your buyer can afford to purchase the business and, if the deal will be seller-financed, how well the company will be run while the note is being paid off. It's also helpful to learn if your buyer has looked at many other businesses. Buyers who know they have other options if your deal falls through will probably drive a harder bargain.

Gathering knowledge involves more than research; you also need to be a good listener.

If you're talkative by nature, make an effort to speak less and listen more when meeting with the other party. The better you understand them, the greater chance you have of anticipating their moves and preparing counter offers.

Build a Relationship

There are plenty of opportunities for differences of opinion in any business transaction, and a business sale is no different. Establishing a cordial relationship can go a long way toward reducing misunderstandings or unintended offenses. Social occasions such as dinner or a golf outing can break the ice. Expressing interest in the other party's opinion and a sense of humor also can help build a good working relationship.

Going back on your word, exaggerating points or misrepresenting facts in an attempt to strengthen your position, on the other hand, can damage goodwill. Finally, don't try to box the other party into an untenable position-it's a tactic that's likely to misfire.

Flexible is Vital

Selling a business is a complicated process, of which price is only one component. When entering the negotiation stage, keep in mind other items that are subject to bargaining:

Down payment amount (more info);
Interest rate on a seller loan (more info);
Collateral (more info);
Seller warranties (more info);
Earn-out provisions (more info);
Non-compete agreements (more info).

Also consider the structure of the deal - whether the company's stock is being acquired, or just its assets. In general, sellers prefer a stock sale and buyers prefer an asset transaction, which provides better cash flow after the deal.

Good negotiators take advantage of the multifaceted nature of the process by remaining flexible throughout. This may mean compromising on some elements to get the ones that are most important to you, such as those related to financing terms, the closing date, employee retention or seller warranties.

With so many moving parts to consider, flexibility can get you past obstacles. If you're hung up on a tough issue-say, the price of a particular asset-try putting it aside temporarily, moving to less controversial points such as the price of other assets, and then circling back later.

Adapt Your Business to Change

If you've achieved some success in your startup's first product, how do you keep growing? What should you do if an upstart gives your customers a product that delivers more bang-for-the-buck than yours? How do you know when the needs of your customers are changing and adapt to those changes effectively? How should you alter your startup's business strategy to take advantage of new technology?

I've seen startups use all kinds of strategies to stay ahead of changing customer needs, new competitors and evolving technology. One CEO acted as chief customer service officer, visiting with each customer after the sale to ask for feedback and adjust offerings as needed. Another wrote press releases three years into the future to create a vision of what the company should be doing three years from now.

Both of these approaches have their benefits -- providing motivation to move forward and a clearer vision into the future. But what if your vision of the future is not the best one for your startup or your current customer doesn't represent your future target customer?

To tap into the strengths of some of these approaches while overcoming their weaknesses, I developed a six-step process to help entrepreneurs grow their business without boundaries.

Create a forward-thinking team. You should lead a team consisting of key functional leaders in your company and select customers and suppliers who can help you rethink your startup strategy. Check in with them often to stay on top of their needs.
Map your startup's value network. The value network is all the industries from your product's raw materials to the end consumer. Your team can gain valuable insights by fanning across the value network and finding which companies are growing fastest and why.
Choose who you listen to. Monitor the market signals generated by the most interesting participants in your industry's value network. For example, what new products is your fastest growing competitor working on? Which customer segments seem to be adopting your product the fastest?
Generate a business model hypotheses. Based on your team's analysis of these market signals, you should generate ideas about how you might change your strategy such as service features, customer targeting, pricing and channel marketing.
Get market feedback. Launch the top three ideas and see what kind of feedback you get from the market. Do this launch as quickly and inexpensively as you can. You can always adapt and make changes later.
Refine based on feedback. Add more features that customers want and take away ones they hate. Always be looking for ways to improve.

How to Use Google's New Top Charts Feature to Improve Your Web Content

As a webmaster, the more you know about your website visitors, the better able you'll be to target future promotions, stock changes, content and more to their needs. Google has a new tool that can help with this.

Conventional keyword research can make it difficult to identify overarching trends within your industry. As an example, suppose you run a website that recommends different credit cards and bank accounts to personal finance readers. You want to know which banking brands are trending among your followers, but when you use your keyword research tool, you get a jumble of results that are hard to interpret.

The keyword list above was generated using the search term "bank" within Google Adwords. Note that SunTrust Banks is represented twice on this list using different spellings. In order to get a complete idea of how many of your readers are interested in SunTrust Banks, you'd need to add all the different SunTrust related keywords together and compare your total against other aggregate options.

This is where Google's new Top Charts feature comes in handy. Top Charts provides cumulative trend data in more than 40 categories. Essentially, these charts reveal the subjects that people in a given industry are most interested in based on overall search habits -- not on individual keyword volumes.
Related: Easy Ways to Keep Visitors on Your Website Longer

Below is the current Top Chart for the banking industry:

Returning to our previous example, if you were a webmaster running a financial services website, this Top Chart would provide you with valuable insight into what consumers are actually interested in, without the hassle associated with adding together different keyword variations.

In this case, the "Financial companies" Top Chart reveals that consumers are most interest in Wells Fargo, Chase and Bank of America products. Featuring these companies more prominently on your website could lead to more referrals and greater reader loyalty based on the value of your "in tune" recommendations.

Related: Google to Discontinue Adwords Tool for Websites
There are a number of ways that business owners can use this trend data rather than more granular keyword suggestions:

Better-tailored promotions. By familiarizing yourself with the general trends found in Top Charts, you can determine which products or brands to feature most prominently on your website. While you'll still want to test your conversion rates amongst your unique audience, knowing which brands or products they've demonstrated the most affinity with in the search results can save you time when it comes to market research.
Stronger blog post content. Even if you aren't able to make product line decisions based on Top Charts information alone, you can still use these trend indicators to inform your business blog's post content. By writing posts based on topics that you know are popular with Google search users, you'll improve the relationship you have with your readers, leading to repeat visits and increased social sharing.
More relevant ads. Knowing what your target customers are interested in can also help you to whittle down your list of PPC keywords. If, for example, you see a certain product type you've been advertising for slip down in Top Charts popularity, that could be a good indication that your advertising dollars will be better spent elsewhere.

Of course, Top Charts does have a few weaknesses from a market research standpoint. First, there are only around 40 industries covered, which leaves major gaps in the product's knowledge base. If you operate in a niche market, the data found in Google's Top Charts may be too broad for you to put to use.

In addition, webmasters will want to be aware of the limits of such general information. Because Top Charts draws from data created by all search engine users, there's a chance that Google's reported trends won't be applicable to a site's smaller, more unique audience. If, for example, your personal finance website targets stay at home moms exclusively, you may find that their interests deviate from the whole-population trends reported in Top Charts.

Even still, Top Charts can be an informative tool for most webmasters. Use the information found there to learn more about what your customers might be interested in and to structure future promotions, product line changes and more on your website. Just be sure to test any changes you make using split testing and other consumer research protocols to validate your assumptions and to create the best possible offerings for your target audience.

Written by:

Eric Sui, COO of Single Grain

NEW BUSINESS TRANSACTIONS

VR Continues to Match Qualified Buyers with Businesses for Sale

In today's business climate, our clients demand quality and professionalism.

We applaud our VR business intermediaries for a job well done!! Here are a small sample of transactions closed across the VR network in the last month:

Automotive After Market Company, $2,900,000 - Frisco, Texas

EZ Washer Dryer Leasing, $1,250,000 - Austin, Texas

Liquor Store, $575,000 - Charleston, South Carolina

Coin Laundries, $550,000 - Lakeland, Florida

Shanked Computer Recycling, $1,900,000 -Edmonton, Canada

Thinking of selling your business, or looking for an already running business purchase?

Contact a VR office today!

FEATURED TRANSACTIONS

Contract Packaging Fulfillment company

VR Business Sales | Mergers & Acquisitions of Waukesha, WI - a leader in the sale of privately-held middle market companies, recently facilitated the strategic sale of a Diverse Contract Packaging Fulfillment company for $2,000,000.

The transaction - which closed and handled by Tim Bullard & Joe Braier, a business intermediary specialist.

About the Business

Unique opportunity to acquire a diverse contract packaging fulfillment company, packaged with a print specialty business. These two seasoned companies have grown to a point where the partners are looking for someone to take them to the next level. In business for over 24+ years, this opportunity comes with a solid brand id and a loyal customer base. The current owners run and operate other business ventures, which takes time away from their dedication and focus on these two operations. This circumstance creates an extraordinary amount of growth opportunity and the current owners are willing to stay on board for the appropriate transition period, as well as add their thoughts and ideas of how to easily grow this business.

Retail Liquor Store Business

VR Business Sales, located in South Carolina; the leading business intermediary firm in the area, has recently facilitated the strategic sale of a retail liquor store business company for $550,000.

Bruce Rockwell, a VR business intermediary, represented the seller throughout the transaction.

About the Company

Highly successful retail liquor store operation with a long track record of profitability. Turnkey operation with low overhead with good margins. This new listing will not last long. Well managed and focused on growth in the marketplace, owner will train and provide assistance as needed.

FEATURED ENGAGEMENTS

Fitness Center

Listed at $3,500,000

VR Mergers & Acquisitions, located in Atlanta/Marietta, GA, announced it has been engaged to sell a Beautiful Fitness Center Complex, Cobb County.

First-Class Facility Renovations

7 acres in High Demographic of Cobb County

Olympic size pool, full basketball court, running track, aerobics room, full daycare center, offices, wet area with spa, steam and a second floor mezzanine.

Located near major shopping and mall area just North of Atlanta.

Please head to the VR Web Site and contact the office in Atlanta/Marietta, GA for further details.

Premiere Glass Company

Listed at $5,000,000

VR Mergers & Acquisitions, located in Coral Springs, FL the leading business intermediary firm in the area, has recently been engaged to assist in facilitating the strategic sale of a Premiere Glass Company.

About this Engagement

The Premiere Glass Company in South Florida since 1988. Located in a beautiful stand-alone building with the most sophisticated glass showroom in Florida. The commercial department will accommodate all types of projects, from a large high-rise structure to shopping centers or store fronts. The residential department deals with homeowners, architects and designers. Also shower & mirror division, glass railings and stairs.

Click here for more details on this truly one-of-a-kind business.