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Mar 22

Planning to Exit Your Business?

Brigitte Grava March 22, 2024

 

The Importance of Planning and Preparing to Exit 

Business owners need to plan and prepare for the inevitable exit, and they must start planning well in advance of their anticipated exit date. There are many motivations for business owners to exit including a desire to retire, health or financial issues, a strategic sale, or an interest in starting a new venture. Some entrepreneurs start their businesses with the intention to exit quickly and aim to make a high-growth venture easily sellable. For others, growing their company is a labor of love, and exiting is not top of mind. The procrastination of exit planning can cause complications for both the future of business owner and their company.

Planning for an exit early can ensure a smooth and lucrative exit. Positioning a company for a lucrative exit will take advanced planning from the business owner. They will need to adequately prepare themselves and their company in addition to utilizing a trusted M&A advisor to achieve a high valuation and execute the exit plan. This blog will discuss when to start planning for an exit, factors to consider in an exit plan, and how to prepare for the exit.

EXIT PLANNING

When should I start planning my exit?

It is crucial to start planning your exit strategy as early as possible. A business owner should start thinking about their exit as soon as they start their company because they can gradually plan for their exit as the company grows. While the exact timeline may vary depending on the type of business and personal circumstances, it is never too early to consider different exit options. Waiting too long to plan an exit can lead to unfavorable outcomes. It's important to start planning early to maximize the value of the company and ensure the business owner can have a smooth transition exiting the business.

There is not one ideal exit because every exit plan should be extremely personalized and tailored to the unique goals and aspirations of each business owner. Some business owners may envision passing their company down to family members or trusted employees, while others may opt for a planned dissolution or seek a buyer for their business. However, for those considering a sale of their company, meticulous exit planning becomes even more essential, especially if they have specific sale or value targets in mind.

One popular option for an exit plan is handing over the company to someone else, whether it be a family member or a key employee. Unfortunately, many owners make the mistake of assuming their children or designated successors will seamlessly step into their shoes without actively involving them in the exit planning process. This mistake can cause a multitude of problems including the owner being caught by surprise when their chosen successor declines to take over the business. Thus, business owners must engage their intended successors in the exit planning process from the outset. By including them in discussions and seeking their input, owners can gain valuable insights into their successors' desires, capabilities, and readiness to assume leadership roles. This proactive approach not only fosters alignment and transparency but also minimizes the risk of last-minute surprises or rushed decisions when it's time to pass the torch. Ultimately, communication and collaboration between current and future leadership are essential for ensuring a smooth and successful transition of ownership.

Selling a company either to an inside or outside buyer is a popular exit plan among business owners. These business owners should start envisioning what they want the sale of their company to look like and incorporate that vision into their exit plan. When selling a business, there are many ways to structure the transaction, and business owners need to consider what structure, or structures align best with their goals. An M&A advisor can guide business owners through various transaction structures and their nuances to help the business owner make an informed decision when approaching the sale of their company.

All business owners need to be aware that they will often have to stay at their company for a designated period of time to help with the transition post-transaction. Often, business owners overlook this transition period when planning for their exit. When building an exit plan and exit timeline, the business owner needs to not only consider the time it will take to launch the company and find a buyer but also the possibility of a transition period. Business owners should be prepared to be involved in the transition of leadership and should not be shocked when they are not able to immediately walk away post-transaction. Additionally, business owners need to think about the target valuation for their company when they exit.

Business owners who plan for the eventual sale of their business are more likely to achieve their desired valuation. By starting the exit planning process early, owners have the opportunity to strategically improve and expand their business in order to achieve the desired valuation. These improvements could include optimizing operations, diversifying revenue streams, strengthening market position, etc. With careful planning and execution, owners can effectively position their company to appeal to buyer interest ultimately reaching a higher valuation, thus increasing their chances of a successful and profitable sale.

Many business owners intend to depend on the money from the sale of their company for retirement. For these individuals, it's crucial to figure out how much money you need to support their desired retirement lifestyle. By setting a clear financial target, business owners can plan their exit strategy accordingly, whether it involves maximizing the sale price, structuring the deal for tax efficiency, or implementing wealth preservation strategies post-transaction. Planning for retirement alongside the exit strategy ensures that business owners are fully prepared to transition into the next phase of their lives with confidence and financial stability.

It is important to start planning an exit strategy as early as possible while building a company. Considering different exit options from the beginning allows business owners to gradually tailor their exit strategy as their business grows. The timeline for exit planning may vary depending on individual circumstances, but starting the process sooner rather than later is crucial to avoid unfavorable outcomes and ensure a smooth transition. To craft a successful exit plan, the business owner needs to personalize it according to their unique goals and aspirations. Whether a business owner plans to pass the company down to family members, sell to an outside buyer, or opt for a planned dissolution, meticulous planning is essential, especially if you aim for a sale with specific valuation targets in mind.

PREPARE TO EXIT

How to Prepare for an Exit?

As the business owner nears their desired exit date, meticulous preparation becomes imperative to ensure an efficient execution of their exit plan. An essential aspect of this preparation involves considering the individuals who may be affected by the exit, including employees, suppliers, customers, and family members. Recognizing the potential impact on these individuals, business owners should initiate internal conversations within their company to proactively address concerns and prepare for the transition.

Internally, fostering open dialogue and transparent communication is key to mitigating any uncertainties or apprehensions surrounding the impending exit. Employees may be concerned about job security or changes in company culture, while suppliers and customers may seek assurances about continuity of service or product delivery. Moreover, involving family members in discussions about the exit ensures alignment of expectations and facilitates a seamless transition of ownership or leadership.

These conversations will be different depending on what exit strategy the business owner has chosen. If the owner plans to sell their company, it is crucial to maintain discretion. Only individuals with a legitimate need to know, such as key employees who are directly involved in the transition process or trusted advisors, should be informed of their intention to sell the company. It is essential to limit the dissemination of this information to maintain confidentiality to prevent negatively affecting a possible transaction.

Maintaining confidentiality surrounding the sale is critical for ensuring a successful transaction and maximizing valuation. For example, if customers learn that the owner is planning to sell the company, they may become anxious about how it could affect them and decide to take their business somewhere else. This could lead to a significant decline in the company's revenues, making it difficult to find interested buyers and achieve a high valuation for the company. Ultimately, confidentiality is key as broadcasting the possible sale of the company to anyone could ruin the chances of completing a successful transaction.

Internally, transparency remains essential, albeit within a limited circle of trusted individuals who play a pivotal role in executing the exit strategy. This may include key management personnel tasked with facilitating the transition, legal and financial advisors providing strategic guidance, and succession candidates being groomed for leadership roles. By selectively sharing information with those directly involved in the exit process, business owners can uphold confidentiality while ensuring necessary preparations are made to facilitate a seamless transition.

As business owners prepare to sell their company, hiring an M&A advisor becomes essential for achieving a successful exit at a high valuation. Early discussions with M&A advisors are crucial to prepare for the exit adequately. These advisors bring specialized knowledge and experience, guiding owners through market trends, valuation methodologies, and deal structuring. They streamline the process by conducting due diligence, identifying risks, and preparing documentation. Initiating conversations early allows for goal alignment and strategic planning, ensuring a smooth and lucrative exit.

As part of the exit preparation process, one crucial step is to gather and prepare the financial statements for the company. Over the years, accounting practices may have become neglected, resulting in disorganized and messy financial records. The business owner must allocate time and resources to rectify any discrepancies and ensure accuracy. During this time the business owner should thoroughly review the company's financial records, including income statements, balance sheets, and cash flow statements. This may involve reconciling accounts and identifying and correcting errors. At this time, business owners should separate any personal expenses from company expenses. Removing personal expenses from the company’s financials is generally a good practice but it will also help make the company’s bottom line look better to buyers.

It's crucial to organize clear and concise financial statements, as they serve as important documentation during discussions with M&A advisors and potential buyers. A well-prepared set of financial statements will instill confidence about the company's financial health in buyers and help to facilitate transparency, which can expedite the due diligence process.

Additionally, business owners should assess the organizational structure and operational processes to identify any areas that may require adjustment or reinforcement in anticipation of the exit. This could involve delegating responsibilities, documenting critical procedures, or implementing succession plans to ensure business continuity post-exit. By proactively addressing the impact of the exit on various stakeholders and operations, business owners can mitigate potential disruptions and pave the way for a successful transition.

As business owners approach their planned exit timeline, it is essential to prepare meticulously to ensure a smooth execution of their exit strategy. This involves taking into account the concerns of stakeholders such as employees, suppliers, customers, and family members through internal dialogues within the company, which should address any concerns transparently. To maintain discretion and optimize valuation while planning to sell the company, confidentiality is crucial, requiring limited disclosure. Open communication among key personnel, advisors, and succession candidates ensures confidentiality while preparing for a seamless transition. At the same time, organizing financial statements, reviewing records, and separating personal expenses from company finances enhances accuracy and attractiveness to potential buyers, expediting due diligence. Assessing the organizational structure and processes is also crucial in identifying areas needing adjustment for post-exit continuity. This ensures a successful transition with minimal disruptions.

The Role of the M&A Advisor

Business owners should not hesitate to contact an M&A advisor as they work towards planning and preparing for an exit. Working with an M&A advisor early in the exit planning process is beneficial because the business owner can rely on the advisor for guidance during any stage of their exit planning journey. An M&A professional possesses the expertise and insights that will ensure business owners are properly prepared to exit their company. M&A advisors offer a fresh perspective about the viability of different exit options, as well as provide new ideas and innovative strategies. Business owners can leverage an M&A advisor’s objective viewpoint to formulate and execute an exit strategy with clarity and confidence. Whether a business owner is in the early stages of contemplating an exit strategy or well into the process of preparing and executing their plan, an M&A advisor can provide valuable assistance that significantly enhances their chances of achieving their desired outcome.

M&A advisors support business owners throughout the entire exit journey. Business owners should view their M&A advisor as a partner that will help them overcome obstacles, maximize efficiency, and achieve a high valuation by handling the complexities of a transaction. Engaging with an M&A advisor is a strategic investment in the success of the exit process, as they act as advocates for their clients, working tirelessly to ensure their interests are safeguarded and their objectives are met.

Final Thoughts

Planning and preparation are crucial for a successful exit that secures the future of the company that the business owner worked hard to build. Initiating the exit planning process early is important, allowing business owners to tailor their strategies to align with their unique goals and circumstances, ensuring a smooth transition. Thorough preparation, including organizing financial statements, reviewing records, and assessing operational processes, enhances the company's attractiveness to potential buyers and expedites due diligence. Whether a business owner is in the early stages of contemplating an exit strategy or well into the process of preparing and executing their plan, an M&A advisor can provide valuable assistance that significantly enhances their chances of achieving their desired outcome. By prioritizing early planning, transparent communication, confidentiality, and thorough preparation, business owners can navigate their exit with confidence, paving the way for a successful transition and the realization of their desired outcomes.

 

Written by Brigitte Grava

21 March 2024

 

Versailles Group, Ltd.

Versailles Group is a 37-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at  www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

 
Mar 13

What is an LOI?

Xueying (Gil) He March 13, 2024

What exactly is an LOI and how does it play a crucial role in M&A transactions?

Definition of LOI

Definition 

A letter of intent (“LOI”) is a written expression, usually from buyers, that documents the buyer’s proposed price and terms including transaction structure, timeline, due diligence, confidentiality, exclusivity, etc. In many cases, the LOI is the first document negotiated between the buyer and seller.

Common Misconceptions

The LOI is the most misunderstood document by first-time sellers. Many think that it is a contract between the buyer and the seller. The LOI is a document that signifies acceptance and interest, similar to nodding your head. In other words, the LOI documents the intentions of the buyer and seller to complete a transaction. Sellers should be aware that there might be tricks hidden within the LOI like misleading language and concealed contingencies that require the expertise of both an M&A advisor and an attorney to identify and provide guidance on. 

Binding vs. Non-Binding Nature

Typically, this document is non-binding and most LOIs clearly state that it is non-binding. Rarely, an LOI will contain a provision stating it's binding; however, it might be difficult to enforce a binding LOI as the nature of this document is non-binding. While the LOI is non-binding, all LOIs contain certain provisions that are binding, e.g., confidentiality, exclusivity, expenses, jurisdiction, etc. These binding provisions must be followed and, if not could result in the deterioration of the transaction and possible legal action if they are not. 

LOI in M&A


When a buyer is interested in purchasing a business, a typical first step is for a buyer to make an offer for the business via an LOI. Upon receipt of an LOI, a seller will consult their M&A advisor, attorney, and possibly other professionals to develop a response strategy. Most of the time, the seller will respond, via their M&A advisor, with a counteroffer which leads to the negotiation of the LOI’s terms by the buyer and seller. After negotiations are concluded and both parties settle on agreed terms, the next step is for the seller and buyer to execute the LOI. 

The signed LOI documents the buyer’s proposed purchase price and terms including transaction structure, timeline, due diligence, confidentiality, exclusivity, etc. Sometimes, the LOI is also called a Memorandum of Understanding (“MOU”), Indication of Interest (“IOI”), or a Term Sheet. Once the LOI is signed, due diligence begins, during which the buyer confirms the condition of the business. Before signing the LOI, the seller should confirm the buyer’s ability to complete the deal. This would involve the seller ensuring the buyer has the funds or capability to raise the funds to complete the purchase. 

One of the challenges that the LOI presents for a seller is the buyer’s valuation of the business.  Some buyers include an outsize valuation to entice the seller to accept. Once the buyer “locks up” the deal and the transaction progresses, they then will lean on complicated language in the LOI or use excuses like unreasonable working capital provisions to negotiate the valuation down. In other cases, the buyer will mention unsaid assumptions about performance expectations, etc. to lower the valuation. The price agreed upon in the LOI will almost always be negotiated throughout the entire duration of the transaction, so the seller needs to be aware of the buyer's incentives and tactics to drive the valuation down. Most importantly, the seller should rely on their trusted M&A advisor to help them achieve the purchase price they deserve for their business. 

Business owners who sell their business without an M&A advisor almost always regret it and end up unsatisfied with the sale. When reviewing an LOI, sellers should always ask their M&A advisors about a buyer’s reputation and ability to complete the transaction. An experienced M&A advisor has the knowledge and tools to be able to evaluate if the buyer is capable of completing the transaction at the agreed-upon value and if they will be fair in the negotiations. 

The seller should always ask buyers directly about how they arrived at their valuation, which is often some multiple of revenue or EBITDA. When a buyer provides little information about the valuation, it may be inferred that the buyer is inexperienced, uncertain, or hesitant about the transaction. Alternatively, the buyer’s behavior could indicate that they are attempting to think of ways to reduce the valuation.

Although LOIs set expectations for buyers and sellers regarding the final terms, it is important to note that LOIs are non-binding as the terms of the transaction may change during the due diligence phase. The terms can change as the buyer discovers new facts about the selling company. Therefore, LOIs are not to be confused with a definitive purchase agreement which is binding between the two parties. The purchase agreement is negotiated and signed after the buyer completes due diligence and both buyer and seller have agreed on all of the terms and conditions related to the transaction.

Although an LOI contains terms that are still negotiable, any changes made to the agreed-upon terms will need to be justified. During the diligence process, the buyer will start to double and triple-check all the seller’s details. As the terms have some flexibility, the two sides can begin negotiations on any sticking points and figure out how to keep the transaction moving towards a closing. It is one of the M&A advisor’s responsibilities to facilitate the buyer’s diligence. This includes reassuring the buyer if some items do not meet the buyer’s expectations and being prepared to negotiate proposed changes to the original LOI terms. 

At Versailles Group, it has been our experience that many sellers view LOIs as binding contracts although they are not.  To reiterate, LOIs are not contracts or binding contracts thus, if a transaction is going to be completed, both sides need to be conscious of the need for fair and reasonable negotiations throughout the duration of a transaction. 

While most of the terms in an LOI are non-binding, this important document may also contain some legally binding provisions, such as exclusivity, confidentiality, etc. It is worth noting that the terms of the LOI are subject to any confidentiality agreement previously entered into by the parties. If there is no prior agreement on confidentiality, the LOI may include confidentiality provisions such that any information shared between the parties will be held in confidence and not disclosed. In other cases, the LOI will contain stricter confidentiality provisions to protect the seller while disclosing much more data during the due diligence phase.

Exclusivity is one of the common binding terms in an LOI and is always demanded by buyers. The exclusivity provision prevents the seller from negotiating or seeking offers from other potential buyers during a specified period. This provision protects the buyer from losing the acquisition to another buyer during the due diligence phase. The buyer wants to have the protection that exclusivity grants as they will need to invest a significant amount of time and money into the diligence phase. The exclusivity period is a crucial term and often determines the timeline for the due diligence process and negotiation of agreements. However, the parties can agree to extend the exclusivity period if needed. M&A advisors know when and how to extend the exclusivity provision. 

Signing the LOI with an exclusivity period takes the company off the market, which means the seller should be sure to do due diligence on the buyer’s financial ability before signing. The deal will not close if the buyer cannot pay the purchase price. Thus, it can sometimes be advantageous to accept a lower price from a financially capable buyer as opposed to a higher price from a potentially financially unstable buyer. An M&A advisor will provide guidance and expertise in evaluating the risks and benefits of different buyers’ reputations, transaction timelines, and purchase prices. Thus, allowing the seller can be confident in their decision to engage with a specific buyer. 

For buyers and sellers, the initial presentation of an LOI and subsequent negotiations is akin to a “dance” between the two parties. This dance is a give-and-take between the buyer and seller and can be challenging due to the length of the exclusivity period. For buyers, the challenge is handling sellers who might play hard to get by offering a very brief exclusivity period because they have other suitors lined up. The buyer will contemplate if it is worth rushing through the due diligence phase and spending hundreds of thousands of dollars to avoid losing the potential acquisition.  

On the other hand, a buyer who casually issues an LOI but then asks for a lengthy 120-day or longer exclusivity period could scare sellers away. Sellers must be aware that a lengthy due diligence period means the company is off the market for a long time. This can be problematic for the seller because if the buyer withdraws after a lengthy due diligence phase, they may need to “relaunch” the company for sale as other potential buyers may have already moved on. Simultaneously, sellers are not keen on exceedingly long due diligence processes as they do not have a clear commitment from the buyer as the LOI is not binding. In these circumstances, an experienced M&A advisor will be able to navigate these complex challenges to mitigate risk and achieve an optimal outcome.

The exclusivity provision plays a significant role in understanding the LOI paradox. Both parties are expected to have trust in each other, guided solely by the brief outlines of the agreement presented in the LOI. Trust between the parties can be difficult to establish at first and will develop over time. The shared experiences of working through the due diligence period and continued negotiation of the terms of the LOI emphasize the delicate balance required as both parties navigate toward a closing. 

After negotiating the terms of the LOI with the assistance of an M&A advisor, it is critical to thoroughly review the LOI with an attorney before signing. The seller should also get advice from their CPA as to the financial structure to mitigate the tax impact. After the execution of the LOI, the sellers need to continue to seek advice and rely on their M&A advisor throughout the whole process. Most importantly, sellers should be careful not to focus only on the proposed sales price as many factors affect how good or bad the deal is for the seller.

Written by Xueying (Gil) He

13 March 2024

 

Versailles Group, Ltd.

Versailles Group is a 37-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

Mar 06

Dynamics of Dealmaking: M&A Trends and an Optimistic 2024 Outlook

Brigitte Grava March 6, 2024

Projections indicate a rebound in M&A transactions, with a 13% rise in deal volume projected for US private equity and a 12% increase for corporate M&A. This positive outlook for 2024 M&A activity may stimulate greater buyer interest and lead to higher valuations.

Picture1-1

 

In the fast-paced world of dealmaking, various economic indicators, geopolitical tensions, and market sentiments are interconnected, which can lead to significant shifts in the market landscape in a short period. Over the past several years, we have witnessed a fascinating journey in M&A activity, from record highs due to favorable economic conditions to sudden downturns triggered by policy changes. This rollercoaster ride offers valuable insights into the complexities of dealmaking and the strategies that emerge amidst uncertainty.

In 2021 and early 2022 historic highs in M&A activity were driven by favorable economic conditions, such as moderate inflation, robust economic activity, and low interest rates. However, the Federal Reserve's historic tightening cycle in March 2022 triggered a sudden pullback, and dealmaking activity slowed significantly as the cost of capital surged, and uncertainties loomed large. Private equity deal volumes in the US were substantially lower in 2023 compared to the peak observed in 2021, with a similar trend observed in corporate M&A transactions. These numbers underscore the ripple effects of macroeconomic shifts on the dealmaking landscape, serving as a barometer of broader economic trends.

Despite the downturn, there are glimmers of optimism for the future, as a CEO outlook survey hints at a renewed enthusiasm for deal activity. A significant proportion of US CEOs expressed interest in completing M&A transactions in the coming months, with joint ventures and strategic alliances emerging as key alternative strategies for navigating uncertainties. This reflects a shift towards collaborative approaches to innovation and growth. The survey highlights the emphasis on investments in generative AI (GenAI), indicating a growing recognition of the transformative potential of emerging technologies. While uncertainties linger regarding the trajectory of AI development, the willingness to invest underscores a proactive stance toward embracing innovation and driving future growth.

There is an optimistic future for M&A, with a gradual recovery in PE M&A activity expected through 2024, following a 19% contraction in 2023. It is predicted that there will be a 13% increase in PE deal volume in 2024, which would still leave deal activity about 8% below the 2022 level and 18% below the 2021 peak. While the shortfall relative to recent peaks will be notable, the more important development is that PE deal volume growth is likely to surpass its pre-pandemic pace next year. Between 2010 and 2019, PE deal volume grew at a 9% compounded annual growth rate (CAGR).

The journey of M&A activity in recent years has been remarkable, with periods of prosperity and uncertainty. Economic indicators, policy decisions, and market sentiments all play a significant role in shaping the landscape of dealmaking. Although challenges may arise, businesses have shown resilience and adaptability, using proactive strategies and collaborative approaches to pave the way for future growth. With optimism for a gradual recovery on the horizon, we should embrace the lessons learned and the opportunities that lie ahead. Agility, foresight, and a willingness to embrace change will be the keys to success in the fast-paced world of dealmaking.

Written by Brigitte Grava

5 March 2024

 

Versailles Group, Ltd.

Versailles Group is a 37-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

Apr 02

Five Types of Mergers

Donald Grava April 2, 2020

 

M&A on wood background

There are five different types of mergers and the purpose of this blog is to describe these in more detail.  This writing is not meant to be a comprehensive description of each, but rather an introduction.

A merger is an agreement that unites two existing companies into one new company.  Generally, mergers are done to expand a company's reach, expand into new market segments, or to gain market share. Most of the time, mergers and acquisitions are done for either offensive or defensive reasons.

Types of mergers

The Five Basic Types of Mergers

1.  Horizontal Merger: This is a merger between companies that are in direct competition with each other in terms of product lines and markets.

A famous example of a horizontal merger was the merger between HP (Hewlett-Packard) and Compaq in 2011.  The successful merger created a global technology leader valued at over US$87 billion.

2.  Vertical Merger: A merger between companies that are in the same supply chain.

Example:  Walt Disney acquired Pixar Animation Studios for US$7.4 billion in 2006.  Pixar was an innovative animation studio and had talented people.  Walt Disney was a mass media and entertainment company.  By combining forces, they created a very powerful company in their industry.

3.  Market-Extension Merger: A merger between companies in different markets that sell similar products or services.  The motive behind this type of merger is to make sure that the merging companies will be able to operate in a bigger market and thereby gain large numbers of new clients.

A good example was RBC Centura’s merger with Eagle Bancshares Inc. in 2002.  This market-extension merger helped RBC with its growing operations in the North American market.

4.  Product-Extension Merger: A merger between companies in the same market that sell different but related products or services. For this kind of merger, the products and services of both companies are typically not the same but are related.  The key is that they utilize similar distribution channels and common, or related, production processes or supply chains.

An example of a product-extension merger would be the merger between Mobilink Telecom Inc. and Broadcom.  The two companies both operate in the electronics industry and the resulting merger allowed the companies to combine technologies and extend their market reach.

5.  Conglomerate Merger: A merger between companies in unrelated business activities, e.g., a clothing company buying a software company. In other words, two totally different businesses.  These types of mergers are also further defined as:

  • Pure Conglomerate: In this case, the two companies have nothing in common. An excellent example of a Pure Conglomerate merger was the creation of W.R. Grace a specialty chemicals and industrial business that went on to buy over 150 different businesses, including retail outlets (Herman's Sporting Goods, Channel, Handy Dan, Angels, Diana, Sheplers), food chains (Del Taco, Coco's, Moonraker, Plankhouse, Houlihan's Old Place), coal, oil and natural gas (Booker Drilling, TRG, Homco & A-1 Bit & Tool, Davison cracking catalysts), construction (Zonolite insulation), graphic arts (Letterflex printing systems), chemicals (Dartak emulsion polymers, Evans sulfur compounds), agriculture (phosphate and nitrogen-based fertilizers), and hospital products (Vestal disinfectants).

  • Mixed conglomerate: Mixed conglomerate mergers are ones where the two companies that are merging with each other have the goal of gaining access to a wider market and client base or expanding the range of products and services that are being provided by the respective companies. A possible example of this might be a merger of Bank of America and Starbucks, which would broaden both companies’ customer bases and product ranges.  To some extent, Capital One is already pursuing this strategy via its cafes.

Listed below is a table that summarizes the different types of mergers.

Screenshot 2024-03-14 at 11.03.57

Written by He (Henry) Wang

2 April 2020

 

Versailles Group, Ltd.

Versailles Group is a 37-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

Apr 27

Q1 2017 M&A Was Robust

Donald Grava April 27, 2017

Global M&A activity for the first quarter of 2017 was robust.  There have been US$1.9 trillion in announced, completed, or pending M&A transactions.  In comparison with Q1 2016, M&A activity increased by an incredible 72%, which is partially due to a weak start of 2016.

In the US, M&A deal activity increased in Q1 2017.  Specifically, the value of M&A transactions was 13.2% above Q1 2016.

Q1 2017 M&A Versailles Grouop

 

In the middle market, there were 2,643 transactions for the quarter, the best first quarter since 2007.

Internationally, European M&A in the first quarter increased 16%, in comparison to the same period in 2016, to US$215.3 billion.  This transaction value was the best first quarter since 2008.  British M&A activity remained relatively strong in the first quarter of the year despite expectations of a slowdown ahead of the country's exit from the European Union.

M&A involving Asian companies fell 39% in the first quarter of 2017 to US$176 billion, the lowest level in nearly three years.  Tighter regulations in China have made it tougher for Chinese firms to launch takeovers overseas, which had a major impact on the region's overall deal-making in the first quarter.

There are a number of strong contributing factors to increasing M&A activity this year. First, sales and earnings growth is continuing, which portrays strong aggregate demand.  Rising demand encourages CEOs to make acquisitions to expand their businesses.  In addition, companies need to demonstrate growth to shareholders, which provides another reason to make acquisitions.  Second, the slowdown in emerging markets is forcing multinationals to find new avenues of growth.  M&A is actually the quickest route to growth.  Sometimes, it’s easier and less risky than innovation or cost-cutting.  Third, technology is also driving M&A activity.  Disruptive industries such as Artificial Intelligence, FinTech, and the Internet of Things are all continuing to contribute to M&A activity.

To summarize, overall, the M&A outlook for the rest of 2017 looks very favorable.

Written by Donald Grava

27 April 2017

 

Versailles Group, Ltd.

Versailles Group is a 30-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

Feb 26

Global M&A Has Best January Since 2000

Donald Grava February 26, 2017

Global M&A Has Best January Since 2000

Under multiple stimuli, M&A activity in 2017 is off to an exceptionally strong start.  In fact, January’s M&A activity was the highest since 2000.  Almost 4,700 individual transactions were announced.
 
Versailles Group M&A activity
 

Spurred by a global positive sentiment, increased credit availability, and pent-up demand from 2016, companies sprang into action in January with the goal of getting deals closed quickly.  In excess of US$270 billion in worldwide mergers and acquisitions were announced in the month of January, which was an increase of 30% from the US$207 billion announced in January of 2016.

The M&A activity of early 2017 was bolstered by the healthcare and energy sectors.  The value of healthcare transactions totaled US$58 billion, and was led by Johnson & Johnson’s US$29 billion acquisition of Actelion Ltd and Mars Inc.’s US$9.1 billion’s acquisition of VCA Inc.  The Johnson & Johnson - Actelion deal ranked as Johnson & Johnson’s largest-ever acquisition and the third largest ever U.S. acquisition of a foreign company.  The top energy sector M&A deal announced in January was DCP Midstream Operating, LP’s US$8.86 billion acquisition of substantially all of the remaining assets of DCP Midstream LLC including assumed liabilities.

Mergers and acquisitions in the technology, media and telecommunications (TMT) sector will continue to soar in 2017 due to a number of significant factors.  Companies in a wide array of industries including retail, manufacturing, and financial services will use M&A as a tool to improve efficiency in business processes, increase protection against cyber attacks, manage and analyze data better, etc.  This trend will translate into an increasing value of tech companies from an M&A perspective.  Valuations will also be driven up as strategic buyers and private equity firms race to compete for the best technology targets.


Versailles Group, Ltd.

Versailles Group is a 30-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

26 February 2017

Feb 07

2016 Global M&A - US Led the Way

Donald Grava February 7, 2017

 2016 Global M&A in Review – US Led the Way

In 2016, there were 96,665 M&A transactions closed with an aggregate value of US$4,734 billion.  In terms of deal value, 2016 was the third best year since 2007, significantly higher than any other year and only slightly surpassed by 2014, the second best year when US$4,802 billion of transactions were completed.  That being said, 2016’s M&A activity was definitely lower than 2015.

 

Global M&A Activity by Volume and Value

2-7-2017 Blog Post.jpg

 

In 2016, the US once again topped the rankings by both volume and value.  Specifically in terms of deal value, US$1,617 billion of transactions were closed during the year.  Some of this activity can be attributed to the burst of mega deals led by Time Warner’s US$109 billion acquisition by AT&T, which was the largest transaction in the US, the second largest M&A deal globally, and one of the only two global deals worth over US$100 billion during the year.

Following the US’ leading position, China was second with a value of US$789 billion. The largest deal by value involving Chinese targets was the transaction between China National Petroleum Corporation and Jinan Diesel Engine in a reverse takeover worth US$11 billion in December.  Chinese companies completed ten of the top 20 deals in Asia-Pacific in 2016.

The UK was third with US$420 billion of transactions. The largest deal by value in the UK involved Anheuser-Busch InBev’s US$124 billion acquisition of SABMiller, which was also the largest globally.

With strong M&A performance in the US, China, UK and other countries combined with an environment that is conducive to M&A, sellers or buyers should have the confidence to embark on a transaction in 2017.

Candidly, now is the best time to make plans to complete a transaction in 2017.  Sellers should act before buyers/investors’ investment plans and funds have been devoted to other transactions.  Buyers should take advantage by identifying the highest quality targets and moving on them quickly to avoid competitive bidding situations.

Versailles Group, Ltd.

Versailles Group is a 30-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

7 February 2017

Jan 13

M&A in 2017

Donald Grava January 13, 2017

M&A in 2017 

Versailles Group, m&a, i want to sell my business

 

The chart above depicts M&A activity by value.  As you will note, 2016 was about 16% lower than 2015 even though it was the third busiest year ever.

M&A in 2017, for a number of reasons, is projected to be robust and will probably be a record year for several reasons, including:

► In 2016 private equity firms raised almost US$250 billion for acquisitions, which is now available.

► Large corporates worldwide are still "sitting" on very large amounts of cash that they need to deploy.

► The new US President is expected to make some fundamental changes that will be business friendly.

► Buyers and sellers are expected to take advantage of current market conditions.

► The low growth economy encourages the use of M&A as a tool to grow a company, acquire technology or R&D, etc.

► Interest rates are still low, but are expected to increase over time - motivating buyers to move sooner rather than later.

►Looming economic uncertainty is motivating buyers and sellers to complete transactions.

►Sellers worries about valuations, which were an impediment in 2016, have been alleviated.  Now, sellers are becoming worried that if they don't complete a transaction in the near term, they may miss the "window."

 

Versailles Group, Ltd.

Versailles Group is a 30-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

13 January 2017

Jan 11

2016 - A Financial Recap

Donald Grava January 11, 2017

2016 - A Financial Reap

Versailles Group - m&a - I want to sell my business

 

As we leap into 2017 and begin to look at the future ahead, we must also look at some of the most impactful events that occurred in 2016.  While a full narrative of 2016 could fill a book, this is just a brief overview.  The exciting part is that 2016 has set the stage for robust M&A activity in 2017.

2016 began with Wall Street indices declining a record 10% in the first two weeks of trading, which marked the worst two week start for the stock market in history.  This downward spiral could be attributed to China’s slowing economy and depreciating currency.  As the stock market continued to plunge, oil followed suit, dropping to below US$30/barrel early in 2016.  The amalgamation of falling stock prices and a huge oil oversupply were the driving forces to the massive drop from the 2014 fourth quarter price of approximately US$100 per barrel.  Throughout the year we saw a rebound in not only stocks, but oil as well, primarily due to the supply rebalancing and various OPEC agreements limiting production in 2017. 

The next major event came in June, when we saw the UK vote to leave the European Union, causing massive unrest regarding the future of markets and international trade.  US markets fell in the days following Brexit, but rebounded in a rally that erased the initial decline. 

As a whole, 2016 was the worst year the US has seen for IPOs since 2003, with capital raised from new issues down 40% from 2015.  According to Jonathan Gertler, CEO and managing partner of Back Bay Life Sciences Advisors, there is no debate on whether the IPO market is softer than in recent years, and he believes it to be mainly due to volatility in the US economy and “an exuberant market that drove valuations exceedingly high,” in the biotech industry specifically.  He went on to say that in the current market there is an abundance of uncertainty, which does not bode well for high-risk stocks, newly public companies specifically.

A portion of this uncertainty that Gertler spoke about can be attributed to the surprise election of Donald Trump, as many firms and businesses prepared for an economy with Hillary Clinton in the oval office.  On November 8th, we saw the markets being agitated as the polling numbers continued to pour in favoring Trump, but this rally continued to build upon itself through the holidays.  Major indices saw gains of between six and twelve percent through the end of year as many traders continued to bid up stocks as they “saw” deregulation, lower taxes, and increased infrastructure spending in the near future. 

As the markets have improved since the Nov. 8 election, the Federal Reserve decided to raise interest rates by 25 points in December.  Many believe the rate hike was a product of higher home prices, decreased unemployment, and improved confidence in the market that led to the Nov-Dec rally following the election.  Traders currently expect around two or three additional rate hikes for 2017, and according to the December Fed meeting minutes, rate hikes may be higher than previously expected in order to better control the growth of the economy. 

In the final days of 2016, markets hit records highs, with the Dow coming ever so close to the 20,000 mark, which many investors believe is simply a psychological barrier.  While 2016 had many quick turns and shocks (Brexit, Trump, etc.), the market and economy as a whole were able to come out on top in terms of growth and prosperity.  

The stock market exuded great resiliency in 2016, which began with a record-setting worst market performance in history to finish at record highs and prepare the US for a prosperous 2017.  

With regard to M&A activity, 2016 was the third best year ever; however, M&A decreased between 16 and 20 percent from 2015 levels.  M&A activity is expected to be exceptionally strong over the next two or three years, but will peak in 2017.  Therefore, people interested in completing a transaction should execute now.

Versailles Group, Ltd.

Versailles Group is a 30-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

11 January 2017

Dec 15

M&A Outlook For 2017

Donald Grava December 15, 2016

M&A Outlook for 2017

 

M&A activity, in 2017, is expected to pick up dramatically for four reasons.  First, the strong equity markets are generating optimism as they are usually a leading indicator.  Second, in a recent survey, an unprecedented number of business owners or executives claimed they are planning an M&A transaction in the next 12 months. Third, many domestic and European companies have accumulated large cash balances that are available for acquiring new businesses.  Fourth, private equity firms are sitting on a record US$1.1 trillion in un-invested capital and are expected to boost the number of completed transactions globally.

It’s expected that the North America M&A market will be strong for the next three years, particularly in the US.  However, M&A transactions in the US will peak at US$1.5 trillion in 2017, which is indicated in the chart below. 

 

Logically, sellers should take advantage of 2017’s robust forecast.

On a global scale, US$2.7 trillion of M&A transactions were completed in 2015.  It’s been forecasted that US$3 trillion of M&A transactions will be closed in 2016.  In 2017, it’s expected to increase, again, to US$3.4 trillion.

With regard to the European market, inbound M&A transactions, by US companies taking advantage of a stronger US dollar, are expected to increase.  The UK, Germany and Spain are the most attractive investment destinations, while France and Italy remain less interesting.

On the other side of the world, the re-emergence of Asia as one of the world’s most dynamic growth stories is steady and striking.  China Yuan’s depreciation and the bursting asset bubble have spurred increasing outbound activities by Chinese buyers into neighboring Asian countries as well as developed countries.  At the same time, the Chinese Government is starting to control this outbound activity, which may alter some of this activity.

Lastly, the Africa and Middle East markets are worth paying attention to as oil prices rebounded after OPEC announced production cuts. A recovery in oil prices will enable more available funding, which subsequently may boost deal-making activities in the region.

Versailles Group, Ltd.

Versailles Group is a 30-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

15 December 2016