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Dec 04

Market Price - When to Accept an Offer

Donald Grava December 4, 2016

Market Price - When To Accept An Offer

Versus When To Walk Away

Versailles Group - I want to sell my business

 

Sellers always want to know whether they are being offered a fair value for their company, or if they should just walk away from a potential sale.  Typically, one considers general valuation ranges for a business based on multiples of the company’s EBITDA (earnings before interest, taxes, depreciation, and amortization).  The multiple will be specific to the type of business being sold and its growth projections.  While these multiples may be helpful at first, the true market price of the company is discovered once the bids from perspective buyers are compiled.  Clients are often surprised by how close in value the offers are, but it’s because that value range is the market price.  Selling a business is a simple example of supply and demand; the buyer’s bids find the equilibrium.

 

When should I accept a bid? 

Accept a bid that comes in at market price as defined by the offers that are received.  One trap that sellers fall into is that after the bids are compiled, they decide their business is worth more.  While it is always preferable to receive a higher value, sellers must be realistic and honest with themselves about price.  When selling anything, there’s always a maximum value that can be obtained.  There is no such thing as a dumb buyer that will pay an outlandish amount.

The next key mistake is when the seller decides to hold onto their business, believing that all the potential buyers are wrong about the company’s value.  These individuals convince themselves they can keep growing the business and sell it for more in one to three years.  Anything can happen in a year or two, and in this scenario M&A is very much like gambling—it’s better to just quit while you’re ahead.  Most companies are not going to have high growth rates forever, and eventually the financial projections will not look as promising.  Selling a business now while it’s stable is more realistic than expecting a higher value in a few years when the circumstances, including the economy may be very different.  And, if there are any “hiccups” with the business, e.g., the loss of a large customer, the business may not even be saleable.  The risk of holding is enormous; especially when one considers that most company owners have a majority of their net worth in the business.

All in all, if most of the bids are around the same number, it is advisable to accept an offer and move on.  Business owners must understand that there is a good chance these bids are the highest value they may ever see for their company.  Blockbuster Video and the music CD business are excellent examples of why business owners should act sooner rather than later.

 

When should I walk away?  

Sellers who are not using an M&A advisor should generally be more cautious when accepting a bid.  True market value can only be determined by receiving a number of offers or at least testing the market on a worldwide basis.  Individuals attempting to do a deal on their own may not be entirely happy with the offers they have received, which may be the result of only having reached out to a limited number of buyers.  It’s unlikely that a small pool of prospective buyers would reflect the true market price for a business.  If you feel uneasy about the bids and have not had a professional explore all possible options on your behalf, you should strongly consider whether the offer is worth taking.  When selling a company, the seller should be confident that he or she has been in touch with every possible buyer and that to the extent possible, an auction has been established.  Anything short of that might portray an offer that is below market value.

 

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

4 December 2016 

Nov 29

The Sale of Your Business and Value

Donald Grava November 29, 2016

Value and the sale of your business

Versailles Group - i want to sell my business

When considering the sale of a business, it is very easy for a business owner to be uncertain or even pessimistic about its value.  This is definitely a mistake, particularly because it can cause a potential seller to miss out on possible opportunities.

It may be ironic that I founded an M&A boutique firm to help people sell businesses; however, my own father, when I was young, who owned a small chain of variety stores, decided to close the business rather than sell it.  He sincerely believed that no buyers would be interested.  Mind you, he didn’t test that theory; however, he thought he was right.

A business owner should never assume that his or her business is too small to be of interest to a large company.  It is important to remember that there is a difference between the financial value as portrayed by the financial statements and the market value.  The market value includes more than just how much the company is worth monetarily.  It includes the value of intangible assets for example, the customer base, distribution network, location, having a unique service or product, long term and loyal customers, name recognition, etc. These factors go way beyond the balance sheet and income statement.  These and other factors always contribute to a company’s value but are not always easily quantifiable.

Additionally, just because a company has modest financial results does not mean it will not sell.  Buyers will look at the future of the company and make an assessment of its potential.  This is especially true when the economy is in a down cycle.  It is also important for the seller to accurately analyze the business’ true financial position, marketability, and potential.  A good M&A advisor will know how to do this quickly and accurately.

For a company with modest financial results, it is important not to oversell the company as buyers may pull out if they feel the current financial results are unsustainable or the revenue and profit projections are unrealistic.  When pursuing the sale of a company, one must strike a balance between underselling the company and overselling it and scaring off or losing potential buyers during the sales process.  Once again, a good M&A advisor can help strike the necessary balance.  The advisor can also provide value-added by finding the “right” buyer who will understand the value and potential of the company for sale.

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

Nov 25

M&A - An Effective Tool

Donald Grava November 25, 2016

M&A - An Effective Tool To Enhance Growth

Mergers and acquisitions are an effective and efficient substitute for R&D for companies that need help combating shrinking market share or stagnant growth. In some cases, companies are confronted with fierce competition from startups and utilize M&A as a way to “outsource” R&D and leave the risk of innovation to startups that tend to excel at R&D. Many of these companies are skipping R&D almost entirely by acquiring other companies. This trend is true in almost all industries and many of the transactions are cross-border.

The chart below depicts the top three sectors for cross-border M&A.

Versailles Group m&a i want to sell my company

In recent months, Samsung has been actively involved in M&A deal making as a way to instantly build up its capabilities in emerging technologies such as mobile payments, cloud-based services, and artificial intelligence.

Samsung’s planned purchase of U.S. autoparts supplier Harman International Industries Inc. for US$8 billion in an all-cash deal that instantly makes Samsung a major player in the world of automotive technology. It’s an excellent example of a company that is using M&A to expand. This deal will be South Korean smartphone maker’s biggest acquisition in history.

M&A in general and cross-border M&A in particular, is a well-proven way to enhance shareholder value, either by acquisitions or divestitures. While most of the press is focused on the large transactions, middle-market companies can also utilize this “tool” to make defensive or offensive acquisitions or divest businesses that no longer fit the company’s strategy.

The chart below demonstrates the growth of cross-border M&A deals from Q2 2016 to Q3 2016.

Versailles Group m&a I want to sell my company

Versailles Group is a 30-year-old Boston-based 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

+617-449-3325

November 25, 2016

Nov 15

Record October for M&A Deals

Donald Grava November 15, 2016

Record October for M&A Deals 

Reflects Current Market Conditions

The US M&A market is on a roll, which is good news for both sellers and buyers in the middle market.  

A series of high-profile deals announced in October makes it the biggest month ever for M&A transactions and even surpassed the epic deal making surge in January 2000. Mega deals are driving activity and are almost too numerous to count, e.g., the oil-and-gas business combination of General Electric and Baker Hughes, the telecom tie-up of Century Link and Level 3, and AT&T’s acquisition of Time Warner, etc.

Another good example in the global semiconductor sector is Qualcomm’s US$47 Billion acquisition of NXP Semiconductors, which notched the biggest semiconductor targeted M&A deal on record globally.

Top 5 Global Tech Targeted M&A Deals on Record

Versailles Group - m&a 

So far this year, US$1.6 Trillion of M&A transactions has been announced in the domestic market.  It reflects easy financing conditions, more confidence in the economic and business outlook, and keen foresight on the part of management teams.

The current economic environment of low interest rates and high stock prices have encouraged deal making.  Cheap borrowing costs makes it easy to finance deals, while high stock prices provide companies with higher valuations.  

With unprecedented economic conditions, owners of middle market businesses, in particular, have a continued incentive to start or keep doing deals.

Versailles Group is a 30-year-old Boston-based 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

+617-449-3325

November 15, 2016

Nov 01

Global M&A Rebounds in Q3 2016

Donald Grava November 1, 2016

Global M&A Rebounds With Newfound   Attractiveness in Europe

With mega deals leading the market, the global M&A market showed signals of rebounding in Q3.  Compared to US$1.0 trillion in Q1 and US$1.1 trillion in Q2, the value of global M&A increased to US$1.2 trillion in Q3, marking the second consecutive quarterly improvement.  In all there were 19,416 transactions announced during Q3 and 11 transactions valued at more than US$10 billion each.

Regarding deal value, the US led the market, followed by UK, China, Canada and India.  US companies remain top attractions for global investors as US$416 billion of deals were completed with US targets in Q3.  These US transactions accounted for 40% of the global market and were more than double the deal value of either the UK or China.  

The chart below shows the top five global target countries by deal value.

Q3 2016 M&A Activity - Versailles Group, Ltd.

 

In terms of volume, most of the M&A deals were concentrated in US, followed by China, UK, Canada and Germany, continuing the trend for the first half of 2016. 

Q3 2016 M&A Activity - Versailles Group, Ltd.

 

It is worth noting that M&A activities in Germany have remained resilient in the face of slower growth and tremendous volatility in the global market, with both the volume and value of transactions remaining close to the 2015 peak level.  What made Germany stand out in the global M&A market rankings is the giant US$132 billion deal between SABMiller and AB InBev, which is the largest deal by value in Q3 worldwide.

Interestingly, the ever-increasing deal value in UK is bucking the trend in global M&A market.  Since the Brexit vote, there have been rumors that the level of mergers and acquisitions activities across Europe would be threatened; however, the positive M&A data in Q3 2016 signaled newfound attractiveness of European M&A.

Versailles Group is a 30-year-old Boston-based 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

+617-449-3325

November 1, 2016

 

Oct 04

Utilizing M&A to Adapt to Rapidly Changing Business Environment

Donald Grava October 4, 2016

The importance of M&A As a Tool to Adapt to Changing Business Environments

To succeed in the current business environment companies will need to develop a keen sense of agility to grapple with the slow and uncertain economy, political risks, the threat from new entrants with more creative and efficient business models, etc.  It is widely recognized by CEOs that to respond to today’s marketplace organic growth is far from enough because most transformational technologies are outside the core competency of the average organization.  According to KPMG, CEOs are pursuing a range of activities in search of growth, which are listed below.  For each activity, the percentage indicates what percentage of CEOs will think about that particular action.

 

Versailles Group - M&A

 

M&A, including minority investments, is expected to play a major role as companies search for new and valuable business solutions. Companies that are able to be proactive in terms of technological and business model disruptions will greatly enhance their chances of success, profitability, and longevity.  With regard to the US presidential election, and as Warren Buffet said, the market will move forward with either candidate who happens to get elected as President.  The country will survive and business will survive.  Succinctly, M&A will go on regardless of political uncertainty.

Versailles Group is a 30-year-old Boston-based 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 between US$2 million and US$250 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

+617-449-3325

October 4, 2016

 
Sep 23

M&A - Transportation and Logistics

Donald Grava September 23, 2016

Transportation and Logistics

High Growth Sector for M&A

The transportation and logistics (“T&L”) sector is experiencing substantial growth in global M&A activity.  This sector had a strong Q1 2016, and activity increased in Q2.  By volume, the number of deals in Q2 was 6% greater than Q1.  The average deal value was also high during Q2 at almost US$670 million, and compared to Q1, was 20% higher.  Over the past few years, deal value for this sector has been steadily increasing. The average deal value in 2016 is 25% higher than the average for the past three years.

A major factor in the consistent increase in T&L activity is the current high level of M&A activity in Asia, in general, an in China, in particular.  Asia has been a leader in this sector for deals over the past few years.  As seen in the charts below, for the first half of 2016, Asia maintained a strong lead over other regions, in both deal value and volume, accounting for more than 50% of both measures.  Additionally, in terms of both volume and value, financial buyers lag far behind strategic buyers in completing T&L mergers and acquisitions.  Many of the companies within the T&L sector are looking to diversify across sub-sectors, which has also caused an increase in M&A demand from industry buyers.

 

Versailles Group Mergers & Acquisitions

TL_Volume.jpg

 

During the first half of 2016, there were five mega deals completed in transportation and logistics, which totaled US$26.7 billion.  The largest deal within the T&L sector was in the trucking sub-sector.  Deal value in trucking increased 69% in Q2 2016, as compared to the same quarter in the previous year.  In Q2 2016, Logistics was the second largest sub-sector, followed by shipping, with deal values of US$5.8 billion and US$923 million, respectively.  Overall, the largest transaction during the first half of 2016 was Maanshan Dingtai Rare Earth & New Materials Co.’s acquisition of SF Holding Co. for US$16.8 billion.

Worldwide, mergers and acquisitions in the transportation and logistics sector is expected to continue growing.  Corporations are currently seeking to outsource logistics that are heavily based in advanced technology.  The expansion of world trade and e-commerce will continue to drive this demand.  All in all, global M&A activity in the transportation and logistics sector should remain strong for at least the next five years and many are confident the activity will continue to grow across all sub-sectors.  T&L merger and acquisitions activity in the US is also expected to increase.

Versailles Group is a 30-year-old Boston-based 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 between US$2 million and US$250 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

+617-449-3325

September 23, 2016

 
Sep 19

M&A - China becomes the largest investor in Brazil

Donald Grava September 19, 2016

China becomes the largest investor in Brazil

As one of the BRIC countries, Brazil was projected to continue to be one of the fastest growing economies in the world.  However, the 2015 recession in Brazil resulted in a negative growth rate of 3.8%.  As a result, Brazil slid from seventh to ninth place in the world economies ranking. 

Year-to-date, Chinese companies have already purchased US$4 billion of assets in Brazil, the highest level since 2010.   According to Bloomberg, the top five countries investing in Brazil are China - 1st, US – 2nd, Norway – 3rd, Mexico 4th, UK – 5th.

 

Versailles Group - China M&A - Brazil M&A

 

The Brazilian currency, the Real, has depreciated more than 50%, which has enhanced Chinese and US purchasing power in terms of investment.  It’s also important to note that as compared to the US, China has experienced less political resistance when acquiring Brazilian assets.

Some notable transactions where Chinese companies made acquisitions in Brazil: 

China Investment Corp., which has a US$814 billion sovereign fund, is leading a Chinese investor group that is in talks to complete a multibillion-dollar iron-ore streaming deal with Brazil’s Vale SA.  The consortium is negotiating the potential purchase of a portion of Vale’s future iron-ore output for as long as 30 years.  Vale could fetch about US$9 billion upfront from the sale.

State Grid Corp of China, the world’s largest electricity provider by revenue, is wooing shareholders of Brazil’s CPFL Energia SA and a listed subsidiary.  It expects to secure stakes from large shareholders before making an offer for the entire company.

The Fosun Group, a major China-based investment group, with operations in several countries, signed an agreement to acquire Rio Bravo Investimentos.

Shanghai Pengxin Group Co. purchased control of Brazilian grains trader Fiagril.  People familiar with the deal said the value of the deal could be around 1 billion Reais (US$290 million).  Shanghai Pengzin, like most foreign buyers would keep current management in place. 

Versailles Group is a 30-year-old Boston-based 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 between US$2 million and US$250 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

+617-449-3325

September 19, 2016

Sep 15

Western Europe - M&A Activity

Donald Grava September 15, 2016

M&A Activity in Western Europe

First Half of 2016

While the US and China receive the most media attention for M&A activity, Western Europe should not be overlooked.  The charts below reflect the deal volume and value breakdowns for the Western European countries.

In terms of the number of deals completed in Western Europe, the two countries that have seen the highest activity are the United Kingdom and Germany.  On a global level, these countries also rank well, and are usually within the top five countries for highest deal volume.  The UK significantly outpaced German deals in the first half of 2016, closing almost 50% more transactions.  It should be noted that Germany is completing significantly more deals in 2016 than they did in 2015.  The chart below reflects the top five Western European countries with the greatest deal volume.

Versailles Group - Western Europe M&A Activity 

By deal value, the UK is still the leader in Western Europe for the first half of 2016 with their transactions totaling US$119,342MM.  Surprisingly, despite its high volume of deals, Germany does not hold second place for deal value, but rather drops down to fourth.  Switzerland has more than doubled its deal value as compared to the same time period in 2015, and holds second place in Western Europe.  For the first half of 2016 Switzerland completed US$66,276MM in deals, as compared to the same period in 2015 when they had completed US$31,663MM.  Shown in the chart below are the leading Western European countries with the highest deal value.

Versailles Group - Western Europe M&A Activity

 

Post Brexit many have their eye on Western European M&A deals.  It is expected that as the British Pound fluctuates against other currencies, so will the number of transactions between countries.  While Brexit may help firms in the United States expand abroad at a reasonable price, overall deal activity within the UK is uncertain for the second half of 2016.  Many believe the deal volume will fall, however some economists are optimistic about deal flow and predict it to pick up during the remainder of the year.

 

Versailles Group is a 30-year-old Boston-based 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 between US$2 million and US$250 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

+617-449-3325

September 15, 2016

Sep 02

China - M&A Lending

Donald Grava September 2, 2016

 

Chinese M&A - Versailles Group

China - M&A Lending

China recently made changes to its government policies, encouraging Chinese companies to expand abroad.  Domestic banks are adapting to the policy changes by prioritizing M&A lending.  As a result, companies are able to easily obtain loans for acquisitions.  For example, China CITIC Bank International made a US$12.7 billion loan in June allowing China National Chemical Corp. to purchase Syngenta AG.  Many similar deals have recently been completed thanks to readily available financing. 

Previously, only top tier Chinese banks would engage in cross-border M&A; however, second tier banks are now aggressively lending.  As banks work hard to increase deal volume, Chinese banks are expected to improve their ranking for financing M&A transactions.  Bank of China is currently ranked 20th in global M&A lending.  In order to facilitate M&A transactions, Chinese banks are starting to establish overseas branches which will make the M&A process more convenient for its clients.  These banks are more capable than ever to move quickly in cross boarder deals and Chinese companies that are backed by state lenders have been extremely active in closing cross boarder deals.

While policy changes have made a positive impact, they are not the only factor driving Chinese cross-border M&A.  Investment opportunities in China are becoming harder to find.  The country’s economic expansion is slowing and domestic companies are looking abroad to diversify and meet growth objectives.  Large companies in particular have found limited opportunities for acquisitions within China.  Additionally, by making foreign acquisitions, companies have been able to expand trade and move into new markets.  Most companies in the market for acquisitions are searching for well-known brands and advanced technology.

Versailles Group is a 30-year-old Boston-based 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 between US$2 million and US$250 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

+617-449-3325

September 2, 2016