Mergers & Acquisitions
Issues with these solutions
Ego/pride:
►Most entrepreneurs don’t want to feel like they sold out, got bought or gave up. They want to see their efforts rewarded with growth and success in their own name.
Talent retention:
►When companies sell or merge, the first thing that often happens is your key people leave, sometimes with your key customers. Your talent is everything you really have.
Brand retention:
►Most buyers are obsessed with acquiring businesses and then changing the name above the door. They want to show off their new acquisition, despite the fact that the brand is actually a valuable asset that should be retained.
Management:
►Most hierarchical management structures just don’t fit with the current generation of talent. Talented people want now mastery over what they do, empowerment to do it the way, they were successful at it. Many new owners are obsessed with control over the results, but results often come from giving control, not taking it.
Synergies and Centralization:
►Many people think the reason to roll up/merger is to get synergies and to centralize. Yes that is one future benefit that may manifest itself.
►You may spend a fortune and upset staff and customers alike, by trying to rinse every last dollar out in the first 100 days, or so. But less seems to be more valuable.
►By creating scale, you did create a huge amount of value straight away. So be happy with that! Now, focus on allowing the business to just keep doing what it has always done well.
►Post merger stagnation is often viewed as a raging success!
►So, the challenge is how do you motivate synergies later?
That is where agglomeration becomes vital!
How are most acquisitions paid for?
►Most roll ups are either debt funded (the Leveraged Buy Out or LBO), or investor funded. Either route creates a huge stress on the new vehicle, either pushed by investors for results, or so laden with debt they fall over.
►If you want to do a straight equity merger, you have to have a compelling plan! A possible trade sale at some point in the future won’t generally cut it.
Then there is the “Merge and List” option! If the listing gives you stock-liquidity, and other good reasons for the merger, why would you join one unless there is a future way out?
Issues with an Initial Public Offering (IPO)
►It is very expensive and time consuming. You pretty much need a board of directors to run the business and a board to run the IPO.
►You need specialist non executives and an experienced board to attract investors, as public company investors are a different breed to business angels and PE/VC guys.
►Some IPO’s are exits in disguise. Most of the talent is leaving or intends to, so this can give IPO’s a bad rap.
►Some IPO’s badly need cash. Most businesses raising money are just trying to fill a leaking bucket with more water. IPO's do NOT appear to be a good way to raise growth capital.
►Most IPO’s are pushing hard for the highest valuation, because it is either an exit in disguise, or they want to raise money, to minimize dilution.
►Most IPO’s forget there is one global economy. Why just list in the country of origin, why not take a global view of where to best do the IPO?
►Unfortunately, the stock-, commodity-, and currency exchanges are all rigged because they are controlled by the so called Market Makers, those few groups with unlimited funds that are able to determine when the overall price for a product will go up or down that day.
Conclusion
The best solution is a sort of "Co-operative Virtual Merger", where a group of companies from the same fragmented industry-sector join forces and offer some of their commonly held stock to outsider groups of small investors for a price that is determined by value algorithms that are derived from financial facts, and are thus completely transparent.
These arm's length investors have a representative fiduciary relationship with the group of companies through an Umbrella Stock-Holding Company. They grow further by acquiring more companies from similar sectors space.
We concluded that staying away from the domineering and controlling actions of the GLOBAL FINANCIAL ELITE is the only key to long term success for SMALLER ENTERPRISES and SMALLER INVESTORS.
