Mergers and Acquisitions
E&S Solutions has over fifteen years of experience evaluating and valuing businesses for consideration of acquisition or divestment.
At E&S Solutions we have first-hand experience of the key drivers for business valuations and for the strategic reasons underlying acquisitions and sales. Through a period of 7-8 years in the late 1990s, the E&S management team played a key role in organic and acquisitive growth as a business was grown from $100MM to nearly $500MM in annual sales. Later, in the mid-2000s an acquisition growth strategy was prepared at the request of that business’s Board of Directors and several deals prepared for the Board to evaluate.
Mergers and Acquisitions for Growth
Depending on where an enterprise is in its particular business cycle and whether or not it has a sufficiently strong balance sheet and access to capital, it may consider embarking on a growth strategy through acquisitions. This path can be quite risky requiring careful due diligence prior to closing and skillful management after, in order to combine the enterprises and achieve planned synergies.
As with all business activities involving the investment of capital, there needs to be a conservative business plan established for the outlook of the combined entities along with a detailed roadmap of the activities required to combine all facets of the businesses.
|Acquisition Drivers||Valuation Drivers|
• Reduced competition
• Enter new markets
• Acquire new skills
• New products
• Customer diversification
• Acquire new talent
• Economies of scale
|• Diversified customer base
• Revenue growth well above overall market
• Qualified email marketing database
• Strong foundation of website traffic development
• Digital inbound marketing skills
• Content Marketing & Management Assets
M&A Activity for the Sale of a Business
Any business owner preparing for an exit and considering a sale should be looking to maximize the value of the enterprise and the resulting proceeds of the sale. In order to do so, it’s necessary to spend time in the months or years preceding the planned sale to make sure all the key items a prospective buyer will attach value to are in order. For a traditional business in a mature market, buyer valuations (normally based on cash flow or EBITDA) are likely to be low multiples, even if the house is in order. However, even for enterprises in mature markets that are likely to attract low multiples, there are strategies that can be developed in advance of a sale to make the business more attractive to prospective buyers and increase multiples for higher valuations.
|Minimum Requirements||Risks of Making Acquisition|
|• Audited financials
• 2+ years of consistent financial performance
• Evidence of increasing market share
• Competent management team
• Loyal customer base
|• Merging cultures
• Customer retention
• Employee retention
• Conflicting IT platforms
• Data merging & migration
• Brand conflicts
• Sales channel conflicts
Business Valuations: What do buyers look for?
No one wants to overpay for anything, whether it’s a modest purchase or a substantial one such as a business. Buyers will pay for value and the larger the deal and the smarter the buyer, then the more careful the due diligence is likely to be. Some buyers may have already developed the skills they consider to be important for developing their business and may be looking at potential targets where those skills don’t exist because the price is lower and the required skills can be incorporated to increase future value. Other buyers may be looking to acquire a specific skill set that they don’t have and recognize they have to pay a premium to get what they’re looking for.
|• Previous 12 months EBITDA by month
• Consistent & profitable results
• No customer concentration issues
• Sales growth
• Clean balance sheet
• No legal or tax issues
• Diversified supplier base
|• Competitive advantages
• Patents / technology
• Unique / emerging skill sets – i.e. Inbound Digital Marketing / Organic Web Traffic
• Owner financing and earn-out’s
• Non-compete agreements
• Key employee employment agreements
Small and Medium Business Enterprises
For reseller businesses in the Office Products space where, typically owners may have invested 25+ years into their dealerships and face significant challenges to achieving any of the goals for higher business valuations, there is a pressing need for implementation of strategies necessary for improving valuations and preparing for exit. Development of inbound marketing and relevant web traffic are assets potential buyers will look upon favorably when deciding how much a business is worth.