It is no great insight that acquirers of companies want to only pay for an acquisition based on today’s earnings and book value. However, Sellers want to sell their company based on tomorrow’s expected earnings. Public companies have the advantage of being able to offer their publicly traded stock as currency in an acquisition. Private companies are not so lucky to have stock to use, their tactic to “pay up” for an acquisition often is the Earn-Out. According to James W. Bradley, co-author of Acquisition and Corporate Development: “The earn-out is a contingent purchase which allows some deals to go…
Business Unit Divestitures: Unpleasant But Often Necessary
It is common for larger companies to divest units that are underperforming or otherwise do not meet strategic goals. This practice is likely to increase. Whether the M&A market is hot or not, divestitures are a challenging activity requiring strong support from equity stakeholders and management. The divestiture activity should not be treated as an inferior activity to acquisitions. Divestitures have its own set of challenges. Confidentiality needs to be maintained and this may harm both the seller and the buyer. The selling company may not adequately understand what is going on in the unit being sold. For the seller,…
How Much Is That Investment Worth?
An individual made a $28,000 investment into an oil and gas company. The majority shareholder was a childhood friend. Ten years later, the company offered to buy out the investor’s approximately 6% ownership in the company for $6.5 million. The investor accepted the offer and thought he made a phenomenal return. But things are not always as they seem. Two years later, the company was sold for $2.6 billion. Of course, the investor sued for fraud during the time the offer was extended and accepted. A jury found in favor of the investor with a judgment for the investor of…
After The Sale: Post-Closing Issues
The seller of a business may think the closing is the end, and that they have no more responsibilities. Ignoring the issue of seller financing, they may think that is the case. However, the closing does not signal the end of the seller’s responsibilities. There are a whole bunch of things that must be settled in the months following the signing. The most important point is that the contracts and other deal documents must be carefully worded to avoid misunderstandings to avoid later litigation. One investment banker has said, “you start negotiating post-closing adjustments on day one.” Here are some…
Mergers & Acquisition Trends as of Feb 2022 for 2021 Q4
Alteris LLC tracks Mergers & Acquisitions (M&A) valuation and other trends/metrics from its various partners and research sources. We will periodically report on what we find here. For more detailed information on valuations and M&A trends contact us directly. Please note that this information is a summary, generalized for many different types of companies of various sizes. This data is collected from various sources and includes proprietary deal information from over 200 PEGs (Private Equity Groups) on $10-250mm sponsored transactions, with an average TEV near $50mm. The information is available as of February 2022 and covers the fourth quarter of…
Why North America?
For companies located outside of the United States with plans to grow, entering the U.S. market is an important part of any long term business strategy. For American firms, the domestic market can offer substantial opportunities. North America should probably be the first market of choice, for most firms. The United States is probably the most dynamic and possibly lucrative market in the world. In fact, combined with Canada and Mexico, the region will possibly be the main economic driver of the world in the 21st century. Despite the back and forth and the re-negotiation of NAFTA, these three are…
The Challenge of Strategic Market Entry
Companies are expanding into new geographic markets to achieve growth now more than ever. For a business that wants to grow and achieve substantial scale, globalization has made conducting business on an international basis a necessity. The need to reach beyond a company’s traditional markets into the global marketplace is an essential activity for growth. Besides looking at revenue growth, sometimes operations need to be located overseas to realize the necessary cost advantages to be successful at home. It really is no longer a choice. This is a process containing risk. While any new market entry carries the risk of…