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Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Jeff Wright
December 2014-January 2015

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Mergers & Acquisitions – Perfection required for sale of your firm? Absolutely not

This might involve hiring a key manager, or finishing a major internal initiative.

We certainly maintain there is a minimum threshold of company preparedness needed for a company to be in a position to be brought to market. However, we also know that companies can be successfully marketed even if there are some significant gaps or weaknesses.

When we meet with business owners we go through our 25-point value drivers checklist to assess their company. The farther to the right hand side of the scale the better. This checklist includes a section called “deal killers,” and we will not take a sell-side assignment with a weak score on one of these criteria.

For example, if there is no depth of management team and the owner is essentially mission- critical to the company, this is a deal-killer situation. Another deal killer could be extreme customer concentration.

Other than deal killers, most of these checklist items are useful for us to assess the company. We want to know its strengths so we can highlight these. We identify any weaknesses so these can be disclosed and explained and maybe even presented as opportunities.

There are several reasons why sophisticated buyers may be willing to overlook what appear to be flaws in a company they are considering:
The buyer can fill in the gaps. Almost always, the buyer is much bigger and deeper resourced than the selling company, whether they are a strategic buyer or a private equity firm. For example, the buyer may have a needed department head in place.

We sold an Internet security firm last year. At that time our client had an open position for its chief technology officer, a key management position for this kind of enterprise. This gap proved not to be a problem at all, as the acquiring company was twenty times larger and had a deep team of technology leaders.

In 2012 we represented a medical device manufacturing company and had a private equity firm as a finalist bidder. This buyer had a long relationship with a medical device CEO who had successfully grown one of their portfolio medical device companies to a successful exit and was now ready for his next gig. He was potentially an ideal fit to fill the role of the retiring CEO/owner.

It’s a seller’s market. Buyers may be willing to overlook more flaws in a target company right now given how eager they are for acquisitions. Many company owners are still on the sidelines due to the rocky economy the past few years.

Private equity firms have over $400 billion to deploy, and much of this money needs to be deployed quickly or it will need to be given back to the limited partners, something private equity firms are loath to do.

Banks and lending institutions have over a trillion dollars to lend and are aggressively looking to make loans. Strategic buyers have balance sheets loaded with cash that is often targeted for an acquisition-driven growth strategy as this is often more practical than organic growth in this economic environment. Valuations are generally up, even as high as 20 percent, which may offset any discount for a particular company weakness.

Prioritization of a key profit or growth driver. A company may have one or two very key attributes that are attractive to a potential buyer. Perhaps there is some unique intellectual property that fits perfectly with the buyer’s growth strategy. Or maybe the selling company has a long-standing relationship with a key customer and access to this customer is the backbone of a deal.

We’ve also seen that a key deal driver can be a recurring revenue model with long-term contracts, essentially “stickiness.” In cases like this the buyer may not care that the new accounting upgrade isn’t ready or the system integration isn’t complete. A key company attribute may drive the deal.

Owners are often tough critics. No company is perfect. Owners typically have a tendency to be tougher critics of their operation than outsiders. They are often instituting improvement programs and pushing their people to perform better. This attitude probably helped them build their successful companies, but may not provide them with objectivity when looking at the marketability of their companies.

The sale of a company should always be driven by the owner’s personal goals and motivations. Age, energy, financial and family situation are all factors. We happen to believe in the wisdom of wealth diversification and risk mitigation, especially for older owners with a shorter “runway” for recovery from a severe downturn or negative event.

If an owner is thinking about selling but fears the company isn’t marketable due to some gaps or flaws, it might be wise for this owner to meet with an experienced investment banker who is immersed in the current mergers and acquisitions market to get an objective assessment of the situation.

The owner might be surprised at the favorable marketability of the company and be closer to retirement and wealth diversification than he or she thinks.