Thursday, 22 December 2011

2011 Year-End Summary

I started this blog in August and it feels like we have already addressed some meaty topics.  Here is what I have covered so far.

Terms like LTM, NDA, EOI, CIM, PSA and VTB explained.

There are four phases of progressive information release to smaller and smaller audiences in the acquisition/divestiture process.

M&A advisors will use many resources to prepare a buyer list including proprietary in-house databases, existing relationships in industry and the private equity and fund sectors, business networks, associations, and commercial company databases.

To state the obvious… companies with ability to pay and an interest in paying a premium.

Once you have started the process you can’t wait for the company that you thought would be your buyer to be ready. 

Canada has many leading specialised mid-sized technology companies that have emerged here and for them to realise full value in a strategic auction process they must access international buyers.

A strategic buyer will pay somewhere between the notional value and the value to the buyer.  Creating a competitive bidding environment can persuade the winning buyer to pay more than the notional value and share some of the value to the buyer with the seller.

Private equity will act like strategic buyer when it comes to portfolio add-on opportunities.

Normalization adjustments are a delicate matter; too many and it raises a red flag, too few and you leave money on the table.

The risk-return curve is the most fundamental principle of corporate finance. 

The biggest driver in attaining a higher multiple is a company’s profitable growth prospects, and, this should already be evidenced by a historical growth record.

The ideal time to sell is when there are positive trends in revenue and earnings with the expectation of more to come.

There are two items of note in the title: (i) the valuation metric; a multiple of revenues and (ii), the notion that technology companies as a group are different from other companies.

Veracap's Value Enhancement FrameworkTM follows well defined planning and execution strategies in undertaking the sale of a company.

An M&A advisor allows the principals and management to stay focused on the business and can wear the black hat as well as eat humble pie.

An MBO can be a good option if the buying management team is strong and interested in partnering with an institutional backer that can bring cash to the transaction.

The Shotgun Fund® will purchase common shares from departing shareholders when a shotgun clause or buy-sell agreement has been executed and the Succession Fund purchases shares from shareholders that are looking for liquidity and want to take "Chips off the Table".

Happy Holidays and if you have any thoughts for a topic in 2012, please let me know.

Derek van der Plaat, CFA has worked in private market M&A for more than 20 years and is a Managing Director with Veracap Corporate Finance in Toronto.

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