Below is a list of common, frequently asked questions. If you have other questions please contact us
Company Sale and Acquisition
We have key strengths that make us appropriate for business sales in the $2-50m enterprise value range.
Above the $50m range, the fee structures of investment banks and large accounting partnerships, can often be cost justified based on their range of in-house services and experienced partners overseeing the transaction.
Below the $2m range, business brokers are usually used, and the ones accredited by the AIBB (Australian Institute of Business Brokers) deliver the best results. Business brokers work largely on commission and that makes them transaction focussed.
This commission focus gives them an incentive to list multiple businesses simultaneously and sell them quickly. They will usually not be incentivised to contribute to make a business “ready for sale” or attempting a higher sale value that entail more time or a better match to a strategic buyer.
The $2m-50m price range is our “sweet spot”.
Strategic Transactions know what buyers are looking for in an acquisition and we work hard to ensure the the company is ready for sale and viewed positively in the buyers eyes. We understand the balance between maximising speed of sale vs maximising value and work with our clients to enforce their preference.
Confidentiality – It’s extremely difficult to protect your own identity when you have to make all of the approaches, manage confidentiality agreement and be the sole recipient of incoming enquiries in the workplace.
Business continuity- Selling the business is a full time job? do you have time to do this while manage the day to day affairs of the business and maintain its performance.
Speed of Close – with all the commitments of managing the business the transaction process is inevitably slower. The slower the sale, the greater the risk of business erosion, customer defection, employee problems and predatory competition.
Universe of Buyers – You probably don’t have access to the specialist resources – cross industry, cross geography databases & contacts necessary to ensure good buyer coverage.
Marketing – You may not have the experience and understanding of buyer motivations that seasoned M&A personnel have.
Knowledge of Market Value – The value of businesses are far more difficult to assess than property. You may not have the knowledge of how to apprise a business and what relevant precedent transactions have taken place.
Experience – You may not have sold enough businesses yourself to understand the transaction and negotiation process as well as subtleties such as generating competitive tension, managing the project, maintaining momentum and negotiating a business sale.
Maximising the Value of your Other Professionals: time based fees are typically charged by your lawyer and accountant. You may not be aware of certain ways of how the process can be managed to ensure optimal efficiency of such personnel.
Maintaining Buyer / Seller Relationship: The sale of a business is also an emotional process and can become contentious. An M&A professional acts as a buffer between the buyer and seller, getting appropriate feedback from the marketplace, improving the likelihood of the transaction closing and preserving a healthy buyer / seller relationship both pre-close as well as after the close.
If you’ve ever acquired a business before you’ll how exactly how much more challenging and time consuming it was compared to what you anticipated.
Strategic Transactions will either work alongside or independently of your internal team to determine the right fit candidates for an acquisition.
For a start we believe in providing frank and fairness advice and design our fee structure to ensure that ourselves and our clients are motivated towards the same outcome. These outcomes are
1st: Successful acquisitions that adds shareholder value, at the optimal price.
2nd: No acquisitions
Last: Unsuccessful acquisitions.
We are aware that many acquisitions fail and right from the start will provide you with the critical advice of an outsider as a reality check.
Inc Magazine cautions that in the USA 60% of business owners who try to sell their businesses can’t get a deal done.
In Australia it’s a similar percentage, and this is reflected in the declining multiples for precedent transactions over the last ten years. This trend is likely to continue as it is expected that a large number of baby boomer business owners are going to be looking to sell in the next five years.
However, a good business will always sell, and it will sell at a premium if buyers perceive them as growth opportunities.
Strategic Transactions will honestly appraise your business and tell you how realistic your expectations are. Failing to do that is detrimental to both of our interests long term.
Short answer – it depends! Longer answer, an average of around six months with a wide variance! Once the documentation has been prepared and verified and the campaign agreed it can be a better of weeks. However, with the helter-skelter ride of many transactions, it can stretch out for many reasons beyond our control. nonetheless we’ll be there with you, regardless of the length or difficulty of the process.
We’ve broadly outline the fee structure here, but in short it’s a blend of fixed retainer fees, time based fees and success fees – the balance of each depending on the nature of your assignment.
We use a several methods depending on the valuation, and also will use multiple methods in order to cross check.
Valuations can be broadly broken down into three methodologies: Intrinsic (i.e. Discounted Cash Flow), Comparative (Multiples of what public companies are trading at) and Precedent Transaction (what private and public companies previously sold for).
We continually review all of the modern practical solutions in finance. For example we use (but don’t overuse) option modelling where appropriate.
Most important, we stand by the rigour of our financial models, whether in a negotiation or with counter parties in a legal situation.
We fully justify the assumptions used in coming up with our solutions and we thoughtfully employ sensitivity analysis on key variables to provide value ranges under different scenarios.
As most managers know, unless there is public debt, private companies are under no obligation to make their financial performance public.
Having said that, a considerable number of larger private companies do. This may be for credit purposes, publicising their capabilities or achievements or because they are communicating with the media or responding to media queries.
We access a wide range of intelligence sources including Hoovers Dun & Bradstreet, IBISWorld, Standard & Poor Capital IQ as well as a range of other media that publicises industry performance, benchmarks and transaction details.
Also we utilise strong networks where is mutual cross border dependence between M&A and valuation experts and we have built relationships both in Australia and across the world that enable such information sharing.
Valuations are undertaken as of a specific date defined in the valuation report. Also contained is a timeframe for applicability (3-6 months). In such instances where a valuation forms a component of a contract, tax issue or settlement (divorce), this date will hold firm.
However, when valuations are produced for the purposes of sale, acquisition or strategy development they can be intimately affected by events that could occur within seconds of the final report being provided. External factors such as competitor actions, new product launches and changes in consumer sentiment can have significant impact.
That’s why the models that we produce are clear enough to be easily updated, and the assumptions well documented.
Our intention is to assist our clients both during the engagement time and throughout the future.
Our financial models are well designed and extremely robust and we commit to ensuring that they can be further updated and utilised by certain personnel within your organisation.
Our analysis and recommendations are extremely well documented so they can be referred back to and reconsidered in the light of any external opportunities or shocks occurring. They are also invaluable for sensitivity (what if) analysis.
Strategic Transactions ensure than our models are open ended and can be updated to take account of post-transaction factors. We ensure that qualitative factors (strategy, plans, visions, shocks) are given as much credence as qualitative factors (financial statements) and build robust models.
If required, we can continue to monitor the ongoing realism of a model in response to internal announcements and market / competitive shifts to ensure that our clients decision making capabilities are optimal.
The difference is in the level of background research, detail and the legal obligations between the two.
Appraisals are frequently sought by lower mid market companies wishing to sell. In this situation, financial statements are considered (but not examined in depth) and a rudimentary future return / risk analysis is included in order to adjust an average market multiple. (i.e. this is not an intrinsic assessment of future profit making potential) Because this is an exercise undertaken with the owner, self-reporting is relied on.
A valuation, on the other hand, may have legal consequence and the details behind the number are much more closely analysed. Unlike an appraisal, the future of a company is calculated rather than merely extrapolated and where there is sufficient data, an intrinsic value of the company may be derived by a DCF. Additional sources of information are sought beyond the owners perspective.
Strategic Transactions work very closely with professional accountants. In fact many of our referrals come from accountants, whose internal skill sets and perspectives differ from ours.
Accountants, along with CFO’s in larger companies manage all of the key financial affairs of a business. Strategic Transactions are more specialised and only deal with transaction analysis, future strategy and quantifying return / risk factors in the light of changes in shareholder value.
These are highly specialised topics, and we work closely with referring accountants and CFO’s to ensure that our assumptions and findings are in line with internal performance.
Yes, we share tools such as Excel, and yes Strategic Transactions work with financial modellers to ensure integrity of models.
There the similarity ends.
Transaction Analysis is a complex process. The calculations and data input is probably the easy part. The focus is more about finding or estimating appropriate numbers and translating a company strategy, present and future into a series of realistic assumption, feasible scenarios and key sensitivities.
This challenge is compounded by having to consider the likely competitive industry shifts.
Above all, each model must come with a series of recommendations for action, and experience in financial decision-making is essential for this task.
Finally we deal with messy financial statements, lack of information, over-optimistic management, non controlling interests, cross border complications, IP and brand valuation complications regularly.
A half a day.. a week…a month. It depends. Some of our clients have tight deadlines and require an extraordinary amount of work be accurately completes within those timescales. We’ll always do our best.
We can simplistically break down our assignments into two categories:
Q&D (quick & dirty) models are produced quickly. They simply convert existing financial statements into meaningful financial numbers to undertake projections. Forecasts are developed using % change rates. The models tie everything as a % of revenues, without standalone support schedules Although this makes the output less easily defensible, we will ensure that these assumptions are reasonable and justifiable otherwise we won’t publish.
Medium and long length length models deep dive to understand the key catalysts, business drivers, opportunities and risks for a business. They enable sub-models for revenue per line of business, more detailed Capex & depreciation and business expenses. They enable further modelling of sensitivities and alternate scenarios. Strategic Transactions will spend more time on the qualitative aspects of a model ensuring that they are defensible under the glare of critical analysis.
Strategic Transactions fees are based on a specific project and are calculated on length & complexity of engagement and resource costs incurred.
There are no success-based fees or bonuses since we must be unambiguous in our impartiality. The client must always be reassured that the advice received is accurate and unbiased.
We aim to provide great value for money and warn our prospective clients that ignorance can be so much more expensive!
No. Strategic Transactions are typically called in by the client to oversee the valuation, financial modelling, negotiation and post merger integration components.
With mid market deals an M&A specialist, along with the client will produce the sale documentation (e.g. information memorandum), produce a list of prospective buyers or sellers, market the business and build relationships with the counterparties.
Strategic Transactions’ greatest challenge is in convincing management to “remove the blinkers.”
Management optimism is often magnified by the following
- Anchoring – i.e. relying on the first held information.
- Competitor neglect
- Political pressure to emphasise the positive and downplay the negative