where are the money tree roots for investors?

Where are the

money tree

roots?

1

M&A Processes

I. Identify targetII. Analyze businessIII. AcquireIV. Turn aroundV. Increase bottom line results

significantlyVI. Sell business

2

Why investors acquire and sell businesses?

3

2

I. “. . .to acquire or not to acquiry?

- That is the question”

4

2

“. . . If your business or job

is to acquire business so it’s impossible for

you not to acquire

business.”

5

1. To buy competitor

Other motives:

6

2. To buy market share

7

3. To secure the rapid business growth

8

However, in all cases, the

dominant issues are:

9

1. How to find the target if the most attractive

companies have already been sold or

they are conducting in

such a way that they it self

attracts the capital?

10

2. How to evaluate growth potential of possible to buy targets?

11

3. Where in the market can we find good leaders that could transform the purchased company in to the

best?

12

2

II.“. . .to sell or not to sell?- that is the question”

13

Why companies are on sale?1. The price offered is so high that owner think that they will never acquire such sum.

14

2. Owners do not knows how to get out from the problem circle…

15

3. Fatigue, for a constant cash-flow shortage ...

16

4. Business activities purification

17

But doesn’t it look, that in all cases that means that for the owners burnt out one main - how to earn money with current business activities?

18

2

But does this mean that buyer has enough ideas?

19

20

Lets see what a buyer

thinks?

“Acquiring is easy. Owning is hard”-A fact of life

20

21

And what does the French people say?

There are more fools among buyers than among sellers”-French proverb

21

Thus, the procedure says that: To create added

value, an acquiring firm must get into businesses that can perform better under different management approach and strategy than they could perform operating as “it is” company!

22

However, the the traditional acquisition, sought:

1. Companies with undervalued or excess assets Capital gains may be realized rather soon

23

2. Companies in financial distressMay be purchased at bargain prices

and turned around

24

3. Companies with profitability ratio lower than industry average

25

3. Companies with profitability ratio lower than industry average: After implementing new strategy there is a

potential to improve!

26

“If you can not tie good knots, tie lots of them” -Yachtsman rule

27

2828

The understanding of the systems never lies in the system

- Russel Ackoff

28

29

Managers who attack results without analyzing causes usually make matters worse rather better

-Logic axiom

29

Getting rid of excess assets (200)

Financial Reengineering increasing financial leverage (190)

Investors are asking to get short

term improvements of profitability (230)

There is a shortage of qualified and available

high quality management (260)

The old management is resisting to changes and investors are facing with dilemma to change or not to

change old management (220)

The old management has to change its management approach (210)

The company was sold because the

profit situation cash flow situation was

unsatisfactory (310)

The old management is not capable to generate

high ROI (300)

The easiest way for old management “to improve” – to ask for more investment (240)

Investors are forced to buy companies as they have to generate return on capital funds (140)

Investors face a shortage of good targets (110)

Investors are forced to pick up just “good enough” companies (130)

There is high chance to overpay (150)

Investors tend to be overoptimistic about “value extraction” possibilities (170)

The risk to acquire target company increases (160)

Investors try to apply their traditional tools to extract value and decrease risk (180)

Recruiting new management is expensive and time consuming (250)

Investors use the traditional methods for selection of targets and turn-around strategy (120)

The management of Great companies knows how to attract capital and in the market is big shortage of

Great companies (100)

30

The old management is not capable to generate high ROI

(300)

The easiest way for old management “to improve” –

invest more (240)

Recruiting new management is expensive and time consuming

(250)

Additional investments done by old management have low probability to increase value, becouse If the old management really knew where to invest were would have been no need

to sell the company (310)

The internal comapany climat worse and worse

(400)

Management is trying to massage figures (320)

Additional investments will not be provided since the first

did not show any improvements to the bottom

line (500)

Management blames investors for not providing

enough capital (510)

The tension/conflict between management and investors is increasing (340)

One day investors realize that situation is worse

than it was reported (330)

The expected quick “value extraction” does not materialize

(360)

Management reinforce cost cutting initiative (370)

The performance of company does not improve enough (350)

New management ”steps in” after some

4-6 months (260)

After joining the company new

management needs additional 4-6 months “to get

in”(280) When management “gets in” it needs some 4-6

months to develop new strategy (290)

It takes 12-18 months until the new management starts

implementing new strategy (270)

There is a need to change Top Management (390)

Investors want to assure fast profit

growth (380)

31

3232

It is a simple thing to make things complex, but a complex task to make them simple

-Meyer’s law

32

33

Creative thinking may simply mean that there’s no particular virtue in doing things the way they have always been done

-Rudolph Flesh

33

34

4.Traditional search for the hidden meanings.

34

Traditional analysis for the companies problems summarize

It is not enough to conduct traditional financial and legal due diligences in order to understand the target to be acquired..

Investors can’t build the future of the acquired business making our decision only on the historical quantifications.

Traditional approach does not provide insights for creating unique strategy how to transform company into cash machine.

35

36

“The ships speed depends on the design of the hull”-Ship design rule

36

37

Analyze: process

Conventional way: Conduct financial due diligence Conducts legal due diligence

“Different” way: To analyze process flow and identify core problems To find leverage points – develop new strategy which

would generate money in short term and would help company to growth in long term

To prepare detailed actions plan To analyze management

“Simple solutions exist only in the minds of cowboys, fools and investment bankers”

-Unknown CEO

37

38

Strategy problem

Strategy problem means that 97% of companies are choosing the same methods how to compete.

Is it possible to compete if companies apply the same tool box for decision finding?

Typical strategic approaches are to compete on cost (cost advantage), compete on technology (differentiation advantage) or focus on niche market

Regardless what to choose – old management or hire new management – that kind of strategy has a lot of risk.

38

39

Implementation problem

The problem consists of the challenge how to get people’s buy-in.

If you have hired management team and highlighted certain strategy it does not mean that implementation will be successful.

What about resistance to change? Actually resistance means “invented not here” or

“what is in that for me”. If you not to address this problem, then

successful implementation is a mirage.

39

40

Increase sales/bottom line results

How to raise profits quickly?How to build long term value?

“It’s hard to remember your goal is to drain swamp when you’re up to your posterior in alligators”

-Unknown

40

41

“The ships speed depends on the design of the hull”- Ship design rule

41

42

How do we solve those “invisible” problems

Instead of trying to compete on costs or to invest heavily into new technology and wait for results we take the guess work out of our strategy: We make companies growth even when

markets do not growth We make that company competes not on

price or technology, but instead creates new business model

Customized business model which we propose is almost impossible to replicate for our competitors

42

43

Case study

M&A in Retail industry:We are looking:

Retailers who have problems with cash flow;

poorly managing shelves (Supply Chain).

43

44

Change in the hulls design

We have Know - How for Assortment Management:

1. Technique that allows more effectively to control goods flow from the shelf (Stores warehouse, central warehouse) to the supplier.

2. We know, that lost sales makes up to 30% and overstock up to 30% also.

After acquisition and clean up we can win up to...

44

Case study

Text

Turnover

Margin (Throughput)Inventory turns per year

Overstock %

Lost sales %

substitutions %

WACC %

Purchase price %

Purchase price $

Inventory price $

Possible additional Sales

Overstock $

Margin from additional sales

Cost of Money

Additional cash flowAdditional Profit

45

46

Why us?

We have done it before successfully (we have references in Russia, Ukraine and Germany)

We are excellent at: analyzing various parts of organization such as

supply chain, all types of production, marketing and sales

evaluating their interconnections finding leverage points using proved methodology

We will transform the leverage points into bottom line growth

We have more than 15 years experience in doing that in different countries

46

Author of “God, Quantum physics, Organizational structure and Management style”

http://www.amazon.co.uk/Quantum-Physics-Organizational-Structure-Management/dp/9955689234/ref=sr_1_1?

ie=UTF8&s=books&qid=1266446827&sr=1-1

You can order a book, workshop, analysis or lecture, or just a dream

at:

darius@versloknyguklunas.lt

+37069841027 Darius  Radkevičius  

47

www.god-­‐physics-­‐management.com

44

48