Posts made in June 2014

Grow Faster with a Well Planned Acqisition Program

Gary Miller


By Gary Miller, CEO

GEM Strategy Management Inc.

June 28, 2014

Many companies are facing slow growth due to a tepid economic recovery, more federal and state regulations, the Affordable Care Act (ACA), and a lack of confidence in the economy.  Faced with these conditions, small and middle market companies are developing acquisition programs as a part of their strategic business plans to accelerate corporate growth.

With banks wanting to low-interestterest rates, plenty of “dry powder” (money to invest), a tsunami of companies for sale — making it a buyer’s market, companies are charting a path to the next era of opportunity and wealth. However, growing significantly in a flat-growth or a tepid environment requires a bold combination of careful planning, savvy thinking and well executed tactics.

This article provides an in-depth look at the planning stage only of the  six step  acquisition process.

Careful planning includes, determining the acquisition program goals, selecting the acquisition strategy and rationale, determining acquisition criteria and matching them against available financial resources.  After careful examination of alternative methods of corporate growth —  new product development, licensing arrangements, and joint ventures’ —  it must be determined, whether acquiring another company is the most effective path to meet corporate growth objectives.

An acquisition program should ameliorate strengths and/or eliminate weaknesses.  Before embarking upon a program the company must spend time in serious self-examination to determine its own strengths and weaknesses and their capacity for supporting, financing and integrating a newly acquired company. Often, companies developing an acquisition program hire a consulting firm with M & A experience to assist them in this self-examination effort.

Establish Acquisition Goals

Goals can include addressing these issues.

    • To fill a product/service line gap
    • To expand geographically while taking out a competitor
    • To upgrade infrastructure
    • To increase distribution channels
    • To improve the acquirers balance sheet
    • To acquire management talent and their customer base  

However, the most important goal is any acquisition program is to add enterprise value and increase shareholder wealth.

Establish Acquisition Strategy and Criteria

Among others, an important strategic issue is the form of payment. The ramifications of using cash or stock or both must be examined against the possible benefits of using other forms of payment, such as notes, earn-outs, stock options, bonus clauses, and non-compete contracts. Flexibility in structuring the transaction will enhance the buyer’s negotiating position.

Criteria supporting the strategy should include the following:

  • Companies of interest
  • Minimum size
  • Profitability trends
  • Competition
  • Labor/capital intensiveness
  • Management team depth and quality
  • Debt capacity
  • Product/Service offerings and quality
  •  Brand and reputation
  •  Synergy of combined operations
  •  Payback time period
  •  Stability/Risk
  •  Regulatory environment
  •  Margins
  •  Market position (i.e. # 1, 2, 3, other) growth rate potential
  •  Financial requirements (balance sheet, cash flow, earnings history, ROI)
  •   Cultural fit


Careful planning can significantly lower risk of failure. The path to rapid growth is littered with acquisition “road kill”.  Most acquisition failures can be traced back to poor planning. However, that same research indicates that those companies that complete more deals than companies who do not, generate higher returns on investment, greater enterprise value, deliver stronger financial performance and create significantly more shareholder wealth.

    • Gary Miller  is founder and ceo of GEM Strategy Management, Inc., a management consulting firm focusing on strategic planning and growth strategies, mergers and acquisitions, value creation and exit strategies for business owners of middle market companies. For more information contact  or  970.390.4441

Want to Grow Your Business? Make an Aquisition Plan

Gary Miller

The Denver Post | BUSINESS



Posted:   06/22/2014 12:01:00 AM MDT

By Gary Miller GEM Strategy Management

Many companies are facing slow growth due to a tepid economic recovery, more federal and state regulations, the Affordable Care Act and a lack of confidence in the economy. Faced with these conditions, small- and middle-market companies are developing acquisition programs as a part of their strategy to accelerate financial growth.

Banks want to lend and have money to invest; interest rates are low; and there is a tsunami of companies for sale. It’s a buyer’s market, and companies are charting a path to the next era of opportunity and wealth.

However, growing significantly in a flat environment requires a bold combination of careful planning, savvy thinking and well-executed tactics.

There are six basic steps to develop a robust but risk-adverse acquisition program.

Plan an acquisition program: Careful planning includes determining acquisition goals, selecting the acquisition strategy and rationale, determining acquisition criteria and matching them against available financial resources. A company must compare its acquisition program to natural/organic growth alternatives to determine if buying other companies is the most effective path to corporate growth objectives. Select an outside management-consulting firm with transaction experience to help guide this process.

Search, find and approach acquisition candidate: Searching for a target comes from leads generated inside and outside the company. Internally, leads often come from boards of directors, employees, sales staffs, suppliers, data bases and customers. Externally, they come from accountants, attorneys, investment bankers, management consultants and business intermediaries.

Approaching the acquisition candidate may well set the atmosphere throughout the acquisition process. Developing detailed information about the candidate before the “approach” is made is crucial in developing a narrative that details how the target company fits into the buyer’s plans and future directions. Rarely will you get a second chance to make a first good impression.

Conduct robust due diligence: Due diligence is critical to the acquisition process. It centers on helping the buyer recognize what the buyer is buying, understanding how it fits in your overall growth strategy and developing the post-acquisition plan.

Due diligence requires stategic analysis of the company’s market position, competitive position, customer satisfaction, unanticipated strategic issues, valuation, synergies, cultural fit, technology and scenario analysis.

Acquiring companies must analyze the target’s financial statements, accounting methods, quality of earnings, revenue-recognition policies and taxes.

Also, it’s important to assess the target’s contracts, leases, real estate, patents and intellectual property, current or pending litigation, employee agreements, compensation and retention, and other legacy risks.

Structure the proposal: The first step is to value the company. A third-party valuation company, investment banks and public accounting firms are the best sources for this function. The valuation serves as the basis for the amount the buyer is prepared to pay.

Information gleaned from the sellers and interests can then be used to further refine a proposal. The proposal is only intended to provide a basis for negotiations and will probably undergo numerous changes. Bring in a strong legal team to structure the legal documents through the remaining acquisition process.

When the offer is presented to senior management and principals of the target company, expect one of three possible outcomes: acceptance without changes, which rarely happens; acceptance with changes; or outright rejection. Regardless, further negotiations will be needed to get to an agreement in principle.

Prepare transaction documents and close: A number of formalities must be accomplished in order to close the purchase. Acquisition agreements are relatively standard, and the emphasis should be on thoroughness, not complexity. About half of the agreement is expressed by the “representations and warranties.” The “exhibits” to an acquisition agreement are almost as important to the contract as the representations and warranties. At this point, attorneys for the buyer and the seller are negotiating and refining the final documents for closing.

Integrate the acquired company: Integration plans are extremely important and are often the reason an acquisition fails to add value for the buyer if not well conceived.

Blending both companies’ cultures is the most important function of the integration process. I cannot emphasize this point enough.

While integrating accounting systems, manufacturing, infrastructure, computer systems, strategic plans, sales territories, distribution systems, contacts and human-resources systems are all important, nothing is as important as building a unified culture. Post-integration, consultants are often used to help in this process.

Following these six steps can add significant value to the enterprise and more rapidly create shareholder wealth than staying with organic growth plans only. Research indicates that companies that complete more deals than companies that do not generate higher returns on investment and deliver stronger financial performance.

Gary Miller is founder and CEO of GEM Strategy Management Inc., an M&A management consulting firm focusing on strategic planning, growth capital for expansion, value creation and exit strategies capital formation, exit planning for middle-market companies.

To reach Gary or 970.390.4441

Small-Business Strategies

Diving deeper

More details on each of the six elements of a successful acquisition strategy will appear in the weeks ahead at


Preparing to Sell Your Business Requires the Same Due Diligence as Running it

Gary Miller

The Denver Post 

Posted:   05/25/2014 12:01:00 AM MDT




A crisis is looming for business owners wanting to sell their companies.

Currently, 80 percent of business owners of small- and middle-market companies who put their businesses up for sale never close the transaction. The reasons: poor planning and over-valuation.

With the impending baby- boomer tsunami, more businesses will be for sale than at any other point in history, creating a buyer’s market. This will cause significant competition, and businesses that do not plan well or overvalue their companies will be left out in the cold.

Many strategic and financial buyers with significant funds to invest are more cautious and reluctant to pay premiums for companies than a few years ago. To ready a business for sale, there are three critical steps to take to significantly increase the chances of closing a deal.

Think like a buyer. Most buyers want to purchase a company that has the following characteristics:

• A proven entrepreneurial management team in place who can continue rapid growth and expansion after the transaction closes. Most buyers do not want to replace current management of the company they are buying. Doing so adds a risk profile that could endanger the viability of the business going forward.

• A strong and realistic growth plan to continue value creation through market penetration and expansion, defined market niche and/or acquisitions.

• An ability to produce significant returns on invested capital coupled with strong positive cash flows.

• A sustainable competitive advantage.

Prepare before you go after a buyer. Attracting a buyer is like preparing for a beauty contest. Companies that “show best” win “first.” It takes six to 18 months to prepare your company for the buyers’ marketplace. Strong preparation could mean the difference between a much higher “selling price” than weak preparation. Strong preparation steps include:

• Quantifying the business value through a third-party valuation firm.

• Getting rid of obsolete inventory. If your financial records show a higher value than market value, take the write-off now so that it doesn’t become an issue for the buyer.

• Auditing your financial records by an independent accounting firm.

• Strengthening legal and contractual affairs.

• Installing and improving operating systems and processes.

• Telling your management team that you plan to sell the company. Be truthful. Include them in the preparation process. To not do so could scare your key employees (the very ones you need to keep) when a buyer’s due- diligence team shows up to begin its process. This could trigger your key employees to search for new careers.

• Creating management and key employee long-term incentive plans to stay with the company.

• Preparing for buyer due diligence. If you were buying your company, what would you drill down on first, second and so on? Conducting your own due diligence similar to a buyer’s due- diligence process allows you to discover any “skeletons” before the buyer does.

Select the right team to help you prepare you to go to market. Assembling a collaborative, multidisciplined team of experts is critical to help prepare you to go to market. Before a buyer shows up, this team can advise on alternative exit strategies, tax issues, alternative deal structures and prepare you for negotiations. Five key team members are important to your success:

• A management consulting firm with strong business strategy expertise and transaction experience to lead the team.

• A law firm with significant transaction experience led by an attorney who is a CPA.

• An investment banking firm with deep transaction experience in your industry.

• An accounting firm with major transaction experience to guide you through the tax issues.

• A wealth-management firm to help you plan wealth preservation from the transaction.

Following these three steps will significantly help you in finding the right buyer, at the right time, paying the right price to close the transaction.

Gary Miller  is founder and chief executive of GEM Strategy Management Inc., a management consulting firm focusing on strategic planning, growth capital for expansion, value creation and exit strategies for middle-market companies. ( or 970.390.4441