The economic climate may still be unpredictable, but that does not mean you should not think about selling your reverse logistics or aftermarket services business. For many sectors, economic, tax, accounting and general industry factors have converged to create an attractive seller’s market.
The timing may be right to sell to an entrepreneur, or your company may be in proper position to take advantage of a merger or acquisition.
The M&A marketplace previously stalled is now picking up steam. And, while private equity is still driving the bus, corporate buyers are more prevalent now, according to MERGERS & ACQUISTIONS online at http://www.themiddlemarket.com/.
There Are Plenty Of Buyers
Downsized corporate executives and mid-level managers are looking for personal opportunities where they can better control their future. Moreover, many left former jobs with sizeable severance packages. Buying an established business now looks good to them.
Publicly held companies with high valuations are using their access to cheaper capital to explore mergers and acquisitions, as a means to reach the level of earnings expected by investors. They can leverage acquired cost efficiencies to offer better pricing, to improve competitiveness. Consolidation bodes well for mid-size companies and those that offer “niche” benefits to buyers.
Mergers and acquisitions enable broader and/or deeper market penetration, product range, or other capabilities. Buyers are looking for complementary or new expertise to support vertical or horizontal integration – an increased business base that will enable them to take advantage of global economic revitalization, whenever it arrives.
These sectors are prime M&A targets:
- Information Technology
- Marketing and PR
Capital Gains Are Lower Than Ever
Despite election year rhetoric, after 2012 capital gains savings could become less – perhaps significantly less -- advantageous. Right now, both sellers and buyers enjoy incentives. And, for sellers, tax savings combined with your business sales price can represent very satisfying “total sale” revenue.
There are Potential Financing-Related Advantages
Outside financing is possible but still challenging. Regardless, you may find it more profitable to self-finance. Buyers might be willing to pay higher interest than their bank would charge – assuming it would lend them the funds -- so you could supplement your sales price with substantial additional interest income.
A seller’s willingness to finance the deal also demonstrates your confidence in the continued “performance value” of the company.
Healthy, Profitable Businesses Are Always In Demand
There may be many businesses for sale right now, but good ones that have demonstrable value are still limited in number. Favorable cash flow, a well-received product line, strong market presence and a good brand image are all sales-friendly characteristics that could position your company well in the mergers and acquisitions marketplace.
Even weakening or unprofitable businesses can be attractive for M&A if they offer other special features such as R&D talent, unique access to distribution channels, etc.
Maybe It Is Just Time
There comes a time in the life of every company when it makes sense to sell. If your growth has reached that point, a merger or acquisition may be the ideal next step.
Alternatively, negative factors may be building. You want to sell while your business is still doing pretty well. So if your markets are weakening or your market share declining, or if you are facing an increased need for capital or other significant changes to keep your company competitive, now may be a good time to sell.
The mergers and acquisitions market is all about finding a good strategic fit. Consolidators are looking to build overall corporate strength, and your reverse logistics or aftermarket services business may be the puzzle piece they need.
Would selling now do more for you financially than not selling?
5 Merger Acquistion Tips - Download Free
Thinking about mergers & acquisitions, then you will want to know that the road to M&A success is a dangerous one fraught with risk. Consider a recent KMPG study, found that over 85 percent of mergers and acquisitions fail. Another study, by A.T. Kearney, found that the total return to shareholders on 115 global M&A transactions was negative 58% of the time.
These are sobering numbers to any chief executive thinking about venturing into a merger or acquisition for their firm. Companies that fail to plan properly for their mergers and acquisitions are surely doomed to repeat the sins of their corporate brethren.
Enter the absolute need for strategic planning. No company would enter into a merger and acquisition transaction without planning, but by paying heed to these five tips, companies can succeed as one strong organization.
1. Define measurable, quantifiable key outcomes. The planning process needs to address several things:
- what defines success in the merge
- whether or not it is a merger or acquisition
- how the new company will add to the current company’s objectives
- what the overlap is, and how to integrate the new company
2. Engage in structured planning.
Well-defined planning and execution of mergers and acquisitions is extremely important when it comes to preventing failures. Address issues like unions, pay scales, benefit plans, technology, sales, reporting, marketing, and the legal implications of the merger or acquisition.
3. Stay involved in the core business.
During a merger or acquisition, it is easy to get caught up in the details of the new company. Do not forget about the core business, the one that is enabling you to merge or acquire this new business.
4. Keep employees in the loop.
During a merger or acquisition, employees will worry about the fates of their own jobs. Keep them apprised of changes, and make sure they know that their work is valued. If the company is acquiring another, it is important to try to keep as many of the original company’s employees as possible to boost morale. Also, keep in mind that managers may choose to defect out of fear of losing their jobs. To keep the best talent, reassure them that they will not be laid off after the merger or acquisition – and then follow through with that promise.
5. Transition the new company’s strengths properly.
A huge reason for failure is that the purchasing company does not properly integrate the new company’s strengths into the business, nor does it fully fold the new company into the brand. Transition early and carefully, and plan how each portion of the new company will fit into the purchasing company. In a merger, match the core competencies of each company to bring together a solid, strong unit that generates profit for everyone.
The bottom line is to never neglect strategic planning in mergers and acquisitions and remain attuned to all facets of both businesses.
Like more insights into the strategic planning process that can help your firm navigate the treacherous business transactions of mergers and acquisitions, contact Michael Blumberg, CMC at 855-643-9060 Ext 703.
Free 30 Minute Consultation
As this year winds down, I’d like to thank the readers of my blog for their continued support and interest. I’d also like to use this last blog post of 2010 as an opportunity to review key industry highlights from the past year. These include but are not limited to:
1. Deployment of advanced technology to manage reverse logistics operations
Earlier this year, I predicted that 2010 would become the year of the Reverse Logistics Management System. Indeed, there is a growing interest among OEMs, Retailers, and 3PSPs in streamlining and automating key Reverse Logistics processes and Post-Sales Service functions. Increased visibility, end to end integration, and supply chain optimization have been some of the key benefits that companies have obtained through upgrading, enhancing, or replacing their legacy systems with state of the art solutions from the software vendor community. Our firm has benchmarked all the major software vendors in this space and has developed some very good insight and opinions as to the unique capabilities of each vendor which we will be happy to discuss off line.
2. Uptick in Mergers & Acquisitions
2010 has seen a number of acquisitions by 3PSPs to quickly gain market share, step function increase in profits, and consolidate the industry. Moduslink’s acquisition of Tech For Less, Arrow’s acquisition of Converge & Intechra, Genco’s merger with ATC, Decision One’s acquisition of Anacomp MVS and subsequent acquisition by Glodyne, and the recent announcement by Gilde to acquire Teleplan are but a few examples of acquisitive growth strategies. It is gradually becoming a seller’s market. As such, many entrepreneurs now view this as good a time as any to pursue an exit strategy or a liquidity event. Blumberg Advisory Group is actively involved in several buy side and sell side engagements and would be happy to discuss opportunities that may fit your company.
3. Emergence of new players with deep pockets
The realization that Reverse Logistics and Post Sales/Aftermarket Service can operate as a strategic profit center and/or profitable line of business has resulted in the emergence of new players with deep pockets funded by either company coffers or private equity backed ventures. Avnet, Arrow, and Ryder are examples of multibillion dollar, publically held companies who have entered the market through acquisitive and organic growth. Aftermarket and Post-Sales Service businesses has also caught the attention of India based Business Process Outsourcing companies who desire feet on the street capabilities as an extension of their traditional businesses. Recurring revenue streams and the asset light nature of 3rd Party Reverse Logistics Providers also make this space very attractive to Private Equity Groups.
4. OEM policies to control the Aftermarket
The long term nature of this current recession has had a negative impact on new product sales and profits. To offset these difficulties, OEMs have turned to their installed service base as a source of profitable revenue. To protect this base, some OEMs have such as HP and Oracle/Sun Microsystems have created a number of policies which limit competition by multivendor, 3rd Party repair vendors. During the late 1980’s-earlier 1990s, there were several legal battles, (one even reached the U.S. Supreme Court) where OEMS were in violation of Federal Anti-trust laws because they erected monopolistic and anti-competitive practices against Independent Service Organizations. This begs the question.. will history repeat itself?
5. Demand for new Reverse Logistics & Post Service Support models
Companies are continuously looking for innovative ways to take costs out of the reverse logistics supply chain while improving the overall customer experience and level of support offered. 3rd Party Outsourcing, Remote Diagnostics, Self Service repair & return models, process improvements, and automation have been some of the ways we have helped industry participants to achieve these goals.
This list is by no means exhaustive. It merely represents the top 5 issues that my firm has been mostly actively engaged in. I encourage you to provide you thoughts and add to the list where applicable. Stay tuned for next year’s 1st blog post where I will provide my predictions for 2011.
Season’s Greetings and Happy New Year!!
The last 18 months have seen an up tick in M & A activity within the IT After Market Services Industry. Most notable transactions include but are not limited to:
- Pomeroy IT Solutions by Platinum Equity Holdings
- Anacomp Multivendor Services by Decision One (Cerberus Capital)
- National Support Services (NSS) by Global Equity Capital
- Halifax Corporation of Virginia by Global Equity Capital
- PTS Electronics by Moduslink Global Solutions (May 2008)
Despite this fact, the Aftermarket Services Industry is currently viewed as a buyer's market from the standpoint of acquisition opportunities. This is a valid description if one were to define aftermarket services as either Electronic Repair Services (Depot Repair), Hardware Break Fix, and Installation services . It is true that this segment of the market is faced with declining revenues and low profit margins.
The demand for Hardware Break Fix services will continue to decrease as the installed based of technology declines with the the adoption of SaaS, Cloud Computing, and Server Virtualization. Remote Support and Variable Workforce service models are putting hardware maintenance companies at further risk. As result, acquisition multiples for these types of companies are not very high, typically in the range of 3 to 5 times EBITDA. However, Break Fix companies provide a predictable and defensible income stream which makes them very attractive to Private Equity/Buy-Out Firms.
An entirely different market dynamic exists for Depot Repair companies who operate within the large and growing Reverse Logistics Services Industry. A Depot repair infrastructure is needed by any company who provides Warranty Services, Returns Management, Asset Recovery & IT Disposal, Liquidation, and/or Refurbishment. In addition, Depot Repair often pulls through additional profitable, service revenue streams such as inventory management, spare parts logistics, and warehousing services for RL providers. Furthermore, customers of RL Service Providers increasingly want to turn to a single point of contact for a bundled package of RL Services. Since ERS requires a significant investment in infrastructure, many 3rd Party Services Providers, particularly those who are publicly held, are looking at acquisitions as a strategy for aggressive growth. As such, it is possible that Depot Repair companies can realize a higher valuation multiples if positioned properly and targeted to strategic buyers within the RL Industry.
Regardless of which part of the Aftermarket Service Industry you reside in, it is still a good time for M & A among Depot Repair and Hardware Break Fix companies. For companies in the Break Fix market who lack an innovative growth strategy and/or access to capital, this maybe a good time to sell. Given the trends described above, we may even be seeing the top of the market for break fix companies. The time is also right for Depot Repair companies supporting the Reverse Logistics Market to sell as the trends suggest that only large, full service, and well capitalized service providers are those that will succeed in the future. The keys to successful M & A transactions is to "let the trend be your friend" and work with advisers & intermediaries who truly understand the market.