How to Create Value

Create ValueCreating and building value for your business is something you want to bring up high on your agenda and at an early stage of your business! Of course, but…“generating value is one of the most misunderstood tools of innovation” according to Fast Company. Why is that?

It may well be that it’s a misunderstood concept. So how do we define value creation? It’s aiming towards best practices with an ongoing focus on continuous improvement. Value creation is something you create both internally and externally with a heavy focus on customer services.

We also know that value creation directly correlates with the future valuation of the business. The external customer focus, something that a business owner relates to, is a necessity if you want to stay ahead of competition. However, the internal focus on value creation often falls short to the detriment of the future worth of the business.
So again, why is not more emphasis put into this part of running a business? In my experience, the CEO or business owner fails to make the time to work ON the business on a regular basis. Another reason may be that you don’t have enough resources. Maybe you are managing instead of leading and are running out of time. We also know, just like with any new technology or software, you have to invest in an upfront effort to plan and execute accordingly.

Improving organizational capabilities is an intangible aspect of value building. This activity examines its own leadership, talent, accountability, collaboration, speed, mindset and learning. It is a longer term view and effort. Getting your ducks lined up just before you are ready to sell, or transfer the business over to a family member, is going to be too late. Value creation happens over time and is continuous.

Let me share with you a big picture view and a starting point in how to address the Value Creation Process and how you might begin the process. Start with these three disciplines:

1) Operational Excellence
a. Efficiency
b. Streamline Operations
c. Supply Chain Management

2) Product & Services Oriented Leadership
a. Strong marketing and innovation
b. Dynamic Markets
c. Development – short time to market with high margins

3) Customer Intimacy
a. Exceed Customer Expectations
b. Tailor Products and Services
c. Deliver on time

Behind the three disciplines listed above are no doubt a lot of details. Let’s assume you have focused on customer intimacy (3) and it is well established. If not, create a benchmark or baseline around these activities and set a new standard so you remain competitive. Operational excellence (1) and leadership (2) is where many companies fall short. The art of business is to balance both external and internal value creation over time. Planning these activities is essential and will take some time and effort, however, no matter what your next stage, it will be worth your while.

I know as the leader of your company your demands are never ending. Begin your process one step at a time, just like writing a book, one chapter at a time. Begin to identify the low hanging fruit, something that is easy to fix and has the most positive outcome. Maybe it is shortening the number of phone rings for a receptionists. Achievable with immediate positive outcome for you, the employees as well as the client or vendor.

If you find your business experiencing a reduction in market share or have difficulty in keeping costs down and you are doing it all alone, consider an outside group of advisors by establishing an Advisory Board. More private companies are investing in creating an Advisory Board to help them with their strategic intent and guidance in how to plan and implement such goals.

I hope this is a good first step for you. Begin to work ON the business for at least 4 hours a week (in one block) and things will begin to happen. I will be speaking on the topic of Value Creation and Finding the Right Advisors in the next two weeks. You are more than welcome to attend.

My next blog will be on “Working Horizontally” discussing how to aim for organizational collaboration addressing the first discipline of this blog. If you want to receive these blogs directly, please click the button on Follow Rudi’s Blog.

Make comments on this blog or get in touch with me with any ideas or thoughts. You can find my contact information on my new website Stop-Compromising.

With gratitude, Rudi

Get Ready for a Transaction

Advisory Team Integration Strategies | Part 2

XPXboston

Thursday,  June 23, 2016 | 7:15 AM – 9:00 AM

Babson College, Olin Hall,  Wellesley, MA

A 5-Step Integration Plan to Get Ready For a Transaction | Register Now!

Facilitated by Rudi Scheiber-Kurtz, Next Stage Solutions, Inc.

In the first part of this process, we discussed how to best engage our clients in the conversation of always thinking ahead and why that is vital for their future success. Participants are raving about the first event that took place in May, so don’t miss out on our second.  This unique format let’s you participate and share your expertise in the integration process as well as learn from others’ sitting at the table.

For the second part, we will focus on the integration piece to readiness. How can your client avoid pitfalls and roadblocks costing both time and money and more often lead to losing the deal? Having your ducks all lined up will pay off when your client begins the process of succession or selling. We will consider the 5-step integration plan and how to prepare best our clients.

Bring your ideas and suggestions and join us in this roundtable discussion among advisors highlighting collaboration, enhanced value and client leverage. Each advisor will hear other advisor’s perspectives on the whole business transition/transaction process, and be able to present their own. The goal is to help educate all of us and open our thinking on collaboration and the benefits it brings to us individually and to our clients.

Register Now!

Agenda
7:15 – 8:00 AM Full Breakfast & Networking
8:00 – 9:00 AM Program

Join CEOs of Harpoon, Jotul, CBIZ, Barrett Distribution, Atrion and more…

Summit

In two weeks from today we will be bursting at the seams! We have 14 speakers and lively discussions lined up.  An event not to be missed.  Join me today by signing up.

At the end of the event we will have a wine and beer tasting.  See what the folks at Harpoon had to say…

Harpoon

2015 XPX Summit: The Progression of Succession

Transition options you should be aware of now, to plan for your succession in the future.

Thursday, March 19th 2015 – 8:00 am – 4:25 pm  

followed by Networking Reception & Harpoon Beer Tasting

Register Now!

The Conference Center at Waltham Woods, Waltham, MA

Growth Strategy I

in collaboration with

ceo breakfast series on growth strategies for small to mid-cap ($10-$100MM)  companies in the MedTech industry

GROWTH STRATEGY I | ACQUISITIONS & PARTNERSHIPS

Wednesday, 14 January 2015

7:30am—9:30am | Constant Contact | 1601 Trapelo Road | Waltham

by personal invitation only | registration

Speakers:

Gordon Craig, CEO of Sterngold Dental LLC

which is the union of two strong companies with impressive dental histories: APM-Sterngold and ImplaMed. Sterngold was founded in 1897 as a fabricator of precious alloys, and is credited as among the first to produce consistently formulated and alloyed dental casting golds.

Jeffrey Thumm, CEO of Albright Technologies

which is your fastest source for long and short term implantable medical silicone molded parts. We specialize in manufacturing prototype and low volume production silicone components with a specific focus on quality, delivery, and innovation. With our extensive silicone molding experience we can help you with medical silicone material selection and design for manufacturability.

Discussion Leaders:

Dick O’Brien, Past President MDG, Principal, Nagog Hill Partners

Rudi Scheiber-Kurtz, CEO, Next Stage Sol
utions

Bob Weber, Managing Director, Next Stage Solutions

Who should Attend: CEOs, Business Owners, CFOs, COOs and Board Members

In this first of a 3-part Breakfast Series we will be addressing challenges and opportunities of mid-market MedTech companies to achieve profit-able growth.

The discussions will include how and why to make an acquisition or enter a partnership agreement. The topic will be approached from different points of view provided by the experts and will look at the “Business of doing Business”. This holistic approach will include the Technical as well as the Human Capital side in the dialogue.

Growth Strategy  II | Product & Market Diversification | April 16

Growth Strategy III | Scalability Issues | June 10

For more information: Bob Weber 617-449-7728 | Next Stage Solutions, Inc

67 South Bedford Street, Suite 400 West, Burlington, MA 01803

NEXT STAGE SOLUTIONS, INC. | 617- 449-7728

Successful M&A Integrations

Corporations continuously Underestimate Post-Merger Integration (PMI) Costs, yet when an effort is made to balance time, budget and team with the appropriate planning, PMIs can be a success!

Based on our experience, the three most overlooked areas and those which executives say they would approach differently in the next M&A event, are:

1. Under budgeting the Integration Process

2. Lack of Communications

3. Lack of back office focus

Listen to our short video for this month’s RudiTuesday for steps to take and how to properly plan your next acquisition.

The case below shows that by identifying the predictable risks at the beginning stage of a deal, you can realize the maximum VALUE of the merger.

Case Study: Addison Wesley Longman – HarperCollins – 1996

submitted by Derek Smith, Managing Director of Next Stage Solutions, Inc

In early 1996, Addison Wesley Longman, a subsidiary of Pearson Plc and $650 million publisher of text books and related materials for the K-12 and college markets purchased HarperCollins’ business which had annual revenues of approximately $300 million. In announcing the acquisition Pearson Plc advised the financial markets that it would complete the integration of the two companies by January 1, 1997. Having disappointed its shareholders and analysts with a previous foray into electronic publishing, Pearson and Addison Wesley Longman were therefore under extreme pressure to complete the integration successfully and on time. Below are the steps they took to complete the task on time despite a three week cessation while the parties re-negotiated a post-closing adjustment.

1. Formation of Task Forces Prior to Closing of the Transaction and Identification of Integration Leader

Addison Wesley Longman and HarperCollins created 4 task forces prior to closing of the transaction to discuss (1) publishing properties that would survive the acquisition; (2) salary and benefit plans after the acquisition; (3) location of distribution facilities; and (4) the back office systems to support the combined entities. Each group understood that they could discuss their goals but could not reach any decisions until after closing of the transaction. Each group created a project plan to serve as the road map during the process. The CEO of Addison Wesley Longman was named Integration Leader and each task force had an AWL leader too.

2. Publication of an Integration Newsletter

The two companies published an Integration newsletter beginning the day after the closing of the transaction and throughout the integration period. It kept employees informed of the process and the decisions being made by the task forces. In all cases, the publication of decisions was made after advising those impacted of them (employee terminations, employees and their benefit plans, cancellation of author contracts, closing of facilities, etc.).

3. Regular Internal Updates on Completion of Tasks

Each of the four task forces met at least bi-weekly to review the status of their project plans. The back office systems group met weekly and AWL engaged an integration specialist from Deloitte & Touche to monitor the process and provide assistance when items slipped. Peer pressure played a significant role in completing the workplans as no one wanted to be identified as the culprit for failure.

4. Regular External Updates on Completion of Tasks

In addition to the regular internal updates, the AWL executives met with Pearson Plc executives to update them on the status of the integration and to identify any looming challenges that would impact completion of the projects by January 1, 1997.

5. Open Dialogue

During the fall of 1996 AWL identified that a significant post-closing adjustment was required. Before approaching HarperCollins, the AWL and Pearson executives discussed the implication of introducing a challenge to the valuation on the integration schedule. Ultimately the executives agreed that the materiality of the adjustment exceeded the value of completing the integration on time. Two executives at Pearson Plc and AWL had a longstanding relationship with a senior executive at News Corp, the corporate parent of HarperCollins, and they were charged with quickly resolving the dispute. They met with their colleague, identified the issue, and together determined a fair solution for both parties. During this three week period, there were no integration conversations between the two companies.

Outcome

On January 2, 1997 the integration was completed.

Next Stage Solution’s managing directors have been involved in acquisition integration projects. Let us help you with your integration plan and make it a SUCCESS!  Call us today at 617-449-7728

Are You Maximizing Your Business Value before Selling?

Are you Maximizing your Business Value before Selling?

By Rudi Scheiber-Kurtz, CEO of Next Stage Solutions, Inc

If you ask any professional business or M&A advisor “What is the optimal time to maximize the value for my business before selling?” The most common answer is – 24 MONTHS.

In reality, it turns out to be more like 24 WEEKS as the owner is tired, anxious, and ready to make the change.  One of my investment banker friends recently told me that never before has it taken so long to close a deal – up to 16 MONTHS with issues from both the sell and buy side.  There is now more cash available than ever before and the time may be ideal for you. However, maximizing the value of your business requires proper planning and sound execution.

Are business owners willing to leave money on the table?  Hiring an internal advisor to increase your value by $2-5Million seems to be a no brainer.  The only caveat is that value creation does have a time factor.  This investment will be well worth your time and money.  Let me list a few things to consider:

  • Streamline and document your business processes and systems so your employees have a guide and perform better
  • Increase your utilization rate from 50-75% to optimally use your current ERP system
  • Eliminate manual input into information systems wherever possible
  • Understand your margins by product and services.  It is the only way to eliminate waste and non-profitable areas that drain your resources
  • Have a 2 year customer satisfaction and retention strategy plan to address issues with any problematic customers
  • Re-organize your executive team for optimal advantage to a buyer
  • Start with  a Benchmark Assessment that compares your business to Best Practices to minimize your intrinsic risks
  • The GAP Analyses from your assessment will indicate where to make immediate improvements and where improvements should be made over the next 24 months

It is certainly a daunting task to prepare a business for sale; yet not properly preparing for it would be a shame after all the years you spent building a successful Company. Every one of the above steps will add value to your business, and these are only a sample. The upside of being prepared is that you have more negotiating power with a potential buyer and the power to walk away from the deal.

Start value building today. Consider a benchmark assessment that will give you a baseline and leads you towards transformation initiatives. We call them EBITDA (earnings before tax, depreciation, and amortization) Transformations.  In a relatively short time you can improve both top and bottom line for your business.

Take care of your risks and areas of weakness today rather than have a buyer use them to decrease your business value or walk away from the deal.

Consider:

  • Develop a Roadmap using a GPS
  • Build it for 24 months addressing and fixing all the potholes
  • Have a faster drive to selling your business

Excellent resources are available in guiding your through this process.  However, the best investment you will make is hiring the right advisors to support you through this process.  Joe Marrow of Morse, Barnes-Brown Pendelton lists four key points to consider in his article “Planning for a Liquidity Event — Choosing the Correct Exit Strategy”:

  1. Focus on Execution
  2. Be Bought, Not Sold
  3. Surround Yourself with Excellent Advisors
  4. Choose the Correct Exit Strategy

What is a potential buyer looking for?

  • EBITDA compared to annual sales
  • Customer base and profitability within products/segments
  • Processes and policies in place
  • Systems integration and optimization
  • Inter-departmental emphasis in problem solving
  • Focus on Customer acquisition and value add
  • Growth opportunity in the future market place

Is it the right time?  Is it a sellers or buyers market?  According to Jeff Mortimer’s investment statistics, it is a good time to sell and buyJeff Mortimer, Director of Investment Strategy with BNY Mellon, has collected impressive data including market confidence factors, common market assumptions and the seasonality and cyclical nature of the market in any given economy over the past twenty years.

Timing is favorable also in terms of cost of capital given the low interest rates.  Quantitative Easing will be most likely eliminated and we will start to see an uptick in interest rates.

The window is NOW if you are contemplating selling your business. Start today and give yourself the time you need to eliminate your weaknesses and risks.

And one more thing!  Doing it alone is not a good option, so finding the right advisor will be one of the most important investments you will make.

NSS has participated in over 50 M&A activities, many on the buy side. Our advisors work with you inside the business, we walk the floors and roll up our sleeves.  We use our own comprehensive benchmark assessment tool to give you a baseline and gap analysis, then start building value and minimize your risks. Our GPS comes free!!

What Business Owners want to know about the RBC Ruling

What should Business Owners learn from the Ruling against RBC Capital Markets?

by Laura Kevghas, Partner at Mirus Capital Advisors LLC |  kevghas@merger.com

Background:  RBC Capital Markets LLC, the investment banking arm of Royal Bank of Canada, was representing Rural/Metro Corp. in the sale of their business.  Another team at the bank was trying to get the financing work from one of the buyers, Warburg Pincus LLC, a private equity firm.  According to a recent article in the Wall St. Journal, a senior banker at RBC was in touch with both teams, and didn’t tell Rural/Metro that the bank was trying to get that business from Warburg.  Essentially, RBC was trying to get paid from both sides of the deal.  The former shareholders of Rural/Metro took RBC to court, claiming that they didn’t receive fair value for their shares.  On Friday, March 9th, Vice Chancellor J. Travis Laster ruled in their favor.

So what can you learn from this?

First, pay attention to valuation metrics.  In late 2010, when RBC was pushing to grow their investment banking business, and they initially pitched the company to serve as their advisor, they “relied on two recent deals, signed at 9.5 times and 9.4 times the targets’ earnings before interest, taxes, depreciation and amortization (“EBITDA”), to show what Rural/Metro might be worth.”  But on the final weekend before the deal was to close, the RBC team presented a revised valuation range to the company’s Board of $8.19 and $16.71, which made Warburg’s offer of $17.25 per share look like a great offer.  But the new valuation was lower than the valuation RBC used to pitch the deal, because now it included a deal from 2004 that was at struck at a much lower multiple – about 6.3 times EBITDA.

When an investment banker is pitching you to get your sell-side M&A business, pay careful attention to how they calculated the valuation range they present to you.  Are the transactions relevant? Are they recent?  Which transactions did they exclude from their analysis and why?  RBC is not the first investment bank to pitch a company using only the most favorable valuation metrics.  It’s critical that as the business owner, you be aware that valuation is an art, not a science, and that your results may be different.  Don’t select an investment bank just because their anticipated valuation is the highest.  Getting the highest price for your company is the result of a competitive process, not dependent on historical multiples.

Second, look for conflicts of interest.  In this situation, the judge determined that RBC “failed to disclose the relevant information to further its own opportunity to close a deal, get paid its contingent fee, and receive additional and far greater fees for buy-side financing work.”   In this situation, lawsuits were filed against three parties:  RBC for failing to disclose its conflict of interest adequately; Moelis & Co., a second advisor to Rural/Metro to settle allegations related to its fairness opinion; and Rural/Metro’s Board, which was accused of selling the company for too low a price.

A question for the readers:  do you believe that an investment banker can be free of a conflict of interest if they are getting fees from both sides of transaction?  What if they’re helping both sides get the deal financed and closed, but only get fees from one side?  Share your opinion in the comments.

Laura Kevghas, Partner at Mirus Capital Advisors, has over 25 years of experience in mergers and acquisitions, including both investment banking and corporate development. Laura was a founding employee at Mirus and spent nine years working on new business development, as well as creating offering memoranda and negotiating transactions for clients. She was directly involved in the successful sale of more than a dozen client companies in the software, food and beverage and technology sectors. Laura rejoined Mirus Capital Advisors in 2006, and became a Partner in 2010. She focuses her practice on M&A for companies in the business services and technology sectors, and also enjoys working with industrial companies.