How to Finance a Management Buyout

Today, thousands of employees despite long working hours, stress and pressures constantly dream of becoming a boss of their own and day by day most of them are converting it into reality also. The management buy-out attraction is that business owners have an option of buying a business they know inside out rather than setting up from scratch.  

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An MBO (Management Buyout) is also preferred way out to the problem of management succession in private or publicly owned business. Although trade sale is one the options but a profitable business is run by excellent management. This may create a better opportunity for the management team that exists to raise funds for purchasing the business. Stability of good management decreases the risk of the buyer and the chance within that business compels the management team to fight with trade buyers. In fact, an MBO is considered to be the best way for managers to be the owner of their business but the process is quite complex in the transaction. Often it has been observed that the process is severely demanding and simultaneously managers also need to run their business.

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If for the first time, any management team is considering a buyout then they should follow these initial steps:

·         Organize main transaction objectives on a precise briefing paper.

·         Get hold of preliminary, self-determining advice on the project feasibility.

·         Be practical in the business valuation.

·         Think about for how long and how much finance is needed.

·         Consider monetary priorities and explore all available financing options.

·         Always keep in mind that the business plan can stand up to the scrutiny of a potential funder.

·         Take on due diligence to measure areas of financial and commercial risk.

·         While negotiating, be conscious with the vendor’s objectives.

·         Keep calm and have the patient as at some stages, the transaction may encounter problems.

·         Don’t spend time on the business deal at the cost of existing commitments.

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      Funding Alternatives

Most of the conventional financing options used by smaller organizations for covering operational expenditure are not appropriate for financing an MBO. Overdrafts are inappropriate; generally they are temporary funding arrangements and long term loans are only an option. If a business owner is unable to repay the money which he wants to raise for the shorter duration, then long-term funding source may be the answer. Also, it has been observed that few individuals use personal equity for financing an MBO. The key benefit is that a person is not indebted to other business. However, this might be risky and in the case of business, failure can leave the person critically out of pocket and in the worst-case situation the person will be bankrupt.

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Most commonly, the funding source related with management buy-outs is venture capital. Traditionally, as company owners have sought financing sources for their business all the way through bank loans or overdrafts while considering an MBO, management teams may normally look for the venture capitalist. However, venture capitalists will generally request for a seat on the board and a considerable stake in the business and most entrepreneurs dislike the plan of handing a part of their company to an angel investor. Moreover, debtor finance permits management buyout teams to borrow against the sum owed by customers. Also, it can fill the gap among what the bank will lend and what management can afford and help persons to avoid investing larger amounts of private equity. With the accurate financial support and skilled advice, an MBO can be very satisfying and proffer a lifetime opportunity for taking ownership of known business and seeing it thriving and succeeding.

So is your business suffering from Funding problems? ALCOR MNA is experienced in finding the best Investors for companies and small businesses. We provide a broad spectrum of comprehensive fundraising solutions to cater the capital requirements of different companies across industries.

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For additional information on how we can help you finance your Company, Complete the Enquiry form. One of our representatives will contact you within one business day.

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What Investors Look for in a Business before Investing

If you’re thinking of bringing in new investors, they’ll want to know how much your business could increase in value if they buy shares. To work this out, they’ll need to know how much their investment will increase your sales and profitability. Just provide potential investors and lenders with a financial model presenting how the business will use the more money to boost profitability and sales. Also, how initial prices and augmented ongoing prices will affect the cash flow. Usually, sales increase only after taking on additional expenditure like employing more staff, putting in huge orders for raw materials or moving to bigger premises. So, there is a need to take all these spendings in control while doing financial planning.

Often, growing your business means it needs more investment, whether through improved profitability or increased sales. It can be done by taking out a loan, putting previous profits back into the business, put up shares for sale to outside investors as well as searching for other financing sources including government-backed schemes.

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Nowadays, a landscape of business financing is changing drastically as more options are available to business owners which were very limited few years back. Almost half of businesses are seeking to finance from several no. of places like owner investments, non-bank sources etc.  Most of the businesses face challenges while taking advantage of growth opportunities and also at the time of gaining access to capital. So it’s really important that they seek the right way of financing according to their needs. Recently, it has been seen that businesses are focusing on “alternative” lending option, but the question is how do they know that is this the right option to pursue?

Answer to this question is that businesses should seek to finance when they face an unexpected challenge or opportunity because at that time there is a need for quick capital. It has been seen that most of the time; businesses don’t have enough cash on reserve or any other source of credit that will help them in withdrawing required funds during these types of opportunities. These alternative fund lending sources help in filling that void by giving access, speed availability to business owners.  

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To verify what kind of financing makes sense for business as well as situation, one must consider the exact need of the funds and the timing. Alternative fund lending sources help in providing repayment flexibility and offering creative options that fluctuate along with sales volume. It's also in need to understand the rates that are associated with while choosing another source of fund lender. This type of funding is often costly than old-fashioned bank loan as these companies act as borrow capital, liaisons from several other financial institutions which guarantee the payment. Basically, when the client defaults, they absorb the risk as well as the losses.

Angel investors find interest in the next generation ideas and willingly fund startup ideas they find worth. They usually focus on technology startups. Although the process of receiving funds from an angel investor might be straightforward, they always expect to see complete business plan along with financial projections. This funding option is perfect for technology-focused businesses, but still, need guidance in product creation and marketing. Apart from providing money, angel investors also give guidance to that business owner looking for more experienced partners. They might also anticipate a certain degree of influence on how the company is running.

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Moreover, leaders can invest more money per deal, reaching certain startups that might have higher minimum commitments. They also get paid a carry in return for their leadership, following and help provided to the startup. Backers have access to deal flow and startups they wouldn’t have otherwise. Plus, they also get to learn from the very best investors in the industry. Startups get more capital than usual and don’t have to deal with numerous and different investors. The leader takes care of the fundraising process and they’re responsible for managing its relationship with his or her backers.

So is your business suffering from Funding problems? ALCOR MNA is experienced in finding the best Investors for companies and small businesses. We provide a broad spectrum of comprehensive fundraising solutions to cater the capital requirements of different companies across industries.

Are you looking for a Financing Options?

For additional information on how we can help you finance your Company, Complete the Enquiry form. One of our representatives will contact you within one business day.

http://www.alcormna.com

Mergers and Acquisitions :: Door to Global Opportunities

Mergers and acquisitions (M&A) can accelerate a company's growth probably more than most other means within its arsenal. This is particularly true of larger deals. Mergers and Acquisitions have one common goal that they are all meant to create a synergy that makes the value of the combined companies greater than the sum of the two parts. The success of a merger or acquisition depends on whether this synergy is achieved. To effectively identify, value and integrate smaller strategic targets, companies need to:

1) Develop an M&A vision that aligns with the dynamics of their industry in the face of disruption and convergence.

2) Adapt the criteria and decision frameworks for evaluating their portfolio and acquisition targets to fully understand a deal’s impact on their portfolio - and how it will enable them to redefine their business model.

3) Accelerate their overall M&A decision making to move at the speed of the market and avoid missing out on key opportunities to acquire vital capabilities.

Mergers and Acquisitions (M&A) are a great way to grow your business without having to wait years for your marketing and sales strategy to pay off. When you need immediate growth for your business, this can be the best option for you that provides the instant result. The primary goal of a company interested in a merger or acquisition is to secure an opportunity that will either achieve the objective of growth or provide an area of expansion that will add to the product/service line in a market that is currently not served by the company. The motivation behind this pursuit is that the resulting combination of products, key people, and existing pipeline will allow the business to operate in new markets and offer new options to their existing market.

Pursuing mergers and acquisitions does not come without challenges. Combining two business results in many new issues that did not actually exist before, this includes: operating a company with a presence in multiple markets, a larger and more diverse customer base, a more complex product and services portfolio, and a high level of people and operational complexity. Another issue is the cost reduction goals can conflict with revenue growth opportunities.

The challenges of making a merger and acquisition work illustrate why deals intended specifically to enable growth fail to yield the desired growth objective. Although mergers and acquisitions can be a real path to growth, the decision to make the deal is only the first of many decisions that will affect its ability to be successful. This makes you wonder if a merger and acquisition will work for your business. Therefore, you want to understand your odds of succeeding and if the challenges are worth the effort.

The goal driving many business acquisitions involve synergies. When companies are choosing to merge together, the desire is for the whole to be greater than its individual parts.  The synergies involving marketing and economies of scale are clear benefits for why a merger and acquisition should be an option for growth. Also, there are typically opportunities involving production, volume discounts in purchasing, and reduced overhead expenses.

If you are in the position to acquire a business, you may want to pursue this growth strategy. You know that the business environment presents challenging factors, such as competition and acquiring market share. Therefore, acquiring your competition and gaining their markets and customers will put your business in the position to reap significant rewards. You will find that they will start investing more when you are able to show how this acquisition will immediately pay off, instead of taking a time to produce results. This is why you should seriously consider acquiring a business if you want your business to experience growth.

How to Raise Seed Capital and Grow Your Business

An entrepreneur’s need for capital at the concept stage is predominantly to develop the product, to fund marketing and advertising and to develop a sales force. The entrepreneur must understand deeply “why the capital is needed” and “how much is needed”. If the entrepreneur does not have a well-thought plan for what the capital will be used for and demonstrate how it will create new wealth, capital will not flow. The estimation on how much is needed is equally important as a source would want to know the maximum amount he is going to risk and entrepreneur will not come back asking for more infusion to rescue initial investment before a significant value is added to the investment.

Just as an entrepreneur as an individual when investing in an instrument will seek balance on the equation risk—tolerance, reward-demands, size limitations and time- horizon preference, an entrepreneur should be ready to build this equation for the sources of capital with empathy. Those entrepreneurs who show this empathy land funding faster than others.

Raising capital at concept stage is difficult because the entrepreneur seeking it and source providing it must fit together like a lock and a key. If they do not then while a lot of talks will happen, funds will not flow.  The four key parameters for lock and a key to fit together are Risk-Reward-Size-Time.

Risk

It does not matter how nice the entrepreneur appears, presents, and provides reasons for her deep passion or feelings for a product, investors need to feel confident about the person they are entrusting money with through factual data points such as (a) previous entrepreneurial success stories if any. (b) Prior, significant and relevant work experience in similar product or market. (c) Experiential things done to identify understandable product/service need, reading reports do not count. (d) Commensurate and tested business and marketing plan and (e) clarity of positioning in the marketplace. Even when it is said that friends and angels invest on a person for honesty, drive and straightforwardness they rarely will be able to overcome risk perception without data points above.

Rewards

 Investors need a clear mechanism to estimate rewards and entrepreneur must provide these estimates by way of the total size of market, growth rate post product development stage, projected income and cash flow, likely multiplier which can be used to value the company and companies which might be interested in acquiring the company. All this must be thought by the entrepreneur prior to having a meeting with an investor as no investor wishes to be invested with the company perpetually, as least at the time of making the investment.  Post this investor should be suggested the mechanism harvest the reward through interest or dividends on convertible bonds or preferred stocks as the case may be.

Size

The size of the investment (interlinked with a number of investors) is another factor to find a fit between entrepreneur and the source.  Most sources such as friends and family, angels etc. are limited by capacity or willingness on the size of investment they can take on. Awareness of capacity helps knowing the number of investors entrepreneur needs to approach.

Time

As the entrepreneur is busy convincing prospective sources on more fundamental aspects of attracting money; she should never forget and proactively answer the dimension of Time.  The time to exit or make a harvest out of the company is an important dimension for every source including entrepreneur herself.  For sources, the time to exit should be treated as the duration for which money is at risk. The entrepreneur should be able to demonstrate the major milestones when such exists can be made possible to all sources including friends and family and angels while many times they may not ask for it.

Moreover, the surest way to raise capital is to make a risk-reward- size profile of sources (and their interest areas for investment) and match with what you can deliver.

Looking for Investors: Angels & Venture Capitalists

If you are a concept stage entrepreneur, who has evaluated and acted upon all self-financing options as advised above, the only investor with a high tolerance for risk and willingness to consider funding you are an Angel.  Angels are either professional who have built and sold companies or they have inherited wealth. Typically the first kind of Angels, provide time, advice and talent along with Money to the entrepreneur however without diluting their expectation of return over a fixed time period. (An emerging sect of angels is well-paid and ESOP awarded executives in top corporations who could also be former professional colleagues/ friends. You may have to decide whether to approach them as friends & family or as angel depending on distance).

Angels are hard to find. An entrepreneur should always look at friends, business acquaintances, community leaders and successful entrepreneurs in the immediate business area. Other places to look for are certain industry bodies (as per your area of startup), venture fairs,  technology showcases, incubation centers, investor- entrepreneur matching services, angel funds and networks. Be convinced that to land right Angel requires iterative legwork and you are always ready to provide elevator pitch, short pitch, and long-format formal pitch anytime anywhere with or without presentation aids.

Things Investors would like to see before Investing In Startups

It is no surprise that in the current business climate of low or even sub-zero interest rates and arguably overpriced equity markets, investors are on the hunt for alternative avenues of investment. Injecting seed funding into promising young startups is one such investment that has recently grown to be very popular. This form of investment is extremely rewarding but naturally, comes with significant risks.

With that in mind, it is necessary to analyze startups when considering whether or not to invest. The importance of standard analysis using financial ratios and metrics (which are reviewed here and here) is widely acknowledged. However, since these businesses are either unlikely to have much historical financial data available or might possess highly skewed financials (due to them still being in the early stage), this article will instead explore five essential non-financial aspects of a young startup that are equally as, if not more, important to your investment decision.

If you are a potential angel investor, there are many opportunities worth exploring in order to fulfill some of this capital demand, as long as you take some considerations and precautions before embarking on your journey. Before you invest in a startup, make sure you prepare to cope with these perks – and quirks of an entrepreneurial ecosystem:

Do Your Market Research

It seems obvious, but founders come to me with ideas that seem so farfetched it’s hard to believe that they thought the product or service would work in the first place. You must know the issues, the problems being addressed, the players and the customer base. Going into a sector and niche that is oversaturated just makes it harder for your company to stand out. Finding a niche that no one cares about is equally fraught with an uncertainty of success.

 Is Your Company a Game Changer?

If your business doesn’t change the way people do things or see the world, you are not going to make waves and get noticed by customers or the media. You want media attention! Sure, you can make widgets until the cows come home, but having a real impact on the world is what dreams are made of.

Understanding How to Run Your Business

If you think running a startup with you, a co-founder and a couple of staff is easy, see what happens after your first seed round. If you are not comfortable managing the business, things will begin to fall apart. It won’t hurt to take on a couple of online courses to tune-up your general management skills. As you get more capital, consider replacing parts of your jack-of-all-trades CEO role with professionals. Investors want to know you can take care of their investment and have general business skills.

Quality of Character

In some respects, this should be the first consideration when we are looking to invest in a company - the quality of the person behind the company. Reputations are built on trust and easily taken away. Investors want to know that as the company grows the sincerity, common sense, trustfulness of the founder will come across to both future investors and customers. I worked with a company whose founder had a bit of a ‘shady’ past. There is nothing serious, but enough to have people whisper at investor events. Needless to say, his company didn’t remain a client for long.

It’s Not Just About the Product!

If you haven’t figured it out yet, the product is just a piece of the puzzle, Of course, it has to be great, but the three most important reasons to invest in your startup and not the other guy is the differentiation of your business through the quality of its people, the global market reach or distribution you can attain and the product. Without all three, finding investment is difficult.

What Skill Gives You, the Founder, the Edge?

I’ve been in presentations where the founder was so sincere and passionate that she came across like Mother Teresa. The reverse, of course, has been true as well. Investors want to know you have some special skill that they can be reassured that your startup can make it past the first year.

Stay Focused

Seems like an easy request, but when you’re trying to do press releases, managing programmers and finding capital, it’s not that easy to focus on building a company. How you deal with the distractions and keep yourself focused on getting to the top will be a clear message to any investor. This also goes back to management. If you are working above your skill grade, find someone to help, be it a new employee or a mentor. I ‘shadowed’ a CEO for months because he constantly lost his focus and needed not to show it in front of his co-founders and investors. To keep him on track, two heads were a lot better than one, and he managed to get to the liquidity event successfully.

Bootstrapping

Investors love to see founders pull resources out of thin air and manage what they have with lean determination. This puts the control of the company firmly in the hands of the founder. Having all the control and running the company smoothly as well as lean shows the investor you have sound judgment and worthy of investment.

Be an Adept Communicator

There’s nothing worse to have two behind the scene nerds try to convince an investor to put money into your venture. You can’t afford to have poor communication cause a stumble on the story to an investor. 

Best Marketing Practices in Post-Merger Integrations

There is considerable evidence that many M&As fail. Estimated failure rates go usually from 60 to 80 per cent. Despite the increased attention on post-merger integration (PMI), dynamics of how two firms' marketing strategies are integrated have been largely neglected. Considering that M&A activity is predicted to increase as more CEOs use M&A strategies to grow/exit their business, also marketing and communications for post-acquisitions are expected to gain proper focus and attention.

Nevertheless, the lack of attention given today to marketing issues is interestingly in contrast with the findings of merger failures’ analysis, which indicate a lack of proper communication and customer retention activities among the major reasons for such failures. Customers, in fact, tend to stop investments and put their relationships on hold, until a clear message is delivered by the firms.

Competitors often take advantage of the situation reinforcing the negative perception that clients have about the two merging firms; sometimes they take it as an opportunity to steal customers in whichever way they can. To make the situation even more challenging, managerial energy during post acquisitions is often used in internal tasks neglecting customer and marketing-related issues; PMIs are in fact often internally oriented. A possible consequence is that decisions are made predominantly on the basis of internal criteria such as organization, processes, structure. Hopefully, integration will be driven soon by customer-related considerations creating additional customer value rather than reducing the cost of serving them. While marketing will gain the right attention, here is a series of points which I would suggest companies look at before planning any kind of post-mergers integrations.

Communication with All Stakeholders

Mergers involve uncertainty and risk. Communication is essential to focus the organization and to help mitigate these risks. Customers are the first target: they often take their business elsewhere just because they receive inadequate information. A proper customer communication plan should be in place at least a couple of months before the formal acquisition.

But they shouldn't be the only communication target. There is a list of other stakeholders to think about. It’s important to consider which of these are important to the business and to make sure they are communicated with appropriately. Once key issues for each stakeholder group have been identified, the company will be ready to communicate using proper channels.

Internal Communications

Internal communication is the second area of focus. A message sent is not necessarily a message received. People should be sent the integration communication and messages time and time again. Employees need to understand what the firms are trying to do, what the vision is and what they are required to do. Telling people what is going on, what will happen and what we want and expect from them is crucial. With more informal, face-to-face communication in and around the merger the formal material becomes more credible and useful to employees. Even at the risk of over-communicating, it's crucial to create emotional connections between the company and its constituents.

Day-1 and Day-100 Plans

Planning, planning, planning - full integrated plans of intended Marcom activity, at different stages of the acquisition (e.g. 'day-1' and 'day-100') with costs and benefits, together with deadlines, associated actions, dependencies, and risks are a must-do for all integration teams.

Centralized Communication Process

Centralizing the communication process is the key to guarantee consistency around the globe. The central marketing team should release messaging and assets to the countries time before the launch dates, to make sure proper translation and localization of all assets were done in time

Branding Strategy

Individual branding strategy should be released for each of the acquired brands. A 'one size fits all' approach is not going to work and might create dangerous situations with clients and employees of the acquired firm.