Mergers and Acquisitions

When was the last time you valued your Company? Do you know how profitable your Company is, or how profitable it could be?

If you are thinking about selling your Business it is important to have a justifiable asking price for the current marketplace. Industry statistics indicate an overpriced business is the number one reason a business fails to sell. If you are considering buying a business it is important to review a valuation completed by a professional to ensure you are making the right decision. You wouldn’t overpay for a new home would you? Valuations are often required when financing the acquisition through lenders.

Business Valuations are also utilized during certain legal situations such as: divorce cases, estate planning, business partner disputes, and other unforeseen circumstances. Succession planning, while seens as a preventive method, is a lot more strategic than a reactive method. If business planning is done correctly the business and its’ stakeholders can avoid tax penalties, unnecessary tax adjustments, strategic gifting methods, and much more. Of course, we can help you plan for the future. and we would love to hear from you. Email one of our professionals today!

What is a mergers or acquisition (M&A)?

M&As are both an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture.

The distinction between a merger and an acquisition has become increasingly blurred in various respects (particularly in terms of the ultimate economic outcome), although it has not completely disappeared in all situations. From a legal point of view, a merger is a legal consolidation of two companies into one entity, whereas an acquisition occurs when one company takes over another and completely establishes itself as the new owner. Either structure can result in the economic and financial consolidation of the two entities.

Needed: Business Valuation

You may be buying or selling a/your business for a variety of reasons, perhaps you need additional funding for your operations, maybe you are looking into retirement, there could be new opportunities in diversifying your existing products and services, or perhaps you are strategically eliminating some competition. There is really an endless list of reasons as to why one would wish to buy and/or sell his or her Company. No matter what the reasoning may be, be sure you are not overpaying for an overvalued business, or accepting a value based on a severely undervalued business.

While in the ideal case the current business owner will cooperate, sharing the financials, the tax returns, the history, the proprietary information, and both the good, bad, & ugly concerning the company in play. However, we have had more than our fair share of stories where current business owners have not shared the relied upon accurate information; remember, the numbers don’t lie. While these cases may seem good at the surface, an expert should be brought in to show the true fair market value of the business in question.

If you are interested in purchasing a small company, call an expert right away if you experience any of these Red Flags:

• The Company in question is not sharing any financial information.
• The Company in question is not sharing any tax information.
• The Company in question is not sharing any shareholder information.

• The Company in question is not sharing any distribution information.
• The Company in question is sharing information, but the information has clearly been created in an excel file (easily manipulatable).
• The Company in question is only showing you ONE years worth of financial information.
• Current owners are placing a high value on future potential earnings .

Merger & Acquisition Disasters: Know your Value

New York Central and Pennsylvania Railroad

1968, the New York Central and Pennsylvania railroads merged to form Penn Central, which became the sixth largest corporation in America. Just two years later, the company shocked Wall Street by filing for bankruptcy protection, making it the largest corporate bankruptcy in American history at the time.

Quaker Oats Company and Snapple Beverage Company

Quaker Oats successfully managed the widely popular Gatorade drink and thought it could do the same with Snapple. In 1994, despite warnings. the company acquired Snapple for a purchase price of $1.7 billion. In just 27 months, Quaker Oats sold Snapple to a holding company for a mere $300 million, or a loss of $1.6 million for each day that the company owned Snapple.

Daimler Benz and Chrysler

1998, Mercedes-Benz manufacturer Daimler Benz merged with US auto maker Chrysler to create Daimler Chrysler for $37 billion. The motives behind the sale? create a transAtlantic car that would dominate the market place. However, in 2007, Daimler Benz sold Chrysler to Cerberus Capital Management for $7 billion. A $30 billion dollar loss in just over ten years.

Mattel and The Learning Company

In 1999, Mattel picked up the basically bankrupt The Learning Company, hoping to diversify its toy offerings to parents. Unfortunately for Mattel, less than one year after the purchase The Learning Company reported a $206 million loss. Also in 2000, Mattel was losing an estimated $1.5 million every day, with a falling stock price. Also in 2000, The Learning Company was sold. but the damage would still cost Mattel, forcing the company lay off 10 percent of its employees.

AOL and Time Warner

In 2001 Time Warner consolidated with American Online (AOL), the major Internet and email provider of the people in the 90’s. The cost? $165 billion. Since the merger, Time Warners stock dropped by 70% in by 2002, with a Company value of $100 million. In May of 2002, the CEO of Time Warner, Jeff Bewkes, announced that the marriage of AOL and Time Warner was dissolved.