November 2013

Case Study: Is having a mergers and acquisition necessary for the Client?

NewGate Capital Partners improved Clients’ Net Present Value

 

NewGate represents a historically profitable firm with partners that have different goals and objectives. Our company was retained to test the waters by performing a confidential national (including Canada and parts of Europe) custom search campaign. After reaching out to over 800 qualified contacts from a pool of both Private Equity Groups (these groups have portfolio companies that look for add-ons) and Industry specific firms, we short-listed two prospect companies that submitted letters of interest. On the subjective side, our client likes these prospect companies and believes their respective cultures are quite compatible.

Now came the hardest and final issue: Is the Client better off without a Merger and does any transaction really make sense? This is a very difficult juncture in the life of any company owner when considering a sale/merger.

We compared a going forward (proforma) analysis of what our client’s business would hope to produce without any sale, mergers and acquisition. We then compared this estimate with a conservative contrasting study of the Client with the Merger by evaluating the total package of the transaction: cash at closing, annual compensation as a partner of the new firm, bonus package, stock dividends, and fringe benefits.

The evaluation was strictly based on economics and was not influenced by any of the intangible benefits derived from merging with a very established firm with significant working capital and business resources. Upon conclusion, the comparison study revealed with irrefutable evidence, that our Client’s Net Present Value (NPV) was better than the Client’s worth without the merger.

Summing it up:

With a Merger our Client’s financial worth is greater than the Client’s worth without an acquisition or a Merger. This current study shows that even in challenging economic times, there could be some worthwhile opportunities available.

  • We are finding that one important criterion in difficult times is for companies to find a way to get stronger. One method of doing so is by way of mergers that allow the firm greater access to the larger clients.
  • Though this case study was done a few years in 2009, when the general economic outlook was bleak for just about everyone, the concept remains relevant today. Mergers, when done properly and with the right partners, can be a powerful means to your ultimate end game as a business owner.

The key question to ask yourself isn’t whether or not it will be of financial benefit to proceed with a merger (important, but objective), but rather if it is aligned with your life-business goals. As a business owner, planning for your exit is something that needs to be done. As President Eisenhower deftly put it, “plans are useless, but planning is indispensable”.