Rollups

Rollups: During a roll up, several small companies are combined to create one larger corporation. A roll up goes well beyond the level of commitment involved with strategic alliances and is more like a multi-company merger. The hope is that participation in a roll up will bring the participating companies the chance to skip past the growing pains associated with “organic growth” and bring the promise of cost savings associated with large volume purchases.

Alternate Between Divergent and Convergent Thinking When Negotiating Deals

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Divergent ThinkingYou have been considering your options, running scenarios, and have come up with what you think is a great idea. But your idea can’t possibly be in another person’s budget or plan. You just came up with it. Both parties usually don’t think of a possible deal or new working relationship at the same time. It’s human nature (and more so these days) for a person to be inclined to say “no” if a deal wasn’t his/her idea. So, the first step in deal negotiation is to help other people open up, get caught up, and not feel rushed. If you push to sell your conclusion, you are very likely to prompt a negative response.

It can help to alternate between divergent and convergent thinking when discussing new working relationships or deals. Once you think you have discovered a good option take a step back and start your discussion with the other party with the premise that there could well be ways that the two of you could work together that would be mutually beneficial. That way, the first discussion is exploratory and expansive (divergent). Together, you generate multiple ideas and approaches.

The operative word here is “together.”

The second time you meet, you can shrink the options down to 3-4 that have merit, which is convergent thinking. Together, you can divide up the “homework” to be done. One of you may research the joint venture option. The other may spell out how money would flow if it should be a strategic alliance instead. Or, one of you might clarify how a partnership might work while the other thinks through how a loan could be executed without a partnership involved.

The operative word here again is “together.”

Deals often fall apart in the early stages because one person was too focused on a single conclusion or only one side is doing due diligence. Deals also fall apart when one participant reveals worries or focuses on possible problems way too early in the process.

If there is consensus on a possible mutually beneficial approach, the third meeting can be dedicated to how to prevent problems, minimize barriers to success, address worries, etc. Aired before concept consensus, those concerns just sound like fretting. Divergent thinking is involved when listing what could go wrong and what might be needed to address issues.

The fourth meeting is the most important in most deals. What will each entity actually commit to doing? Who else will be needed in order for the concept to pay off? What is the best timeframe? What ROI is reasonable for both? Is there a fallback or contingency plan?

In my opinion, lawyers should not be involved in deal discussions until the fifth meeting. Their role is adversarial by definition and certainly feels divergent. Business leaders need to know what they want and be centered, so they can provide clear directions to the attorneys. Life is good when attorneys are asked to explore a concept’s viability versus identifying all the ways it may not work.

The sixth meeting is sometimes referred to as the “champagne meeting”. Together, agreements are signed. The launch is rehearsed. Key people who will make the concept pay off are present.

Again, the operative word is “together.”

The Top Nine Causes of The Plateau Pattern™: No Felt Pain

Joyce is the President of a $35 Mil multi-location distribution company. They utilize dashboard management so they know that their inventory turns, picking accuracy, order fill rates, average order size and other industry metrics are within acceptable ranges. The company participates in an industry buying group.  They even get money from manufacturers to help fund their marketing.  Joyce has been pleased that they have been gradually recovering from the downsizing that was forced on them in 2008/2009.

What do you think?  Is the company positioned for growth or a plateau?

Although a vignette can never convey the whole story, there is enough information here to prompt some questions.

$35 Mil can become a comfortable size for a distribution company.  The branches can usually be served by a single hub. By the time a distributor reaches that size, decisions have been made about order entry systems, EDI, bar coding, etc.  The blend of commercial & residential, projects & products, and outside & inside sales has become well established.

So what would prompt Joyce and other executives in this business to consider taking this business to the next level?  The second top cause of The Plateau Pattern™ is “no felt pain.”  Ironically, these are the business leaders who get blind-sided because they can’t see that they are getting “behinder” and “behinder” with each passing day.

What are other companies doing with e-commerce that threatens the very existence of distribution companies like Joyce’s? Which Baby Boomer owned competitors are being sold, participating in roll ups, or becoming part of a larger industry consolidation? At what point will the bright, young, ambitious managers in Joyce’s company realize that she isn’t investing in growth, become bored, and start to look elsewhere?  Which value-added services are other progressive distribution companies quietly developing and offering to Joyce’s customers?

Joyce may be comfortable and feel no pain now, but it is probably short lived.

Recognizing Opportunities That Exist in Challenged Markets

The growth of architectural firms is challenged when their customers can completely eliminate the need for architects by purchasing Cad Cam software.  Graphic artists are similarly frustrated by people who are under the misimpression that using clip art is equivalent. So what should your company do if its core customer base is architects or graphic artists? You would undoubtedly notice that most of your competitors have been shifting their marketing and sales efforts to target other industries.  Should you do the same thing?

Recently our market research clearly confirmed our client’s perception that its core client base is in an industry that is headed for trouble. Technology is tempting their clients’ customers to do more on their own and rely less on our client. Generational preferences and shifting priorities will only increase the challenges for this client’s customers.

One option is that our client could become THE leader that helps transform a challenged industry. While their competitors run away, they could provide state of the art technology. They could become THE source of leading edge strategies that help its customers survive/thrive despite the odds. They could help their customers develop new products/services. They could lead a roll up or an industry consolidation.

Are you just following what your competitors are doing or at least considering alternatives?

Aldonna R. Ambler, CMC, CSP has earned the right to be called The Growth Strategist®. She has won over two dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across 4 recessions.  Her midsized B-to-B service, technology, and distribution clients get on…and then stay on…the published lists of the fastest growing privately held companies. All of her own service businesses (strategic planning, executive advisory, growth financing, radio show, speaking, and search) help privately held midsized companies in Achieving Accelerated Growth With Sustained Profitability®. Ambler is in her 8th year hosting a weekly peer-to-peer-to-peer online program at www.growthstrategistshow.com that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr) sharing success tips about the growth strategy-of-the-week. Family owned businesses are being emphasized in 2011. Ambler is in the process of launching her 8th enterprise. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.

[video post] Why Roll Ups Are Coming Back

Why Roll Ups Are Coming Back

There were more industry consolidations through roll ups in the 1980s and 1990s than over the past few years.  That’s because individual investors were able to line up the financing more readily.  Roll ups weren’t as popular in the late 1990s when employees had a good chance to purchase businesses.  But roll ups are again popping up around the country as Baby Boomer business owners look for exit strategies that can replenish retirement funds lost during the 2008 implosion of the financial industry. The idea of a roll up is also becoming more appealing to family held companies because the members of the second and third generations are increasingly reluctant to work as hard as their parents did for so little return on their investment of long hard hours and sacrifice.

In some ways, the roll up process saves a business owner a great deal of time and effort.  Plus the business owner learns what his/her business is really worth. The leader of a roll up must understand how money works. He/she approaches several owners of competing businesses within a growing industry.  After a series of discussions with individual business owners, the roll up leader now has a sense of which owners are really ready to retire and who still want to be active in their business.  He/she also gets a sense of which competitor has strong marketing and sales, which has better operating and administrative procedures, and which focuses most on customer service.  The series of interviews helps the person who leads the roll up to decide which locations, systems, and would be retained once deals have been finalized.   I have participated in a handful of roll ups.  You really would want to be a fly on the wall to learn what a prospective roll up leader knows about you, your competitors and your industry.  Let me tell you…you would feel naked.

I am seeing more situations where employees are stepping up and asking for the chance to buy shares.  Some are requesting that their owners look at ESOPs, which are also not as popular as they were in the 1990s. As a person who is focused on economic development, I am concerned about the increase in roll ups because they involve so many secret meetings.  The process is distracting.  Growth of businesses slows.  Employees can misinterpret what is happening.  I understand why it can be difficult for owners to discuss their retirement plans and exit strategies.  But the economy, customers, and the retiring owners are usually better served if/when employee ownership options are considered well before the owner gets too tired.  I am certainly glad that we executed an ESOP in the 1990s.  And I have recently restructured my enterprise into a suite of companies.  This way, multiple partners can be involved and focus on what they do best. And I have more exit options when that time comes.

 

Aldonna R. Ambler, CMC, CSP has earned the right to be called THE GROWTH STRATEGIST®. She has won over 2 dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across 4 recessions.  Her midsized BtoB clients get on and then stay on the published lists of the fastest growing privately held companies. She owns and operates a suite of companies that help privately held midsized companies achieving accelerated growth with sustained profitability® through opportunity & resource analysis, 4 approaches to strategic planning, executive advisory services, growth financing, and targeted search.  2012 is Ambler’s 8th year hosting a weekly peer-to-peer-to-peer syndicated on line talk show that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr) sharing success tips about the growth strategy-of-the-week. An archive of over 300 interviews is available at www.GrowthStrategistShow.com. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.    

BEFORE You JUMP into a Joint Venture, a Strategic Alliance, a Franchise, Equity Deals, a Roll Up, an ESOP…

 

Recently, I’ve noticed more and more executives of midsized companies JUMPING into strategy implementation.

It’s too easy to fall in love with one strategy over another because you’ve heard a peer share a success story. “Hey, we could do a strategic alliance. George did it.”  Well written articles or webinars with great case studies can convert some people into raving fans of joint ventures or roll ups.  One of our clients became enamored with the idea of franchising his company after his wife was hired by a successful franchise.

The economy has created uncertainty.  Bright ambitious executives (perhaps you) feel like caged cats and are “itchy” for a change. It becomes very tempting to JUMP right into a strategy.  At least that way, something is happening, right?  Well, disruption might be happening that way, but your team will not understand the rationale behind the strategy you have jumped into. You lose credibility as a leader.  And successful implementation is risked. Some folks are JUMPING into strategies when they don’t know the differences between them, what each really involves, and the pros of cons of each. And then they are surprised when bankers are still reluctant to finance them.

Instead of jumping right into a strategy, this would be a great time to involve your executive team. Everyone could benefit from some concentrated learning.  Your controller could be asked to analyze the costs associated with strategies like franchising, roll ups, joint ventures, etc.  Your VP Business Development could be asked to analyze which approaches are being used in your industry and why.  Your General Manager of VP Operations could study pacing and look at what is involved with each strategy.  Everyone would be smarter and by the time you and your team select a growth strategy you will all have a much better sense of WHY it was selected.

 

Aldonna R. Ambler, CMC, CSP has earned the right to be called The Growth Strategist™. She has won over two dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across four recessions.  Her midsized B-to-B service, technology and distribution clients get on…and then stay on…the published lists of the fastest growing privately held companies. All of her own service businesses (strategic planning, executive advisory, growth financing, radio show, speaking, search, etc.) help midsized companies in Achieving Accelerated Growth With Sustained Profitability®. Ambler is in her 7th year hosting a weekly peer-to-peer-to-peer online radio program Growth Strategist Radio Show, at www.GrowthStrategistRadioShow.com, that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr) sharing success tips about the growth strategy of the week. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.

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The Master Negotiator

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