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Private Company Capital Newsletter
THE STRATEGIC PLANNING IMPERATIVE Most of the business owners we meet aren’t the kind of people that love to sit in a day long meeting regardless of the reward. There’s one day long meeting, however, you should sit through if you want to maximize the value of your company in a transaction. Every company no matter how successful has a strategic dilemma. Regulatory and technological change, market fluctuations, globalization, scale and the role of owners in their businesses create challenges and dilemma for everyone. What is your company’s strategic dilemma and how should it be addressed? We live in a world of risks, contradictions and limited resources. How successful you are as a business person depends on your ability to make decisions in light of these realities. Even middle-market companies can thrive protected for periods of time, but they always reach a point where change must be adopted as the old practices limit competitiveness of the business. The corporate questions, “Why do we exist?” “Where are we?” and “What are we trying to do”? remain essential questions that must be asked and answered. Consistently successful business people ask and answer these questions with a higher regularity than lucky or unsuccessful business people. This process is the essence of strategic planning. Strategic Planning for Transactions Strategic planning should be facilitated by an outsider to avoid the “group-think” syndrome so often the case when team members get together. If you expect to sell your business within the next 5 years, ideally, strategic planning should be facilitated by a strategic transaction advisor who can layer in valuation-based advice on how to meet your liquidity goals. If you are a seller you need to understand your company’s strategic dilemma and have a strategic plan in order to correctly assess acquisition offers from buyers, for example. “Which acquirer best advances the strategic plan of my business?” is the question that should be asked and answered. If you are the buyer you need to understand your company’s strategic dilemma and plan in order to decide which target to acquire and what price to pay. “What will this acquisition do to advance our strategic plan and how much is that worth to us?” This critical question gets answered in every successful M&A transaction. Developing a one-sentence answer to the questions, “Why does this company exist?” is developing the company’s Mission Statement. Articulating your Mission Statement in a paragraph or more is easy – distilling everyone’s opinions into one sentence takes time. A good mission statement passes three tests: 1. You can remember it when a gun is pointed to your head, 2. You can say it in the time it takes to ride an elevator with someone, and, 3. Your kid can understand it. United States President John F. Kennedy once passionately articulated his vision (statement) to “have a man on the moon by the end of this decade”. In so doing he set a measurable, achievable goal for America to focus and execute on. Leading the organization by setting the right Vision statement through a consensus-based process is pivotal to the organization’s dilemma and central to the team’s activities and focus. Successful companies develop a Vision Statement and measure their decisions & initiatives against its attainment. It is the point in the future they all focus on. Once you know why the company exists and what it is striving for it’s critical to assess where it’s starting from. “Where are we?” must be answered. This assessment of current realities requires an honest “SWOT” analysis. The top ten “Strength’s Weaknesses, Opportunities and Threats” are identified. A group weighted ranking of these is then compiled completing the consensus-derived current realities of the business or the “Where are we?”, if you will. A savvy advisor can facilitate your strategic plan in this manner without overtly showing your (liquidity event) hand to key employees whose input is valued in the strategic planning process. Strategy as “Deal Lubricant” Of course, if you can understand the other party’s strategic dilemma in the course of an M&A transaction you have an advantage over others in the process. You can’t believe what can be learned about potential acquirers by listening to what they tell Wall Street on earnings conference calls, for example. Strategy is truly the lubricant of liquidity in M&A and other corporate finance transactions. Strategic planning can shift people’s attention from problems to solutions, from limitations to possibilities and from despair to hope. It can also galvanize people for action by highlighting needs, rallying opinion and pointing the way. Sale price maximization or buy price optimization--traditional investment-banking outcomes-- is best executed within an engagement process that began with consensus-based strategic planning of key management. At key decision points in a transaction the strategic planning as template for decisions has proven more effective than attempting to address independent interests and agendas in the last phase of a deal – the consensus that was built initially can generally be relied on the Letter of Intent and Definitive Agreement stage of a transaction. We’ve learned the hard way and hope to pass on the wisdom. [ Home | Our Firm | Services | Past Transactions | Research and Resources | Contact Us ] Brereton, Hanley and Company, Inc. Spear Tower One Market Plaza - Suite 3600 San Francisco, Ca. 94105-1120 Phone: (408) 938-9255 Fax: (408) 938-9259 |
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