18 Must Read Quotes from 2H 2014

With 2014 coming to a close, it is important to reflect on some of the most important insights and developments — expected or not — that we have learned this year.

To get a comprehensive feel for the second half of 2014, we have looked back at some of the conversations we’ve had with members and other deal professionals and examined their varied perspectives and opinions. The result: 18 must read quotes from 2H 2014. They include perspectives on optimizing a transaction, driving new revenue, industry trends, and more.

Read the quotes below:

“True, predictable, profitable revenue growth requires business engineering. It is a long term process which is iterative and adaptable. It challenges cherished assumptions about ideal customers, profitable products, marketing & sales staffing and resources, and target markets.  And it must be increasingly integrated with corporate strategy, as trends such as additive manufacturing (3D printing) and “the internet of things” shape the landscape upon which revenue will be grown in the near future. At it’s core, though, the process of predictable revenue growth is built on a model that aligns sales & marketing with buying behaviors.”
– Ed Marsh in Why Rethinking Your Sales Strategy Can Drive New Revenue 

“One of the most critical parts to preparing for the due diligence process is to understand the perspective of the buyer. Since investors are responsible for being wise stewards of their capital, they need to learn about every facet of your business and leave no stone unturned. They are trusted with the money of larger LP investors and they cannot be frivolous with that responsibility.”
– James Darnell in What to Expect from the Due Diligence Process 

“The oil and gas industry is capital-intensive. Compared to other countries, the U.S. doesn’t have one oil company owned by the government. Saudi Aramco spent $25 billion to $40 billion a year and has only one board and one man on top. In the U.S., we’re talking about thousands of companies. Some of them are small, and there are many boards and people to make those decisions. Continuous technology advances create a need for more capital; high declining rates and the growing domestic and international demand for things like natural gas need more capital. We’ve seen new plays and movement to the core and low-cost areas. Any way you look at it, we need more capital.”
– Anas Alhajji in The Energy Industry is Changing: New Technology and Demand

“Ensuring that the business remains on track is critical during the process from LOI to closing. Although it may take a great deal of focus to close the deal, keeping the business running according to plan is necessary for the transaction. This is the most important, of many things, to balance during the closing process. Among private equity buyers, you will hear wisdom shared from investor to investor with things such as, “95% of all bad deals were off budget during the closing process.”  The buyer will be watching every twitch of the business with extreme scrutiny.  To a buyer, there is nothing more comforting than seeing the financial results come in as expected.  Even better for everyone is having the financial results come in ahead of budget.  Yes, this is true even when you are the seller wondering if you could have gotten more for your business because it makes the buyer want to close the transaction even more and maybe some small horse trade will go your way in the end (and, there is always one more horse trade).”
– Mason Myers in 7 Pitfalls to Avoid Between LOI and Deal Close

“The Internet has made the M&A search and contact process easier for both buyers and sellers; and, thus, has facilitated a rise in transactions. This ‘discoverability’ has stimulated activity, and it also has created a more competitive environment for deal professionals. Smaller businesses are no longer limited to complete M&A transactions with local peers.”
– Jeff Hooke in The 8 Biggest Trends Shaping M&A

“Most polls and studies cite that 60% – 90% of strategies fail in the execute phase. While strategy design is vital to an organization’s growth, the true value is in execution – and much of the successful execution lies with the executive team. As you grow your business, or seek to invest in another, building a great executive team is critical.”
– Todd Garretson in The 4 Characteristics of High-Performing Executive Teams

“Thanks to the strong network effects of the internet, accessing high-caliber talent on demand has never been easier. Remote work is quickly becoming a major component of our economy. As information flow and liquidity continue to increase, technology should significantly reduce the cost of finding talent. If you run a small M&A shop, make sure you are taking full advantage of the internet to manage your HR efforts.”
– Vik Ashok in How to Secure the Best Talent for Your Firm

“CEO’s need to “fish in the right pond.” Sending a packet to 100 venture capital investors is a waste of time, energy & money. Having a single conversation with the right party may result in capital. A quality investment banker who knows your business, your industry and the market will be worth far more than the fee they charge if they can make the right introduction.”
– Jeff Villwock in 5 Common Mistakes to Avoid When Raising Capital

“Over the past few years, PE firms have been heavily involved with add-on acquisitions, rather than platform companies. (In 2012, add-on acquisitions represented approximately one half of all PE buyout activity.) With the economy on more solid footing, more businesses — including large and small privately held companies — are returning to the M&A marketplace. That means more opportunities for acquiring platforms, and broader possibilities for supporting add-ons. At the core, these new platform/add-on dynamics are causing a shift in the art of performing business valuations, as value can differ significantly based on the viewpoint of the deal participant. This means it is more important than ever for a company to have a holistic understanding of the market.”
– Rick Schmitt in Valuing Platform Companies vs. Add-Ons: The New Art of Negotiating

“Finding the right financing can be just as difficult as finding the right company. The best combination of debt to equity can be confused by the plethora of choices, such as SBA loans, seller financing, owner retentions, and partner splits.It is important to keep in mind that the cheapest source of funding may not always be the best option. An example of this is seller debt. Given today’s low interest rates, why would anyone decide to take on usually more expensive seller paper? The benefit of course is non-financial. By having the seller take a financial position in the company post-sale, the buyer is almost guaranteed that they will have the full cooperation of the seller to help if any issues arise. This may be worth more than any non-compete or consulting agreement between the parties.”
– Tony Bautista in 4 Key Learnings from a Successful Search Fund 

“These families are largely savvy investors in their own right, they have earned their wealth through navigating their industry and often leading it.  This means that investment bankers and private equity funds approaching them should learn about where they made their wealth, how, and think of creative ways to work together instead of just pitching deals to these wealthy families.  Many times families can be a source of deal flow, domain expertise, and capital over a given period of time.”
– Richard Wilson in Family Offices: Fact vs. Fiction 

“A financial or legal expert simply can’t tell if a target company’s product is real. You can’t rely on a PowerPoint presentation or even a product demo to confirm authenticity — it’s too easy to create something that looks great but doesn’t do what it’s expected to do. Ideally you should have an expert in the target company’s specific technology and industry review source code, product plans, etc. At a bare minimum, you need to have a technical person sit in on a demo and ask questions.  If a technology expert from the acquiring company or investor isn’t available, consultants can be hired for this purpose.”
– Jim Hoffman in Top 9 Reasons to Conduct IT Due Diligence

“Bottom line – we are seeing historically high private company valuations five years into the economic upswing. From a successful middle-market company’s perspective, enterprise values today could be several times what they were five years ago.”
– John Slater in Valuation Inflation: Middle Market Multiples on the Rise

“While freelancing is by no means new to M&A – anyone from the industry knows at least a handful of former investment bankers turned independent brokers –these types of freelance roles have traditionally been limited to seasoned professionals with rolodexes. Thankfully, technology is making it easier for these talented M&A professionals to function independently, and for younger professionals to gain experience and build their networks. Instead of relying solely on personal contacts, the modern deal professional leverages tools and networks to succeed.”
– Vik Ashok in Could Freelancing be the Future of M&A?

“Mid-market advisors are increasingly turning to highly efficient social media channels like blogs to reach targeted audiences.  Social media is cost and time efficient, and allows busy mid-market professionals to secure more deal flow in less time and with less expense than traditional networking. Importantly, mid-market advisors can customize their efforts with their own unique service offer and ideal potential client base in mind.  For example, you are able to share industry-specific articles or highlight successes of your portfolio companies. For those mid-market advisors not yet fully engaged on social media, the adoption process is quite simple and there are many advisors already engaged on social media that are well worth emulating.”
– John Grimley in Social Media: An Overlooked Business Development Tool 

“You will come out ahead, both financially and psychologically, when you hire an adviser to help with the process.  The payoff will come on multiple fronts.  First, they save you tremendous time in talking with buyers, preparing documents, and providing a buffer to allow your business to stay on track during the sale process.  Second, they have experience navigating the sometimes confusing waters of a sale process.  Third, they can broaden the net of potential buyers, which is very important to maximizing the highest probability and highest valuation of a sale.  Networks like Axial will also help you widen your net.”
– Mason Myers in 9 Things Every Business Owner Needs to Know Before Selling

“When it comes to financials, the numbers will be what they will be. At this stage of the process, the investor is probably most interested in seeing how organized your business is. The numbers need to be reliable. We don’t want to be in a situation where we’ve made a deal, then did some diligence only to discover that we were misled. In those situations we have to break the deal, which is disappointing for everyone involved. The more confident we feel in your ability to track numbers, the more confident we will feel about the deal. However, don’t worry about too many add-backs or no CFO — just be systematic with the process.”
– James Darnell in 5 Key Value Drivers When Selling a Compmany

“Health analytics is more important than ever, and it will drive the future of all health systems. The growing use of telehealth, e-visits, mobile apps, electronic data warehouse, population analytics, “big data,“ EHR, and electronic prescriptions will continue.  The big question for many health systems and physician organizations that are growing through merger and/or acquisition of other providers is how to move all of the owned providers (e.g., ambulatory sites, physician practices, hospitals, post-acute, etc.) to a common or at least compatible IT platform.”
– Brent Earles in Top 8 Healthcare Trends for 2H’14