At the ACG Capital Connection in Detroit on September 20th, a panel discussed the 10 reasons for deal (acquisitions, financings, mergers, etc.) success, deal failures, deal early exits and deal mistakes/mishaps. The most common theme of a successful investment versus a failed investment are trust and chemistry of the management team, proper due diligence and accuracy/adequacy of financial reporting, strength of financial leadership and financial discipline.
The following is a summary of this discussion:
Top 10 Reasons for Successful Investments
- Post-acquisition plan implementation and/or integration of investment
- Management team
- Due diligence findings including early identification of SWOT
- Deal structure and capitalization of investment
- Enterprise valuation
- Multiple reasons for doing the deal (as opposed to one)
- Properly aligned incentives (earn outs, etc.)
- Proper structuring at early stages (LOI)
- Compelling vision and leadership
- Ability of buyer to add value
Top 10 Reasons Deals Fail
- Enterprise valuation and inability to bridge valuation gap
- Questionable management and lack of ability to build trust
- Inaccurate financial reporting, financial statements
- Doesn’t fit investment criteria
- No sustainable advantage
- Inability to keep key employees, key customers
- Growth prospects of target company are not adequate
- Insurmountable cultural differences
- Quality of earnings analysis deviations
- Identification of contingent liabilities
Top 10 Reasons for Early Exits of Deals Made
- Higher than expected growth rates elevating enterprise value (allows early Harvest)
- Macroeconomics environment improvements and expectations
- Opportunistic buyers
- Industry relevant changes (including regulatory)
- Underperformance of investments on a continuous basis (write off or cut losses)
- Change in investment philosophy (industry focus, geographic, etc.)
- Preemptive strategic interest
- Company is a low value resource drain
- Changes in competitive landscape lowering overall growth expectations
- Increasing capital investment/liquidity requirements
Top 10 Mistakes/Mishaps in Deal Making
- Inadequate and/or incomplete due diligence
- Assessment and/or judgment of management team
- Deal structure
- Failure to walk away if too many warning signs
- Assessment of industry and/or market growth opportunities
- Allocation of risk between buyer/seller
- Capitalization of investment
- Inability to line up financing
- Failure to obtain experienced advisors
- Lack of industry understanding
Harvest CFO Consulting brings highly-skilled CFOs to companies to greatly increase the probability of a successful deal through timely and accurate financial and operational reporting, strong financial leadership and implementing a culture of financial discipline. The CFOs we bring to private equity portfolio companies have significant experience working with private equity and fully understand the need for timely, accurate financial and operational reporting as well as creating solid banking relationships and a focus to avoid tripping debt covenants. Our CFOs bring a sense of urgency to seek out challenges to deal success and take quick action to reduce risk. A Harvest CFO becomes a trusted and valued member of the management team focused on building success.
