merger and acquisition
Tying the knot T
he e-learning world looks to be entering another of its periodic merger and acquisition phases. We’ve been here before, usually emerging the other side with the odd success, a couple of spectacular casualties, a few quiet failures,
and largely the same fragmented cottage industry we started with. But despite the fact many of the most successful bespoke e-learning companies have remained relatively small and focused on being sector specialists, differentiating themselves by building long-term relationships through customer service, the perception that our industry is too fragmented and hence ripe for consolidation refuses to go away. What is causing the current surge in merger and acquisition (M&A) activity? One factor is the volume of private equity and venture capital money sloshing around the market in search of a home. In this low interest environment, the mix of two ‘hot’ sectors – education and technology – looks very attractive, not least to investors who know little about either. Concurrently, ambitious established players in our corporate e-learning space have publicly stated strategies of growth by acquisition and with the cost of funds so low this is a good time for them to go a-wooing. So if your company receives a seductive offer, what should you take into account?
Here are nine top tips - offered on the assumption your business means more to you than a quick buck, you want to see it continue to thrive and the future of your staff and customers matters to you.
If you honestly couldn’t care less so long as you can grab the money and run, go straight to Tip 8!
n Beware the soft music and candlelight. The acquisition process can be rather romantic. It may start with a blind date, perhaps an invitation to meet secretly over lunch. Like all first dates, your suitor will be on their very best behaviour and you probably will be too, each trying hard to be what they think the other is looking for. Don’t be seduced by that initial flush of romance and excitement, that tendency to focus on the positives and ignore the areas of incompatibility. They will all seem so obvious later when you’re living together and you find he’s really a slob who leaves the toilet seat up, always wants to watch football when Downton Abbey is on and snores loudly.
This isn’t an entirely frivolous analogy. Selling your business isn’t like having a fling or a one-night stand, it’s a long- term commitment and one where subsequent divorce may be impossible or at least very painful.
16
Investors are once again sniffing around the e-learning space looking for the perfect financial marriage between education, technology and capital. But if your business does find itself on the receiving end of a proposal from an attractive suitor, how can you ensure it ends in a marriage made in heaven, not in hell? Peter Phillips looks for signs it is true love.
n Make the pre-nuptial agreement a two way street.
The wooing is over, you have signed the NDA and the pre-nuptials can commence. This is the point at which your suitor gets serious and starts spending money.
Sadly it’s not on flowers and chocolates, but lawyers and accountants. These worthies will know nothing about your business and probably precious little about their client’s either. They will inundate you with monster lists of standard questions covering just about everything except the things that really matter. The lawyers for example, will fixate on property, even if you only have an office on a short-term let, because property has Deeds, Lease Agreements and sundry other legal documents that they can pore over while racking up fees at hourly rates you can only dream of. You will also need to employ a lawyer and accountant. Enjoy! While this due diligence (DD) process is necessary (to a point), it will tell the
buyer very little of what really makes your business tick, and you nothing about them.
Don’t ask your lawyers to retaliate by sending an equally long DD list to the ‘other side’ (note how the language is becoming confrontational already), but do your homework on the potential acquirer. Don’t allow yourself to get bogged down in its DD agenda. Use your industry contacts, find out about their reputation, how they deal with customers, how loyal are their staff? Don’t be shy in asking direct questions of them. How and how well do they reward their staff? What is their commitment to customer support? How much do they invest in development? Tips 4, 5 and 6 cover some more fundamental questions.
n Get your skeletons out of the closest Everyone has a few skeletons in their cupboards. Maybe the contract with your biggest client is coming to an end and you know they will be going out to tender, perhaps you have some doubtful debts on the books, or a key member of staff is leaving for Australia in three months. Get these out in the open as early as possible, and vice versa, so they are built into the offer from the start and don’t become a source of wrangling or an excuse to squeeze the price down later.
n Is one plus one really greater than two? Your business can only be worth more to the buyer than you if they believe they can run it better or do something with it you cannot do alone. If that weren’t the case, then you are likely to value the business higher than they do, and you may not get past the first lunch date.
e.learning age june 2015
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