| Selling-out: A Strategic Alternative | |
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Authored by: J. Kevin Fisher Published in Teletimes, by the United States Telephone Association |
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| Mergers and acquisitions in the telecommunications industry continue to rock the competitive landscape. This cannot be overlooked. Millions to billions of dollars are put into play as organizations continue to jockey for position. Owners and boards of directors of telcos must define how selling-out is part of their strategic goals. Often shrouded in secrecy, sales or purchases of companies appear as sudden quickly executed maneuvers, but in reality, the best ones result from careful planning and meticulous follow through.
Why a company chooses to sellout is unique as the individuals involved. Whether the motivations stem from competitive pressures, family members looking to sell out, conflict or simply the desire for a change, the outcome should not be left to chance. It must be viewed as a major strategic goal that leads to financial gains and personal growth owners and employees. Today, more than ever telcos should begin preparing themselves for sale. At a minimum, a quarterly review of the sell-out strategy would be prudent for an executive committee and boards of directors. This will surface the favorable conditions for a successful sale. To successfully create and implement a sales strategy, a seven step program can walk an organization through an effort to sell-out. The program is designed to bring executives from the strategic planning stages through sale and post-sale closure. Dartmouth Research & Consulting’s seven-step program is based upon the premise that value is determined by the marketplace and that timing is a critical factor for success. Value determination is more than a financial exercise and recognizing a good situation requires knowledge and understanding of market conditions.
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| The Seven-Step Program | |
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Establish strategic and financial plans |
| Financials are often the obvious yardstick used to evaluate companies. While it is not a soul factor used in establish value it is necessary for a potential seller to understand the financial position of the company and it financial outlook for the next five years.
Sound financial analysis points to areas where investments will yield increased returns. A comparison with other companies and competitors with similar operations may point to opportunities which may at first appear to be unfavorable. Many organizations such as USTA are able to provide industry specific information on the financial and operating conditions within the industry. A good strategic plan is only valuable when there is a financial plan to complement it. Each plan should be well documented and project operations and conditions over five years. |
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Consider the following questions:
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| One telco has introduced selling the company as a quarterly agenda item for the board and senior executives. Efforts began with a two-day planning session to review growth strategies and corporate objectives. Based upon meticulous review of objectives and findings, the management team crafted budgets and financial plans for board review. The goal was to be ready to sell if the right offer came along.
Interested acquirers have been impressed with management’s understanding and commitment to running its business. The results of the careful packaging job for the business will pay-off handsomely for those involved.
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Clearly define all assets and ownership |
| As part of the business selling process, all assets should be examined and evaluated. It may be beneficial to segregate assets for sales thereby reducing the tax implications. | |
Consider the following moves:
Before taking any actions in these areas, owners and boards should consult with experienced lawyers and tax accounts to plot the appropriate tactics. |
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Conduct a Company Valuation |
| Once you determine that selling-out is an appropriate strategic move, a comprehensive valuation exercise should be conducted.
Value drivers will vary from situation to situation, and the value as perceived from one buyer may not be the same value in the eyes of another. Companies should document how they generate value and how can tangible assets be leveraged with market presence, customer perceptions and goodwill.
Although earnings multiples are often touted as a measure of price, company uniqueness and profit potential can drive a price up. When considering selling-out to another company, owners and boards should seek to find acquirers with high price earnings ratios. This indirectly reflects on the capabilities of the management team to optimize the company’s position. |
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Timing is everything |
| This may be an old adage, but it really hits home if you miss an opportunity to sell. Companies should understand what factors contribute to timing and establish a strategic focus this will enable them to recognize when conditions are right.
Companies are well positioned to sell-out when:
By incorporating selling-out as part of a strategic business objective and planning for it accordingly, leaves little to chance. The process challenges owners to be keep on top of the opportunities the market presents and prepares them for action when they choose.
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Marketing to your targets |
| As with any product or service, you must get the word out. When it is decided that the timing is right, a brief (1 to 2 page) description of the business should be prepared. The description should detail the opportunity and potential of the business and the market, but it should not disclose who the company is. Have a consultant or an individual with good connections confidentially circulate the description to prospective buyers.
At the same time, a complete prospectus should be developed with the "asking price." Coupled with the prospectus, a professionally designed and rehearsed presentation on the company and its prospects will project an image of success for the company.
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The targeted calling program |
| Once a reasonable list of prospective buyers in completed. Careful evaluation of the targets is necessary. Profile each potential target by examining financials, reviewing publicly available information and by discretely asking industry players about the target. This is often best done by a professional familiar with the industry and experienced in researching companies.
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Making it happen - successfully |
| In preparing a business for sale the owner/head of the business must be personally involved in the efforts. Once three or four likely acquirers are identified then the owner must be ready to meet and negotiate. It is the beginning of a courtship and the time in which both players can evaluate each other to determine if there is a "good" fit.
In an effort to eliminate future disagreements at the outset, be prepared to raise the difficult points early. This could include compensation, employee relations, terms and ongoing operational issues. By raising difficult points early and creating a memorandum of intent signed by both parties as discussions evolve, the basis for a formal agreement can be established. Mutual respect and goodwill is the basis for any successful merger. Although this is intellectually understood, many companies stumble through these issues. Seeking to create a win-win situation will go as long way towards respect and goodwill. Strategic planning, good marketing, timing, honed negotiating skills and problem anticipation will facilitate the smooth rewarding sale of any company. |
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