UMCS Speaker Milner Outlines Strategies for Mergers and Acquisitions

At UMCS last week, Doug Milner of Energy Exists provided his perspective on how to manage your operation in a climate of massive consolidation. Simply put, businesses have three paths forward (1) plan to grow, (2) plan to sell, or (3) plan to shrink. As a business owner, you must know where you stand, develop a plan or expect to shrink.

He described the players in this scenario as follows:

• Consolidators. All the pieces in place, strong CFO’s, access to capital, strategic growth plan, scale their business efficiently, take advantage of synergies
• Bystanders. Desire to stay in the business, ok w/ status quo, will make an acquisition if it makes sense. Often are family owned, unsure of next generation succession plan, systems not strong enough, CFO not strong enough, need third party help.
• Sleepers. Not overly active in the industry, keep to themselves, reactive vs. proactive, unsure of long-term plan, doesn’t have the pieces in place to acquire. These are acquisition targets that need to work on positioning their business to sell at a high value
• Cliffhangers. Barely hanging on, 100% isolated from the industry, often in remote areas, not in a position to sell at a high value due to lack of reliable data.

If owners do not plan to grwo, then they should plan to sell. Milner offered these tips for various situations.

Tips for Planning to Grow

• Make your finance department a value adder, consider trading up your CFO
• Review or shop your banking relationships – small banks often don’t have the right products for rapid growth.
• Modernize your systems, Train your People, develop non-family management team.

Tips for Planing to Sell

• Understand WAV or Walk Away Value now, not later.
• Change to the optimal structure now, become an S-Corp, not a C-Corp.  C-Corps are problematic.
• Make yourself redundant w/ a strong ops team, do a comprehensive cost audit to maximize the value.
• Never negotiate with just one buyer.

Tips for Planning to Shrink

• Sell before you shrink too much, find the best available resources to prepare to sell through a “managed sale process”.