In November our MD Angus Bradley was lucky enough to attend a talk given by Kevin Samuelson, the CFO of Infor, the biggest software company you’ve never heard of!
Kevin has guided Infor through over 40 acquisitions, raising more than $10 billion in financing, and grown annual revenues from $40 million to nearly $3 billion.
This dismal stat started the talk, less than 30% of M&A activity creates value, and 50% actually destroys value.
Angus summarised the talk here as 5 rules for better acquisitions.
Read on for some valuable lessons and surprises for acquirers and vendors.
5 key factors to steer acquisition:
1 Strategic Fit
Some basic questions. Will customers benefit? How?
Do those in control of Product and Sales want the acquisition – believe in it?
Is there a culture fit?
2 Conservative Expectations
Can the activity be justified without:
revenue growth?
75% of the underwritten cost savings
A perfect integration
Remember, no acquisitions go to plan! Build a lot of cushion into all expectations.
3 Reasonable Price
Agree value before spending any time on due diligence.
Price should be driven by cashflow contribution
Don’t pay attention to other transactions in the sector.
Feel comfortable discussing the price with anyone – you should feel you negotiated well.
And try to acquire at the right time, when the multiples are lower.
And here’s some of the valuation models they use
Cash Flow – 1 – 6X proforma (meaning expected result after integration and cost savings)
EBITDA 1-6X (again after restructuring)
Maintenance Fee’s 1-3X
Revenue – nope
#customers – not for Infor!
DCF-ROC – too complicated and too many assumptions
The takeaway – use simple metrics.
4 Very thorough Due Diligence
6 areas of due diligence
- Legal Diligence (IP, litigation, contracts etc. They use outside legal for this)
- Accounting Diligence. Including focus on maintenance renewal rates, a great gauge of customer satisfaction.
- Customer satisfaction/marketing position. Interview a cross section of customers, and work with experts to establish the true market position of the target.
- Management diligence. Meet 2 to 3 layers of management. And do a lot of pre deal planning. Agree revenue and cost savings before the close of the deal. Compensation to be heavily weighted on outcome. (And for deferred compensation, keep it simple – e.g. If it grows 20% you get X, if it grows 40% you get Y)
- Cultural Perspective – Would you let your children work there?
- Investment review – all transactions vetted with the Board of Directors and senior exec team.
5 Rapid and exceptional integration.
Devote time to the details.
Talk! A Lot, before the deal happens, so everyone knows what to do on day 1.
Blitzkreig with 100 day integration plans.
Make sure there’s buy in from management 2-3 levels down.
On the day after deal close, every manager knows his or her targets. The Headcount plan is agreed the 1st week. Detailed integration checklists for 100 days including, budgets, deliverables and risks.
Manage a very detailed execution plan.
Moving all systems onto single stack is critical. Infor move key systems – budgeting, planning, ERP, CRM, HCM onto one stack within 90 Days!
Infor use one of my favourite quotes here, Perfect is the enemy of good.
Advice for sellers
Nothing too new here – BE PREPARED, be organised, and Do not hide things! Involve multiple parties (to maximise price) and of course never be eager.
– Succinct presentation
– Good financials
– Open book mentality
– Managers and involved parties prepared to engage
The only deals infor had bailed on in late stages were where they kept finding things – the trust was broken.
On Banks
Should you hire a bank? Great if you’re not an active acquirer, they bring tactical experience and valuation skills. Beware – they only get paid if it works, so they are very incentivised to make anything work!
Working with Projectfusion
As well as helping you run due diligence and Q&A on line, Projectfusion lets you set up project and team rooms for both sides, so they can collaborate securely in confidence, both before and after the deal is signed. Everything audited, and great social features and cv’s to help you find out more about the people you’re talking to.
Have you got any M&A tips for us?
