Ben’s Newsletter: Buying a business, or two…

Hi there, May was an interesting month. A friend of mine is planning to buy a set of companies over time and then sell the combined group to an international player. These kinds of business challenges have all the excitement of making deals and the fun of designing a business in stages.?

While the accountants handled due diligence and put together three-way integrated financial forecasts for investors and the bank for the first purchase, we focused on understanding what the future buyer would want. We looked at available businesses in New Zealand and Australia and figured out what kind of leader was needed as the business grew through different stages.?

I thought I’d share a few insights into what we have been thinking about.?

The Acquisition Growth Journey – Roll-Ups and Strategic Buys

In my experience, there are two types of acquisition journeys. First, there's the roll-up. This is like a shopping spree where you buy smaller businesses to create one bigger, more valuable entity. Think of it as building a puzzle, piece by piece, until you have something significant. In this case, identifying, buying, and integrating new businesses becomes a core competency of your business. Value is often created by both increasing EBIT and enhancing the EBIT valuation multiple if you decide to sell. This is exactly what my friend is doing.?

Then there's the strategic acquisition, which is more targeted. Picture it as a bold move where a company swoops in to buy another, sometimes a similar-sized company. But it's not just about size; there's a strategic goal behind it, like expanding into new markets, dominating an industry, or adding new products. I've even seen an owner buy a business, integrate it with part of his own, then spin off the combined part and sell it, freeing up cash and focus for his core business while making a nice profit.?

Whether it's a roll-up or a strategic buy, a well-executed acquisition plan is a great way to accelerate growth.?

But Plenty Fail

We've all heard figures like 90% of mergers fail. I’m not sure if that number is accurate, but the idea is. Like many things in business, the acquisition growth journey is simple in concept but hard to implement successfully.?

If you're doing a series of roll-ups, acquiring and integrating businesses becomes routine after the first few. But for those initial deals, or if you're doing a strategic acquisition, I suggest getting a coach or advisory board chair who has done this before. They’ll spot problems before you do and save you a lot of pain. It also helps to talk to other owners who have gone through this.?

Also, think about your key advisors. Specifically, your accountant, your lawyer and your people advisor (as you will see below).?

When you are on the acquisition growth journey you can quickly outgrow your accountant or lawyer. It’s not that they are bad people, it is just that they don’t do enough of this sort of work. I would suggest a few simple open questions like - how many of these sorts of transactions have you done? Can I have a chat to a couple of your clients who have been doing this? Who else do you recommend to assist in this as we grow (hint – if they can only name a lawyer or accountant they have not developed a network of complementary experts – which suggests they are not across the challenges).?

On the people side it is slim pickings. A few Advisory Board chairs and coaches I know have good tools, and there are few sole operators out there, but I have only found one firm that specialises in the people challenges of fast growth companies. Ask them to talk you through their frameworks and the challenges that show up and run though recent case studies. When you are looking at this category of supplier you can figure out pretty quickly if they know what they are talking about.?

Acquisitions – Numbers Make Them Interesting; People Make Them Hard

Acquisitions are generally driven by strategy and numbers, and it's easy to get caught up in the excitement, especially if you're an optimist like me.?

But when one business buys another and they merge, it can get pretty tricky. Problems like unhappy employees, clashing company cultures, and messy systems can pop up. Without a solid plan, this can lead to people quitting, decreased productivity, and missed goals.?

Instead of guessing what will happen next, consider using backcasting instead of forecasting. This means thinking about what you want the new, combined business to look like in the future and figuring out the steps to get there, starting from the end and working backward.?

It's a bit like planning a road trip: you pick a destination and then find the best route, knowing where the traffic or obstacles might be. For example, this can help you see what changes you need to make now and who you need to hire. It won't solve every problem, but it gives you a clear goal and helps you make better choices as you combine the two businesses.?

Leadership – Levelling Up

One key insight from the Sprout Stages Model is about ‘levelling up’ leadership. Typically, businesses go through stages of growth, partly driven by the number of staff involved. When a business grows, levelling up leadership means evolving structures and enhancing skills to manage the increasing size and changing complexity as it enters a new stage.?

This is often overlooked when acquiring a company. The combined size can take you to the next stage of business, and while you focus on integrating new people, you might still try to run it as if it’s smaller.?

In a fast-growing company or during a roll-up of smaller companies, you might have time to prepare leaders or assess if they can make the leap to the next level. When acquiring bigger businesses, you often don’t. Keep this in mind if you’re looking at a strategic acquisition or rapid growth. Getting this wrong can have serious consequences, including having the wrong CEO.?

The Owner – Your Job Changes

Another insight from the Sprout Stages Model is that the owner's role changes as the business moves to the next stage.?

Often, owners who don't adapt to their new role at the next growth stage can become a hindrance.

This might be because the owner doesn’t have the skills to lead a larger company, doesn’t develop a full leadership team, doesn’t trust her people or insists on being involved in everything like in the early days.?

In one case, I saw an owner bring in a contractor just to run and develop the leadership team while he focused on the next acquisition. He was much happier with this choice.?

Growth Journeys – Acquisition is Only One of Five

Debbie at D/srupt has identified five different growth journeys. Choosing the right one is crucial to your business strategy.?

If you want to dive deeper into the five growth journey options, Debbie from D/srupt is running a three hour masterclass – details here , this is definitely not something they taught at business school!?

Connector Auckland

Yesterday we had Henry and Paul from Faraday running a workshop at Connector Auckland that challenged us to get clear on the problem-solving capability around the table we need if we are serious about sustaining growth. It was a great reminder to me – years ago my business coach would always ask ‘what capability do we need to do that’ every time we looked at a new venture or activity. The Faraday model centered around an Advisory Board chair that ‘brings in’ capability for the advisory board as needed is an interesting solution.?

At our next Connector on 2 July, we have Brien from Sprout People who developed the Sprout Growth Stages Model. This will be great for anyone thinking about adding people (and complexity) to their business. Note: if you really want to dive deep on this subject I have Brien running a three hour masterclass separately - details below.?

If you own a growing business, want to meet other likeminded business owners, learn and share Connector Auckland might be for you. Touch base with me if you want to attend as my guest to check it out. Dates and contact details are below in my signature.?

Unlocking Growth Masterclass Series – come and learn from real world experts!

If you like this newsletter our masterclasses are designed for you. Get real world insights on how to drive the growth and value of your business.?

Details are below my signature and at this link. ? As promised we are focused on the platform for growth challenges I have been discussing in recent newsletters.?

The masterclasses are hands on, interactive 3-hour long sessions where you can work on the questions facing your business. They are limited to a small number of companies. We encourage owners to bring another person from your business.

And remember - if you have a business question feel free to touch base. I may not have the answer, but I probably connect you to the person who does! And - if you are reluctant to take up my time for free… feel free to buy me a bottle of Shiraz afterwards.?

Until next time –have fun out there!?

Cheers?

Ben

Mobile: 027 4799 950

Email: [email protected]

Website Link: Connector Communities

Website Link: Unlocking Growth Masterclass Series ?

About The Author: Ben Marris has been working with the owners of privately held growth companies in New Zealand and across the Pacific for over 15 years. I believe that these companies are vital for the prosperity of our community in a fast-changing world.?

I run a business community called Connector Auckland and the Unlocking Growth Masterclass Series for the owners and leaders of emerging ($2m + turnover) growth companies. I am also a coach and strategy advisor to privately owned growth companies.?

I love red wine and a good story. I am also dyslexic, so if there are any spelling mistakes or grammatical errors blame his spell check, he does!?

Connector Auckland 2024 Dates: Usually the first Tuesday of the month. Tuesday 13 February, Tuesday 5 March, Tuesday 2 April, Tuesday 7 May, Tuesday 4 June, Tuesday 2 July, Tuesday 6 August, Tuesday 3 September, Tuesday 1 October, Tuesday 5 November.

If you want to come along to Connector Auckland as my guest email me at [email protected] ?or register on this link

Unlocking Growth Masterclass Series - Coming Up

Secret Formulas for Scaling Growth with D/srupt – 18 June

There are eight broad approaches to scaling a business and five different growth journeys to get there, which one should you choose?

Debbie Humphrey and the team from D/srupt specialise in scanning the market to understand the approach that works best for you, and then identifies the strategy or best strategies to get there. They are your growth navigators. This workshop will give you frameworks and tools to start making smart choices to scale.

People Stages of Growth with Sprout People – 25 June

How to navigate growing numbers of staff and what it means for the role of managers and the owner.

This Unlocking Growth Masterclass is all about humans. As you put more in a business the way you structure and operate your business has to change., and so does your role as an owner. This happens in stages at roughly 10 then, 20 then, 50 then, 100 people.

Brien Keegan and the team at Sprout People work with owners to understand what people ‘stage’ your business is at and plan to optimise the stage and prepare for the next one. They specialise in fast growing businesses that keep on adding people, and businesses where the owner has got to a point they feel ‘stuck’ (or are falling out of love with the business) and can’t put their finger on why.

Note: Sprout People are working with several companies to help them with the people side of their acquisition growth journey.

Building True Business Value with Intrinsika – 23 July

Everything you have heard about building business value is wrong, and so is your Accountant. This Unlocking Growth Masterclass is all about building real business value.

Most of us know that ‘intangible assets’ make up a big part of the value of our businesses. They can potentially account for most of our company worth. But what really matters is understanding what the key 1% is that really determines our value and helps us grow.

Intrinsika works with companies to highlight those critical intrinsic assets that distinguish you from the competition and that drive the growth and value for your company. Michael Masterson will look at how we figure out your ‘magic 1%’, what strategies will unlock value in your business and what you need to protect. This will be an interactive, challenging and fun look at your business from a completely different perspective.

Advice, Advancing and Accountability with Faraday – 30 July

Have you been told you need a Board of Directors? Trust me - you probably don't! Big businesses have boards of directors. But often this is the wrong structure for a growing business. They can be slow, rigid, and risk adverse.

But you might want to access the right people and support to take the business forward and hold you to account? So, what could that look like?

This Unlocking Growth Masterclass is for owners wanting to build a system that will support them with –

- Advice - on what is coming, and what they do not know - Advancing - strategy and.. all the traps that come with implementing growth at pace, and - Accountability (no not telling you what to do) but helping the business hold to the plan and pace required to deliver on your goals.

This workshop will show you what could work for you as an owner of a growing business.

Note: Henry also specialises in the acquisition growth journey and exit transactions