Spring 2010 issue of Horizons

Raise Your Expectations CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

Banks are looking for less risk and are unable or unwilling to loan the amount of funds required for a transaction at the desired leverage levels. Private equity groups have sufficient funds, but they are looking for certain levels of return on their investment, which is largely driven by the ability of the company to make money and sell at a significant profit after some period of time. The ability to generate returns has become more challenging, which has caused investors, including corporate buyers, to reevaluate their expectations. As the market responds to all of this change, the emphasis shifts to the business reasons for an acquisition and justification of the acquisition based on the current realities of leverage and returns. As part of this shift, companies are altering their previous strategies and, in turn, are doing a better job of evaluating a potential acquisition target. By targeting the due diligence around those areas that will have the most impact on the critical business criteria, a potential buyer will have a much clearer picture of the true fit of the target company. One of the shifts that exist is that companies are more focused on analyzing future performance of the business and what it would look like post- transaction than what once was a disproportionate amount of effort looking at historical performance. In addition, buyers see the need to increase their analysis on more of the operational components of a business with an eye toward how the business will look in three months, six months, a year or even longer after the transaction. This analysis includes planning certain integration activities earlier in the cycle than ever before. In order to make an assessment, it’s necessary to spend the time early on in the process to determine what would need to happen to consider the transaction a success.

Asking questions like the following is critical to achieving the desired outcome:

• Can we take an order on day one? • If not, what do we need to do to be able to? • What are the cultural issues that need to be addressed now? • Who is critical to the business and how can we ensure they will stay?

All of these considerations feed into the planning and execution of the due diligence activities.

While the majority of businesses have been impacted one way or another by the shifts that have occurred over the past several years, companies have made significant changes to survive. As the transaction activity is heating up, companies are preparing themselves to look at things differently than they have in the past. The strategic aspects are more critical now and are driving the underlying details of the transaction process. As companies shift their approach and better prepare themselves in the transaction process, the likelihood of success will be greatly increased.

Questions? Contact:

Dan Raskas Partner-in-Charge Mergers and Acquisitions Services Group 314.678.3530 dan.raskas@rubinbrown.com

14 u spring 2010 issue