M&A Selection Criteria & Evaluation Process: Company Analysis

After identifying a suitable market to enter, the next stage of evaluating a potential acquisition target is to conduct a detailed analysis into the target company to determine if it is investment worthy. Generally, we should consider a few criteria: (1) the commercial value of the Target’s business model, (2) the Target’s financial condition and (3) if the Target is subject to any material legal risks.

Is the Target’s business model commercially attractive?

The first step of the process is to understand the Target’s business model. It is imperative to fully understand how the business operates and if there is any potential for growth. We should study the Target in the context of the industry to assess if the business model is viable in the long run.

Next, we should consider the market position that the Target is in. It is important to study the value chain of the industry and assess where the target firm fit in. Furthermore, we should examine the dynamics of the industry and determine if the Target has a competitive positioning.

Following which, work should be done to assess the products and services offered by the Target. This is where potential revenue synergies between the Acquirer and the Target can be identified. Synergies can be harnessed from cross selling of products/services between the two firms, sharing of distributions channels or complementing the existing product/service portfolio.

Lastly, we should consider any technical expertise that the Target possesses. It could be in the form of intellectual property rights, research & development knowledge or certain trade secrets. There could be integration of the technical expertise with the Acquirer’s business to enhance the overall value of the combined firm.

Is the Target’s financial condition desirable?

A thorough analysis of the Target’s financial forecasts is a cornerstone in determining the desirability of any investment. After all, any purchase consideration for a firm must be compensated with the future returns that the Target can generate.

The first consideration for the Target’s forecast should be on the revenue. This is where we consider the Target’s business model and determine the factors that drive the revenue. We should consider the growth of the Target’s market and whether the firm is able to gain market share based on the strength of its competitive advantage. In addition, revenue projections should also account for the potential synergy between the two firms.

Next, we should consider how the operating margins of the Target will look like. We should understand the cost structure and if they are going to change to support any future strategic goals. Furthermore, projections on costs should account for any synergies of the combined entity. In addition, capital budgeting should be done to assess how much capital expenditure is needed for future expansion.

Lastly, we should decide on the optimal capital structure, in terms of both debt and equity, the Target firm should hold. This is to take advantage of any available debt headroom to lower the cost of financing the acquisition while avoiding taking on too much risky leverage.

Is the Target subjected to any material legal risks?

Under most circumstances, the Acquirer usually assumes all the liabilities of the Target after the acquisition is complete. Therefore, it is imperative to uncover all potential acquisition risks, hidden liabilities and problems that the Target may have. The due diligence process will cover the organizational structure, operating license, material contracts and any pending litigation that the Target is facing.

In order to increase the success of a M&A, a great deal of work has to be done to determine the risk and reward that a Target firm can provide. All these will help determine what is the fair purchase price of the Target and help with the overall integration process. If done well, the synergies of the merger will prove the attractiveness of the deal and generate superior returns for the investors of the combined firm.

M&A Selection Criteria & Evaluation Process: Macro Economic Factors

After deciding that M&A is the way forward in terms of achieving the company’s long-term strategic goal, the next step is to decide which market or country to look for potential targets to invest in. As part of a three-stage process, we will first explore how to evaluate the macroeconomic environment that a potential target firm is in. There are two key criteria to consider before a target is deemed suitable from a macro-level standpoint.

1. Commercially desirable market or industry

The first layer of evaluation comes from the study of the economic conditions that the target company operates in. Economic data such as GDP growth, population size and inflation rate should be extracted and studied in detail. These are key to evaluate the robustness of the economy and if it indicates a favourable environment for growth. Furthermore, certain key characteristics of the country, such as education level and condition of infrastructure should also be examined. This is to better make judgement of the long term economic prospects of the nation based on its level of development.

After establishing the state of the macroeconomic climate, the next crucial step is to zoom in on the industry and sub-sector that the target company operates in. Understanding the factors that drive the growth of the industry is key in identifying future opportunities. A common tool to think about the industry is to use Michael Porter’s “Five Forces” analysis. We should examine the level of competitiveness among existing firms, bargaining power of the customers and suppliers, threat of potential entrants as well as number of substitutes available. Industry benchmarking of key financials such as profit margins and returns on capital should also be reviewed. All these are to judge if the industry still has meaningful opportunities for growth and profitability.

2. Favourable regulatory conditions

There are many potential government and regulatory risks that need to be considered when evaluating an investment opportunity in a target company. Careful examination should be done for the relevant government policy directives and key regulations such as M&A laws and the Company’s Act to evaluate the business environment. It might even be worthwhile to consult professional legal advice for countries with a less developed legal system.

Some of the key risks to take note of are the possibility of an unstable government, poor industry regulation, difficulty in access to capital and an unfriendly legal framework. Although in principle, the acquirer should avoid investments with these risks, there are several factors to mitigate such factors. An effective way to test the market is to look for long-term partners in that country and leverage on their local knowledge before making a full acquisition. Having directors with connection to the local government can also be useful in establishing diplomatic relationships and trust.

In the next article, we will then explore the second stage of the process and that is to delve into a detailed company analysis of the target investment. This will require deep understanding of the business to evaluate the future performance of the target and how attractive it is as an investment.

The M&A Process – How to Prepare a Company for Sale

Many entrepreneurs’ goal is to start a company, grow the business, operate it effectively then eventually sell out their stake for a handsome profit. According to Robert Uhlaner, lead of McKinsey’s global Corporate Finance Practice, many business leaders are not prepared for the intensity of completing an M&A deal. Many executives lose sight of the strategic end goal and fumble along as the deal progresses. Therefore, it is imperative to get familiar with the M&A process and the key objectives at each stage in order to ensure a smoother, more rewarding transition.

Step 1: Vendor Assistance – The Value of a Financial Advisor

The common expectations that M&A clients who are looking to sell are to (1) obtain the highest possible valuation, (2) complete the procedure in the shortest amount of time while (3) ensuring the tightest measure of confidentiality. To achieve these objectives, it is important to take a structured approach to finding the right buyer.

This is where the financial advisor comes in with a structured filtering process to ensure that both the number as well as the quality of potential buyers are as high as possible. Initial screening goes through a rigorous process of deliberating the strategic rationale, coming up with a sound valuation and assessing the overall fit for the organization.

Step 2: Exit Preparation

Begin with an end in mind. Every M&A deal should consider the ultimate objectives for the buyer, be it to maximize returns or to achieve a strategic goal. In this step of the process, the financial advisor will work with the client on the deal structure and exit strategy for the buyer. Work needs to be done to prepare key items to discuss during the negotiation process and identify potential deal breakers. Lastly, a teaser containing an information brief should be prepared for circulation.

Step 3: Competitive Auction

The next stage of the process involves getting bids from interested parties. There are a few key phases:

Non-binding offers

The teaser prepared during the preparation stage is circulated among a list of preferred investors after confidentiality agreements are signed. The client should provide limited access to information about the company and conduct Q&A sessions to provide sufficient disclosure to generate interest in the buyers. Interested parties will then put up indicative offers which are non-binding in nature.

Binding bids

Investors are further shortlisted before moving on to this stage of the process. At this point, the client will provide full access to information for the buyers. The investors will then conduct due diligence on the client by carrying out site visits, conducting management presentations and gathering more information. By the end of this stage, the client should expect binding offers from interested parties.


Among the pool of interested buyers, a selected few will enter the negotiation phase. Key commercial terms and pricing are discussed throughout the process and the financial advisors will work with lawyers to draft the sale and purchase agreement (SPA). The best offer will be chosen for exclusivity and final negotiations.

Step 4: Closing

A final negotiation is done with the exclusive buyer before the SPA and other transaction documents are finalized for signing. The client will have to fulfil the conditions set out by the SPA before the deal is finally closed.

The M&A process may seem like an arduous task to accomplish. However, armed with the right processes and organizational skills, along with a trusted financial advisor, business owners could unlock great potential value.

Important Considerations Before Starting Your Own Food Business

Important Considerations Before Starting Your Own Food Business

Singaporeans are foodies. We all love to eat good food and it is our life’s mission to find the best food available all over the country. Whether it is high class French cuisine or our local hawker centre, we are always searching for the most delicious food to indulge in to reward ourselves after a busy day of work, or for students, school. Some of us occasionally bring up the topic of owning our own food business for ourselves but for those of us who are serious about doing so, do you know what to consider and the steps to take to enter the F&B industry? Here is a short introduction of what to take into consideration before entering the food industry.

Types of food businesses

Deciding on the type of food business that you want to set up is the first step that you have to consider. Differing food businesses have different types of strategies that they have to adopt. First you have to consider the profit margin that you want to achieve with each meal and the number of customers you want to turnover. We shall now look at the relationship between turnover rates of customers and the profit margin.

Fig 1: Profit Margin and Customer Turnover Rate

Food businesses in the top right hand quadrant consists of the Chinese, Indian, Malay restaurants, fast food outlets and cafes. These businesses sell their food at relatively high profits with a large customer turnover rate. The top left hand quadrant consists of premium restaurants, such as fine dining where there are few customers but very high profits. Bottom right quadrant consists of hawker centres and buffet outlets. These businesses cater to large crowds but at a very low profit margin. The bottom left quadrant would basically be food businesses that will not survive in this business.

By determining how your food business is going to operate, it will allow you to determine the type of food business you will venture into. It is always important to consider your expected rate of returns on investments too before deciding.

Price and quality relationship

The type of food business that you plan to venture into also determines the price and quality of your food that you will be providing to your customers. Quality of services is also taken into account. For example, hawker centres survive on their large customer turnover rates with their small profit margin for every meal served. The quality of their meal will meet the minimum requirements for consumption due to the large pool of customers that they will serve. There will be little quality of service to their customers too but will be acceptable for customers to continue patronising.

Looking at fast food outlets and food courts, there is a balance between quality of food and price. By providing better quality food compared to hawker centres, they are able to price their meals higher and have a large customer turnover rate at the same time. Quality of service is also at a minimum due to the large customer turnover rates.

For restaurants, they provide high quality food and services for their customers. By providing personalized services to their customers, they are able to cater to customer’s food preferences. Also, by carefully deciding on lighting and music, customers are exposed to a much personalised ambience which entices customers to frequent the restaurant. At this expense, the price for their food tend to be on the high side which allows them to have a small customer turnover rate compared to hawker centres and fast food joints.

Entry strategies for the inexperienced

For the inexperienced that are new to the food business and want to venture into it, here are a few strategies that you can adopt:
1. Know the business that you are venturing into
2. Sacrificing partial income for the business
3. Grow the business slowly
4. Adaptation

For the inexperienced or no experience, it is important to be willing to start from the bottom of the business and rise to the top, to learn the ropes as you go along. The importance of knowing the business from bottom to up is imperative as it will give you much insight on how to run your own food business. By being an employee in a restaurant or a fast food chain, you will be exposed to the operations of the business. You will experience how chefs and servers alike do their tasks required in order for the business to run. Ultimately, food businesses survive and thrive when customers are happy and hence, you must learn how to interact with customers, know their wants and preferences and learn to provide them with the services that they will be satisfied with. This experience will be invaluable when you start your own food business.

Are you willing to sacrifice your salary in order to grow a business? Some professionals are working full time jobs during the day but at night they run their own small food business at food courts. With the incoming salary that they earn, they have enough capital to run a small food business and support it until it become a viable business venture. This takes a lot of time and patience before the business takes flight and it is not for those who expects high returns in a short period of time.

Start your business small and slowly grow and nurture it. Starting out, you may be able to rent a small section of a store or a restaurant to do your business. Keep in mind that this rental cost cannot be more than 20-25 % of your expected earnings. Sell something that you know that the community likes, like pastries or bubble tea, and be open to customer’s suggestions on what to sell. By listening to their wants, you will be able to reach out to a larger pool of customers, reaping in more profits for your business.

Always be adaptable. If you are those kind of person who enters without considering risks, take that step first and then follow through with it. Learn how to run your business as you go along. Never stop learning and adapt whenever necessary.

Entry strategies for the experienced

For the experienced, you may want to venture into a new food business market where it seems lucrative with large potential. You may want to consider adopting these possible strategies before entering the market:
1. Taking over a business
2. Starting a new business of your own
3. Starting a franchise

Taking over an existing business is one way to break into the new market. However, before making any hasty decisions, it is important to know the reason why this particular business is up for sale. Is it due to its business not thriving due to competition in the area? The business owner himself was offered a better job prospect elsewhere? Is the business relocating elsewhere or was there a government policy implementation that affects your business? It is of utmost importance to know the reason why the owner wants to sell his business. This will allow you to be aware of possible business issues and take proper approaches towards rectifying them. The thought owning a business yourself is enticing and tempting but it is not wise to make such decisions hastily without doing your prior investigations about the particular business.

Starting a totally new business is always a challenge but there are so many benefits to reap from it. As a boss of your own, you are able to choose your own business name, location, basically any business decision by yourself. This gives you autonomy with regards to any business decision that you make. You are able to build your own pool of loyal customers and have good relations with them. You are able to busk in your own innovative ideas and take full credit for its success. However, nothing comes free of charge and without risks. The risks involved is that your business MUST be able to enter the consumer market. Your product must be something consumers want and are willing to pay for. Without said, your set prices and revenue earned must be able to cover all of your expenses in order for your business to survive or thrive. If these basic conditions are not met, your food business will inevitably come to an end. Thus, it is important to do prior market research, to know the reasons why your targeted audience might be currently unhappy with the current supplier and where you are able to tap on and improve on it.

Buying a franchise is also another alternative to break into the market. This allows you to build your business around an already established business name and to have their experience and support. However, there are misconceptions that buying a franchise will ALWAYS result in reaping in quick money and that you are able to leave this business entirely to your franchisor. In fact, buying a franchise still requires you to work hard and have good business ethics of your own. You are required to be present at the business venue and oversee its operations, ensuring that everything is going smoothly and make business decisions accordingly. One of the most common problems that franchises face would be employee theft. Hence, it is important to oversee your business properly and ensure that everything is smooth sailing. Never assume that such things will not happen to you. If things are not going well, the franchisor may buy back their franchise at a lower cost to prevent further deterioration of their brand, leaving you to absorb all the costs. That being said, the success rate of franchisees are relatively high as franchisors are very careful on whom they are entrusting their brand to. They may also provide training for inexperienced owners before letting them run their franchise.

Your decision

Ultimately, it is your own decision on how you want to start your food business. Be it starting one of your own or buying a franchise, the success of your business depends on your own efforts and how much time you are willing to invest in its business development. There are always risks involved but with careful planning and market research, these risks can be mitigated, increasing your success rate in your food business venture. As writer and actor Ben Stein said,

“You must take the first step. The first steps will take some effort, maybe pain. But after that, everything that has to be done is real-life movement”.

Why Do Firms Undertake Mergers & Acquisitions?

With many large corporations taking on M&A as a potential growth strategy, business leaders are tempted to adopt the acquisition path to build a business empire. However, according to Mark Sirower, renowned M&A consultant in BCG, most acquisitions end up in spectacular failures. Many firms fail to see how new acquisitions fit into their overall strategy and have yet to find a way to build M&A capabilities that consistently harness value for shareholders. As such, it is imperative for top management to deliberate the M&A process to ensure long term success. In this article, we will explore the common motives of M&A and how it fits into the strategy of the firm.

Horizontal Integration

A horizontal M&A involves acquiring a target firm with a similar business, operating in the same market. The target is likely to be a direct competitor of the acquiring firm with comparable products and services. The main reason for doing so is to enhance revenue by increasing market share and, at the same time, reducing competition.

Market Extension

This M&A strategy finds target firms with a similar product line but operate in a different territorial market as compared to the acquiring firm. The benefit of such acquisitions is the opportunity to enter a new market while staying in the core competency of the acquiring firm.

Vertical Backward Integration

A vertical backward acquisition seeks to combine the acquiring firm to its suppliers. The advantage is through cost savings arising from the purchase of supplies needed to run the business. A prime example is a clothing manufacturer taking over a yarn producer.

Vertical Forward Integration

Contrastingly, a vertical forward integration seeks to buy over the acquiring firm’s customer. The combined firm can value-add to their existing product portfolio and charge a higher margin to extract value. An example is a clothing manufacturer acquiring a fashion retailer.

Product Extension

Acquiring firms seeking product extension will look for potential targets in the same geographical areas but with different product lines. The main purpose is to add additional ranges of products and cross-sell them in the same geographical market. This strategy is best executed with complementary goods that increases the likelihood of cross-sell.

Free-form Diversification

Under this form of strategy, acquiring firms take on all other opportunities to undergo M&A. The target firm typically offers different product lines while servicing an entirely separate geographical market. The main purpose is to diversify income into alternative sources which might smoothen the impact of economic cycles. However, this represents the highest risk of M&A failure as the management team would have to operate the two businesses quite independently which potentially limit the synergies of the combined firm.

Although M&A is a complex process and is not the answer for every strategic goal, executives can still realize the full potential for synergy of an acquisition. It is highly beneficial to enter the deal fully knowing the rewards and risks involved and, more importantly, knowing when to walk away when things no longer make economic sense.

All About Gantt Charts

All About Gantt Charts

In this post, we will discuss everything you need to know about Gantt charts. We will be introducing what Gantt charts are, how they have come about, who should use it, and the pros and cons of using them. On top of that, we will demonstrate how you can create your very own basic Gantt Chart.

What are Gantt charts

Gantt charts serve as a scheduling tool which allows you to visually see your plan of action on a project. A Gantt chart helps to bridge the gaps of a plan by incorporating the timeline for when tasks of the project should be implemented. Essentially, by visualising project management timelines in cascading horizontal bar charts with tasks that may be interdependent on one another, it aims to help you get a better overview of the project.

How Gantt charts came about

The initial prototype of the Gantt chart was first developed in the mid 1890s by a Polish engineer named Karol Adamiecki. He created the first visual work flow chart which he called a “harmonogram.”
Around 15 years after Adamiecki, Henry Gantt further improved on Adamiecki’s “harmonogram”. With the goal of helping manufacturing supervisors determine if their work was behind of, ahead of, or on schedule, Gantt’s work formed the foundation of the tool we know of and use today.

Who should use Gantt charts

Gantt charts are for everyone who need to plan and schedule their list of tasks that fall under an overarching goal or theme. Hence, this useful tool can be used for personal management, team level coordination, as well as on the corporate level. In general, if you are working on a longer project with a high number of elements and tasks, the Gantt chart may be a tool which you would like to consider using.

Advantages of using Gantt charts

1. Simplified Summary of Tasks

The Gantt chart helps to simplify complex linear list of tasks by collating them into a single visual diagram which helps in understanding of the project as a whole, by illustrating these thoughts and ideas together in a pictorial format.

2. Visibility of Project Progress

With Gantt charts being visual in nature, it is much easier to view a project’s progress through the bars that it displays. This improves the accountability of members of the project as it allows the team leader to track the team’s progress and discuss forward-planning strategies during review sessions.

By understanding if a project’s task is on schedule, the project manager is able to use the Gantt chart to remind members to keep to the schedule for punctual delivery of the project. Also, by using bars to indicate the duration of a task, it gives you a better perspective of the total project, and the timeframe as a whole.

3. Clarity of Project Implementation

When you execute a complex project, you will have a great multitude of tasks. With a visual tool like the Gantt chart, there is clarity in implementing these tasks as they are displayed in a single document. It shows how the interplay of tasks come together towards project completion.
The clarity of mind to know how long a project should take for completion aids in the management of time, scope of work, as well as motivation. As Stephen R. Covey puts it “Start with the end in mind”. A clear plan which shows all that needs to be done and in what order helps decision-makers look farther ahead to ensure each given project is working toward the achievement the organization’s long-term strategic objectives.

The Gantt chart also promotes the concept of dividing and conquering, as it breaks project into smaller tasks and shows what is to be delivered in each project phase. This makes it much easier for the project’s tasks to be executed, and for the overall project to be successfully completed.

4. Concise Communication & Coordination

The Gantt chart helps to keep everyone involved in the project on the same page. This means that all stakeholders are able to possess the same information, where mutually understood expectations can be set and managed better. Project managers would then be better able to communicate concisely to subcontractors and lead them more strategically.

With this ease of coordination project managers would have the ability to sequence events and break projects into smaller manageable tasks, which ultimately prevents overburden

5. Increased Task Efficiency of a Team

A team member can start on another task while waiting for a dependent task to be completed by other members. The Gantt chart helps one to focus on what truly needs to be done, thus making you more organised and allowing for a more successful project.

With better focus, there will naturally be better time management. This useful tool helps to foster greater collaboration, with the ability to see the impact of delays of tasks through understanding task relationships. Eventually, this ensures optimum work flow, maximised productivity and overall project success.

Disadvantages of using Gantt charts

1. Danger of being too detailed

If you become too detailed, you might end up losing sight of the bigger picture of the project. Hence, it is always a good practice, especially for big businesses, to have project managers overseeing each project that they have undertaken.

2. Size of bar doesn’t indicate amount of work to be done

The Gantt chart serves to give just a general gauge of tasks. The bars of the Gantt chart does not show how much work each task will involve or the amount of people or resources each task will require.

3. Need for constant updating

A Gantt chart can be quite troublesome to update. As tasks are completed or reviewed, the chart will need to be updated frequently to reflect those changes. Any amendments to the chart takes time to be carried out, which can be better spent working on the actual tasks.

4. Difficult to see on one sheet of paper

On occasions where the project is more complex, it is difficult to show details of the plan, and charts can be too large and hard to read.

How to create a basic Gantt chart

Now, let us explore more into creating a basic Gantt Chart.

Step 1: List down the main phases of your project
Step 1

Step 2: List down the tasks associated under these phases
Step 2

Step 3: Fill in the start date and the estimated duration (days) which you think you can complete these tasks
Step 3

Step 4: Insert a 2D stacked bar chart as shown in the picture
Step 4

Step 5: Click on “Select Data” under Chart Tools > Design
Step 5

Step 6: Click “Add”
Step 6

Step 7: Enter “Start Date” into the series name field and select series values as shown
Step 7

Step 8: Click “Add”
Step 8

Step 9: Enter “Duration” into the series name field and select series values as shown
Step 9

Step 10: Click “Edit”
Step 10

Step 11: Select the range of cells as shown
Step 11

Step 12: Right click on the y-axis and format it
Step 12

Step 13: Check “Categories in reverse order”
Step 13

Step 14: Right click on the x-axis and format it
Step 14

Step 15: Use the following settings for the formatting
Step 15

Step 16: Right click on the “Start Date” series and format it. Select “No fill”
Step 16

Step 17: Right click on the earliest “Start Date” and click on “General” as the category. Note down the number (eg. 42370) and then click “Cancel”.
Step 17

Step 18: Right click on the latest “End Date” and click on “General” as the category. Note down the number (eg. 42442) and then click “Cancel”.
Step 18

Step 19: Right click on the x-axis and apply these two numbers under “Axis Options”. This is to accurately frame your Gantt chart.
Step 19

Step 20: Adjust your Gantt chart to the most suitable size and you’re done!
Step 20

Here are two video walkthroughs to help you better understand the steps.

Simple Gantt chart

More complex Gantt chart