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Présentateur :
Date:
Ian Craven
October 31st, 2013
Negotiating with Commercial
Organizations to Create the
Best Business Partnership
CANDO 2013
National Conference and AGM
Page 2
About MNP
•In business since the 1940’s, MNP has grown to become one of Canada’s
leading business advisory and accounting firms.
•Over 70 offices in urban and rural centres across Canada,
•Over 2,200 team members and 500 partners providing a broad range of
expertise to our clients and the full range of accounting, tax, consulting,
valuations, aboriginal services, corporate finance, forensics and insolvency
professional services.
Our teams provide world class expertise, in-depth knowledge and personalized
service to find the right solutions for your organization.
Page 3
IntegrateNegotiateInvestigateAnticipateFormulate
Taken from Delta Publishing Company 2009: A Practical Guide to Mergers, Acquisitions, and Divestitures
A Comprehensive Approach:
Page 4
• Meeting your objectives
• Formulating a Business Strategy
• Define Business Criteria
IntegrateNegotiateInvestigateAnticipateFormulate
Formulate
Page 5
Economic Objectives
• The key objectives that your economic development
activities are aimed at
• The objectives will be used to define the criteria for you
to consider whether or not to enter into a business
arrangement
• Examples:
– Employment for community members
– Generating wealth for the community
– Ownership of assets
Page 6
How Are Economic Objectives Defined?
Strategic Plan
Objective Objective Objective
Objective Objective Objective
Economic
Development Plan
• Your Economic objectives should be
designed to support your larger Strategic
objectives
• Work backwards from your Strategic
objectives and ask, “How can economic
development support that?”
Page 7
Formulate Your Business Strategy.
• What are the opportunities?
• For every First Nation it will be different and dictated by:
– Geography and Location
– Population
– Resources
– Knowledge
– Capacity
Page 8
Balancing Capacity and Opportunity
Objectives
CapacityMarket
The more your objectives
are balanced with the
potential that exists in any
particular market and the
capacity you have to
deliver and serve that
market the more realistic
your opportunities are.
Opportunity
Page 9
An opportunity may be a request for
a Partnership or Joint Venture
• Reduce/Minimize Risk
• Access needed information and resources
• Build credibility with a particular market
• Extend market reach
• Access new markets
• Utilize non-financial capital
Page 10
Formulating a Business Strategy
The starting point to consider a business opportunity is to
ensure there is good strategic reason for doing so. This
begins by reflecting on the strategic drivers that have been
set out for the community for its future development and
make sure any business venture serves those strategies.
Page 11
Business Criteria
Prepare a set of very clear objectives and parameters that
must be met to consider a business venture.
Consider:• Services, products, production
• Markets
• Start-ups vs. expansion
• Existing experience and performance
• Competitiveness
• Capacities
• Integration vs. independent
• Regulatory and corporate issues
• Leadership, governance and management
• Culture
Page 12
• Identify a target of interest
• Assessment and Research
• Agreement of Intentions
• Dealing with Confidentiality
• Disclosure and Review
• Determine team necessary to
complete the deal
IntegrateNegotiateInvestigateAnticipateFormulate
Anticipate
Page 13
Identify a Target of Interest
• Consider your situation
• What is going on in your region/market?
• What may interest your community?
• Do you want to actively pursue a potential opportunity?
• Do you expect opportunities to come to you?
• Targeting strategically
– Industry Sector – Business Opportunity - Major Players
– Target or Target List
Page 14
A Target has been identified.
• Either…
– You have identified a potential target of
interest…
or…
– Someone has approached you to partner with
them in a particular business venture.
• Now you have to anticipate if this MAY be
a potential for a partnership.
Page 15
Initial Assessment – “Quick Look”
(at the proposed line of business)
Before putting time and effort into a lengthy due diligence
process, complete the initial assessment by reviewing the
available documents and answering some basic questions
to determine if it is worth further investigation.
Page 16
Initial Assessment – “Quick Look”
• Review the proposal or offer and any public information
you can obtain
• Read public information available: media reports, public
financial statements and reports, marketing materials
• Are reports negative or positive? What do the critics
say?
• It this proven to be a good business to be involved in?
• Look at others in the same business. How are they
doing?
Page 17
Do Your Research
• Definition of Research:
– Searching or investigating a subject carefully in order
to discover or revise facts, theories, etc.
• Why?
– In the interest of an acquisition, partnership, joint
venture or new business, you will want to complete
research to find out as much information as you can
on the presented business opportunity to validate or
challenge the value to you
Page 18
Information You Can Collect Via Research
• Technology
• Environmental issues
• Distribution channels
• Operations
• Laws that will affect you
• Location / lease
information
• Competition
• Industry trends
• Customers
• Economy
• Statistics
Page 19
Assessment of Risk
• Answer key questions:
– What is the chance the business will
fail or not meet expectations?
– How serious is the impact if it fails
or does not meet expectations?
Page 20
Go – No Go Decision
• If your initial assessment passes
your criteria then you proceed to
the next phase of investigation
Page 21
Setting a Plan For Detailed
Investigation
• The next phase requires investigation of “company
specific” and “deal specific” information
• If a partnership or joint venture you need to learn about
your partner
• Agree on timeline
• Enter into agreements to allow you to see confidential
information
• Proceed with due diligence
IntegrateNegotiateInvestigateAnticipateFormulate
Page 22
Letter of Intent or
Memorandum of Understanding
A Letter of Intent should address the following components:
• General scope of financial transaction agreed
• New partnership or share in existing business
• Timelines agreed upon
• General agreement on assets and business units
involved
• Assumption of debt-requirements
• General agreement on potential governance structure
• General agreement on integration vs. Independence
• General agreement on potential organizational structure
• Agreement on technologies
• Agreement on compensation, benefits and incentives
Page 23
Confidentiality
• Present a letter of intent to the target partner and enter
into a general agreement of confidentiality terms for
proceeding with due diligence
• Terms include the conditions and length of term that
would be covered under the confidentiality agreement
IntegrateNegotiateInvestigateAnticipateFormulate
Page 24
Disclosure and Review
• Review:
– An inspection or examination by viewing something –
corporate information
• Disclosure:
– The act of uncovering, divulging and revealing any
information pertinent to a transaction to an
organization outside of their entity
IntegrateNegotiateInvestigateAnticipateFormulate
Page 25
Now You Are Ready to
Investigate the Deal
IntegrateNegotiateInvestigateAnticipateFormulate
Page 26
• Due diligence analysis
• Findings summary
• SWOT analysis
• Price Recommendations
IntegrateNegotiateInvestigateAnticipateFormulate
Investigate
Page 27
Due Diligence
1. Financial Strength
2. Contractual history
3. Operating history and experience
4. Purchasing relationships
5. Employees – retention and history as an employer
6. Safety history
At this stage, a certain level of due diligence investigation
should be conducted on your partner:
Page 28
Due Diligence (continued)
7. Short and long-range corporate objectives
8. Executive personal views and priorities
9. Technology; Financial systems and management
systems
10.What intellectual property do they own?
11.Culture and human resources; What procedures exist in
their businesses for hiring, firing, promotion, training, etc.
12.Outstanding legal issues
Page 29
Where is there synergy?
• Consider “synergy” and the value and importance of it in
a partnership or joint venture arrangement. Synergy is
simply defined as how both parties will gain advantages
by working together
• Synergies can also provide additional value to a buyer
that is not otherwise available.
If you cannot clearly determine why you are better off
working together then maybe there are no synergies and
no reason for you to be in this business.
Page 30
Findings summary
The results of all investigations should be documented and
organized for future reference. It should include both
financial and non-financial findings and results.
Page 31
SWOT Analysis
Strengths
Strengths Weaknesses
ThreatsOpportunities
Internal characteristics of
the business that give it an
advantage over others in
the industry
Internal characteristics
that place the business at
a disadvantage relative to
others
External potential to find
additional positive effects
in the market
External elements that
could cause trouble for the
business
As part of the
summary
findings,
conduct a
SWOT
analysis to
help sort
through the
positives and
negatives of
the business
proposal.
Page 32
FINAL Assessment of Risk
New business ventures must pass a comprehensive
assessment of risk from 0 (no risk) to 10 (very high risk).
Identify whether the risk creates a red, yellow or green “flag”
according to the following scale.
8 to 10 - red4 to 7 - yellow0 to 3 - green
Characteristic Rating
(1 High to 10 Low)
Flags Comments
Green flags provide the “go-ahead” to move forward without
concern. Yellow flags provide a caution. Any red flags if not
changed should kill the deal.
Page 33
After all the work is done and you
still want to proceed...
• Next you need to think
about:
– Price and value
– Structure – how do
you want to
participate?
Page 34
Transaction Evaluation
• Determine the Value: Is the value of the deal being
proposed (business/asset) worth the price?
• The value of a business is a reflection of four key
elements:
– Assets
– Technology (intangible assets or intellectual property)
– Cash flow
– Synergy
Page 35
Return On Investment
• Net Cash Flow
• Payback Period
• Internal Rate of Return
• Risk vs Return
• Other benefits
Page 36
Structuring
• Decision Control Considerations
• Sharing the Earnings
• Components of the Structure
– Cash
– Earn out
– Vendor take back
– Shares or Partnership Units
Page 37
Price Recommendations
The following are factors to be considered in determining
the price to be paid for a business:
• Financial health
• Type and stability of operations
• Maturity of business
• Degree of competition
• Tax consequences
• Expected return on assets and sales
• Employee relations, such as the absence of unionization
• Risk level
• Corporate characteristics
Page 38
Price Recommendations Continued
• Management quality
• Marketing position
• Economic environment
• Political environment
• Structure of the arrangement
• Improvement in diversification and or/integration
• Ease of transferability or ownership
• Exchange rate fluctuations
• Legal issues
• Industry characteristics
Page 39
So now you know …
• What the business opportunity is
• What the nature of the partnership is
• What you should pay
• What your partner is like
• How you should be rewarded
• What the risks are
Page 40
• Secure key talent to do the deal
• Decide Negotiation Parameters
• Set deal terms
• Close deal
IntegrateNegotiateInvestigateAnticipateFormulate
Negotiate
Page 41
Using Professionals
• Professionals may include accountants, lawyers,
management consultants, bankers, business valuators,
engineers, etc.
• Benefits to using a professional advisor:
– Level of expertise and experience
– Specialize in specific areas
– Identify and reduce risks
– Availability and objectivity
IntegrateNegotiateInvestigateAnticipateFormulate
Page 42
Corporate Finance Specialists
• Assistance with negotiation, deal structuring, due diligence,
financing and post-deal transitional management support.
• A specialist would provide strategic advice at various
stages, from identifying appropriate targets for the
transaction to advising on the best way to finance a
transaction or receive payment.
• Provide forecast cash flow requirements for projects
• Provide internal rate of return estimates
• Complete a sensitivity analysis to external environment
factors such as industry economic outlook and interest
rates
Page 43
Chartered Accountants
• Assist in review of all the financial statements and
analyze quality of earnings
• Assist in review of tax issues.
• Assist in assessing the value of the transaction and the
considerations being exchanged.
• Assist in review of financial procedures and policies.
IntegrateNegotiateInvestigateAnticipateFormulate
Page 44
Management Consultants
• Can assess the business functions and provide insight
– Finance, Operations, Human Resource, Technology,
Marketing, Governance and structure
– Can carry out feasibility and business planning exercises
– Can help plan and carry out strategic, operational and
business planning for future developments
IntegrateNegotiateInvestigateAnticipateFormulate
Page 45
Legal Counsel
• Assess whether the business has complied with all
pertinent rules and regulations including environmental,
employment standards, safety, etc.
• Are there any outstanding commitments, charges, debts,
etc.
• Assist with completion of the transfer by completing the
necessary formal documentation
• Assist review of intellectual property or other confidential
information
IntegrateNegotiateInvestigateAnticipateFormulate
Page 46
Industry Expert
• Can provide knowledge of specific industry sector
• Can provide reasonableness test for revenues and
expenses
• Can have an opinion of the quality of the business
• Can provide recommendations for improved
performance
IntegrateNegotiateInvestigateAnticipateFormulate
Page 47
Decide Negotiation Parameters
A decision to move forward will be based on the findings
summary, the SWOT analysis and the price
recommendations.
Set Deal Terms
1. Price
2. Legal
3. Structural
4. Financial
5. Timing
Improve mutual
understanding
Expand scope of
discussions
Share information
about interests
Improve trust and
communication
Create valuable
options
The Deal-Relationship Cycle
Page 48
Other considerations in the deal
• Exit strategy
• Eliminate extraneous “deals” and “terms”
• Unanimous decisions
– What decisions require consent of both partners?
• Have clarity on key terms:
– Control
– Sharing of profits
– Cost definitions (ie Management fees) and how are
they approved.
Page 49
Secure Key Talent and Integration Teams
Know before closing the deal that integration leaders are
available to integrate the new partnership under the terms
being considered.
Close Deal
Negotiate to a final close on the terms of the transaction.
A final clearly set out agreement should be signed by all
parties.
– Partnership Agreement
– Unanimous Share Holder Agreement
Page 50
• Now the deal is closed, what has
to be done to integrate it under
your ownership?
IntegrateNegotiateInvestigateAnticipateFormulate
Integrate
Page 51
Integration
• Planning
– Who does what
– Communications
– Timelines
• Orientations
– Internal
– In the market
• Transitions
– Leadership and governance
– Technologies and asset adjustments
– Management
– Compensations
• Monitoring
IntegrateNegotiateInvestigateAnticipateFormulate
Page 52
