Revisiting the Topic of “Is 2011 the year of M&A, IPO or the return of Private Equity ?”

February 28, 2011

In 2010, I kept getting asked about this – it seemed to be the topic de jeur in many of the meetings I was in during H1 of 2010.

Check here for a link to the 2010 blog entry I wrote.

As I said last year, everybody has their reasons why they might favour one dominant approach (M&A versus IPO versus PE Funds) over the others, and ultimately that’s what it tends to be … people pushing their own wheelbarrow on the coat-tails of one of these types of trends.

Irrespective of which one ultimately dominates during 2011, there are some things we can definitely observe and therefore make some educated guesses about:

  • Mergers & Acquisitions will continue to be very busy during 2011, continuing what happened in 2010 with industry consolidations and tactical acquisitions.
  • The number of attempted IPO’s in 2010 was only a small % of the successful ones. In 2011 this % will be much higher, and also be based on a much higher number of attempts.
  • Private Equity got a bit of a run-on during 2010, but is still being brought unstuck by having to hold onto the trading operations for much longer than they used to.

Now, whilst those observations are very much SFW, there are some specifics to consider.

M&A.

  • M&A activity will actually be stronger again in 2011 than in 2010, last year it was about businesses leveraging their balance sheets again. In 2011 it is all about growth by acquisition.
  • Businesses were being picked up at 3 x EBIT early in 2010 it got better through the year – but didn’t get to the 6 x EBIT I thought it would. However, roll-ups have intrinsically greater value than a tactical acquisition and this is being borne out by some of the multiples being achieved.
  • At the larger end of town hiring of staff has become very tight, in the SME space it isn’t as tight but this is because they’re being less picky. As always, acquisition is an easier way to get the right people (then you just have to find a way to keep them !!).

IPO’s.

  • Public interest/appetite in solid businesses looking to list has continued to increase, and will do so throughout 2011.
  • Trading conditions are still very fragile in some sectors, so whilst IPO’s are a viable option again, there is definitely enough downside risk to require caution.
  • There are some heavy duty businesses looking to list, an example is the iSelect business in Australia which I gather is looking to IPO and list towards the end of 2011.

PE Funds.

  • The Facewash/Strip/Sell strategies are still not viable because of the EBIT multiples available.
  • PE Funds have had to hold and run businesses for the last 2-3 years, previously they’d have been out in 12 mths.
  • The PE Funds have now got a totally different skillset/timeframe/approach courtesy of the GFC.
  • Providing that trading conditions improve there will be a number of PE Funds looking to offload businesses during 2011, as they seek to reset their investment strategies for the growth times ahead.

Given all of the above, it will be a very active and interesting year for Corporate Advisory firms (like ours) and for those businesses out there that have a good story to tell.

Feel free to contact me if you want to explore this topic in greater detail.

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Top Qualities that the Best Leaders Show

February 22, 2011

This is just a quick posting, on a topic I get asked about often enough to warrant it’s own entry.

What are the qualities/factors that the best Leaders have ?.

Top leaders…

1. Visionary: They have a very clear understanding of where the organisation is going and a clear strategy for getting there.

2. Communicate Well: Great leaders ensure that their message gets across to all in the organisation – clearly.

3. ‘People’ People: Top performing leaders build great relationships, and also develop excellent team spirit.

4. Delegate: Great leaders do just that – Lead. They let their people get on with the doing – and encourage them to do it well, and enjoy it.

5. Know Their Business: Not only visionary, they’re strategically sound. Top leaders truly understand their business inside and out, good and bad, and firmly move it on – they make the difference.

6. Are Role-Models: They lead from the front, and have the values of the organisation and their people. They say it , and also do it.

7. Build Rapport Quickly: Excellent leaders have a way of building rapport instantly, through what they say, how they look and especially how well they listen and value people they’re with.

8. Charisma: They quickly create rapport; they communicate well … and there’s something else – they have a personal style which ooozes that extra something … great charisma!

9. Very Determined: Whilst having great people skills, truly great leaders go that extra mile – they are follow-through to achieve their goals and vision. They’re totally ruthless, but in a people-friendly way.

10. Passionate: Great leaders bring immense energy to every task – no matter how big or small – because the Leader knows they all contribute to the business goals and vision.

So, where do you find Leaders ?

They can be found anywhere and everywhere – not just as CEO’s, Directors or Supervisors.

The key to discovering Leadership talent is in finding the people with passion and helping them to express themselves in ways – through support, training and learning – that bring out their best and deliver all the extra benefits to a business that leaders naturally bring.


Leadership, Should I Decide with My Head or My Gut?

February 22, 2011

Many years ago, when I was younger and less experienced in business management, I was chatting with the MD of the company I worked for.

We were discussing risk management, as I’m a PMP certified Project/Program Manager and have been for over a decade.

We talked about Risk Management frameworks, and for him it all boiled down to his “gut” in terms of whether the risk seemed acceptable or not.

Now don’t get me wrong, he didn’t just make all decisions based on his “gut” – but it certainly did drive him in terms of requiring more/less validation before making the final decision.

At the time I thought, there must be a better way than just “gut” for determining this sort of thing.

Now, years later, I tend to agree with him. Your gut-reaction to a decision definitely gives you a sense of comfort or foreboding about a decision and its consequences.

So, this leads to the topic of Leadership and the soft-skills associated with being a good leader. Read on for further details.

What is Intuition ?

In simple terms, intuition is when we know something or know what to do without necessarily knowing why.

What to do just comes to us in a flash of insight. Some intuition is instinctive. For instance, if someone starts running after you with an axe, you will most likely have the instinctive (and intuitive) response of either defending yourself or running away. Moreover, your reaction would be entirely rational.

Other intuition is the result of years of training and knowledge building. Police officers, firefighters, military commanders, emergency medical care providers, airline pilots and many others spend years in learning and honing their skills in order to react in an instant with the optimal solution.

Intuition …. So What ?

Our society expects specialists like those I’ve covered above to make high quality intuitive decisions quickly and accurately and then execute them effectively.

A surgeon with many years’ experience in the operating room has much better intuition than a newly-graduated doctor. The same goes for a highly experienced fireman.

In his bestseller Blink, Malcolm Gladwell describes how a veteran firefighter was able to “sense” a change in situation and order all of his crew out of a house just before it collapsed. He was unable to identify the steps in his decision; he just “knew” that it was time to get out.

The same goes for experienced leaders and executives in all walks of life. With many years of life experience, they can just tell if someone “has it” or doesn’t, and no amount of rational deliberation with convince them otherwise.

However, not all intuitive decisions are equal; and in fact some are wrong – or very wrong.

Experience, and in particular depth of experience, is a reliable indicator for a “good” outcome. Conversely, some situations are so novel, that intuition is next to useless and can even be counterproductive. In that case, deliberate decision making is needed in order to think through the factors impinging on the decision and to ensure that a variety of courses of action are considered.

The key here for a business leader is to consciously know whether they have direct or empirical evidence of an intuitive recommendation being “good”. If the answer is YES – follow your intuition; if the answer is NO – you will to take a more deliberate (and deliberative) and therefore rational approach.

Intuition versus Deliberation

As a guide, the following situations lend themselves to intuitive responses because of immediacy:

  • During an emergency, that requires an immediate response in order to save lives;
  • When there are direct threats to physical safety;
  • When a team has gotten lazy or overly reactive in the face of risk, and requires inspirational leadership to fix the situation.

There are situations where both Intuition and Deliberation are suited:

  • When you’ve been made an offer for the sale of your business;
  • When you’re considering “dropping” an existing client;
  • When you need to take action to correct the behaviour of a team/staff member;
  • When you’re considering a merger with another business;
  • When you’re considering taking on another business partner;
  • When you’re considering Product/Service extensions to your business.

Most other situations have enough time built in to them to allow at least some level of deliberation. It is prudent to involve outside experts and to form an advisory team when faced with unusual situations that will require imagination and resolve to turn around.

Finally, intuition does play a role in deliberate decision making because of its ability to generate deeper insights and provide innovative solutions.