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Mergers & Acquisitions
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The Merger

Why Understanding This Tool
Could be of Great Value to You

Y
ou could be missing out on the best opportunity that is available to you in today's erratic business climate. It's no wonder that it's missed your attention. Somewhere in those sixty hour weeks that you put into guiding your business you've had to deal with myriad problems and issues. In an effort to increase profitability and enhance value, you have been feeling like you are swimming upstream against the slow economy. You've thought about selling the business but, it just doesn't feel like the best time for you to do it. So you have made the executive decision that the best thing that you can do for yourself and your company is to hang in there for a few more years and grind it out. Its time you became aware of
"...a tool that is right at your fingertips that can exponentially increase your company's value faster than you can imagine."
a tool that is right at your fingertips that can exponentially increase your company's value faster than you can imagine. This tool is called the merger.

For the sake of clarification, here are a couple of traditional definitions of some important terms. An acquisition occurs when one organization (Buyer) acquires another (Seller). A merger occurs when two organizations unite to form one enterprise. There is no asset or stock sale that is consummated in a merger. However, the process to achieve a successful merger is just as treacherous as an acquisition. Therefore, you must employ a professional firm like Aspen Mergers and Acquisitions to guide you through the turbulence. Let's first

"...the process to achieve a successful merger is just as treacherous as an acquisition."
examine an example of a successful merger and then outline the most important ingredients involved in this type of a transaction.

Here is just one example of how a merger between two businesses can create great value for both sets of owners. Company A has a sales volume of approximately 5 million dollars. It has had a wonderful corporate history and commanded a high level of respect from its clients. However, the company was encountering some fairly severe cash flow problems due to a slowdown in business and some increases in the firm's cost base. To the owners, each month became critical as cash had to be input into the business to keep it afloat. All indications pointed to a turnaround in just a few months so the owners decided to do all they could to get the business through this difficult period. Even more unnerving was the fact that they had received an offer to sell the company only two years ago at a substantial profit. Now all value had been lost due to the decreasing profits and only time and improved results could get them back to that same point.

Company B was a similar business that was located within a 25 mile radius of company A. As you might guess, the companies shared some similar clients and thought of each other as competitors. Company B had a sales volume of approximately 7 million dollars and was currently operating at about a break-even on the net income line. This company operated out of a facility that had additional floor space available for growth.The owners of both firms had heard of each other's companies but, they had never personally met or talked

"Through the assistance of a professional organization like Aspen Mergers and Acquisitions, discussions were initiated..."

Through the assistance of a professional organization like Aspen Mergers and Acquisitions, discussions were initiated and a defined process was instituted. The net result of these discussions was a merger between the two companies. Company A physically moved in with Company B's facility and took advantage of the elimination of duplicative costs. The increased throughput provided the new entity with enhanced productivity. Senior management was organized so that each manager was able to focus on their particular strength. This had become possible as the discussions leading up to the merger gave the parties an opportunity to honestly evaluate their individual strengths and weaknesses. This exercise led to the formulation of a senior management team that was well prepared to propel the company in a positive future direction. Moreover, the merger provided increased customer service, the ability to obtain better discounts from their vendors, increased employee benefits, and the focus to increase product marketability and penetration. Keep in mind that these results came through the unification of two underperforming firms.

These are the perfect scenarios where an investment banking firm like Aspen Mergers and Acquisitions can make all the difference. By laying the groundwork for a successful communications channel between the two firms, Aspen can begin the process of breaking down any barriers that might exist. More importantly, once the proper protection has

"Aspen can merge the income statements to uncover areas of cost duplication and other potential cost saving areas that create a very profitable new entity."
been put in place, Aspen can merge the income statements to uncover areas of cost duplication and other potential cost saving areas that create a very profitable new entity.

Owners are frequently surprised at the results of this endeavor. In the example above, the two firms that were almost valueless operating separately as independent firms, created significant EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) through the merger. Cash flows were enhanced through cost duplication reduction and corporate value was exponentially increased for both sets of owners through the formation of the new entity. Aspen Mergers and Acquisitions can also formulate a productive physical move program in order to minimize costs and downtime.

Determining the new company's equity percentages and debt levels must be carefully undertaken through a complete analysis of on and off balance sheet accounts. Aspen will work diligently with the owners to negotiate the best outcome while simultaneously building legal protection for the new firm. These issues are extremely sensitive but, critical to a successful outcome. The skill and knowledge of a third party such as Aspen is absolutely essential and assists in lowering any potential tension between the parties that may rise out of these types of discussions. By guiding and facilitating these discussions, Aspen can look for the proper mix of components that offer the owners minimum distraction from their businesses coupled with maximum return from the successful transaction. Given the great positive effect that mergers can create, what then are the most important things to look for in getting a successful merger effort started? Here are some extremely important points to understand:
  • Don't try to get started on your own As you might imagine, getting this process started is difficult and sensitive. You need to understand that you must have a professional firm, like Aspen Mergers and Acquisitions, that is familiar with this process to make the initial contact and to set up the proper framework for discussions.
  • Good Chemistry Some of the initial meetings will be designed to test the chemistry between the parties. It's almost imperative that the two sets of owners decide that they can get along well together after the merger.
  • Geographical proximity The ideal situation is for the companies to be located within a fairly close proximity of each other. Among other things, this is important for employee and customer retention
  • Different sets of customers of the total mix of customers between the two firms, the great majority should be different. It does no good to merge two firms with exactly the same set of customers.
  • Duplicate cost elimination Instant profits are created by bringing the companies together and eliminating duplicative costs. In order to do this, the owners must be willing to make hard decisions regarding employees. This is another area where Aspen Mergers and Acquisitions plays an extremely meaningful role.
  • Management skill levels Managers must assess their skill levels in order to determine the proper management mix after the merger. Skills must be honestly assessed and analyzed before deciding on the final management structure for the new entity.
  • Exit strategy Since a successful merger will build corporate value almost instantaneously, discussion regarding an agreed upon exit strategy should take place before the finalization of the merger. Owner should understand each others objectives in order to avoid unnecessary conflict later on.
If you would like to investigate the merger opportunities available to your firm, we at Aspen would be pleased to assist you. Unlike many
"Unlike many other investment banking firms, Aspen has chosen to not charge up-front fees to potential clients."
other investment banking firms, Aspen has chosen to not charge up-front fees to potential clients. In fact, we will not be compensated in any fashion until we successfully close a transaction for you. We will be honest, direct and thorough before moving forward with you. We believe that it is this type of personalized service and attention to detail that has served us well with both buyers and sellers over the many years that we have been successfully involved in the mergers and acquisitions arena.

Mergers are going to be utilized even more throughout 2003 and beyond because business owners will continue to look for innovative ways to increase profitability and company value. It simply comes down to businessmen today doing creative things that make their organizations better tomorrow. The future will belong to those who make the hard decisions today.

Robert A. Veri
CEO