6 Traits of the Companies for Fast Track Global Expansion
#Business, #CorporateFinance #JointVentures #Mergers #Acquisitions #InternationalBusiness
In the global market we live in today, companies like Google and Apple make it look easy to expand internationally with success. What is unknown to most be the amount of competition and strategy that goes into these expansions? Big names like Redbull, Google, Amazon, and H&M are just a few companies that have mastered their global marketing strategies and expanded beyond their initial customer bases. What are these companies doing differently that is leading them to success?
Value Opportunity to Expand
Diving into the unknown can deter a lot of companies from even taking the opportunity to expand their market. Those that see it as a negative opportunity are losing out on an even larger customer base that they could be profiting from. High-growth companies view international markets as untapped markets full of potential. These are the companies that become successful on a higher scale than those that stunt the growth of their company by not seeing the value in this opportunity.
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Understand Different Cultures
American companies that have a strong presence internationally often have a founder or leading executive on their team who is from a foreign country or a first-generation American. These executives’ worldly experience helps prioritize the global market and answer any unknowns. Companies without this knowledge should research and understand the different cultures they are tapping into in order to be successful in not only building key relationships that will open up doors down the road, but connecting with the right consumers as well. Companies that adopt an outside perspective will have a more globally focused marketing strategy, better cultural understanding and have a wider scope of expansion goals, making it easier to propel their business outside of their home market.
Turbo-charged by the Internet
Companies that invest in the Internet and produce web-based products are more likely to grow globally because there is less money involved in their international expansion. The most successful of these businesses is Amazon. This company is solely based on the Internet and was able to reach a global market with ease. H&M is an apparel company that has already been successful in reaching their international consumers through not only stores, but by optimizing the online experience of their online store. With an online shop available in 21 markets, including the US, H&M is doing everything in its power to create a user and mobile-friendly online shopping experience.
Carefully Chosen International Business Development Partners
Choosing the right partners to help you grow your company in other countries is vital. Without the right people to vouch for you in that country and build trust with the consumers, becoming the market leader could be close to impossible. Again, this means companies must be aware of different cultures and business practices among countries in order to connect, be efficient, and stay on the same page. Apple made a strategic partnership with China Mobile, the largest wireless network in the world. This partnership enabled Apple to become the number one Smartphone maker in China and beat out the previously dominating five local competitors. Before becoming business partners, know what you want and have clear expectations. Sticking with these goals will help you choose the right partners and tap into the right markets.
Measure Success
When expanding to other countries it is important to keep track of the success and make sure it is worth the company’s resources. Companies that are successful outside their home base are those that act fast. By keeping track of their numbers, they can act fast and learn from failures. By reevaluating the current strategy and finding new ways to innovate, it becomes easier to reap the benefits of the company’s successes.
Think Globally
The most essential characteristic of any successful international business is implementing a global way of thinking. If this is the main thought process behind a company’s decisions, the rest of their international marketing strategies can be implemented with ease. One company that has mastered their international strategy is Redbull. They have created such a global brand that most think that it is from America or their home country, yet Redbull calls Austria home. Its most successful tactic has been to host extreme sports events all over the world. From the Red Bull Indianapolis Grand Prix to the Red Bull Soapbox Race in Jordan, the brand’s powerful event marketing strategy takes them all over the globe and makes their brand an international product.
If companies support and welcome globalization, it becomes intertwined with their culture. Employees become globally-minded, engineers build software with other countries in mind, and the rest of the team follows. Going global is the key to ensuring your company’s growth and future is indomitable.
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INVESTMENT BANKERS ARE NOT VENTURE CAPITALISTS
There is a rather silly notion that–more often than not–stems from ignorance related to private, corporate investments.
That is, nearly all investment funds (private equity, venture capital, family office) and investment bankers fall within the same bucket. News flash: Investment bankers are not venture capitalists OR private equity investors.
Very few middle-market investment banks invest using their own funds. Very few have their own investment vehicles and, when they do, they typically are less inclined toward early-stage venture capital deals. Most private equity funds are interested in risk-sheltered, boring deals in steady-state sectors. Valuations, business models and investor types are all differentiating factors between investment bankers and venture capitalists. Here we will discuss some of these in more detail.
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BUSINESS VALUATIONS
There is a difference between a venture capital valuation and a valuation for M&A. One often bases assumption on forward-looking potential, while the other uses historical performance. VCs use pre and post-money as the basis for the “valuation” while the other looks at some multiple of the historical cash-flows, typically based on industry comparables. Both play the diversification game very differently and therefore treat business valuations very differently as well.
Venture capitalists want the lowest valuation with the lowest amount of capital infused for the associated risk–except in cases when they need to place funds and they have the opportunity to feed a unicorn.
Investment bankers are apt to push for the greatest amount of capital input and the highest valuations possible. Their commissions move in-step with both of those metrics. In fact, when investment bankers do work with venture capitalists on behalf of a client, they are typically at odds with them. There are some venture capital firms that refuse to pay the fees of intermediaries. It’s a picky mentality, that is not exclusively the curse of venture capitalists, but had among private equity firms as well.
ADVISING IS NOT INVESTING
In the valuation differences discussion above, we are speaking as though the investment bank itself directly invests in deals. While many investment banks have their own investing funds, most in the middle-market investment banking firms do not directly invest. They are typically the connecting link between buyers/investors and the issuers/sellers. They advise clients on the nuances of capital transactions (e.g. buy-side M&A, sell-side M&A and debt/equity capital infusions). They are not fiduciaries of investor funds. They do not have a investment “thesis” or “mandate.” Most are brokers and intermediaries, advising clients on their own transaction(s) with capital sources, they are not investors themselves.
Bulge-bracket banks differ here, but the general advise or invest rule holds true for most in the mid-market.
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APPLYING FILTERS
Fewer investment bankers work with startups than do venture capitalists. Most bankers like to see substantial revenues (again, the bigger, the better). Why? This is how investment bankers ensure they are able to truly take both front-end and back-end fees for the work they do. That’s not to say investment bankers are more picky than venture capitalists. Both rightly apply stringent filters on potential deals. They simply have different filters to keep out the riff-raff. As you might imagine, we receive an inordinate number of capital raise requests. So many, in fact, that I have automation email chains set up using appropriate tags as the trigger in our marketing automation and CRM system. The tag I regularly use is #RaiseCapital.
Both investment bankers and venture capitalists will put off phone calls, NDAs and “presentations” from companies until they know whether or not there is real meat on the bone or potential proof in the pudding. Such filters should be expected. If a company is unwilling to jump through the hoops, then they become one of the many self-filtered deals.
WHAT WE ARE AND WHAT WE ARE NOT
Investment bankers are advisors, intermediaries and brokers. They are rarely active direct investors, venture capitalists, private equity investors. If an investment bank invests directly, they typical do so through investment vehicles run by separate teams than those who manage the processes of their capital transactions.
The perfect example of “what not to do” comes from a request we had this week. The message included name, email, phone and location with the following text: “Need a loan.”
In the regulated financial services world, investment bankers are required to following “Know Your Customer” or KYC rules, so as not to provide investing advice to products unsuited for various investor types. While I would not assume the same scrutiny would be applied to company issuers looking to transact in some way, it would be very helpful if issuers applied some form of “Know Your Investor” principals to their outreach.
The more you know, the less you will look foolish and the more likely you will be to get a deal done with the right investor group. In fact, that’s the reason most companies hire an investment banker in the first place.
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E-COMMERCE M&A AND VC TRENDS AND INVESTMENTS
#Ecommerce, #Business, #M&A, #CorporateFinance, #InvestmentBanking
M&A in the e-commerce industry has generated substantial buzz lately, with 2017 again seeing the record broken for the largest e-commerce acquisition of all time. Most notably, Chewy.com, who was acquired by PetSmart for a whopping $3.35 billion, besting the prior record held by Jet.com when it was acquired by Walmart for $3.30 billion.
However, not all e-commerce companies have seen the same level of success, making it crucial to understand industry trends. This article covers both general mergers and acquisition deal activity and VC investment trends occurring in the e-commerce sector.
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NOTABLE DEALS
To fully understand the e-commerce space, it is important to be aware of some of the major transactions, which have had significant impact on the overall e-commerce environment:
- Petsmart/Chewy(April 2017) – As mentioned, this has been the largest ever e-commerce transaction to date ($3.35 billion). It signifies traditional retailers’ growing interest in the e-commerce model.
- Walmart/Bonobos, Modcloth, Moosejaw &ShoeBuy (2017) – Walmart acquired each of these in 2017 for over $50 million apiece as it looks to build its online brand presence. Walmart is hoping the strength of each of these brands will attract buyers to its online store.
Walmart/Jet.com(August 2016) – Walmart acquired com for $3.30 billion in order to have an online portal where it could sell its major brands.2 This was notable because it showed the pressure Amazon has put on Walmart to embrace the e-commerce model.
- Unilever/Dollar Shave Club(July 2016) – Unilever acquired Dollar Shave Club for $1 billion dollars in order to capture its loyal customers and its high-growth model. This transaction has been one of the first major subscription box models to see success.
MAJOR BUYERS
Many buyers of e-commerce companies are large, established companies that are seeking to buy out competitors and growth opportunities in their space. These e-commerce buyers vary greatly in the types of products they sell and most have only made a limited number of acquisitions within their individual retail niches.
The one exception to this rule are Walmart, Amazon, and Alibaba. These companies have dominated the e-commerce space in terms of total acquisitions made because their strategy depends on being a place where consumers can buy nearly anything. Walmart alone has made four acquisitions greater than $50 million this year.
INVESTOR TRENDS
It can be helpful to break down the e-commerce deal market into different types of buyers and investors to gain a clearer picture of the market.
Angels and Seeds
Early-stage investment from angels and VCs have been shrinking in the e-commerce sector for the past several years. In 2013, seed and angel deals made up 54% of total deal share in the space. That amount has fallen to 38% in 2017. This decline suggests that the industry is coming to maturity.
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Venture Capital
Total VC investment has been strong in 2017. These have markedly been coming at later points in company’s lifecycle. In 2013, Series C investment and beyond comprised 23% of total deal share. In 2017, that amount has risen to 34%. In terms of the number of startup investment deals, 2017 is projected to see 941, which beats last year’s 796, and puts it close to 2015’s 976. The following graph illustrates this point.
PE Funds
Private equity investment has been strong in terms of deal volume. As brick-and-mortar retailers continue to struggle, private equity funds have been attracted to the growth and streamlined approach of e-commerce companies. Pitch book data as of a month ago shows that while total PE e-commerce deal count this year is slightly below 2015 and 2016, it is already more than 40% higher than in 2013.
Strategic Buyers
Despite several recent high-profile exits, acquisitions by strategic buyers seem to be slowing down. The industry is also seeing more consolidation occurring prior to exiting.5 While 2016 saw 150 M&A exits, 2017 may end up with less than 90. Difficulty exiting has led some well-funded e-commerce companies to experience down valuations (such as Souq.com and Flipkart).
VALUATION METRICS
Some of the most important metrics to know when finding the value of an e-commerce business are as follows:
- Price/Sales – This metric is important for valuing e-commerce companies because many of them reinvest most of their earnings. This means that an EBITDA or net income multiple would not be very useful.
- Revenue Growth Rate – Faster-growing companies tend to be worth more. Looking at the growth rate over time can be helpful to see how quickly a company is maturing.
- Number of Customers – This is the biggest driver of sales and is key to understanding the scope of a company’s business.
- Customer Retention Rate – Look for this rate to either be flat or decreasing in the best e-commerce companies.
LARGER DEAL SIZES
Deal sizes tend to be trending larger as the industry matures. From 2013 to 2015, there were only two e-commerce deals per year that surpassed billion-dollar mark. That number jumped to 6 in 2016, and 2017 is close to repeating that.
INTERNATIONAL E-COMMERCE COMPANIES
China and India are the leaders in terms of the number of e-commerce companies that have raised over $100 million in funding. The United States comes in third, with other countries spaced much farther behind.
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FINTECH AND THE 4TH INDUSTRIAL REVOLUTION
Software and computer engineering are creating a groundswell for what many have deemed the fourth industrial revolution. This next wave in the way companies, technologies and people interact, work and live relative to one another is likely to be more transformative than any previous industrial revolution we have yet seen. The breadth and depth of the impact of this 4th revolution will quickly penetrate nearly every industry. Perhaps one of the most impacted will be the financial services world where antiquated tech has remained the status quo for many years. To fully appreciate the overall impact of the 4th “wave,” it will be important to first understand the history and origin of the other three industrial revolutions. It will also be illuminating to track some of the drivers of today’s industrial revolution as well as the general hallmarks and impacts on the financial services world.
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UNLIKE ANY OTHER
Central to today’s industrial revolution is the idea that engineering—namely computer and software engineering—will drive its current rate of expansion. It Would be Startups or Stabled Businesses in the Search of Corporate Finance, Investment Banking, and other finance related Services But first, let’s start from the genesis of such revolutions.
1 st Industrial Revolution. The first industrial revolution was built on water and steam to power transportation and merchandise production. It used heat, water and steam to power large mechanical advances in factories and transportation via railways.
2 nd Industrial Revolution. The second industrial revolution was fueled by the implementation of electrical power. Thanks to engineers like Thomas Edison and Nicholai Tesla, further expansion and mass production were made available. In addition, greater productivity was realized through the invention of devices like the light bulb and eventually smaller electric-powered devices created a productivity wave reached down to the masses.
3 rd Industrial Revolution. The third industrial revolution brought about the combination of information technology and electronics to automate everything from production to business processes. Much of this was powered by the personal computing revolution.
The 4 th Industrial Revolution stands on the shoulders of the Third in that it uses digital technology to facilitate and further automate systems and processes that required physical, human capital. This wave of automation is changing the way we interact with machines and computing. It is also blurring the lines between industries, technologies and the physical and digital worlds themselves.
This world is lot of great business ideas and ready for the next Revolution, but only a fraction of those would-be entrepreneurs ever find a way to finance their startups and dreams. Business loans are hard to come by and few people have the personal resources to finance a startup.
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HALLMARKS OF THE 4TH INDUSTRIAL REVOLUTION
One of the biggest trends of the digital revolution that will be different than all previous trends is the speed with which it will unfold. Previous revolutions evolved in a linear way. Most expect the 4th wave of industrial engineering to take an exponential growth path. New technology will help drive the revolution, but the interconnectedness of systems, processes and technology will drive impactful changes in nearly every sector at break-neck speed. The impacts will be system and industry-wide. There will be few that will be left unaffected. Here are some other detailed hallmarks we might expect to see from this digital wave:
- Technology will begin to substitute, not just complement, the work of other services including some of the most technically-driven services on the market. Engineers (including financial engineers) will not be able to pass the fray unaffected. I expect the impact to jobs may be greater than we might have expected.
- The delivery of products and services to fit the needs of demanding clients will accelerate. Supply chain and engineering will work together to quickly supply the needs of clients across industries. You thought Google and Amazon were spurring on “on demand” mentality for information and products? The Fourth Revolution will spur a further requirement in products and services at both the consumer and commercial level like never before seen.
- Competition for products and services will skyrocket. Delineation of tasks within organizations will become more focused, but expectations for understanding and being able to work across functions will increase. Traditional firms will look antiquated as many newer firms with much different models crop-up. Supply-side competitive dynamics are likely to look more like a mess of spaghetti.
- As engineering solves many of the issues that require regulation, including automating human processes required to keep people and programs in check and running smoothly, regulation will progressively be reduced, thereby loosening the current level of restrictions.
- Existing incumbents will not only be slow to react in the rapidly-changing environment, but there will be struggles to remain profitablewith antiquated business models. For the larger incumbents, the technology and intellectual property will create a hot-bed for Fintech M&A.
Mega-trends are brewing from this perfect storm of activity. The supply-side transformation will continue to manifest itself across the financial marketplace. The revolution involves more than simply efficiency and productivity gains. The disjointed disruption has yet to hit financial services at the same scale as Uber or AirBNB, but the wheels are in motion. Out-of-the-box solutions for technology-enabled finance will occur as boundaries drop. It is exciting to be in the middle.
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ALCORs Growth Solutions for Business Helps Corporate Companies in the Areas of Investment Banking, M&A, Private Equity and Corporate Finance.
ALCOR provides a one-stop solution in Investment Banking with world-class corporations and companies as its clientele. ALCOR expertise spans the spectrum of finance - Mergers & Acquisitions, Equity Financing, Debt Financing, ECB, Financial restructuring, and investment banking advisory. ALCOR has footprints across the globe and an extensive presence in India with over 48 regional offices. ALCOR serves a wide cross section of verticals, some of which are the following: Automotive, Power, Telecom, Electronics, Software, Real Estate, and Education.
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True to its global stature as a leader, ALCOR's business philosophy is driven by highest levels of integrity and honesty at the heart of business. ALCOR obeys and complies with the rules of the land . ALCOR’s erudite Directors are from Harvard, Oxford and other prestigious institutions. The execution Team comprises of internationally reputed and highly experienced finance personnel.
ALCOR leverages its strong global footprint and the value of its international board of advisors to provide its clients with high growth transactions across the globe. We use our international deal-making experience to deliver customized advice to clients on each transaction. We assist clients in evaluating international and domestic Acquisitions and Joint Ventures. Global Fortune 500 companies work with ALCOR to assess suitable targets across the globe for market entry or market share expansion. ALCOR solutions include Mergers & Acquisitions, sell side, & buy side advisory, leveraged buyouts & other types of corporate restructuring. Standing aloft with over a 100 man-years in cross-border M&A advisory & independent research & experience, ALCOR, delivers maximum value from their transactions. ALCOR understands the clients' unique business needs, keeping their objectives a top priority. We work with our clients closely, often over five years, to help the client realize the value of their value creation strategy. ALCOR's wide range of product offerings are tailor made to suit client growth requirements
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ALCOR worldwide team allows for targeted search, scenario mapping, synergy realization, and detailed road map with experience-driven cross-border M&A advisory that can be customized with minority buy-in, acquisitions, or even a 50:50 joint venture.
ALCOR uses strategic tools such as the Balanced Scorecard with tailored precision to define the following -
- Core defense
- Global customer revenue model
- Strategic high growth market entry.
- 360-degree growth model
- Intangible value proposition .Core foundation pillars
- Evolved value chain integration .Low cost global value partnerships and several other strategies.
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MEZZANINE FINANCING OPTIONS
Mezzanine financing has created opportunities for investors to secure cheaper alternatives to fund companies. The purpose of the article is to present an overview of mezzanine financing and discuss the various features of the debt. Included in the article is a discussion of the benefits associated with mezzanine financing as well as the risk and implications of incorporating mezzanine financing in a company’s capital structure.
CHARACTERISTICS
Mezzanine financing, also referred to as quasi-equity, comprises of both unsecured debt or second lien debt and has debt and equity characteristics. Mezzanine financing is a type of loan that is subordinated to the senior debt in a firm’s capital structure but is above the common stock or preferred equity. This form of debt can take the form of senior subordinated debt, convertible preferred debentures or as preferred equity. Such loans are frequently used for financing acquisitions or fuelling the fire with needed non-dilutive growth capital. Within a capital structure, it is junior to all debt. Mezzanine debt has a higher interest rate since the risk exposure is more than that of senior debt.
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The yields of mezzanine financing are the highest in the bond market and are riskier compared to senior debt. Mezzanine debt financing is usually based on covenant packages such as bank facility covenants or high-yield style covenants. The bank facility covenant often has maintenance covenants and is mostly based on the credit facility’s covenants. High yield covenants on the other hand, can shield a bondholder from unfavourable actions by equity owners and safeguard a bond’s priority of claims.
Mezzanine debt that is similar to high yield debt has components such as optional redemption and call protection provisions that are comparable to high-yield notes. Similarly, mezzanine debt that includes some components of senior debt has mandatory prepayments secured to debt and optional prepayments at par, at low or decreasing premiums. For example, some mezzanine notes can be redeemed at 105% of their principal amount in the first year following the note issuance, 104% in the second year, 103% in the third year and 102% in the fourth year.
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BENEFITS OF Mezzanine financing
- Mezzanine financing is valuable in the capital structure of a company. For example, the equity capital of a company is strengthened with mezzanine financing since equity holdings are not diluted.
- Mezzanine financing also enhances the structure and creditworthiness of a company and has a positive impact on a company’s rating.
- Like equity financing, mezzanine financing does not need collateral, thereby, companies have the flexibility to use capital to expand and to manage the operations of the company.
- The use of mezzanine debt reduces the amount of equity invested in a company and lowers the after-tax cost of capital. Additionally, the value of stocks held by current shareholders increases when mezzanine financing is integrated in the company’s capital structure.
- In general, companies that use mezzanine financing have the flexibility to structure covenants, amortization and coupons to adjust and cover exclusive cash flow requirements.
- Mezzanine investors benefit from mezzanine financingas it generates higher rates of return. Investors also obtain steady returns from mezzanine funding due to contractual agreements to make interest payments.
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Why publicizing M&A synergies is a big deal
When investors understand where a deal’s value comes from, they tend to reward companies up front.
Investors crave information—especially when it helps them understand the impact that a major strategic move might have on the value of their investments. A large merger or acquisition certainly belongs in that category.
Yet few companies talk openly about the synergies that are often key to a deal’s rationale, and the “rules of thumb” about how and when to share that information are based on little, if any, empirical evidence. I was struck by this recently when a client of mine who was working on a deal announcement received conflicting recommendations about how to treat synergies from four different advisors.
To get some hard answers, my colleagues and I recently looked at how synergy announcements affect a deal’s market value. First, we studied how often companies that made acquisitions in the past six years mentioned synergies when publicizing the deal. I was surprised to learn that only 1 in 5 actually did so.
As we delved further, we found that this seems to be a missed opportunity.
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Making M&A deal synergies count
Investors reward deals whose rationales they understand : Acquirers who disclose synergies in their announcements see bigger immediate share-price spikes than those who don’t. That’s true even though, on average, these companies pay higher deal premiums. In the long run, those that announce synergies also enjoy an extra 6 percentage points in two-year excess total return to shareholders (TRS) over those that don’t mention synergies.
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Explaining synergy benefits over time further boosts market rewards : As you would expect, when the projected long-term value of the synergies is greater than the premium the acquirer paid, investors are even more enthusiastic about the deal. Yet I’m surprised how few companies do the math to see if the implied synergies add up to justify the deal premium (after discounting for execution risk).
Offering updates on synergies captured pays off : Acquirers that keep the market abreast of synergy benefits as the integration proceeds are more likely to maintain the share-price boost they got at announcement time. Even those whose deals initially received a muted investor reaction often see significantly higher excess TRS two years after the transaction if they offer regular updates.
While there are limitations to so-called announcement effects , generally when investors understand where a deal’s value comes from, they reward companies up front. But you need to have a strong story to communicate, including distinctive rationales for cost, capital and revenue synergies; a timeline for when you expect them to be fully realized; and disclosure of any risks to successfully capturing them. Assuming you are have identified these elements before you pay a large amount of money (plus a premium) to acquire an asset, what’s the downside of letting your investors know? You only have the upside to lose.
Source - McKinsey & Company
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