How to marry a millionaire
- 11 August, 1999 12:56
Understanding factors that affect the market for mergers and acquisitions is paramount for any company with a growth strategy. But while a wide range of investment advisory services are available to well-established businesses, small-to-medium size companies in pursuit of the dream of their "first million" often don't know where to look when in need of strategic advice or capital investment. Sydney-based Business & Strategic Resources was established nine years ago with the aim of filling that void at the small end of the Australian business strategy and investment market. As a licensed business broker, its core activities revolve around packaging business for sale and coming up with a marketing strategy to maximise the value of a business. Tamara Plakalo recently sat down with the company's founder Richard Lamrock for a "strategic" chat on business advisory and investment services and ITARN: How did you decide to go into IT "matchmaking"?
Lamrock: The IT industry is undergoing enormous change in the way technologies are going and the way services are delivered, and structural changes in any industry give rise to mergers and acquisitions trends. In the last six months, the amount of money that has been made available to IT businesses has probably doubled, which is fuelling the trend even more. So this is an extremely competitive market that has a very legitimate and defined role for an intermediary in the area of selling and acquisition. There is clearly a strong need for advisory services that would offer business an independent assessment of such moves and guide them through the process and this is what we decided to get into a couple of years ago.
You mentioned that Business & Strategic Resources has a "unique approach" to marketing and maximising the value of IT businesses. What makes you stand out from other companies offering similar services?
A business that is being sold has got a limited number of people that are looking to buy it and the skill in this exercise is identifying who those parties are and approaching them in complete confidentiality. How you go about identifying who your buyers are depends on your knowledge of the industry, the extent of your database and the extent of your knowledge of people's acquisition strategy. If you came to me now with a services business that you wanted to sell, I could list you 10 or 12 companies that have a strong interest in looking at acquisitions in the service area. Now, there are a lot of advisory groups around who offer this sort of service to larger companies, but at the smaller end of the market, where the majority of companies reside, it is very hard to find a good adviser. It is fair to say that this end of the market is the most difficult arena to work in, which is why it is so hard to find advisers for startups, and that is our niche market.
So how can a startup company looking for guidance in the area of business strategy development and, perhaps, ultimately for a buyer, make sure that it is getting the best deal from its adviser or broker?
There are quite a few things a company needs to do to make a business ready for sale or investment-ready. Having a very clear presentation, an information memorandum as to what the business's goals are, where it is going and what its strengths are is very important, even though it is a very small part of the process. When a business sale or capital raising is going ahead, there are a lot of people to be informed as to what a business does and what it can do and that can only happen through having a quality business presentation. Otherwise, a lot of important information can be lost in the introductory process. They can either write it themselves or commission someone to do it for them, but the best ones are obviously written by the company with some guidance from the outside.
But how can they make sure that a broker they choose is the right person for the job and, more importantly, how do they go about finding them?
That is not easy at the small end of the market. Once you're a substantial, for example a hundred million dollar company, there are many places you can go to, such as merchant banks or large accounting firms that have great advisory teams that love to take care of large projects and that's where those sorts of companies start. But, at the smaller end of the market, there are a few small corporate advisers and a few independent parties around that work in that area and some of those will shy away from startups all together.
That's the most difficult area to find an adviser in, because this is the type of business where people's time is valuable because they've got to work to add maximum value to a transaction.
There is a small network of independent advisers, like myself, who specialise in that end of the market and the first thing that a company that is looking for an adviser has to look at is the track record. An adviser that has worked on similar projects, has been successful in guiding a startup and raising the investment money for a company is a given, and it's really the first thing they need to consider.
A less obvious thing that needs to be assessed is the adviser's contact base and that, as well as finding the right company or person to represent you, can be done only through networking. I don't know of a list of people who provide advisory services for startups in the IT industry, for example, so it is very important to go through different networks to find out that sort of information.
And bear in mind that finding an adviser is not an easy process. You might go through several referrals before you find the right one.
Current market trends suggest that this is as good a time to go out and maximise the value of your business through investment and pursue your Microsoft dreams as any. For a startup that has decided to go down that path, what are the key points to remember?
Given the amount of activity in the investment market at the moment, this is really a great time and a great opportunity for IT businesses to address strategic growth and investment issues.
If they don't address it and if they don't make an effort to understand it, they may miss out on a great opportunity as - in the stock market and the venture capital area in particular - there is more money now than there has been for a long time.
I'm not saying that the market will go down, but there are a lot of companies out there looking to make acquisitions in Australia, so opportunities are there and Australian companies have to be aware of what's going on.
They have to think about these issues and how they may affect them, they need to think about what they might like to do with their businesses in the future and take advantage of the current climate.