“Top 5 Private Business & Investment Articles of the Week” is a weekly series on the Axial blog which highlights the week’s best articles on buying, selling, and building successful private businesses. As always, please send any outstanding articles you think should be included in next week’s round-up to firstname.lastname@example.org; we’d love to consider your suggestions for inclusion!
Author: Elizabeth Olson
Here’s a great case study from last week’s New York Times, which examines the conflict that emerged after organic beverage maker Honest Tea sold a 40% stake in its company to soft drink giant Coca-Cola’s Venturing and Emerging Brands group. The controversy arose over Honest Tea’s use of the phrase “no high fructose corn syrup” on the packaging for its “Honest Kids” product line, which Coke felt was a dig at its own artificially sweetened product line.
We’ve written in the past about the culture clash that can occur when a major investor or acquirer comes into the picture, but the Honest Tea case study goes one step further: at stake here was more than an internal value (i.e. a workplace that promotes creativity), but the positioning of the product itself to the end consumer. As the article points out, Honest Tea founder Seth Goldman “believed that drawing attention to the absence of corn syrup was crucial to being true to the Honest Tea brand”.
The climax of the story comes when Goldman heads down to Atlanta to meet face-to-face with Coca-Cola executives, who had put in a “strong request” for Honest Tea to change the wording – check out the full article for a total recap of the conflict, and be sure to see this separate article that was posted a week later detailing the resolution.
Author: Anita Campbell
Regular readers of the Axial blog know that the issue of obtaining financing for a growing private business is one of our most studied topics. Last week we highlighted an article that examined the unconventional “equity swap”; in the past, we’ve discussed mezzanine financing and alternatives to bank loans.
These alternative approaches to private company financing may be increasingly necessary. As Anita Campbell at American Express OPEN Forum points out, community banks – once considered a “lifeline” for small business owners during the recession – are increasingly tightening the availability of credit. The change comes due to increased federal scrutiny in light of the community banks’ exposure to the weakening market for commercial real estate loans.
Author: The Private Equiteer
The Private Equiteer is one of our favorite writers on private business & investment topics. The blog refers to itself as “a vignette into the aberrant thoughts of a private equiteer”. In this issue, the author offers five of what he calls “private equity deal killers”, i.e. – particular characteristics of a potential acquisition that would remove a deal entirely from consideration.
Most interesting is the author’s motivation for penning such a list: he suggests that this type of list be used as shorthand to avoid protracted internal debate at private equity firms regarding what does and what does not constitute acceptable investment risk. The author’s conclusion is – “when in doubt, kill it” – may be seen by some as overly pessimistic, but to others it is merely another sign of the times.
The downside to such hard and fast rules, of course, is that they may preclude a firm from giving due consideration to what could otherwise be a fantastic investment opportunity. What about your firm – what are your “deal killers”? We would love to hear your thoughts in the comments.
Author: Rita McGrath
Seems like some of the executives behind the massive merger missteps chronicled by Columbia Business School professor Rita McGrath could have used a dose of the pessimism being dished out by The Private Equiteer!
In her most recent blog post for the Harvard Business Review, McGrath examines some of the most colossal M&A mistakes in the tech space over the past ten years (i.e. AOL acquiring Bebo for $850mm in 2008 before practically giving it away last month) and concludes that, “These are not isolated examples, nor are they the product of uniquely deranged management decision making.”
Instead, McGrath argues, these tech merger mistakes are the result of, among other things, too many untested assumptions, too little experimentation, and a “’damn the torpedoes’ attitude about investing”.
For a more principled approach to acquisitions, albeit from the perspective of a financial sponsor rather than a strategic acquirer, we recommend taking a look at an article we wrote explaining How Sequoia Capital Thinks About Businesses.
Author: John Warrilow
Small business exit strategy expert John Warrilow offers some insight into some of the tricks and traps that potential acquirers may set for a business owner as part of the due diligence process. We previously wrote an article detailing 5 of the most overlooked due diligence tips – Warrilow’s article adds to our list by highlighting some crafty strategies of its own.
The tactics may vary (our favorite is #1: juggling calendars), but Warrilow argues that the intent is the same: to “try to determine just how integral you [the CEO / Owner] are personally to the day to day success of your business”. Potential acquiring buyers are often looking to determine if businesses they seek to acquire has successfully mitigated “key man risk”, and where the company can operate smoothly and sustainably under a variety of circumstances.