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Three Things

Noah Stern Add to ...

FDJ French Dressing was bought by a group of Montreal businessmen headed by Groupe Corwik and Noah Stern. Mr. Stern, president of Levy Canada Fashion Co., was named CEO.

Three things on Mr. Stern’s mind about acquisitions and turnarounds:

1. Do your due diligence: The lawyers and accountants on any acquisition deal will have a comprehensive due diligence list that they each must vet, with the aims of protecting their client (you), and of course of protecting themselves against future liabilities. It is not enough. Important business issues will be brought to the surface only when the principles themselves dig deep into the target company’s business – its costings, margins and expenses, its business relationships with suppliers and customers, its inventory position, and so on. The best way to start the ball rolling in this process is to rely on and demonstrate trust in the employees of the target company, from the top managers down to the lowest paid employees. These people are worried for their livelihoods, for their jobs. They will offer you the most important information on the most challenging issues facing the company in every realm of its business, and you in turn can provide them with a sense of comfort and an understanding of the steps involved in and timing of any potential deal.

2. Forget the sizzle and look for the meat: Acquisitions are exciting, sexy things. As a former mergers & acquisitions (M&A) lawyer at a large Wall Street firm, I often saw deals being made simply to serve the egos of the acquiring companies’ executives. This often results in the acquiring company having a heavy weight around its neck, and a harm to both companies and all their respective constituents. Can the target company make the returns that you require? Are there synergies to be had? Is there additional margin to be made in the target company and how? Are there overheads to be trimmed? Always look for the meat – can the spread between margin dollars and overheads/expenses be enhanced in the target company via synergies and improved management of the business by your company and its executives? If not, consider looking at the next deal.

3. The target company’s culture: Many executives overlook this element of a deal. There are endless books written on the subject of a company’s culture – every company has a personality just as every person does. In acquiring a company, one must evaluate whether the target company’s personality fits with the parent company’s and/or the principles on the acquiring team. For example, if you have a team of employees that is very hard working, committed to your company’s best interests at all times, not used to looking at the clock every day to be out of the office at 5 p.m. sharp, can you successfully acquire and manage a target company whose employees do not share these same traits, who move slowly, are disgruntled and are more interested in getting out of the office wherever possible to focus on their own best interests rather than those of the company? A company’s personality and culture is a very hard thing to change, it takes a great investment in time, and requires strong leadership and a new bond of trust to be built between the new management and its team of employees. If you can find a target company that shares some of the core corporate values as the parent company and/or its principles, you are far more likely to attain the goals set out in your business plan for the target, and the associated returns, on the timing you have forecasted.

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