Planning an M&A? Run this by the PBRT…

Bengaluru is seeing churn and activity in the entrepreneurial ecosystem. Recently, I have come across a couple of mid-size and small companies seriously looking at options to merge. The world is changing rapidly and entrepreneurs want to seize the moment. M&A is seen as one option for the smaller companies to consolidate and address the challenges ahead.

Some deals work and some do not succeed. Here is a quick first-cut of the framework that I have put together when looking at any investment/M&A planned; the PBRT framework. It is so named, because of the memory tag… PBT (profit before tax) which is a key financial parameter many professionals look at. So here is the PBRT formula for review of any potential deal in a company:

  • People: Everything starts with the people involved. Are the people (key founders/directors) in the two organisations comfortable with each other? Looking at people involves many aspects, both professional (qualification, experience) and other aspects as leadership, team spirit and most importantly… value systems, i.e. integrity and ethics. People need to be compatible, and comfortable with each other, if there is a disconnect, however great the combined company looks on paper, chances are value may not be created in the joint company, it may be depleted.
  • Business: Next is the expectation from the combined business, expected markets, revenue, profits and value that can be jointly created. One needs to keep an eye on the value drivers and the barriers to growth in the days ahead. Some class notes on valuation are available for download at .
  • Regulatory: In the past this has often been neglected, with many persons having an attitude that legal and tax issues are minor aspects that need not be a cause for worry. The case of sweat equity in the IPL saga, the cases of deals becoming invalid due to ownership beyond permissible limits as per Indian law, etc. are examples of this. Companies can factor in the impact of various laws and tax on the proposed combined venture, before taking a view on how they should proceed.
  • Time: What looks important today may not be meaningful in the future. The business plan may be viewed in three time frames, immediate term (1 year); medium term (3-5 years) and long term (10-15 years). The first is to look at the long term, i.e. the vision and dream of the future, next one looks at immediate issues to be addressed and advantages one has. The midterm plan sets both these into perspective.

Of course, any framework is only as good as the quality of thought that goes into using it. Thinking through multiple aspects of any potential deal can help in taking a more informed decision, though it does not guarantee success. Best wishes if you are looking at deal making.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Similar Story

I want/NEED… funding for my company… Part 1

SZE, the company founded by Sheena and Zeena, was 2 years old.  SZE provided special technical inputs and services to colleges. The founders now wanted to expand and bring more colleges into their client base. For this they would need to invest more money into the company. They were unclear about a) the quantum of funding that they should raise and b) about the process for fund raising.They met Gyan, who was known to be somewhat of an expert in the funding scenario.Gyan asked them what the money would be required for. This could broadly be split into two buckets,…

Similar Story

Equity to key employees? Look out for legal and tax pitfalls!

Sigma started a new company, he and his father were the initial Directors. He had saved some money in his career and invested some of his savings in the startup. Equity for advisorsSigma knew a couple of experts, Pie and Rho, who had a good reputation in the industry. He decided to get them on board as advisors. He spoke to them and they also agreed in principle to associate with Sigma. Sigma then started thinking about the compensation that he could pay to Pi and Rho and other professionals that he wanted to employ. He realized that their normal…