English – TrueDil™

True Continuity in business is not just about being prepared for major disruptions, so that essential business functions resume as normal…..it is a great deal more.

It is not just about reducing downtown, negating cyber threats, speeding recovery and safeguarding contingency plans…It goes far deeper.

True Continuity is, in our humble opinion, about building and nurturing a company that lasts between 250 and 500 years.

The 1660 Cobb Cottage we recently purchased is 364 years old. Livestock and villagers probably shared our living room when the Monarchy was restored under Charles II after a turbulent Cromwellian period, referred to as the English Revolution.

This building which is also my home office has been preserved and passed through generations.

Why do we rarely preserve companies and pass them through generations in the same way?

In an uncertain World with evermore frequent “black swan” events, company longevity is increasingly under threat.

Simon Sinek in his book “The Infinite Game” refers to a McKinsey study highlighting that the average lifespan of a S&P 500 Company has dropped by over 40 years since the 1960’s, from an average of 61 years to less than 18 years today.

Robust small medium businesses are also severely disrupted by M&A activity after having survived precariously to secure investment.

This is why we all need our teams to find right fit investors with the same goals and united long term vision.

Agility and resilience are at a premium. Our teams need to be closeknit with a strong sense of purpose, have an inspiring, vibrant attitude, dedication, aptitude and will power.

Long lasting organisations need to be or become truly international, lean, diverse with multiple revenue streams to withstand Covid-style shocks….and our team culture needs to be full proof and highly supportive to prevail.

We at Truedil TM and Transaction Focus subscribe to the organic growth model and believe that Venture Capital and Private Equity investments do not always go hand in hand with what we view as True Continuity.

We want to enable and set up companies to last for future generations. This is what True Continuity really is about.

Organic Sales Growth Revenue is a good starting point.

Written by Charles Smee

charles@transactionfocus.com

https://www.truecontinuity.co.uk

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Author: John Gelmini / March, 2021

Current Economic climate and today’s solution

“UAE Preventive Measures” outlines the legal measures under Federal Law No. 9 of 2016. These measures are being taken to deal with business failures and bankruptcy following the Coronavirus pandemic.

Excellent as these measures are, they have no bearing on the overall economic state of the various Emirates which have been hit hard by:

· Falls in the price of oil

· CORONAVIRUS and related mitigation measures

· Loss of tourism revenue

· Job losses

· Income from health tourism

The option of waiting until the Coronavirus pandemic ends is no longer viable as no one really knows when it is likely to end. More inward investment is a possibility, but as coronavirus decimated business, investments are likely to be small.

The solution in the past might have been more overseas sales by UAE companies, but now, since 2018, organic growth has slowed. In 2012, 63% of global salesforces achieved their target, whereas today, the figure is 49% and falling. This applies to face-to-face, web and call centre sales.

Websites that used to facilitate one-and-done sales until July 2018 now require that the prospective customer be taken offline for additional treatment.

Looking at the overall toolkit of economic measures available to the UAE, the conclusion is clear. The existing tools and measures are inadequate and not fit for purpose.

The non-financial due diligence approach

So what is to be done?

To produce more foreign exchange, the various Emirates, their Sovereign Wealth Funds, and the remaining viable companies must go out and take on more M&A transactions. These cannot be concluded in the traditional way focused on historical data, which comes from legal and financial due diligence. This is because this approach results in grossly inflated costs and overpayment.

Our Truedil approach using non-financial due diligence does away with these problems by looking at 26 non-financial due diligence factors.

This focus results in lower, more realistic valuations, faster return on investment, and far better integrations than the 15% success rate currently achieved.

The intensive 2-day training from Truedil is unique and bridges into a more in-depth 5-day course for more senior course participants.

These courses can be delivered over the internet or in person in socially distanced format.

Author: John Gelmini / March, 2021

Middle East Eye (https://www.middleeasteye.net/saudi-arabia_econonomic-crisis-oil-coronavirus-dest-vision-2030) seeks to explain the Kingdom’s dire economic position in 10 startling graphics which remains as dire as when the article was written in August 2020. It still needs to create 400,000 new jobs every year to be able to employ the 63% of the population who under the age of 30 remain unemployed but in 58% of cases have degrees.

Falling oil prices, limits to tourism, falls in car sales and rising debt all suggest that the Kingdom has to “go out” and seek new ways to bring in foreign exchange to arrest the remorseless decline in its finances.

To achieve this, the Kingdom needs to make overseas acquisitions both through its Foreign Wealth Funds and through its home-grown business.

It needs to do this at scale and with clear cultural understanding so that each acquisition pays. At present, it isn’t making enough of them and those it does make are resulting in overpayment or failure as was the case with Newcastle Football Club and its CEO, Mike Ashley.

Using Truedil M&A training delivered over the internet, the entire process can be accelerated and placed on a war footing as the situation clearly demands.

This training differs from other offerings in the Gulf in that it looks at 26 factors of Non-Financial Due Diligence including culture and the reputational risks posed by errant/toxic directors.

These allow a much better success rate for acquisitions than the present global figure of 20%.

It also reduces dips in profitability and allows for faster integration of acquired businesses with greater than the 15% success achieved normally.

Truedil training is transformative, internationally focused and intense. It enables young deal teams to effect acquisitions faster, thus:

· Bringing in much needed foreign exchange

· Broadening the Kingdom’s economic base

· Putting its graduate qualified youth to work

· Bringing the “event horizon” of Saudi Arabia’s Vision 2030 closer to practical reality

Date: March, 2021 | Author: John Gelmini |

In 2018 China was undertaking 40% of the world’s M&A transactions.

Today that figure is 50% assisted in part by State backing thus defeating potential European enquirers that don’t benefit from such support.

The EU is considering publishing a policy paper covering “review mechanisms” and “redressive measures” which would slow the acquisition process down.

Acquiring companies in America is already a minefield with Sarbanes Oxley legislation constantly being toughened up. Thus, any approaches to M&A not only have to look at historical data but also the 26 factors of Non-Financial Due Diligence, focusing on people in particular.

Valuations based on traditional approaches of Legal and Financial Due Diligence and a gentle approach to acquisition integration cannot easily offset these additional legal and regulatory costs.

Furthermore, the regulatory slowing down of the M&A process increases the length of time during which people uncertain of their futures slow down and are paralysed into low/non- performance.

Whilst not advocating a US-style “Big Bang” approach, at Truedil we do advocate much more rigour. This is focused on the 26 factors of Non-Financial Due Diligence. Concentration here determines which people, directors, managers, and processes are going to deliver what the Chinese acquirer wants to accomplish in a shorter timeframe.

Should these proposed regulations be tightened or expanded to include acquisitions where the initial shareholding is below the 35% threshold then it may be expedient to consider acquisitions operationalised through different jurisdictions where practicable.

Truedil M&A training is constantly evolving and being updated to deal with these problems and to produce valuations that reflect these new political and regulatory realities.

This is especially important for more junior managers being considered for promotion. Also, those being assigned to more senior deal teams as the pace of “swarming out” to make more M&A deals, accelerates.

Date: February 2021 | Author: John Gelmini

Until recently one could conduct an M&A and the subsequent integration of the 2 or more entities forming the “NEWCO” using a phased due diligence approach. This typically had 6 main components preceded by a Visioning & Search & Target process to determine the optimum shape and size of the newly merged entity.

Within each phase there are around 26 components of non-financial due diligence which are concerned with the present and the future in terms of things like people, process, resilience, adaptability, IT, operational tempo, marketing, brand integrity, reputational, risk, PRA, machine learning and BPO, and communication.

Historical data in the form of financial and legal due diligence is always majored on to arrive at a valuation favourable to the acquirer. In addition, jurisdiction in terms of tax efficiency, lower wage costs and minimisation of Corporation Tax over time is a consideration for larger acquisitions with an international component.

Coronavirus and related measures on “climate change”, “sustainability” and digital currency introduction represent potential risks that remain hazards until they happen.

Planning for successful M&As must now incorporate both prudent risk management to deal with known and quantifiable risks but also future-proofing.

Future-proofing is essentially educated guesswork about hazards and emerging trends which have the potential to become risks either short, medium or long term. Usually they are ignored by complacent managers and are uninsurable as they cannot be quantified by actuaries. Thus, Warranties and Representations insurance won’t cover them and even if it does the likelihood of a successful claim against the firm making the “representation” is next to zero.

Business Models of both the acquirer and the acquired therefore have to be future-proofed to ensure that the “NEWCO” can not only survive but prosper in the new environment.

There are several ways to futureproof:

Backstepping
Horizon Scanning
Scenario Modelling
Delphi
Genius Ghosting/Wisdom Warfare combined with OODA LOOP
Casual Layered Analysis

Which ones to use will depend on appropriateness, available time and budget.

Whilst looking internally at likely business performance one must look very closely at the 2 boards of directors and the next level down! Here one is determining which directors and senior managers are capable of “going the distance” into the bright future you envisage for the “NEWCO” or merged entity. One of the ways to do this is to reverse engineer the CV/Resumes of each director or senior manager. This is to ascertain whether their past successes and positioning were down to:

Nepotism
Cronyism
Propitious timing
Luck
Hard work and effort
Genuine ability plus “headroom” for improvement

You then want to see which of these directors and managers is capable of replicating those successes into the future and for how long.

Using the 80/20 rule and assuming an 8-person board, we know that:

2 will have enough “bench strength” and be fit for the future
2 will not be fit for purpose
4 will be average performers who with suitable mentoring, training and guidance will be suitable for a time but may need replacement later.

Figure 2

In this sense, the exercise is like the annual Grand National Horserace at Aintree in the UK in which some horses are deemed unfit to race, others are not entered, some fall over the jumps, fail to finish and have to be humanely dispatched. Leaving only the “future fit” get to win in that race and future ones.

There may of course be borderline cases where there is a replace versus “fix and repair” decision to be made about directors in the company about to be acquired. However, the ones identified as not fit for purpose at inception should be removed. The full cost of their removal and replacement needs to be deducted from the purchase price for that business. One should not, as happens all too often overpay and then have the costs of removing/replacing these people later. This is apart from the damage they will cause whilst remaining in position.

External factors and threats that will/may affect business performance

No business is an unassailable island and future-proofing means creating a “NEWCO” capable of withstanding future shocks and influences.

Business Performance
Materialistic versus Quality of Life
Economic Momentum versus Volatility
Technology Shifts versus Game Changers
Resources versus Environment
Markets versus Government
More versus Less Immigration

These questions and others relating to outsourcing, offshoring, the supply chain and speed/adaptability of operation all need to be considered as part of the future-proofing process.

Current M&A methods fail to consider them with sufficient rigour which is why 80% of these transactions fail (Source: Professor Aswath Damodaran – Stern School of Business – New York.

Future-proofing means going beyond pure risk management to strengthen the “NEWCO” resulting from the M&A to the point where it can survive, prosper and absorb shocks in a world we don’t yet know.