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Home » Business And Finance Articles » Protect The Merger Or Sale Value Of Your Business What You Can Learn From The Daimlerchrysler Deba

Protect The Merger Or Sale Value Of Your Business: What You Can Learn From The DaimlerChrysler Deba

In the heat of summer 1997, Daimler Benz purchased Chrysler for 37 Billion Dollars in a reported business merger of equals. Now, not quite 10 years later DaimlerChrysler is selling Chrysler for a reported 7.4 billion dollars for 80% of the firm. If the loss of 30 Billion Dollars in business value is not bad enough apparently the entire purchase price being paid by the buyer Cerberus will be placed into Chrysler and not retained by Daimler. How did this happen and what lessons can you learn when planning the sale, merger, or valuation of your privately held business?

When Merging Or Selling A Business, It's Business Profits Not Sales Revenues

When Daimler purchased Chrysler, Chrysler was having record revenues of 61 Billion Dollars and net earnings of 2.8 Billion Dollars. Revenues and profits were growing rapidly. Exciting new product lines were eagerly accepted by the market. The resulting projected cash flow would pay for the purchase.

Now, in 2007, Chrysler has revenues of 62 Billion Dollars and a 1.5 Billion Dollar loss with no projected growth and no current cash flow for financing. This proves one more time that cash flow is the basis of traditional companies' business value. To increase business value and business merger sales price, maximize your cash flow during the lead-up and sale period.

The Importance Of Business Cycles When Selling Or Merging

When Daimler bought Chrysler the auto industry as a whole was having record years. The three American automakers were selling cars like hotcakes. Costs had been brought down to where Chrysler was a low cost provider.

Compare that to the current industry weakness with reports of overcapacity, impending layoffs and inability to compete because of health care and retirement costs. Yes, the overall industry cycles do matter in the pricing of a business at the time of sale. Sell on the up-cycle. Up-cycles provide prospective purchasers with cash to buy your business and up-cycles provide your business with profits to sell.

Selling Period - Desperation Does Not Increase Price

When reports that Chrysler might be sold hit the street it was clear that Daimler was having a fire sale. Great for a buyer but a very tough negotiating position for a seller. Don't wait until even the "business challenged" can tell you must sell. If you wait too long before you start the business sale or merger process the bottom feeders will win.

Maintain Your Core Strengths When Looking to Merge

When Daimler purchased Chrysler a new design center had been completed allowing Chrysler to bring cars on the market in three years or less. This allowed them to compete with stylish exciting cars. Daimler, in an effort to milk profits, did not bring out a new car for three years prior to 2006, destroying this design leadership position. People bought Chryslers because they were an affordable style, not because they lasted forever. So what was left when there were no new models?

Protect Your Brands

While some may question Chrysler's brand value no one can seriously question Jeep's value. Jeep was very close to the Marlboro Man in American mystique. Yet Daimler let Hummer take Jeeps prized position as the "American Badlands 4 Wheel Drive Experience." Daimler, in 2007, finally brought out a Hummer competitor - right in time for a spike in gas prices. Always protect your brands and the value inherent in them.

Chrysler invented the minivan. Chrysler still has some very nice minivans. Yet in the day of the "crossover" or mix of SUV and Minivan, where is Chrysler's entry? What happened to the design studio again?

Keep Your Talent, They Are Your Business

In the name of efficiency Daimler didn't let Chrysler keep dancing the dance that got it to the ball. In a merger originally billed as a marriage of equals it very quickly became clear that the superior equal was Daimler. After all, they were the purchaser. But why chase off the talent you paid dearly for? Always keep your key people on the team if you want to maximize your sales or merger value even if you must share some of the rewards with them. Based on Chrysler's revival from death in the 1990's, someone there clearly knew what they were doing. It is a fatal mistake to lose your best people or worse yet force them to turn to your competitors.

Final Thoughts On Business Value

With the advantages of hindsight, it is clear that Daimler has made about every mistake possible thereby destroying the value of the Chrysler subsidiary. Chrysler lost profitability because it stopped being Chrysler. Chrysler lost its affordable style position when it lost its design edge and design speed. It lost much of the value in its key Jeep brand by not staying up with changing trends. These and many other mistakes took Chrysler from record profits to huge losses. Daimler bought in an up market cycle and sold in a down cycle. As a final insult, Daimler did not even allow a reasonable time on the market for the transaction to be negotiated. Avoid making these mistakes when looking to sell or merge your private business.

In order to earn the greatest return when you sell or merge your business, make sure your profits are increasing, you are running with the business cycle and you follow a proper merger and sales process.

(c) 2007, Gregory Caruso.

And here is another random article you might be interested in...

What Is My Property Worth?

Is your home really an asset? Ask this question in any social setting and you will probably be met with puzzled gazes, because it is obvious to anyone that knows anything about anything that your home is not only an asset but it is your most prized asset. To most people their home is the one thing they know they can't go wrong on, they have put their money into bricks and mortar and there is no way they will not see a healthy profit. The question, what is my property worth? Is normally met by eager anticipation from those who believe they have accrued a significant amount of equity.

For a long time, nobody has questioned the validity of the statement that their home is an asset. Perhaps we as homeowners have been too quick to accept this statement without truly understanding what an asset is. To fully understand what an asset is in relation to property it may help to understand that an asset, in property terms, is often linked to what is known as good debt, once we understand what good debt is and its relationship with assets it will help us to have a better understanding of what true assets really are.

So, what is good debt?

Good debt is debt that you have incurred by purchasing something that appreciates in value and/or can provide you with passive income that pays for itself, and doesn't need you constantly putting money into it. What is even better is when good debt appreciates in value without costing you a penny in fact the best kind of good debt is good debt that puts money back in your pocket. In short good debt normally comes about when you have purchased a true asset, which is a product or service that meets the description above.

In this vein, your home could not be classed as an asset, because you live there and you have to pay the mortgage yourself through other means i.e. through working at your job for a wage to pay the mortgage or through the money you get from other assets. And even if you have paid off the mortgage, you would still have things to pay on the house, such as utility bills, taxes, repairs etc. So you will always need to have some income from some other means in order to finance the upkeep on your home.

However, many would still class their house as an asset because they think that whenever they want to they can release equity or sell up and move on after having made a huge profit? This theory appears logical enough, yet what has to be understood is that while this sleeping asset appreciates in value, so are the other sleeping assets (houses) around it so when you want to sell and move else where, even though you may be able to sell it for much more than you bought it for, you will not be able to cash this amount in as the likelihood is that wherever you are moving to will also have increased in value by a similar amount.

The only way you will truly be able to realise the value of your property is to either move to a smaller or less expensive property, remortgage and use the equity to invest in assets that will appreciate greater than your property, or when you die and meet your maker and leave the house to a loved one, however this third option is very drastic and I would not recommend it to anyone. As well as you not being around to enjoy the fruits of your labour, the tax man might be only too eager to grab his chunk of your property pie even before your loved ones have got their hands on it.