888-983-1617 [email protected]

CFO: How to Prepare for “Crossroads” Situations

“Crossroads” situations occur when a company needs to make a decisive step forward — but a number of options look equally appealing. In my latest article for CFO magazine, I offer advice on how executives can prepare for “crossroads” situations before they arise.

Read the article CFO.

Read the article in PDF.

Financial executives play a major role in influencing a company’s strategy. It’s often the job of CFOs to weigh the pros and cons of M&A deals that could benefit the company and create value for shareholders.
When a company is open to a merger or acquisition and decides to run an auction, under normal market conditions there will be multiple viable buyers competing with each other to make a deal. Almost always, a successful transaction will mean that the seller receives the highest price available within a clear timeline.

However, these sorts of situations are not universal — in fact, I would estimate that they happen only about 80 percent of the time for intermediaries and less than 50 percent of the time for CFOs. Complex decisions and complicated, unique, non-auction negotiations are the norm, not the rule when you think about deal opportunities from the perspective of senior managers and boards of directors.

I call these “crossroads” deals because they are exactly that — the company is at a crossroads where the best path is unclear, the clock is ticking and the situation could resolve in numerous ways, not all of them positive.

“Crossroads” situations typically fall into one of two categories: A company either has an overabundance of options or not enough.

Companies with too many options are often somewhere in the middle ground between wild success and looming failure. The investors in such companies are anxious to see cash returns. The source of returns could be new business opportunities, joint ventures, acquisitions, divestitures, expense reductions, recapitalization or an outright sale of the company.

The inverse situation is when a company only has a handful of options — occasionally by choice, but often not.

Take, for instance, a small company that loses its largest client. The resulting loss of income could be substantial, and leadership could be left with a small number of not-so-appealing options, ranging from dramatic cost reductions all the way up to asset liquidation.

Alternatively, a company might be too set on pursuing a single opportunity, to the point where it doesn’t fully consider competing options. In both cases, the weight of the decision can lead to a sense of paralysis among decision-makers.

When the job of chasing down one or more potential opportunities becomes overwhelming, financial executives traditionally seek out help from lawyers and investment bankers. A lawyer will assist in managing the legal risks of a situation, while an investment banker will help companies arrange financing to make a transaction come about.

Although investment bankers have the skill set to assist in assessing the financial impact of a range of potential opportunities, under their traditional business model — which is commission-based and tied to the closing of a deal — they’re strongly incented to push for certain outcomes. The problem is that the best advice in a “crossroads” situation may be to not proceed with a deal.

In “crossroads” situations, the most important tools a business can have are awareness of strategic alternatives and the ability to compare them quantitatively. Having these tools and knowing how to use them results from disciplined, regular strategic planning; routinely checking the market for business relationships that can change the direction of a company; and making decisions on the basis of clear-eyed, long-range financial plans and analysis. Companies with sophisticated outside investors or who rely regularly on investment bankers know these tools, but not all companies do.

If this type of long-term strategizing is not in your wheelhouse, the best way to prepare for a potential “crossroads” situation is to begin building relationships with lawyers and investment bankers of all stripes. Identify who is more suited for efficient deal execution and who is more suited for strategic advice. By doing so, you can put yourself in the best position to handle a “crossroads” situation if and when it does arise.

3 Signs an M&A Deal Is in Trouble

Read the article in CFO.Spotting signs of trouble early is critical for CFOs to prevent a deal from derailing. Not every CFO will experience M&A firsthand during their career. But those who do typically find that their existing skillset makes them a crucial asset...

4 Tips for Pitching Investors in Today’s Economy

Read the article in CFO.Any company that intends to grow past a certain point eventually reaches the familiar milestone of pitching to private capital sources in hopes of securing additional funding. Those businesses that tend to be most successful are the ones that...

Resolving Conflicts in a Family Business

Read the article in Small Business Current.When family members run a business together, the experience often draws them closer, but there are inherent risks as well. Having years of personal history with one’s co-workers can sometimes lead to non-work disputes...

Oaklyn Consulting Congratulates Proof of the Pudding on Acquisition by Bruin Capital

Oaklyn Consulting congratulates Atlanta-based catering, food service and event company Proof of the Pudding on its recent acquisition by Bruin Capital. Oaklyn Consulting assisted Proof of the Pudding in evaluating potential partners and negotiating the transaction....

Analyzing Broad vs. Narrow M&A Deal Processes

We respect the unique M&A market insights that Sutton Place Strategies, an affiliate of Bain & Company, creates from its business development work with PE firms. SPS Founder and CEO Nadim Malik gave a presentation at ACG Boston's M&A Outlook forum in...

How To Work Through Conflicts In a Family Business

Creating a family business comes with a lot of positives, as well as a lot of challenges. Here’s how to handle those conflicts as they arise. Thanks to The American Genius for having me! Read the article in PDF.Anyone who’s managed a business with other family members...

Takeaways from Axial’s Recent ‘Dead Deals’ Analysis

Those of us who negotiate M&A transactions for, and with, small- to mid-sized businesses know a few hallmarks of the process: For any company, there is a limited universe of buyers. Each buyer's interest is unique, so average valuations are not reliable indicators...

Who We Helped in 2022

At the start of every year, we at Oaklyn Consulting like to look back at the past 12 months to reflect on projects accomplished and lessons learned from our clients. Building on our achievements from 2021, Oaklyn Consulting worked with 34 organizations in 2022 on...

Monty Bruell Interview with Business Radio X

Our Monty Bruell sat down with Business Radio X to discuss succession planning in minority and women-owned businesses. Listen on Spotify or Amazon Music or read the transcript below!INTRO: Broadcasting live from the business RadioX Studios in Atlanta, Georgia, it's...

Succession Planning for Minority and Female Business Owners

For the founders of minority and women-owned business enterprises (MWBEs), succession planning takes on a deeper significance. Our Monty Bruell explains in a guest column for Memphis Business Journal. Read the article in PDF.Any entrepreneur approaching retirement has...