How to Pull off a Successful Acquisition

Since joining alternative-asset manager Sprott Inc. in 2010, Michael Staresinic, CFO of Sprott Resource Corp., has assisted with four acquisitions. Prior to joining Sprott, he spent nine years as vice president of finance at another alternative-asset manager, Integrated Asset Management.

Michael Staresinic explains the eight steps that asset manager Sprott Inc. takes when negotiating the purchase of a company

1. Identify targets

Sprott Inc. begins the acquisition process by investigating potential targets. “We look for good deals in our industry, typically in one of two areas: acquisitions that provide us with an entry into products we may not currently offer and acquisitions that allow us to expand our geographic footprint,” says Michael Staresinic, who was vice president of finance for Sprott Inc. for three years before becoming CFO of Sprott Resource Corp. late last year.

A good example of the company’s strategy is a deal from 2011. That year, Sprott acquired Global Resource Investments, Ltd.; Terra Resource Investment Management, Inc.; and Resource Capital Investment Corporation, a group of California-based companies that offer asset-management and brokerage services. The move gave Sprott access to the United States. In 2012, Sprott bought Toscana Merchant Group, a Calgary-based energy-finance company that gave Sprott access to a sector it had not previously tapped.

2. Listen to the word on the street

Sprott’s CEO sends his ideas for acquisitions to a small group of executives, including Staresinic, who do additional research to winnow the list down. Often, they will talk to others in the industry about the management teams at target companies. “We ask people what they think of management, and if we get the warm and fuzzy, it’s a good sign,” Staresinic says. “On the other hand, we may hear of questionable practices surrounding someone that beg further investigation, and if we can’t reconcile these differences, we move on. The street is small and can be punishing.”

3. Create financial models

A key concern during any acquisition is how the target company will perform from a financial perspective. To determine that, the team models how the company would perform both on its own and as part of the greater Sprott empire. Then it models again. And again. “It’s a very iterative process,” Staresinic says, “to get to a place where we’re comfortable and can defend, in front of the CEO and his barrage of questions, the financial soundness of the acquisition; the best way to make it—be it in cash, in equity, or both; and the appropriate purchase price.”

4. Express interest and negotiate

When the deal looks good, Sprott will contact the company to suggest a possible purchase price range. “We say, ‘From what we know of you, we’d purchase you from between this and this,’ and that would be a sufficiently large range, subject to further due diligence,” Staresinic says. “That said, we’re constantly in contact with the target, so we wouldn’t say it’s between $10 million and $12 million and then come back a few months later with a revised offer of $4 million—unless we’ve learned something drastically negative about the business. They have their own view on value, and we need to find common ground to be able to go further.”

5. Do due diligence

Around this time—but often before—Sprott begins doing legal and financial due diligence, looking at significant agreements the target has entered into, from employment contracts to trademark licenses to leases. “We need to ensure that nothing is a surprise,” Staresinic says. If nothing is, or if the surprises can be managed, Sprott’s general counsel crafts the initial stages of a deal, with input from the rest of the acquisition team and senior executives.

6. Put the deal in motion

When initial terms are accepted, the due diligence continues, typically with assistance from outside legal, accounting, and valuation firms. “At this point, we have a pretty good idea what the structure of the deal will look like, but we need to do a deep dive into the company itself, and that presents logistical challenges for our internal group,” Staresinic says. With outside help, however, a term sheet that’s two to five pages long is converted into legal documents that can sometimes comprise hundreds of pages.

7. Plan for integration

At this point, Staresinic says, “there’s a better chance of the deal happening than not,” so the acquisition team begins engaging colleagues to deal with integration issues. They can be significant. “There’s no way to minimize the challenges; they’re a necessary evil,” Staresinic says. “You may have to integrate offices, which involves moving people, and if you don’t have room, you have to lease more space. Accounting rules may differ. The regulatory regime always causes grief, and IT systems may be conflicting.”

8. Close

Sprott’s most recent acquisition took 8–10 months from opening discussions to its closing, but the length of a deal varies, often depending on whether the target is private or public. “We once closed an acquisition with a private company in three months,” Staresinic says. “It’s incredibly intense and very demanding.”

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THE BOTTOM LINE

Job title  
VP of finance

Industry
Financial services

Years in the business
12

Where did you start your career?
In a public accounting firm.

Describe yourself in three words
Curious, focused, dedicated.

Advice to those just starting in finance
If you’re unsure what you want to do, go for breadth; find a small shop and get as much broad experience as possible. If you know exactly what you want to do, go for depth; pick that area and stick with it.