DEVELOPMENT OF NEW ENTERPRISE

Merger Fundamentals

CHAPTER

Mergers, Consolidations & Holding

Companies.
Acquiring versus Target
Companies.
Friendly versus Hostile
Takeovers.
Motives for Merging.

OUTLINE

Types of Mergers
2

WHAT IS A BUSINESS
PLAN?

A business plan is a written narrative,

typically 25 to 35 pages long, that
describes what a new business intends to
accomplish and how it intends to
accomplish it.

REASONS FOR WRITING A BUSINESS PLAN

1. First,writing a business plan forces a firms

founders to systematically thinkthrough each aspect
of their new venture.
2. The second reason to write a business plan is to
create a selling document for a company.

Who Reads the Business PlanAnd What Are They Looking For?

WHO READS THE BUSINESS PLAN?

A Firms Employees - A clearly written

business plan, which articulates the
vision and future plans of a firm, is
important for both the management
team and the rank-and-file employees.

WHO READS THE BUSINESS PLAN?

Investors and Other External Stakeholders External stakeholders who are being recruited to
join a firm such as investors, potential business
partners, and key employees are the second
audience for a business plan. To appeal to this
group, the business plan must be realistic and
not reflective of overconfidence on the firms
part.
6

GUIDELINES FOR WRITING A

BUSINESS PLAN

Structure
Plan
STRUCTUREof
OFthe
THEBusiness
BUSINESS PLAN
should follow a conventional structure
should be tailored to the individual business
Along with facts and figures, a business plan needs to
project a sense of anticipation and excitement about the
possibilities that surround a new venturea task best
accomplished by the creators of the business themselves.

RED FLAGS IN BUSINESS PLAN

Red Flag

Explanation

Founders with none of

their own money at
risk

If the founders arent willing to put their own money at risk, why should
anyone else?

A poorly cited plan

A plan should be built on hard evidence and sound research, not guesswork
or what an entrepreneur thinks will happen. The sources for all primary
and secondary research should be cited.

Defining the market

size too broadly

Defining the market for a new venture too broadly shows that the true target
market is not well defined. For example, saying that a new venture will
target the $550-billion-per-year pharmaceutical industry isnt helpful. The
market opportunity needs to be better defined. Obviously, the new venture
will target a segment or a specific market within the industry.

Overly aggressive
financials

Many investors skip directly to this portion of the plan. Projections that are
poorly reasoned or unrealistically optimistic lose credibility. In contrast,
sober, well-reasoned statements backed by sound research and judgment
gain credibility quickly.

Sloppiness in any area

It is never a good idea to make a reader wade through typos, balance sheets
that dont balance, or sloppiness in any area. These types of mistakes are
seen as inattention to detail, and hurt the credibility of the entrepreneur.

Content
CONTENTof
OFthe
THEBusiness
BUSINESSPlan
PLAN
The business plan should give clear and concise information
on all the important aspects of the proposed new venture. It
must be long enough to provide sufficient information, yet
short enough to maintain reader interest.
For most plans, 25 to 35 pages (and typically closer to 25 than
35 pages) are sufficient.
After a business plan is completed, it should be reviewed for
spelling, grammar, and to make sure that no critical
information has been omitted.

STYLE OR FORMAT OF THE BUSINESS PLAN

Must be carefully thought out

Should look sharp but not give impression
that a lot of money was spent to produce it
Overuse of design elements such as font
sizes, colors, clipart makes a business plan
look amateurish rather than professional

TYPES OF BUSINESS PLANS

Summary Business Plan

RECOGNIZING THE ELEMENTS OF THE

PLAN MAY CHANGE
A plan usually change as it is being written and as the
business evolves
New insights emerge when an entrepreneur or team of
entrepreneurs immerse themselves in writing the plan and
getting feedback from others

OUTLINE
OF THE
BUSINESS
PLAN

COVER PAGE AND TABLE OF CONTENTS

A cover page should include family name, address, phone
number, date, contact information and web address
A table of contents should follow the cover letter. It should
list the sections and page numbers of the business plan
and the appendices

Executive
EXECUTIVESummary
SUMMARY
a short overview of the entire business plan; it provides a
busy reader with everything she needs to know about the
new ventures distinctive nature.
is arguably the most important section of the business
plan.
It should be written last since a plan evolve as it is written

Industry
INDUSTRYAnalysis
ANALYSIS
Describes the industry the business will enter in terms of its size,

growth rate and sales projections

Focuses strictly on the industry including promising areas and
points of vulnerability
Industry structure- refers to how concentrated and fragmented an
industry is
Industry trends including both environmental and business trends
Should conclude with a brief statement of beliefs regarding the
long-term prospects of the business

COMPANY DESCRIPTION

Executive
Summary
It is also called
as the company
profile.
Brief history of the companys year of
a short overview of the entire business plan; it provides a
incorporation
busy reader with everything she needs to know about the
Origin
of the distinctive
name ofnature.
company
new ventures
Mission-vision
statement
is arguably the most
important section of the business
plan.
Goal
and tagline of the company.
It should be written last since a plan evolve as it is written
Current
position in the industry
Milestone achieved by the company.

COMPANY DESCRIPTION

Executive
Summary
milestone is significant or important

* A
events
that transpire from the day of the companys
a short overview
of the
business
plan; it provides a
incorporation
until
theentire
present
time.

busy reader with everything she needs to know about the

new ventures distinctive nature.
is arguably the most important section of the business
* Some
companies
also
include
in
its
profile
its
plan.
strategic
to fully
It shouldpartners
be written in
last order
since a plan
evolveemphasize
as it is written its

existence and strong point in the industry.

COMPANY DESCRIPTION

Executive Summary
a short overview of the entire business plan; it provides a
busy reader with everything she needs to know about the
new ventures distinctive nature.
is arguably the most important section of the business
plan.
It should be written last since a plan evolve as it is written

MARKET ANALYSIS

It focuses Executive
on a particularSummary
portion of the industry
like segment and target market.
a short overview of the entire business plan; it provides a

A competitors analysis is a detailed analysis of a firms competitors. It helps a company

busythe
reader
sheand
needs
to know about
understand
positionwith
of its everything
major competitors
the opportunities
that arethe
available
in order
to obtain
a competitive
advantage
in one or more areas. These competitors are
new
ventures
distinctive
nature.
classified as direct, indirect and future competitors

Market segmentation is the process of dividing

the market into distinct segments - geography,
is arguably the most important section of the business
demography
and psychographic variables.
plan.
It should be written last since a plan evolve as it is written

Segmentation by geography pertains

regions, provinces and city or municipalities.

to

ECONOMICS OF BUSINESS

Executive Summary

* Target profit is an essential part of business.

* Profit will serve as the goal intended to achieve at the end of

aplan.
short overview of the entire business plan; it provides a
every
busy reader with everything she needs to know about the
new ventures distinctive nature.
* Financial
analysis should be done in order to know how profits
isearned
arguably
the
important section
of the business
will be
and
itsmost
corresponding
inputs should
be identified.
plan.
It should be
writtenislast
since a plan evolve
it is written
* A break-even
analysis
a computation
of howas
many
units of its
product a business must sell before it breaks even and starts
earning a profit.

MARKET ANALYSIS

Executive
Summary
*Demographic
segmentation
deals with
gender and income.

age,

a short overview of the entire business plan; it provides a

A competitors analysis is a detailed analysis of a firms competitors. It helps a company

busy
reader
everything
she
needs
to know that
about
the
understand
the
position with
of its major
competitors
and
the opportunities
are available
in
order
to obtain
a competitive
advantage
in one or more areas. These competitors are
new
ventures
distinctive
nature.
classified as direct, indirect and future competitors

*Segmentation by psychographic variables tackles

about the lifestyle, personality and values.
is arguably the most important section of the business

plan.
*Consumer
- specific
preference
of in
It should bebehaviour
written last since
a plan evolve
as it is written

specific location in a market.

ECONOMICS OF BUSINESS

Executive Summary

A companys variable costs vary by sales, while its fixed costs are
costs a firm incurs whether it sells something or not.
a short overview
of leverage
the entire
plan;
it provides
a
A companys
operating
is business
an analysis
of its
fixed cost
busy
readercosts.
with everything she needs to know about the
against
variable
new ventures distinctive nature.
is arguably
the most
important
section of
thehave
business
Operating
leverage
is highest
in companies
that
a high
plan. of fixed costs relative to their variable costs.
proportion
It should be written last since a plan evolve as it is written
Operating leverage is lowest in companies that have a low
proportion of fixed costs relative to variable costs.

MARKETING PLAN

Executive Summary

It focuses on how the business will market and

sell
product
service.
a its
short
overviewor
of the
entire business plan; it provides a
busy reader with everything she needs to know about the
ventures
nature.
Itnew
deals
withdistinctive
the fundamentals
of marketing in
is arguably
the most important section of the business
terms
of price,
promotion, distribution, and
plan.
sales.
It should be written last since a plan evolve as it is written

MARKETING PLAN

Executive Summary

Identifying its marketing strategy, positioning

and
its
differentiation
in
the
market.
a short overview of the entire business plan; it provides a
busy reader with everything she needs to know about the
new ventures
distinctive mix
nature.& sales process and
Prices,
promotional
is arguably the
most important section of the business
distribution
strategy.
plan.
It should be written last since a plan evolve as it is written

MARKETING PLAN

Executive Summary
Marketing strategy refers to the general
a short overview
of the entire business
plan; it provides
a
approach
for marketing
its products
and/or
busy reader with everything she needs to know about the
services.
new ventures distinctive nature.
is arguably the most important section of the business

Aplan.
companys overall approach
- market
It should be
lastdifferentiation.
since a plan evolve as it is written
positioning
& written
product

PRODUCT/SERVICE DESIGN AND DEVELOPMENT PLAN

Executive Summary
Critical stage in businesses especially in manufacturing
and service
industry.of the entire business plan; it provides a
a short overview
busy reader with everything she needs to know about the
newpath
ventures
distinctive nature.
logical
of developmentproduct
conception,
is arguably
the most
importantand
section
the business
prototyping,
initial
production,
full of
production.
plan.
It should be written last since a plan evolve as it is written

product prototype - unfinished or in preliminary form.

PRODUCT/SERVICE DESIGN AND DEVELOPMENT PLAN

Executive Summary
* Service prototype - what the service will be like and
aitshort
overview
of the entire
business
plan; it provides a
how
will be
experienced
by the
customer.

busy reader with everything she needs to know about the

new ventures distinctive nature.
is arguably
the most
section of the business
* Virtual
prototype
is aimportant
computer-generated
3-D image
plan.
of a product or service idea.
It should be written last since a plan evolve as it is written

OPERATIONS PLAN

Executive Summary

* The aspect of how a business will be run and

how a product or service will be produced.

a short overview of the entire business plan; it provides a

*
*

busy reader with everything she needs to know about the

Identify
general approach and secondary aspect.
new ventures distinctive nature.
is arguably the most important section of the business
Location,
equipments and facilities is important.
plan.
It should be written last since a plan evolve as it is written

MANAGEMENT TEAM & COMPANY STRUCTURE

typically consists of the founder or founders and key

management personnel
A brief profile of each member of the management
team should be provided
Each profile should include the following information:
_ Title of the position
_ Duties and responsibilities of the position
_ Previous industry and related experience
_ Previous successes
_ Educational background
31

MANAGEMENT TEAM & COMPANY STRUCTURE

If a start-up has a board of directors and/or a board of

advisers they should be included as part of management team
Board of directors - is a panel of individuals elected
by a corporations shareholders to oversee the
management of the firm
Board of advisers - is a panel of experts asked by a
firms management to provide counsel and advice on
an ongoing basis

32

MANAGEMENT TEAM & COMPANY STRUCTURE

The final portion of this section of business

plan focuses on how the company will be
structured.
Organizational chart The most effective way
to illustrate how a company will be structured
and the lines of authority and accountability
that will be in place.
- is a graphic representation of how authority
and responsibility are distributed within the
company
33

ORGANIZATIONAL SET-UP
The Metrobank structure

BOARD OF DIRECTORS

TRUST
COMMITTEE

AUDIT
COMMITTEE

RISK MGT.
COMMITTEE

PRESIDENT

NBBS

TG

TBG

CBG

ComBank

CLG

SAMG

AAMDG

OPG

CRG

RSK

HRMG

IAG

ITG

GSG

COG

IOSG
34

OP

OVERALL SCHEDULE

should be prepared that shows the major events required

to launch the business.
be in the format of milestones critical to the businesss success
GANTT CHART

A simple Gantt chart

35

FINANCIAL PROJECTIONS

1. sources and uses of funds statement - which is a

document that lays out specifically how much money a firm
needs, where the money will come from, and what the money
will be used for.
2. assumptions sheet - explanation of the most critical
assumptions that your financial statements are based on
The pro forma (or projected) financial statements - the
heart of the financial section of a business plan
- similar to the historical statements an established firm
prepares.
- Most experts recommend 3 5 years of pro forma
statements

36

FINANCIAL PROJECTIONS
BALANCE SHEET
INCOME
STATEMENT

CASH FLOW
STATEMENT
FS DATA ARE
INTERPRETED
VIA RATIO
ANALYSIS

37

APPENDIX
Any material
that does not
easily fit into the
body of a business
plan should appear
in this section.

in summary,
writers should
determine if the
most important
questions about
the viability of
their business
venture have
been answered.

38

PRESENTING THE BUSINESS PLAN TO

INVESTORS

39

ORAL PRESENTATION OF BUSINESS PLAN

first rule in making an oral presentation is to follow instructions

> The presentation should consist of
plain talk and should avoid technical
jargon.

JARGON
Specialized or
technical language
of a trade, field,
profession or social
group

40

QUESTIONS AND FEEDBACK TO EXPECT FR INVESTORS

investors typically focus on whether a real opportunity exists

investors will evaluate whether the managers are highly
confident in their own venture
how well entrepreneurs think and how
knowledgeable they are about the business
venture

QUESTIONS AND FEEDBACK TO

EXPECT FR INVESTORS