At Focus Enterprises, we believe excellent opportunities exist for buyers and sellers alike who apply certain disciplines in today's depressed merger and acquisition climate.

Marshall Graham, founder and Chairman of Focus Enterprises, Inc. has written a comprehensive definition of twelve proven value components or “Value Drivers” that, when applied rigorously, can mean the difference between success and failure in the current economic environment.

In April, Part 1 of the article entitled, "Twelve Value Drivers Help Ensure Success in Today's Tough M&A Environment," defined the first six of twelve Value Drivers. Part 2, published here, describes Value Drivers seven through twelve. We're repeating the introduction for readers viewing the article for the first time.

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Twelve Value Drivers Help Ensure Success in Today’s Tough M&A Environment: PART 2
By Marshall Graham

Successful participation in the current M&A climate is achieved by finding value and then integrating it into current company platforms or existing corporate portfolios.

It is a great time to buy, especially for buyers who can close for all or almost all cash. Although M&A transactions are substantially off in the large company segment, excellent opportunities exist both to buy and to sell in mid-market and smaller company segments. There also are outstanding opportunities for acquiring selected assets, intellectual property and average and/or under-performing companies.

THE M&A PROCESS HAS CHANGED
Today, buyers and sellers are more cautious than ever before. Pre-LOI due diligence is lasting much longer prior to firm deal terms being agreed upon. There is much more focus on forecasted revenues and stable and growing customer bases. Integration planning on paper is taking longer prior to the execution of a Letter of Intent. Finally, management teams, while extremely important in all M&A activity, are becoming much more central to success in today’s M&A transactions.

For buyers and sellers alike, the key to achieving successful M&A transactions, with the assistance of intermediaries, is to identify the value components or "Value Drivers" of the transaction and then to make certain a plan is in place to integrate these components at the least cost.

TWELVE VALUE DRIVERS SUPPORT SUCCESS
At Focus Enterprises, we assist our clients in carefully evaluating twelve specific Value Drivers when considering a buy-side transaction. The first six were described in the April issue of this newsletter (download a copy here). Here are Value Drivers seven through twelve:

Value Driver #7: Management Experience and Expertise
This Value Driver is closely aligned with Value Driver #6: Human Capital, with the following differences: Does the management team of a company being acquired have substantial knowledge of a specific product, process or market segment that is a necessary requirement of the acquiring company? Can the managers of the company to be acquired add value to the current management team? Will this new management team give the organization the capacity to grow to the next level?

Value Driver #8: General and Administrative Leverage
Almost as important as the Gross Margin Value Driver is the general and administrative leverage when combining the acquiring company and the company to be acquired. Once again, careful planning is necessary in this area prior to the LOI stage. Buyers tend to overestimate the cost savings of combining companies at the G&A line. Also, transition costs are often underestimated, if not overlooked altogether.

Value Driver #9: Distribution Leverage
Potential buyers frequently say, "I want to buy a company where I can drive the products from the acquired company through my existing distribution system." While this concept is sound, there are pitfalls. Buyers need to be sure that end user customer requirements are complementary to this strategic approach.

Demand should be measured through effective market research. Sales and dealer training costs need to be taken into account, and customer service expense of the new products needs to be analyzed. These are just a few of the items about this Value Driver that need to be studied. Distribution leverage is an exciting concept and a top Value Driver, but a hard look at implementation details is critical.

Value Driver #10: History/Reputation and Operating Tenure
In the heat of an M&A transaction, this Value Driver is often overlooked. It has to do with the stability and constancy of the business being acquired. The fact that the company to be acquired has been in business for some time does matter and does have value.

The fact that customers have been with this company for some period of time does matter and the fact that the company is operating with the same management team in place is a positive factor. While there are other factors with this Value Driver, company history, reputation and continuing operations are very important to the contemplated transaction.

Value Driver #11: Sales and Marketing Effectiveness
This Value Driver is right at the top of our list when we are advising clients. All too often buyers concentrate on exotic product sets, exciting technology (that someday could be turned into a product) or new markets and customer sets. One key and very important element of a successful buy-side transaction is to determine whether the company to be acquired has developed an effective and "least cost" sales and marketing model.

When was the model developed? How long has the model been in place? What are the statistical results of the sales and marketing model over time? Is the model scaleable through the forecasted period? If the answers to these and additional questions are positive, chances are you are on the right acquisition path.

Value Driver #12: Barriers to Competitive Entry/Competitive Differentiation
Barriers to competition are becoming more difficult to identify as time goes on, as many companies are reluctant to file for patents even if a technology or a process is evaluated to be "protectable." Buyers must look for effective barriers to competition when evaluating a potential acquisition through competitive differentiation.

Examples are: Does the company have a "first mover" advantage in a particular market or market segment? Does the company to be acquired have significant product features that would provide a real product advantage when compared to competition? Does the company to be acquired have a significant technological edge that affords a 12 to 18 month product roadmap advantage? These are but a few of the questions that should be asked and then thoroughly and objectively answered when looking for a competitive advantage Value Driver.

Conclusion
In today's tough merger and acquisition environment, it is more important than ever to concentrate on these twelve solid Value Drivers when advising clients on the transaction process. The late 1990s called for buying a company and then making it work. Today's environment dictates careful study and analysis of all of the potential Value Drivers prior to establishing value, setting a purchase price and executing a Letter of Intent to acquire.

The complete article, Twelve Value Drivers Help Ensure Success in Today's Tough M&A Environment by Marshall Graham, will appear in the 2003 Venture Guide & Directory: The Entrepreneur's Source for Business Management & Venture Investment Success, published by Capital Growth Interactive, Baltimore. The Directory will be available in June 2003. Address your inquiries to Focus by telephone to 202-785-9404 x341, by fax to 202-785-9413, or via e-mail to info@focusbankers.com.

Currently Active Deals
Although our firm has over 21 years of experience across many verticals, Focus currently has active transaction engagements in the following business sectors:

• Application Software, CRM and LIMS Applications
• Business Process Outsourcing
• Fire Protection
• Government IT Contracting
• Healthcare
• HVAC Products
• IT Services and Staffing
• Manufacturing
• Medical Devices and Equipment
• Pharmacy / Distribution
• Physical Security Integration and Access Control
• Promotional Products Distribution
• TeleHealth
• Warehouse, Distribution and Logistics

Our transaction process provides us with up-to-the-minute market knowledge in these sectors which may be of interest to you.

Address your inquiries to Focus via e-mail to info@focusbankers.com, by telephone to 202-785-9404 x341, or by fax to 202-785-9413.

Focus Enterprises, Inc. and Elfcorp International Ltd. Announce Strategic Affiliation
Client Companies to Gain Resources and Regional Expertise in North America, Asia Pacific and Europe

Washington--April 30, 2003--Focus Enterprises, Inc. today announced an affiliation with Hong Kong-based Elfcorp International Limited, a business development and strategic advisory firm. The new affiliation will supply their respective client companies with exceptional opportunities for collaboration as well as with direct access to both firm's extensive resources and regional expertise, particularly in North America, Asia Pacific and Europe.

"Clients of both Elfcorp and Focus will benefit immediately from access to the wide ranging resources of both organizations. Our affiliation allows us to expose our M&A and corporate finance clients to international buyers, sellers and investors, quickly and cost effectively," said Marshall Graham, Chairman of Focus Enterprises.

Douglas E. Rodgers, Managing Partner of Focus Enterprises, adds, "Elfcorp is an organization we've known and admired for years. The firm provides essentially the same type of high level client service to its clients as Focus, except in a different part of the world. We very much look forward to working with Elfcorp on cross-continent client assignments."

"Elfcorp is extremely pleased with the strategic affiliation with Focus Enterprises, Inc.," according to Eduard L. Ferguson, President and CEO of Elfcorp International Limited. "The agreement between the two companies provides the kind of synergy that expands the reach of our mutual resources and expertise, allowing both firms to enhance client services. In an increasingly competitive global marketplace, both Focus Enterprises and Elfcorp International are now exceptionally well positioned to advise and assist a broad range of clients in achieving their corporate growth strategies."

About Elfcorp International Limited
Based in Hong Kong, Elfcorp International Limited is a business development and strategic advisory firm, dedicated to the financial and business development objectives of a broad range of clients. Established in 1990, the firm assists client companies in developing and implementing specific strategies that may entail identifying, negotiating and structuring strategic financing arrangements, joint ventures or corporate restructuring, including the development and preparation of necessary documentation. Visit www.elfcorp.biz for comprehensive information about the firm.

Mergers, Acquisitions and Divestitures:
Benefit from a Strong Focus Track Record of Sell-Side and Buy-Side Transactions

Focus Enterprises' industry expertise, research capabilities and highly developed network of contacts provide a solid base for initiating transactions, as well as for identifying and evaluating potential sellers, buyers and partners.

Our Partners help clients restructure their businesses and assist clients in developing realistic corporate development, acquisition, merger or divestiture plans. Since these activities are strategic and have long-lasting consequences, it is critical that the initial analysis be objective and thorough. When representing potential acquirers, the firm provides assistance in the initial strategic planning stages by helping the client identify the best targets and options. We assist clients in evaluating their alternative strategies including internal growth, merger, acquisition and strategic partnering. Focus Partners can put their network of contacts to work on the client’s behalf, quietly and discreetly in order to preserve relationships and reputations.

When representing sellers, the firm assists its clients in operating from a position of strength. By working closely with the client’s senior management team, we assist in developing a business plan and a forecast that provides an optimal valuation. Focus Enterprises’ Partners will discreetly contact only selected qualified buyers in order to maximize price, improve terms and quickly complete the transaction.

Focus Enterprises provides a complete solution for our clients in the M&A area. If the transaction requires additional capital, Focus can access our extensive network of equity and debt sources. Because our Partners are all highly experienced "hands-on" operating veterans, we can also assist with the post-acquisition integration process.