By Phillip L. Currie
The mergers and acquisitions market is hot right now and could be so in the months, if not years, to come. Then it should be no surprise to anyone that many owners are entertaining the idea of selling their business. Some have been thinking about it for a while and believe now is the time to exit on a high note and start working on their other aspirations.
Just because it’s a good environment to sell a company, though, doesn’t mean that negotiations won’t take time or run into hurdles before crossing the finish line. Having a well-thought-out strategy before negotiating any deal is paramount.
There are a few “must have’s” to achieving a successful M&A outcome, but also several “never do’s” that will prevent a sale from occurring. Here are the top four:
Fail to Disclose Everything to Your Investment Banker
The worst thing that can happen is when something shows up in due diligence that the owner knew about but hadn’t told their M&A advisor. Owners must be right out in the open about every facet of their business; good and bad. Every company has warts, but nearly all can be cured before the acquisition closes if the investment banker knows about it.
It could be something major, such as the business’ biggest customer being close to going bankrupt, and still not be a show stopper. A good M&A advisor has the experience and know-how to come up with a solution to mitigate that or practically any problem. Failure to disclose issues puts everyone’s credibility into question and is the fastest way to tank a deal.
Make Statements That You Can’t Meet
This is particularly true with respect to revenue. Most M&A processes take a year or so. If the owner has too aggressive of a sales forecast, it will become clear before the deal closes, and cast doubt on their business. Such statements could kill an acquisition, or at least postpone it until the company makes its numbers. That’s not a good thing.
Don’t Have a Backup Offer
When a business owner has a Plan B, they and their representatives can negotiate from strength. The prospective buyer knows that there’s someone in the proverbial lobby wanting a seat at the table. When things start getting tough, the seller will have no problem pushing back. Often the prospective purchaser will do so simply to test the resolve of the business owner. With a backup offer in hand, the seller will almost always win that test. Moreover, a Plan B demonstrates that the company is marketable in the industry.
Negotiate on Your Behalf
It’s a huge advantage to have a qualified intermediary working for the business owner for several reasons. For starters, they are skilled in the art of listening. They will look for things to leverage that others often miss. This comes from the experience of doing thousands of deals. The business owner seeking to secure a sale is also emotionally tied to getting the transaction done, and that can leave them exposed. The M&A advisor can operate from a more objective standpoint.
Every deal is special, and everyone is unique. However, the fundamental tenets to making —and preventing — a deal going through or going south are universal.
Phillip L. Currie is founder of Shoreline Partners and a widely recognized expert in selling businesses. He is a frequent speaker throughout the Western United States on the latest techniques and opportunities for building business value and selling privately-held businesses.