Idea #1:Lessons for Humans about Humans in an M&A Setting

Advice from Robert Sher for people involved in an acquisitions process:

 1.   Take your time to get to know the people well.  Care about the whole person including their family, their work, their hobbies, their future and their aspirations.  They know you aren't likely to become their best friend, but a genuine interest or curiosity in the other party goes a long way toward wanting to do business with you. 

2.   If possible, have a relationship months or years before the negotiation begins.  This means you'll think today about whom you might buy or who might buy you, and you'll find reasons to mix with them every so often.  It might be the only way you'll even get to the table.  And maybe you'll be the only one at the table!

 3.   When negotiating, find a way to give the other party just what they really want and need.  Of course nobody gets everything they want, but too often concessions are thrown on the table that don't count for much.  First, identify what they really absolutely require for them to say yes, then find a way to give it to them.  They need a 10 million dollar price?  Fine.  Paid over a lot of years, and contingent on good performance, perhaps.

 4.   If the other party is a jerk or has a value set that is fundamentally opposite to yours, you'll find yourself unable to behave professionally.  Walk away--no, run away from the deal. The damage to your reputation will be long lasting, and you can't typically make good deals with these kinds of people anyway.

 5.   Great advisors are a requirement. Find and confirm that  they are great before you really need them. One aspect of great is how well they communicate and work with others.  If they are going to interface with the other side, will they follow your rules about how to treat others?  Are they capable of that?  Think about your lawyer, accountant or broker.

 6.   Don't ask for things that you'd consider out of line or selfish if the roles were reversed.  They'll lose trust and you'll make them angry.  The style of negotiating where both parties start really far apart and slowly work toward the center creates massive collateral damage and destroys relationships.

 7.   Do nothing that would discourage the next 10 CEOs whose business you’d like to buy if they could see your every move in this deal.   Reputation spreads quickly, and a good reputation will bring you better deals next time with less competition.

 8.   Be fair.  I'd love to get a "steal", but there is usually fallout from a steal.  The seller won't work with you down the road because he feels like you were cheap.  They say bad things about you to everyone.  Better to pay on the low side of fair for what the seller has created, but buy a business that has great upside when combined with your resources and talent, and earn the big bucks that way.

 9.   Spouses are really critical.  Most M&A transactions are life-changing events.  What the spouses are like and what they say to the decision maker can make or break a deal.  Meet them.  Think about their needs and opinions.

 10.                Be complimentary.  Presumably the seller and the buyer are both accomplished.  Find areas the other party excelled in and comment on it.  Make them feel smart.  Ask the seller what they'd do if they had your resources to grow the business.  You'll learn a lot, and they'll feel good too.

 11.                Don't lie or deceive.  It is what it is.  Certainly think about how you want to position things and how they should be presented, but know that most critical information will be discovered either before or after the deal.

 12.                Understand the other party's real motivations for doing the deal.  Listen carefully. You'll avoid saying and doing things that will upset them and that they'll reject.  Likewise, you won't have to give a number of concessions because you'll realize that they don't really serve their needs.

 13.                Don't rush to price.  It's the first thing everyone thinks about, but talking about it too soon sours deals.  First talk about fit, motivation, and the possibilities.  Get everyone visualizing the deal happening, and identify what it is you think you're buying (or selling).  Then, when there is little else to talk about, gently get into their expectations about pricing.

 

Idea #2: M&A Readiness: A corporate state of mind
Most business leaders are mindful that certain things may become necessary to grow their businesses. Things like borrowing money, hiring a COO, buying a big piece of equipment, moving the business to larger quarters, and more. For many CEOs of small and mid-sized firms, the incredible opportunity of buying a business or selling the one you run today is out of sight and out of mind. Great opportunities float by and are missed. Worse still, opportunities present themselves and the business and its leader aren't ready and can't take advantage.

Critical to building a business today is having a corporate state of mind which includes M&A readiness. Why?

1. You'll keep your business in top condition, knowing that at any time in the next three years, you may sell the business. You'll pay attention not just to profits this quarter, but all the other critical factors that really make up the value of a business. Even if you never sell, your business will be much healthier.
2. You'll keep up relationships with all likely strategic buyers and sellers so that the comfort is there for those strategic buyers to turn to you first when they're ready to buy or sell. If you initiate, you'll have the best chance of having several eager strategic buyers bidding for your business at the same time, creating auction level pricing.
3. Having an M&A state of mind at all times will require you think strategically about your business on a regular basis, which will precipitate many different actions that will benefit your business over time.


Idea # 3: There should be an R in M&A
Every year, the leader of the business makes a decision. The decision is to either retain the business, sell the business, or acquire a business. In essence, if you don't sell your business, you are deciding to "buy" it yourself -- or retain it.

The decision to retain means that you feel the business is worth more to you in your hands and control than what you could get if you sold it. But how can you make such a decision unless you assess your own business in just the same way a buyer might make such an assessment?

Business leaders should annually do a market review of their business -- not the kind of valuation your CPA does, but the kind of analysis an M&A broker would do in preparation to sell your business. Three clear benefits come from this.

First, you'll be able to see how much your business' value had changed since the last valuation, allowing you to make a good decision about selling.

Second, you'll identify all the weaknesses in your business and can lay plans to fix them.

Third, as part of your competitive analysis and strategic planning, you'll start to see opportunities in your business where an acquisition might be a big step forward.

Idea #4: The Incremental Acquisition
Buying businesses can be addicting and exciting. Often, CEOs will look at a small deal (relative to the size of the acquirer) and move forward, thinking that it'll add incrementally to volume -- say 5%.

The truth is that small deal is not necessarily easier than big deals. The author did four acquisitions, and the fourth, an incremental deal, was the worst, and caused great disruption and headache. This story is not written about in The Feel of the Deal.

Key considerations:

• Dependency on seller personnel after the close.
• Dependency on seller performance after the close.
• Reputation of the seller.
• Legal and accounting costs.
• Integration issues with your own system.
• Desperation level of seller.


Idea #5: WHY owners sell.
One of the most fundamental issues for a buyer is to really understand and know why the seller is exiting. If the seller is exiting for "bad" reasons, it means they are trying to "dump" future foreboding events on the unsuspecting buyer. If the seller is exiting for "good" reasons, the buyer can rest more assured that the future will have no nasty surprises. The sellers often don't tell you the real reason they are selling. It has to be teased out of them.

• We discuss common good and bad reasons a business is sold.
• We discuss some tactics for "teasing" the real reasons out of the seller.
• We discuss some research (due diligence) issues that can help the buyer discover possible negative issues well before they're committed to the deal.

Idea #6: Advisors in M&A
Most CEOs will need and want advisors to help them in their M&A efforts, but how you work with those advisors is a critical issue and depends in large part on your skill set.

Critical Questions:
• How good of an impression will you personally make to prospective buyers?
• Do you know when you need help?
• How well do you listen and take advice?
• Can you be the analyst?
• Are you a lawyer?
• Are you a CPA?

Key Takeaways
1. You must know what you don't know -- to avoid stepping into problems blindly.
2. You or your internal team should do as much as your skills and competencies allow, and work hard on learning from the advisors you hire so you can build your skill set.
3. Never abdicate control -- it's your deal and you must call the shots after listening to your advisors.