Mergers and acquisitions come and go — some with great success, others not so much. It's a roll of the dice, and much like a casino, house rules steer the game. So to all of you thinking about selling your company, if your goal is to simply cash out and move on, then you better plan on staying where you are.
Any strong growth-oriented company isn't interested in that type of seller. Buyers, especially in
You built the business and clients bought your "product" because of you. A buyer worth talking to is only going to sign a letter of intent if you plan to stick around and ensure what they are buying remains successful — even after the earn-out is paid. A smart buyer appreciates that your relationships are key to maximizing revenue within your company and will create incentives to keep you engaged.
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The M&A process is focused on long-term growth, not short-term goals. Now, if you are concerned about what an acquisition will do to your employees, don't be.
It's not uncommon to hear sellers boast about working through the earn-out period and then moving to a remote island in the Caribbean, or some such nonsense. Not so fast: that island just may be submerged before your ship even arrives! Clients sense almost immediately if the seller is on a short timer clock, and they will exit at the first competitor call. That doesn't help the earn-out number, does it?
Sure, everyone will retire at some point, but how you do it will cement your legacy. If your only interest in selling is to make a quick buck and sip the sauce all day in the sand, then please do the buyer a favor and let them move on to a suitable solution to their end game as well.
Whether you are buying or selling, it's imperative to have industry-specific legal counsel that is experienced in contract negotiations and can identify gray areas that can cost you dearly after the deal is inked. Choose a lawyer who knows you, listens to your strategy and understands your industry well. Those are key. This is more than a financial transaction. Think of it this way: If you need brain surgery, would you have an OBGYN perform such a delicate procedure?
Since the length of time it takes to complete an M&A is costly, be sure to discuss deadlines for data submission. This includes more than you would ever imagine or see listed in any article. Due diligence is not for the faint of heart. The longer your attention is drawn away from daily operations, the more your business will suffer, revenues will drop and the value of your company will decrease with every month you are not focused on your core business. A good lawyer will remove this burden.
The accountant or CFO's role is equally important to your success. If you don't have someone managing your P&Ls, then you are in for a long, aggravating due diligence process. Simply locating everything the buyer will need to make the initial offer can take months if you have not kept immaculate records. This financial consultant doesn't have to be an expert in the M&A process, but must be well acquainted with your company's financials. And, as with a lawyer, the accountant should understand time constraints and work quickly. Each day of delayed data submitted for the process will cost you aggravation, stress, and of course, money.
Last but not least, be sure to determine what you are trying to accomplish and why. Many are looking to gain more freedom, while others are seeking to acquire strength and resources to meet future goals and revenue markers. As the seller, don't fixate on how much someone thinks your company is worth, or what you will get from the "highest bidder." It all comes down to the P&L statement — your net value, not the number that hits your bank account.
If your company is solid and P&Ls are in line, then you will get what you are worth in today's market, regardless of the buyer. That said, if you choose a company that doesn't share your core values and culture, or one that doesn't appreciate inclusivity of current client relationships and teams, then you will not get what you want or need. Whether you are the buyer or seller, it's important to choose a partner that operates in a similar fashion as it relates to these relationships. Without those two working together for a win, everyone will lose.
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Due diligence will shape this relationship and dictate the final score. This is when your cards are laid on the table and anything you didn't reveal in the beginning will be discovered near the end, so be transparent early on to avoid wasting your time. Just because a company appears to be a "big fish" in the pond with lots of revenue, employees and office space, that doesn't necessarily equate to being any more profitable than a mom-and-pop shop. So, to you smaller companies thinking you're not as valuable as others due to perceived size, think again.
It all comes down to whether or not you have been playing with a full, transparent deck. Recurring revenue, profitability, niche product or market, proprietary software are all items the buyer wants and needs. So please, do not ask others what their EBITDA or revenue multiples were and the 20-questions game, because it has zero to do with what your company is worth.
Every valuation is different. It all comes down to the items listed above. So, make sure you have those in line before you begin "dating" suitors. During that courtship they will learn every detail about you, your company and, of course, your true value.
And finally, if you don't continue working hard during the M&A process to ensure clients are getting what they need, that earn-out you have been working toward might instead become the end-out you never planned for. If either party forgets the reason they are both at the table once the deal is done, they will never accomplish what M&A is really all about. Successful partnerships are no different than tending to a summer garden. If you don't take care of it, the plants will never grow.
