As technology advances the world continues to shrink. For companies embarking on a growth via acquisition strategy this is a boon. In the past companies seeking viable acquisition targets would have been confined to their own country. Possibly a target in a very close neighbor country if the buyer’s financial and human capital were sufficient. Today, a company in China can identify, engage with, and purchase a company in rural Mid-America with low transaction costs.
While the internet, email, and low cost communication options certainly have helped foreign buyers, the role of the M&A advisor cannot be understated. The following benefits of an M&A advisor in a cross border transaction come from personal experience. I’ve helped clients formulate a buy-side strategy, identify viable targets, conduct outreach and manage negotiations culminating in a successful close.
The first undeniable advantage of working with an M&A advisor in your target country is that they are in the country. Having boots on the ground means that your advisor will be clued in on deals that are not being widely publicized. Multiple deal listing platforms exist that a foreign buyer could explore. However, that same buyer must realize they are competing with buyers from all over the globe. Do you really want to compete with numerous buyers in a scenario where the purchase price is likely to be bid up?
If you don’t mind a competitive bidding scenario an online listing portal may be the way to go. Strategic buyers seeking a quality target at a reasonable valuation will be more inclined to work with an advisor.
Your advisor should have contacts within your desired industry who can provide insight as to deals about to be on the market. Even better would be contacts who know of a company that would be open to a transaction, but aren’t actively in the market.
Any advisor worth his or her salt will also be skilled at sourcing off market targets. This is equal parts science, art, and hustle. In a prior transaction the team at InvestmentBank.com identified over 200 off-market targets for our client. These were companies that fit the client’s mandate, but weren’t actively looking to sell. The client had the opportunity to cherry pick the top candidates. Our team then got to work making contact and scheduling introductory conversations between the client and potential target. This is certainly a benefit that you won’t find on any online deal listing platform!
I’ll delve deeper into the matter of the culture gap in a later article. However, it is an extremely important consideration and deserves inclusion in this list.
Culture plays a critical role in a successful M&A transaction. While the eye popping valuations garner much of the attention, and excitement, successful buyers know that valuation is only one piece of the puzzle. Ensuring a cultural fit between Buyer Co and Seller Co is just as important, if not more so, than a proper valuation.
It’s tough enough for companies in the same country to ensure a good cultural fit when contemplating a transaction. When a foreign buyer is involved new complexities, including language and business practices, come into play.
An experienced advisor will not only be able to help you, the buyer, but also the target. When considering lower middle market companies it is likely that your target has never sold a business before. It is even more likely that, even if they have gone through a transaction, it wasn’t with a foreign buyer. What this means is that both parties to the transaction will need some coaching.
Is a slow response time a sign of a lack of interest or is it a cultural norm? What holidays and festivals might you need to consider when engaging with a foreign target? What are acceptable ways to greet superiors and others of high ranking within an organization?
The above might seem trivial, but a serious buyer will consider these and other cultural aspects. If you fail to plan for the culture of your target in an M&A transaction it may be difficult to recognize the synergies that justified the deal in the first place. Your local M&A advisor will be intimately familiar with the national and local culture of your target. The business specific culture will also be easier to discern if the advisor is able to visit the target or have detailed phone conversations on your behalf.
Sometimes a middleman is a nuisance. This is not one of those cases. A quality M&A advisor will play a critical role as a buffer between the buyer and seller. We must acknowledge that once the transaction is finalized the advisor will be out of the picture. He or she may continue to assist the buyer source other targets, but their involvement with the seller will be finished.
This is an advantage for both parties. It is natural when negotiating terms, especially valuation, for conversations to get a bit tense. The buyer and seller will need to maintain a positive relationship so they can work together after the deal is finalized. Should a tense situation arise the advisor can help mediate to resolve the situation. It’s better for the advisor to be the target of some negativity than your future business partner.
I imagine that no coach of a professional sports team would dream of going into a match without a strategy. They will have likely done their homework, prepared a unique strategy for the given opponent, and then stick to that strategy. Your M&A advisor should have the same mindset.
While the strategy may vary from deal to deal, just as it may from match to match, the underlying process remains the same. At InvestmentBank.com we are proponents of the saying, “measure twice and cut once”. Our process involves understanding a client’s business case for the transaction and working with the client to describe the target criteria. Once we begin sourcing targets we follow a well-defined outreach process to generate as many qualified connections as possible for a client.
When you are interviewing M&A advisors to aid in your cross-border transaction be sure to inquire as to their process. What is the first step and how will that set you down the right path to success? Can they walk you through an example using a previous client?
I’ve provided you with a few compelling reasons as to why an M&A advisor is critical for your cross border transaction’s success. A final thought is that creating options for you is what a good advisor must do. Finding the needle in the haystack, as we aim to do for our clients, ensures that you aren’t competing with other buyers for a deal.