M&A Assassins – Do You Know Them By Name?

It is an absolute shame to see promising M&A deals deteriorate to a preventable death. It doesn’t matter if you are the one selling your company or the other side looking to purchase this end result is terribly frustrating for all parties involved in the arduous process. Below are a few of the common reasons a perfectly healthy deal takes a turn for the worst at one of the most critical points in a company’s life. Regardless of what side you are on, it would be wise to learn who these assassins are and avoid them at all costs.

The “Tire Kicker”

One common reason why a perfectly good company results in a devastating death is caused by a seller marketing his company frequently with no real intent to follow through with a sale. These founders are curious about valuation on a year-by-year basis. They frequently “test” the market and put their company up for sale just “get a gauge on things”. This reality is summed up perfectly by Aesop’s Fable “The Boy Who Cried Wolf”. Over time, potential buyers – both corporate buyers and financial (private equity, family office, etc.) loose interest in the tire kicker and eventually withdraw indefinitely from chasing the company. When the seller is serious buyers are not.

The “I Can Wing-It Executive Team”

It is sad to see a company that has great worth because of recent growth, an impressive top and bottom line, and/or a promising product potential fail in an M&A process because the management team isn’t prepared. Often, this result is due to a lack of preparation that should have occurred over the 12 to 24 months prior to deciding its time to sell the business or acquire for growth. Many founders or c-level executives rush the decision last minute to transact, both on the sell-side or buy-side, only to reach the harsh reality that they aren’t ready. This is also common in cases where a company is in need of capital and makes their attempt last minute when operating capital is getting tight. Common items that the company should be prepared with are: annual audits, important files (contracts, stock option information, resolutions, management meeting minutes, etc.), company projections, etc. Also, with a little forward thinking and planning many can avoid other common pitfalls that can’t be changed quickly including – avoiding unnecessary legal commitments, making key personal changes, resolving legal and employee issues, and/or other similar short comings that are avoidable with a 12 months of preparation. In some cases, we see these teams still follow through with an M&A event. However, most that do leave large amounts of value on the table. If you are on the buy-side, you might want to keep an eye out for these types of sellers.

The “I’m Better Than You”

Probably the most common M&A deal killer is Greed or pride. It happens on both the sell-side and the buy-side. Here are several personal examples:

A buyer, decides that the target company should be worth $X while the market value is $Z+ . The buyer makes a hard line offer at $X demonstrating to the seller that they are in power in the early negotiations. After further due diligence and strategic analysis the buyer clearly recognizes its true strategic value but pride prevents an otherwise profitable acquisition. The buyer’s previous “power position” is more important than acknowledging its error and moving forward with a very promising purchase position. Sometimes the difference is minuscule – certainly not worth fighting over given the strategic nature of the acquisition but both the buyers and sellers can’t swallow their pride and the deal is called off.

More common is a seller not recognizing the company’s true value. Usually, it is a founder and the company is its baby. They’ve spent years with the company and have always dreamed of an unrealistic exit. Despite sound council from advisors or investment bankers on valuation the seller decides to push forward with their pretentious premium. When reality hits and there are no buyers willing to pay the premium and they pull the deal off the market. The sad and predictable outcome here is that they usually either turn into a “tire kicker”, hoping each year they’ll find their unicorn, or the company loses momentum because key employees and/or stakeholders revolt against the founder and cancerous disagreements and indecision cause the company to flounder.

Whether you are looking to sell a company or buy for strategic growth – recognize the signs of these assassins early on in the process and you can save yourself a lot of time and money.

Carl Christensen
Carl Christensen is a Principal with Deal Capital Partners, LLC and InvestmentBank.com. Before joining InvestmentBank.com Carl served as CFO for a $50M consumer events company. He is a former employee of both Goldman Sachs and Deloitte. He brings both breadth and depth to the M&A advisory team here at InvestmentBank.com.
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