If you figure out the answer to that all-important question on the front end, you’ll have a great chance of closing on the right M&A deal.
One of the key responsibilities of any business owner is to lead their firm on a path for solid, sustainable growth – and to be open to evolving as the market demands and opportunities arise. Steady growth can mean organic growth – expansion by developing your own resources, or inorganic growth – expansion through M&A. But in order to convince someone else to join your firm, you need to be able to clearly communicate the vision you have for what the future could be like if the firms join forces.
Failing to communicate the vision and the strategic fit is a common misstep that does not apply just to buyers. Too often, we hear sellers that do not really know what they bring to the table. It is very hard to pitch a firm to a prospective buyer when we have no idea what we are “selling.” Is it capability? Expertise? A niche? Why this particular buyer? Why are they interesting to the seller? The selling company’s CEO needs to be able to effectively explain to potential buyers why the future would be better for the buyer if they combined entities. Establishing the reason for the conversation and aligning each firm on why this decision makes sense can help both sides ease the tension that inevitably comes from exposing your business to the scrutiny of an outsider, and can help keep the focus on the future, not just on the past.
One of the first questions that potential buyers ask us when we contact them on behalf of sellers is the motivation for the sale. Buyers want to understand what the seller wants – is it a retirement strategy? A growth play? Is the seller tired of the day-to-day of running the business? Do we need “big firm” resources to go from average to spectacular? The answer to this question is an important one, and one that potential buyers will assume an answer to before the first conversation. Managing the answer to that question requires some introspection, and often some coaching from a consultant or trusted advisor as well.
Regardless of the firm’s current performance, unless the potential buyer can get excited about the future of the firm and the ability to add value to the buyer’s clients, employees, and capacities, you will be hard pressed to close a deal that isn’t perceived as a “turn-around” attempt. Strategic buyers can bring an open mind to the table and can get excited about how the firms may be able to work together. But they should not be expected to fill in all the pieces themselves. Instead, buyers should be ready to answer what they do exceptionally well, how they can take that model and apply it to other companies, and why the employees and clients of the seller would be happy to be part of the buyer’s enterprise.
Leaders of both firms need to talk constantly, respond immediately, and remember throughout the process the “big idea” that got them talking in the first place. That “big idea” – the overarching value proposition that drove the decision to pursue M&A – can be a link that binds firms when the negotiation gets tough.
Jamie Claire Kiser is Zweig Group’s director of M&A services. Contact her at firstname.lastname@example.org.