Lessons Learned from M&A Deals

Over its years as a trusted M&A advisor, Corum has learned many important lessons that tech company sellers should be aware of as they go through their M&A journey. Here are some of those lessons.  

Have common expectations

It is not uncommon for the sale of a tech company to involve multiple owners. In those cases, it's important to have alignment among the owners regarding what they want to get out of an M&A deal. Differing expectations can jeopardize a deal. For instance, owners might have different ideas about their company's true worth and disagree on what would be a fair acquisition price. Or one owner might want a high upfront cash payout, while the others might be more interested in equity in the acquiring company. Disagreements like these inevitably lead to lengthy and difficult negotiations and unnecessarily consume significant time and resources. Eventually, these differences can lead to a less-than optimal result for the sellers or even kill the deal.

Understand that a successful M&A deal relies on alignment not only between the buyer and seller, but also between the owners themselves. Differing expectations can create roadblocks at every stage of the M&A process. 

To help ensure alignment, have early, open, and frequent communication between the owners. Ensure that each owner communicates their objectives and rationale, and work toward compromise and consensus where there are differences.

Do not deal directly with the buyer

It’s often tempting for a seller to want to negotiate directly with a buyer in an M&A. As a seller, you might feel it’s a good way to build rapport or establish a working relationship with the buyer. Although it might be tempting, it’s not a good idea. Sellers typically lack the experience and knowledge of seasoned M&A advisors, which puts them at a disadvantage when negotiating with a buyer.

Consider some of the negative things that might happen if you deal directly with a buyer:

• Misunderstandings: You might misunderstand various things that were discussed or agreed to with the buyer. These misunderstandings, especially when they relate to valuation and deal terms, have the potential to seriously damage or even kill a deal.  Understand that during the M&A process every word you say matters. You want to be very careful with what you say and how you say it. You may think you're sharing one thing and you end up sharing something else.
• Loss of leverage: You might unintentionally reveal things, such as the need to retire or flexibility on price or structure, weakening your negotiating position.
• Confidentiality exposure: You might accidentally leak sensitive information that could impact your employees, vendors, and clients, and may even cause legal problems.
• Time management problems: You will likely try to run your business at the same time as you go through the M&A process. This juggling act puts constraints on your time and resources which can result in what’s termed “seller fatigue,” a sense of tiredness and frustration that can cause a seller to accept a less-than-optimal deal or walk away from the transaction.
• Emotional issues:  As a seller you probably have deep emotional ties to your business, something that can cloud your judgment and make it difficult to remain objective. Issues can arise during the M&A process that can get quite sensitive and be taken personally. For instance, during due diligence, you might perceive the buyer’s scrutiny into every aspect of your business as an attack on your integrity, intelligence, or business acumen. Reacting emotionally in these situations creates drama at a time when you really need to minimize it.
• Single buyer issues: You might have the urge to deal with only one buyer, which limits the possibility of getting offers from multiple, contending buyers. While dealing with a single buyer might seem attractive initially, relying solely on that buyer can lead to a lesser deal than when multiple buyers compete.

It is extremely important for you a seller not to deal directly with a buyer in an M&A, but instead to get professional representation from an experienced M&A advisor such as Corum.  Corum's advisory team has the experience and skill to navigate the complex legal, financial, and strategic aspects of an M&A transaction. And Corum’s detailed M&A process is geared to generate an auction environment where multiple potential buyers make competing bids for your company, resulting in an optimal deal. 

Make clear what you want from your advisors

Your advisors play specific roles during the M&A process. For instance, M&A advisors are your direct negotiators with the buyer. They bring expertise in areas such as valuation, market knowledge, buyer outreach, issue resolution, and running the M&A process.  Legal advisors, by comparison, provide legal guidance on deal structuring, due diligence, regulatory compliance, contract drafting, and risk mitigation. The various advisory teams provide complementary expertise that is vital for a successful M&A. 

However, to ensure those roles are used to best advantage, it's important that you clearly communicate what you expect from each advisory team. Clear communication helps to align goals, ensures efficient processes, mitigates risks, and prevents misunderstandings.  It keeps everyone on the same page, ensuring that each team’s specialized expertise is properly focused. While all your advisors are working to help you reach a successful outcome, it's important to ensure that proper boundaries are respected by each team. Conversely, when issues arise you want to ensure that they don't get siloed within a single team.

Recognize the buyer's way of measuring your business

Buyers use various key performance indicators (KPIs) to understand the financial health of your business. Sometimes these are not the same KPIs that you might use to run and manage your business. Because of that, it's important to work with your M&A advisors to understand what measures the buyer will use so that you can provide those measures when needed. In general, you should be comfortable when the buyer asks for certain financial information ‒ even if you didn't anticipate the request. The buyer is not trying to be nitpicky or harassing. What the buyer is looking for is information they can feed into their financial assessment. Know too that differences in how the buyer and the seller measure financial performance can create a valuation gap that may cause an adjustment in the sales price late in the process. It's something you want to avoid.

Know that it's not done until it's done

Understand that an M&A is not complete until it is fully closed, and that unforeseen issues can derail the process at any stage. Prematurely operating as though the deal is final can lead to financial, operational, and reputational damage for all the parties involved. That is why it's so important to have experienced, competent M&A advisors to do the negotiating with the buyer. M&A advisors know what needs to be done to finalize a deal and meet all the closing conditions.

Remember, an experienced, professional M&A advisor like Corum can help you get an optimal deal, one with excellent structure. A key element in reaching an optimal deal is creating an auction environment where multiple serious buyers contend for the deal. Corum's global search process backed by the largest buyer information database in the industry is designed to bring multiple serious buyers to the table, and weed out the so-called “bottom feeders”. And Corum's team, comprised of ex-CEOs who have years of experience building and selling companies as well as interacting with buyers in the M&A process, will provide the assistance and guidance you need to get you to an optimal deal. Selling your company may be the most important transaction of your life. Make sure you have the right people by your side to help you reach your goals.