Selling your company, even with the most professional process run by the best M&A advisor, is never a guaranteed success. There are a number of reasons why you might not be able to take your company completely through the process and come out the other side with a finalized deal.
When you’re considering M&A, one of the first things you should be aware of is that it just might not be your time to sell. Your company might not be ready for buyers to seriously consider it or the market might not be big enough yet (even if it will eventually be a standard in tech) for buyers to truly be interested yet.
After running into these kinds of issues with the selling process, many people would consider their attempt at M&A a failure. Instead of continuing the process, many turn back to their company and focus on growing the company. At this point, M&A might be a more distant dream as they focus on making sure their company is doing well.
However, turning away from the failure completely isn’t the only choice.
A well-run process can and will provide the seller with valuable market feedback. For example, you might learn about better ways of running the company to increase efficiency and reduce perceived risk or learn about more attractive and preferred types of revenue that potential buyers will show more interest in. After all, not all revenue is equal in the eyes of a buyer. My peer, Dan Bernstein talks about this at length in his “Quality of Revenue” whitepaper.
With some advisors, you may find that before you quit, you’ll have that the option of going into a formal hiatus process. This kind of process will allow you and your company the option of re-entering the market with minimal effort and cost. This allows you to have the time to reassess what your company is doing right and wrong both for the market and for potential buyers, then make those changes and have time to become more attractive to buyers.
Regardless of why the hiatus period was started, the period of rest out of the market can serve a company well by giving it the time that it needs to grow into a more desirable valuation and deal terms. Whether it’s because of the information that you have gleaned from buyer feedback or from the market intel that you have gained, hiatus provides you time to use all of the information that you have learned and to put it to use for your company.
In a well-run M&A process, you’ll also gain some additional insight into your market – particularly as a result of the calls and meetings that you have with potential buyers. A proper M&A process will reach out to companies across your relevant markets and also internationally. In addition to the PE buyers (the “smart” money), the strategics you encounter may know things about the market that may not be evident from your point of view. For example, certain international markets may have lower barriers to entry or are less competitive. This knowledge may open up new avenues for your company to pursue that will allow a buyer to revisit your company and see that it could be much more useful.
In addition, it’s quite common to identify new customers to craft new partnerships as a result of a well-run process. These partnerships can prove useful as you continue to grow and improve your company. And many of these partners subsequently become potential buyers when you step out of hiatus.
In the end, your patience may be rewarded with an M&A transaction that outdoes anything that you had imagined at the beginning of the initial M&A process.
Hiatus may not appeal to everyone and, certainly, a successful sale on the first attempt is often more desirable. However, Corum has found that a formal hiatus process such as ours, with properly implemented lessons learned, is very beneficial and invariably leads to a more successful outcome.