M&A Axiom: The single most significant driver of premium values in M&A, outside the characteristics of the company itself, is buyer Competition.
This is why we favor time-limited global broad auctions to find your buyer.
Time Limited
This is ultimately important. Just as cattle will comfortably graze the field vs. being corralled through a small gate when it comes time for branding. Buyers will, unless pushed, generally want to know a great deal about your company before making a serious offer. We call this drip due diligence. One question after another, one call after another. I laugh as I think back to the old TV Show Columbo – “ah, just one more thing”, or “I was just wondering…” – you know how the show went every time until the gotcha moment. Drip due diligence will waste your time and distract you from your goals. The NBA has a shot clock for a reason so too should M&A.
Middle-market CEOs have companies to run and a poorly run M&A process that does not run by time-limited access to you and your management team, or a somewhat defined end date often results in distraction or worse near-term and longer-term performance decline. The cost of a failed deal cannot only be measured by time lost but your company may suffer from the stink of a failed deal. Subsequent buyers may have a nagging concern – why did their last deal fail etc.
Making sure buyers honor a process, have the information they need to make an offer, and stick to dates, not only drives momentum toward a successful closing but minimizes the distraction and performance failure associated with loss of management focus.
Why Global Broad Auction?
We will regularly go out to 200-400 parties to approach in a sell-side auction. In some instances, this will be a market clearing auction, in other cases, the field will include other buyers not traditionally seen as “logical” buyers of companies in your space – family offices, sovereign wealth funds etc. We have seen in recent years a further validation of going global as many of our buyers are increasingly coming from other countries and they often prove to be the outlier bid.
While foreign buyers have many reasons to buy North American companies – Large Market, high consumer spending and on the company front – GAAP financials, access to capital, and reasonable market liquidity to name a few.
While our reach is deep and wide, no firm can know exactly what every board or C-suite is thinking at any particular moment about acquiring your company or a company like yours. As a matter of fact, some of the best acquirers are not looking for your company and should be approached whether and obvious or not. Buyers tend to be complimentary vs competitive. The best investment bankers bring companies and ideas for combinations to buyers helping them connect the dots. This comes from a deep knowledge of many companies and sectors. We find, sellers and do-it-yourselfers leave millions on the table by not exercising a full replete universe of buyers.
Many of our buyers, while spread across both financial buyers and strategic buyers, are increasingly coming from overseas. This is why we typically favor Broad Global Auctions to market our clients’ companies to a wider audience.
We believe in developing and maintaining the power of positive alternatives always and by approaching 200-400 likely buyers from across the globe we can generally ensure clients can answer the question “did we get a true representation of offers from the wider market” That answer is yes.
As we established early on, the middle market is the bizarre-bizarre and a market needs to be created for the sale of your company – In probability theory, the law of large numbers (LLN) is a theorem that describes the result of performing the same experiment a large number of times. According to the law, the average of the results obtained from a large number of trials should be close to the expected value and tend to become closer to the expected value as more trials are performed. We find the more board we go the luckier we become in finding clients a deal and often the right or best acquirer for their business, regardless of what they value most: Price terms, employee-friendliness, values aligned or all of the above.
What auctions are not?
The term auction conjures up a gavel falling and the high bidder wins. In the classical sense there are reserve auctions, and no reserve auctions simply meaning a reserve must be hit for the asset to sell, and in a no-reserve action the asset will sell regardless of price. To be clear in M&A broad auctions the seller is always in control of if when how and for how much to sell for. Maintaining that optionality keeps buyers honest and owners in control of their life’s work.
Variations to go to market strategy.
Often times we have clients who think they are so highly specialized or do not want to go through the risk or hassle of “going broad”. And while we try to dissuade these sellers often time a directed sale, or limited auction is preferable. Only when the risk of sharing potentially disruptive technology or when reputation risk is at stake for example when a large strategic wants to spin off a noncore asset, or a private equity firm wants to divest of an under-performing asset quietly, to avoid embarrassment or a hit to reputation or capital raining ability. There are a great many factors including the industry consolidation vs fragmentation research or president deal activity will give us an indication as to how mature the M&A market is in a given field.
And when it comes to the buy-side, a “boil the ocean” approach in looking for targets to buy often denotes lack of strategic intent or buying discipline, we still believe the law of bog numbers will get most middle market sellers over the finish line if liquidity is deeply desired vs a tire kicking or educational exercise.
Artificial competition
Equally we are hired to orchestrate competition where there may not be competition as many clients are intrigued by an unsolicited or preemptive offer.
M&A Axiom: When you have one buyer you have none.
We are often approached by a client that has received a soft offer (sometimes even a Letter of Intent (LOI) and now asks to know what? Is this a good deal? Is it legitimate? Am I getting a fair deal etc.
And while 90% of these deals with no competition are either fishing exercises, an attempt to tie you up or get a free lock they are almost always offered at a discount. Why? Why not? If you are an unsophisticated seller (one who does not have a valuation or firm understanding of the value drivers or differentiation of your company through a buyer’s eyes, why would anyone offer you top dollar especially unless they have a deep understanding of your business.
Variations to go to market strategy.
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