Are We Ready to Proceed?
Editor’s note: this post is part of a series on the six steps towards successful mergers and acquisitions.
"I may not know everything, but I know what I like." We base many personal decisions on this bit of homespun wisdom, and more often than not, it leads us to the right choice.
It’s also not a bad starting point for a preliminary review of printing companies identified as candidates for acquisition. As discussed in the previous post in this series, wise buyers know what they want and why they want it. Now comes the task of confirming that these instincts are correct and that making a deal with the prospective seller will be possible.
“Prospective seller” is a relative term at this stage because most owners who finally agree to be acquired had no thought of doing so when they were first approached. This means that the first step in qualifying an acquisition candidate is to establish the owner's willingness to sell, either by getting an initial “yes” or by convincing the owner that selling is in his or her best interest.
This is a delicate undertaking, and it is usually best handled by a skilled third-party emissary. Representing a buying client, New Direction Partners handles it by making the overture to the candidate, obtaining confidentiality agreements from both sides, and proceeding with the review.
We begin by comparing the market value of the company with the owner's expectation of value. In some cases, we find that what the seller wants is more than what the market considers realistic. Then we will try to educate the owner about valuation, emphasizing that the buyer is prepared to pay a fair market price based on what the company actually is worth.
We now have a situation where there is either a seller to work with or an impasse to walk away from. If we’ve come to a basic agreement, we can begin negotiating the details of the transaction (the subject of the next post). If the owner won't budge on price, or if there is some other kind of obstacle, we move on to other companies from a list of candidates meeting the buyer's specifications.
Building up a credible list of prospects does not happen overnight — a fact that buyers trying to identify candidates on their own, without professional consultation, should keep in mind. Sometimes we know immediately of companies that fit the buyer's parameters; otherwise, we have to go out and find them. Then follows what can be a very time-consuming process of bringing the owners to the table.
We once represented a buyer whose requirements for location, equipment and other factors were highly specific. Just one company fit the bill — a company whose owner was not in a selling frame of mind when we first approached him on behalf of our client. But because he was, from our client's point of view, the only game in town, we spent a year getting him comfortable with the idea that a sale would be to his advantage — a step he ultimately took.
The lesson for buyers is to give the search plenty of lead time. The takeaway for other owners is that whether they realize it or not, buyers have eyes on them. This means taking a hard look at objections that might stand in the way of a sale should one of those buyers come calling.
What makes owners reluctant to sell? Some think they are simply not ready to quit. Others (although we encounter this scenario less frequently than we used to) are holding onto the business in the hope of handing it off to the next generation. Owners who find that their companies can't be sold as going concerns fear plant closures and job losses by their employees.
These are understandable concerns, but what we have seen again and again is that owners who do not overcome them eventually regret the deals they missed as a result. The truth is that the first offer an owner receives may well be the best offer the business will ever attract. No one benefits when opportunities fade before objections do.
It’s better to adopt a positive selling mindset now so that when the time for a preliminary review by a buyer arrives, a mutually advantageous negotiation can begin. What’s not to like about that?
Thomas J. Williams is a partner in New Direction Partners (NDP), the leading provider of advisory services for printing and packaging firms seeking growth and opportunity through mergers and acquisitions. NDP assists its clients by giving them expert guidance and peace of mind at every stage of the process of buying or selling a printing or packaging company. Services include representing selling shareholders; acquisition searches; valuation; capital formation and financing; and strategic planning. NDP’s partners have participated in more than 300 mergers and acquisitions since 1979. Collectively they possess more than 200 years of industry experience with transactions in aggregate exceeding $2 billion. For information, email firstname.lastname@example.org