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Always shop the deal (almost always)

Our firm took a company to market for acquisition recently, and it sold the first day. “Sold,” in the sense that the buyer identified themselves in a phone call, saying, “We’re the buyer,” before we could get a word in edgewise. “We’re the buyer,” they said again, before we even had a chance to ask who exactly was calling. The excitement was palpable. We were all thrilled. A market-clearing price was set, and the due diligence process started in earnest the next day.

In this case, the acquirer knew the company we took to market for acquisition. They knew the leadership, and they owned a complementary company that made the synergies very valuable to them. In fact, they had been lying in wait, just itching for our client company to come on the market, and when they did, boom!, magic happened. They weren’t going to let this one slip away. They didn’t want anyone else to even see the deal, and we turned away other inquiries who were working off the deal teaser.

Is that common? Unfortunately, it’s not. It’s rare.

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That said, you never know who your buyer will be, and it’s imperative that—short of accepting a market-clearing price—you take the offering of your company as far and wide as possible.

First of all, what’s a market-clearing price? That’s the price that you, as the owner, know you’d be happy to get for your company in an all-cash-at-close deal. Not a so-called “fantasy valuation,” but a realistic number in the high range of what’s reasonable. The market-clearing price should never  make you feel regret, nor have you mumbling later, “Gosh, I wonder if I’d only shopped around, maybe I could have gotten more…” So, short of a market-clearing offer by an acquirer, you really want your investment banker to take the deal as far and wide as possible. And that means offering the company to people who are clearly unlikely buyers. Push the deal teaser out to strategic buyers; push the deal teaser out to private equity groups and family offices. You never know when a deal will catch someone’s imagination. And keep in mind that as big as we think the world is, our business community is actually quite small. People talk. “Did you see that company for sale? I bet I know who that is. You know who might be interested in that, my friend, Mr. Mister. I’m going to call him to make sure he’s seen this.” That’s the advantage of making a broad reach.

Additionally, shopping a deal accomplishes two other things, in addition to reaching a network of buyers, or companies that might refer the buyer: It creates deal buzz, and you want that out there. Even though the deal teaser doesn’t identify your company by name, people always start the guessing game when the teaser starts making the rounds. And deal buzz can really be a motivator, putting a little bit of fear in companies they might start to worry if they risk missing out on something, such as a chance to buy a pesky competitor who’s been driving them crazy.

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The second thing the deal buzz does is to create a sense of deal urgency, so there is momentum to collect letters of intent, and drive toward accepting an offer, followed by a rapid due diligence process.

A sense of urgency is a key part of mergers and acquisitions, because the last thing you want is a deal without momentum. When an acquirer raises their hand and is selected as the winning bid, you want to parlay their excitement to fuel momentum through due diligence, and drive toward a close. The worst thing is when you land a buyer, they’re excited to get the deal done, and then for whatever reason— legal hiccups, requests for repricing, questions of management salary adjustments, environmental audits—the deal stalls between the LOI phase and the closing. That’s when everyone can go crazy, wondering who’s in charge. Candidly, in times like those, it takes real leadership on the investment banker’s part to serve as task master and keep the deal moving along.

Bottom line: Widely shop your deal, create the buzz, and leverage the excitement into momentum to get the deal closed.

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