Mergers & acquisitions are a high-stakes game of uncertainty. The landscape is ever-changing, there are winners and losers, a lot of the negotiations are zero sum, and once a deal is done it is (usually) “fully-baked”— meaning you can’t go back and undo it. This wide-open blend of finality, high risk and potential life-changing money can be a cauldron for a range of emotions for those who don’t do it every day.
Whether you are buying a company or selling your own, emotions factor into how a deal will play out. It is common to experience some or all of the following: joy, doubt, jealousy, anger, altruism, confusion, sadness, fear, love-hate, and most importantly triumph—when the deal closes.
Emotions amplify for sellers, as it’s tough to let go. Many business owners have spent more time with their business than with their own family; letting go of that is a hard thing. Also, sellers will likely only sell once in their lifetime and this asset may make up the majority of their net worth. Keep this all in mind if you’re across the table as the buyer.
As a buyer, there is a lot at stake. The wrong deal can destroy shareholder value. History is littered with CEOs who have lost their job due to a deal gone awry. In LBM, where seasonality and cyclicality can create huge changes in financial performance, the pressure to make a good deal will be significant. Additionally, how a deal goes down: The valuation paid, the way it is negotiated, what went well/poor, etc. with this seller will likely affect how you are viewed in future deals both on the outside and the inside of your company. None of this may be a seller’s problem, but sellers should appreciate these dynamics.
Since emotions running high can affect decision-making, kill a deal, and make a transaction process more painful than it needs to be—here are some suggestions on what you can do to stay even-keeled in the process:
- Have a Plan B. Whether the Plan B is to sell to a backup buyer, sell to an [glossary]ESOP[/glossary], or recapitalize the business—being comfortable with a backup plan if things don’t work out will make it easier on you.
- Embrace the following realities going into the process:
- Uncertainty. You do not have a deal until the money has changed hands. Anything can happen between now and closing to derail a deal and sometimes it does. My partner says, “You might think you know how a deal is going to play out— but it rarely happens that way.” I wish this wasn’t the case, but he’s right.
- Disruptive and time-consuming. For sellers, plan on the sale process being disruptive and taking more time than you’d prefer. Buyers will be extremely cautious, because they have to. Keep this in mind when they ask for an enormous amount of detail, which you might think is unnecessary and a waste of time.
- Lack of leverage. No one likes to admit this, but the size disparity does affect how a deal is treated. As strategic buyers grow, their size affects how much interest they will have in your deal. Think about it: If a company has $200 million in [glossary]EBITDA[/glossary], and you have $10 million (which is a great amount of EBITDA in LBM), an acquisition of your company only moves their needle 5%. As a buyer, if a seller has made it through the housing depression—we can argue sellers should or need to sell, but do they really have to sell to you today if the deal isn’t fair?
- Lawyers. You will spend a lot of time, money and brainpower with lawyers arguing over issues which have a less than 1% chance of happening. Yes, you have to do it—because when the deal is done, all you have to fall back on is the purchase documents. Just be prepared to settle in and endure this part of the process.
- Be transparent, even if the truth is bad news for the other side, and do what you say you’re going to. Transparency helps you avoid fostering distrust (a quick way to kill a deal), and encourages an environment of collaboration. The latter seems so simple, but is often lost amid the complicated deal-making process.
Other words of advice: Don’t lose your cool. Don’t let a desire to “be right” get in the way of getting what you want. Do use your advisors as buffers. And finally, perhaps most importantly, plan on taking some time off when the deal is done. You will have earned it.