Mergers & Acquisitions processes typically span across many months and require lots of attention to come through successfully. Looking at it from a sell-side perspective, from the decision to open the capital to external investors (or sell) to the closing of a transaction, the various steps involved can oftentimes generate doubts and even, sometimes, raise fears among some of the parties involved.
For example, on the human resources side, the interested parties will want to have enough of an understanding of the business model and its recent performance to be able to formulate an offer (leaving aside the much more invasive due diligence phase for now). Generally, to get there, an extra effort has to be done to order, compile, and verify the information. During this process, it is not uncommon for new reports to be designed to take a fresh look at the information, which invariably raises questions among the employees tasked with preparing those reports.
Interested investors or buyers also typically will want to visit the premises and feel the place. If you’re talking with only one potential investor, there’s not much to be said here, but if running a more formal process – and being successful at time – you may have to schedule multiple such visits in a short time frame, once again possibly raising questions and suspicions within your staff.
Similarly, as shareholders go through M&A processes, they oftentimes end up looking at the business from a different vantage point, sometimes identifying strength in their organizations that they had not seen, other times realizing that some key aspects of their business model might in fact be a latent liability.
Sometimes, the reasons for entering an M&A process are revisited as the process evolves and sometimes the realities of the market are materially different than the expectations of the sellers.
Whatever the reasons, the many moving parts involved in these processes generally mean that, going in, one has little to no visibility on how this process will end.
Take a look at the on-going Yahoo! process. When Yahoo! first announced their intentions to once again evaluate a sale, many anticipated a much stronger interest from the market. Verizon and Times were presented as most likely bidders, back by a breadth of rationales for these bets. As it turns out, Verizon did make an offer and remains the likely winner, Times, however, although arguably aligned, did not see enough value in Yahoo! Overall, the process must have been rather disappointing for Yahoo!’s board as they’ll visibly end up receiving far less offers than anticipated.
OK, uncertainty is part of the deal, so what can I do about it?
Much of it has to do with the type of process being run and the strategic objectives behind it.
For instance, if looking for an investor to fuel growth, oftentimes, informing your management team that you are looking for funding to accelerate growth can help run a smoother process. When and how to address the topic are all too tied with the specificity of each company and processes, however, for selling owners to place themselves in their key employees shoes can help to figure out how to address the subject. For example, a CFO that has gone through similar processes before might feel a lot less threaten for his position knowing you’re looking to expand the business rather than not knowing and automatically assuming the Company is for sale.
From the shareholders’ side, I’ll start with a good news: Going through such processes is generally a great way to put some order in the company and, even if the process does not end up in a transaction, you’ll generally come out of it with a much clearer view on how to improve your operation.
You don’t know if you’ll find someone interested in your company; you don’t know if anybody will be willing to pay the price you aspire or accept your conditions; lately you and your C-level team have focused so much on this process that it feels like they’ve lost track of the day to day operations… these are unavoidable elements tied to a M&A process. You can either look at the glass half empty or half full.
You haven’t received offers for the Company? How thorough was the process? Did you really identify well all possible targets? How were they contacted? Why have we not seen traction, what were the reasons for rejecting the opportunity? What can be done about it?
Nobody wants to pay the price you want? Why not? Which areas of the Company do we need to focus on to improve its value?
You’ve now identified various pending liabilities that you were completely unaware of? Great, you now have a tremendous opportunity to fix them before they actually become a problem.
You’re not able to produce the information required because your accounting is a bit messy? Now is probably the time to think of a possible solution. Whether bringing in an investor, selling the company or keeping running it as is, it is never a bad idea to try to get a better visibility and understanding of your operation.
The bottom line here is that there always are unknowns and aspects that are out of your control, that’s life. What you can do about it is get ready for these unknowns by mastering that which you do control and by trying the best you can to avoid problems by addressing sore points at the sources.
A lot of the unknowns in M&A processes can be minimized by surrounding yourself with knowledgeable advisors, both legal and financial, by ordering up your books and by trying to manage your team’s expectations and assumptions as you advance in the process to avoid surprises and/or minimize their impacts.