According to a Harvard Business Review report, the failure rate for mergers and acquisitions sits between 70 and 90%. Even before the deal closes, it’s not uncommon for deals to unravel.
If the odds can be overwhelmingly negative, what can you do to increase your chance of success if you are looking to sell your business?
Don’t wait for the M&A process to begin to get your team in gear – that’s a sure fire way to fail.
Instead: smart company owners and boards get their operations, sales, marketing, finances, product line and teams in place. The challenge is that this preparation is not like business as usual for an independent company used to being run by a solo owner, family, or partnership.
Most owners and boards feel they are doing the best job they can, yet when they finally make the move to sell they get held up. We’ve seen too many deals fall through because finances were not properly accounted for, systems were lacking, or during diligence records on the customer base didn’t look as rosy when the potential buyer got under the hood. An owner’s thinking that the right buyer will be ok with the company as is, is usually wrong and can be fatal for good deal making.
So get your ducks in a row. Start by thinking like your best buyer. Most buyers are either corporations far larger than the acquisition target, or professionally run private equity funds. In either case, their needs as business operators can be radically different – far more institutional – than the seller understands. So to get the most value out of your future sale, start putting yourself in their shoes by doing these three things:
1. Treat Your Company as a Product
The thing most sellers fail to grasp is that their entire company needs to be treated as a product, in this case a product that is sold to a buyer. Institutional buyers know the same statistics for high failure rates in mergers and acquisitions, which makes them doubly cautious. If you were selling a product, you would ensure the product looks and functions as promised. Is this the case for your company? Are your finances impeccable? What does the sales portfolio and pipeline look like? Is your technology roadmap state of the art?
2. Maximize Your Value
It is incumbent on the seller – the board of directors, owners and senior management team, all working together – to put themselves into the mindset of their ideal buyer. In this context the buyer is no longer a buyer, but rather a future partner and home into which the company will move.
This puts a premium on the question of fit: how does your company operate to best advantage with maximum ability to grow – within a larger entity?
With that question in mind, the things you do now could greatly impact the ultimate price tag of the business months or years down the road when you are ready to sell. A buyer goes beyond what your company is worth, to look at what the opportunity for future growth looks like.
So whether it is operational improvements, technology upgrades, market expansion programs, or sharper branding and positioning, it all paints a picture for the buyer how they can continue on a growth path.
3. Think about Succession
Make sure you start thinking about your future involvement with the business (if any) now. If you as owner have the mentality when dealing with the acquirer, “here are the keys, good luck” and plan to ride off into the sunset once your check has cleared, that may be fine for you, but a recipe for disaster for those you leave behind, and quite possibly a deterrent to ever getting the deal done in the first place.
It is important to think in terms of strong leadership beyond the founder. The person following you needs to be set up for success, whether an insider proficient in growing companies and divisions within a larger corporate entity, or an outsider brought in to prepare the company for a new corporate home by zeroing in on all of the integration work necessary to merge entities seamlessly. Smart owners take steps before the acquirer questions start coming to make sure there’s a strong ongoing management team.
Successful merger and acquisition transactions result not only because there was a good fit between organizations, but because the seller took steps to ensure success for all parties involved.
Courageous owners and boards wanting to sell your business one day, your work begins now (and luckily there’s expert help ready at hand to get your company ready to go).