M&A Explained Series (Part 2 of 5 part series)

This is the second article in a five-part series about how putting the right team in place helps supercharge the M&A process, providing both sellers and buyers maximum value.

Legendary Green Bay Packers football coach Vince Lombardi had a famous saying about luck:

“Luck is when preparation meets opportunity.”

Most business owners wholeheartedly agree. They’ve spent their professional lives working hard to build something great, but many people still perceive them as “lucky.” But, the successful business owner, like Vince Lombardi, knows preparation was an important element in creating their luck.

At Exitwise, we’ve seen the power of preparation in our own business careers, in our personal business sales, and in the successful business exits we've created for our clients. Early preparation is always one of the most important keys to long-term success.

In our last blog, we talked about how the 1992 Olympic basketball Dream Team set the bar for creating dominant teams. As great as the original Olympic basketball Dream Team was, they spent hours practicing as a team and scrimmaging against some of the best college players in the country in preparation for the Olympics. Their coach, Chuck Daly, knew that even a great group of talented individuals needed to prepare as a team to succeed.

Obviously, that preparation paid off in a Gold Medal.

For small business owners, preparation can be the difference between success and failure. Solid preparation can mean literally making millions of dollars more, while poor preparation can lead to a completely failed transaction. This week, we’re looking at the Strategy & Preparation phase of the M&A journey and what needs to be done to make it a success.

There are four key elements to the Strategy & Preparation phase, and in each one your own personal Dream Team of investment bankers, lawyers and tax accountants plays a crucial role:

1) Developing the business sale strategy

2) Identifying potential buyers

3) Preparing a limited data room to store sensitive data

4) Creating highly targeted marketing materials for potential acquirers

Develop the Business Sale Strategy

In this step, your Exitwise Dream Team helps create a holistic sales strategy unique to the business, whether it’s for an individual founder, partnership or investor-backed organization. There are multiple scenarios available at this stage – are the owners looking to recapitalize the business to accelerate growth? Are they looking to transfer ownership to another family member or existing management team members (i.e, Employee Stock Ownership Plan - ESOP)? Is one owner looking to retire and the others are looking to stay in the business? Or, is ownership looking to make a clean break from the business and cash out for maximum value? The Exitwise Dream Team helps the management team think through all of the potential options and helps determine the course of action that maximizes value to each stakeholder.

Identify Potential Buyers

If it is determined that a sale to another entity is the best option, the Dream Team immediately identifies a list of potential buyers with the ideal characteristics. This step is where the Exitwise Dream Team of investment bankers, lawyers and tax accountants separates themselves from generalists. This team will have deep industry knowledge and can identify 10 to 15 organizations who are actively looking to buy a business and could benefit from acquiring your company. A generalist will likely do an exhaustive search of online databases and come to you with a list of more than 100 different potential acquirers with whom they have virtually no personal or working relationships.

The reality is, only a handful of companies are your ideal likely buyers. The Dream Team’s intimate knowledge of your business sector allows them to draw on years of experience, industry contacts and board-member contacts from these potential buyers to zero in on the most highly likely candidates. This insight is a big time saver in the preparation phase, it maintains critical confidentiality in the market and will help generate higher offers during the sale process.

Prepare a Limited Data Room To Store Sensitive Materials

Creating a data room helps give potential buyers a high-level financial overview of your company that will drive the buyer’s acquisition thesis. This is another area where your investment banking team’s industry knowledge is crucial. Their depth of knowledge on how you operate within an industry ecosystem will help design an initial information strategy that will resonate with your buyer list.

Your business is special. It's not just a bunch of numbers. The right industry specialized investment banker will ensure the data room tells the right story.

Create Marketing Materials For Potential Acquirers

It also is critically important to create highly targeted marketing materials that are unique to your business and the needs of potential buyers.

Elements in the marketing materials typically include:

1) The company’s ownership structure and cap table,

2) An executive summary with a product or service overview,

3) Industry overview and competitive analysis,

4) Intellectual Property or trademarks,

5) High-level revenue and profitability

6) Forward looking projections

7) Key personnel who will be involved in the business post-transaction.

Too often, investment banking generalists will simply cut and paste the same generic company information from your website and put together a blast email to their list of over 100 un-targeted potential buyers. Without intimate knowledge of potential buyer needs, this mass marketing approach will inevitably miss the mark.

This is where your investment banking dream team can make a significant difference. Their knowledge and analysis of the industry sector, combined with unique insights into potential buyer’s needs allows the marketing materials to be highly targeted and far more effective.

Champions are Made on the Off-Season

Any championship team or world class athlete will tell you that championships are won by putting in the hard work before the season starts. The Strategy & Preparation phase of the M&A process is much like training camp for an NFL team or spring training for a major league baseball team. Doing the right things from the start will pay off in the long run.

If you want to get “lucky” the Vince Lombardi way, it’s important to find an industry specialized M&A partner who will work hard early in the process to identify the right potential buyers, provide enticing information to pique their interest, and develop highly targeted marketing materials to reel them in. Hard work in the Strategy & Preparation phase sets the tone for success in the remaining phases of the business sale process.

M&A Explained | Five Part Founder Series

In case you've missed any one article in our five-part series - please review each stage of the M&A process and our small business owner best practices when selling a company, make sure to read every article in the series:

Part 1: Supercharging Your M&A Process and Maximizing Your Exit

Part 3: Why Your Investment Banker Is Critical To Recruiting The Right Buyer

Part 4: The Importance of Negotiation and Buyer Selection in M&A

Part 5: Avoid The Fourth Quarter Fumble: M&A Diligence and Documentation