M&A: Think Process – NOT Transactions
The #1 misunderstanding that most entrepreneurs and corporate executives have when considering a sale of their Company is that it is a transaction. A one-time, point event. And it’s more important who you know vs. how you get there.
Lawyers do transactions. They ‘paper’ the deal. Before you’re a Deal, you’re a Process. You do it everyday in your own company. What is your product and how do you sell it? How did you get there? It wasn’t a ‘transaction.’
First, you decided what product you were going to sell, then the pricing and how you would market and promote the product. How was the product made? Shipped? Who is the target buyer? How did you distribute your product? Selling your company is no different. Just as with your business, there are a thousand important details and considerations.
Let’s consider the ‘packaging’ of your Company? What materials are you going to give the buyer to introduce them to your company? How will you relate to his business, and entice him to go to the next step: signing the NDA (non disclosure agreement) and requesting the sales memorandum. And the sales memorandum? How is that going to represent you and your Company, and make the potential buyer want to meet with you?
And your Company Presentation, how are you going to convey who you are, your mission, the management team you’ve built, your distribution systems, your customer relationships? How much do you feel comfortable disclosing? Enough? Too much? What are you going to tell your employees?
OK, now you’re ready to start making calls to potential buyers. Do you have a list of potential buyers? Who do you know at these companies? Anyone? If not, how are you going to go about reaching the decision maker(s) who should care about your company?
Ideally, when you start making your calls, sending out materials, and scheduling meetings, all potential buyers will proceed at the same rate. However, that is not always the case. The reality is that you will probably have several waves or tranches of buyers. It’s about what is physically and tactically possible.
Should you be concerned if there is only one buyer? Not necessarily. Your company may be very, very valuable to that one buyer. It’s about Value to the Buyer. The most important thing, when you’re negotiating is how you feel about your position. If you feel your Company is extremely valuable, it will come across. Believe in yourself and your Company.
Once you go back and forth in negotiations, and you have a term sheet, that is when you have a Transaction. All that preceded was Process.