What is the $$ value of enthusiasm?? If the deal is the ice cream sundae, that extra premium is the cherry on top. It is fascinating to observe, time and time again, how management enthusiasm will get the deal done, and adds a valuation premium.
In ATMI’s (ATMI: Nasdaq) first two public deals, the added ingredient of management enthusiasm is what got the deals done. The Company’s IPO and follow-on offerings were completed in extremely difficult financial market environments. Furthermore, to some investors, the technology was esoteric and the business had too many moving parts. But the Company’s executive took pains to explain the business through incredibly professionally crafted [by the Company] graphics and videos. And every single member of the management team was on a mission, passionate, and incredibly enthusiastic. The same business, with a bland management team would never have closed either deal.
Think of it as being proficient in sales skills, and the product is your company. Who, in your experience, would you identify as the best salesperson you have ever met? What are their characteristics? Enthusiastic, animated sales people sell more product, no matter the industry. Furthermore, one respects the salesman who is persistent, intelligent, and sells with facts and data. What you disdain is the stereotypical used car salesman.
When we sold Green Pasture Software (“GPS”) to IBM, the Company’s determination paved the way. The management had breath taking valuation expectations. However, we were able to illustrate, through comparable deal data, that the expectations were in-line with other company sales prices, including those IBM had paid for similar stage companies in the recent past.
The management team knew their product was an enabling technology for the buyer and wanted an ambitious, but fair, price. In our favor was that the Company had proprietary technology that would be extremely difficult to reverse engineer. In the past, the Company had received unimpressive proposals that were quickly dismissed.
GPS management was determined, dogged and professional. Ultimately, we were able to craft a deal that satisfied all. Unquestionably, that deal had no chance of coming together without the management team’s drive and persistence. As an aside, we were very impressed with the IBM M&A team’s professionalism and deal creativity.
Whether you’re pursuing an IPO, private placement or sale of a company, do not underestimate the value of management enthusiasm. It’s worth a premium of 10 to 20 percent, minimum. In a frothy market it is probably worth 30 percent. Also, that enthusiasm can make borderline deals imminently do-able deals.
One caveat: you must have built a company that is solid, has value to the buyer and meets their investment/acquisition criteria.
What is your experience?