An acquisition of your company doesn’t always mean an exit, it could mean a partnership to take you to the next level.
If you are a business owner or you know a business owner, you are the right person to read this piece. As business owners ourselves, we know you have limited time and attention, you are being pulled in many different directions and managing your time to focus on the things that will drive it forward can be a difficult task. Every business owner has thought about a succession plan. If you have thought about one but pause because you are so busy, this content is for you. Why? Just like planning for retirement, succession planning is something everyone knows will come one day, something that takes a long time to prepare for and only those that do the necessary preparations will have success. The cool part is of all the options out there to get out of your business: sell the assets, give it to family, give it to the employees, sell to a strategic that approached you. None of those will have all the components of working with an M&A Advisor: fast, limited time on your part, makes you more cash than any of the others, and leads to a potential partnership with sophisticated business people.
You need to devote a lot of time upfront if you are going to sell your business with an M&A advisor, wrong!
At ASA, our M&A process is designed to put all the upfront work on our shoulders so you can focus on your business throughout the M&A process. In order to get to the point of having offers from viable buyers, it will require 2 one hour calls with you and your financial person and a download of our diligence items request. Then, you don’t hear from us until we are presenting you offers. After the offers are in, you decide whether you like the acquirers/valuations. If you do not, we pause the process as long as you want and run it again, all on our dime. If you like the offers, you will get more involved but you will WANT to because of the opportunity you see with the acquirers. If you are thinking about a succession, do not miss out on the potential to make generational wealth, partner with a great team, and have it your way after the transaction.
You need to want to exit your company soon if going to do a transaction, wrong!
While a succession plan is part of what we do, the majority of the transactions we completed over the last three years had the original owner of the company staying on for the next 2-5 years after closing the transaction. Most business owners think preparing for an exit is one thing, when it can actually be something completely different. If you want to exit in the next 3-5 years and you are growing, you do not necessarily need to wait and keep the equity risk over that period. You can either add a capital and strategic partner to help grow the equity you keep in the business or have market compensation until you fully removed themselves from the business. For instance, we had a client that want to stay on after the M&A transaction but did not want to work as much as he had been so we structured the transaction so he stayed on as a board member. This could have only happened because we only represent him and not any buyers.
It takes on average 9-12 months for an M&A transaction to be completed, wrong!
We like to say time is the killer of all deals. Why? Because the world changes quickly, pandemics happen, recessions happen, so when you start an M&A process you are racing against the clock from the start. The other reason is acquirers will take their sweet time analyzing your company until the cows come home unless there is someone, the bad guy (that is us) to push them along and let them know there are 10 other buyers we can go to unless they MOVE. Most of our clients actually have a buyer or two looking at buying them when they sign up with us. They tell us this buyer is taking a long time or they make it to LOI stage only for the deal to fall apart. Why is that? COMPETITION. Buyers need to know they have competition to get to the close table quickly and under the terms that were agreed to.
Our process should take 7 months from start to finish. We are so confident in this that if we don’t have at least one offer on your company within two months of signing on with us, we refund you part of what you paid us up to that point. You want to know when you sign up with an M&A advisor that they will have your undivided attention and will work closely with you. This is why we only have two deals per managing director and have 24/7 availability. We are investment bankers so we don’t have lives! We look forward to working with you.
If something does not go wrong in the transaction, it should be completed in 6 months or less. At ASA, we like to have 1-2 deals per managing director so you can call us at any time of the day and have a quick answer. This also means each transaction goes very fast. We like to say time is the killer of all deals.
Going through M&A transaction and staying on with a capital and strategic partner means lots of changes for your position/role, wrong!
The first question is why would you sell the majority of your company to a capital and strategic partner? If you answer “Yes” to any of the following questions, then this type of M&A transaction might be for you. You do not know what you would do upon exiting your company? You like working on parts of your business, but not others and would like to keep working but to a lessor extent so you have more time for hobbies/family? In other words, are you tired of the burden of ownership? Do you see a lot of growth opportunities/initiatives in your marketplace you want to take advantage of but don’t have the time or money to do so?
What actually happens in this type of transaction? After the transaction, you own a minority equity stake of your company (10-40%) and the partner owns a majority equity stake. You will be compensated a market salary based on your position with a bonus structure in place. Your position/role in the company will not change much unless you want it to (we work through this prior to picking an acquirer). Your management will have the opportunity to earn equity in the company and have long-term incentive plans in place. You will explain to your team that you are staying and that this is a partner that is going to help grow the company.
What about losing control of your business? On paper, you lose control. In reality, the entire company is and has been loyal to you during their tenure. If you and the employees do not like what is occurring, you and them ARE the company. In short, the partner will not want to piss you off in any way.
What is the upside? This partner and you grow the company via inorganic methods (acquisitions) as well as organic methods (sales and marketing, operational efficiencies, etc.). 3-5 years after the first transaction, that minority piece of equity you held onto could be worth much more than the majority you originally sold. The partner will want to pull you out of working IN the business to, instead, work ON the business. Capital for growth will no longer become an issue. All of those aspects of your business including developing new service lines or penetrating new markets will now be possible. We can even structure the transaction so you are fully pulled out of the business and you work much less as a board member. Therefore, you get more time with your family and other interests without fully exiting.
If you talk to any of our previous clients over the last three years, those that stayed on with the acquirer did not have material changes in their role/day to day. Some were busier because of the growth they were experiencing after the sale. Others stayed on as a board member so their day to day got less busy but they still enjoyed the parts of the business they always enjoyed working on.
If you already have a buyer looking at your company, you should not engage an M&A advisor, wrong!
This may sound self-serving on our part but this is truly, truly a missed opportunity that we HATE watching occur. Unlike public companies, private companies do not have a market to sell their equity by virtue of being private. Our job as investment bankers is to CREATE a market for your company. Why do stocks like Tesla have an absurdly high valuation even when they are losing money? Because of competition in the public markets, in other words there are MANY, MANY buyers. If you sell to the first or second strategic company that approaches you, it is like Elon Musk asking one person on the street what the value of Telsa is and then selling them the entire company.
As investment bankers, we scour everyone under the sun and leave no stone unturned to find everyone that would have an interest in acquiring your company. This generates competition with many buyers to find not only that high valuation but the best partner/home for your company.
ALL of our previous clients had someone looking at their company to buy them prior to engaging us as their advisor. We included this party in our M&A process and once they caught wind of the fact that competition was being introduced. ALL of those initial buyers dropped out of the process. There are horror stories of companies looking at buying our previous clients and dragging their feet or going through diligence for 4-5 months and not consummating a transaction. To keep buyers honest and moving quickly, you need competition.
Owners know enough people in their industry to likely know who ends up buying their company after working with a M&A Advisor
When we sign on a typical client, one or a combination of the following scenarios makes up their knowledge of M&A. First, they have had, or currently have an acquirer looking at purchasing their company. This acquirer had approached them without solicitation. Second, they know someone that had their company acquired. Third, they have been through acquisitions before, maybe they have sold or bought companies in the past.
What is crazy? No matter what scenario our client falls under, 95% of them have never heard of the acquirers we bring to the table. A good analogy to what we do as M&A Advisors/Investment Bankers involves looking back in history before the electronic stock exchange. If a seller wanted to be connected with a buyer, they would contact a broker that would go out and find buyers. The seller was not aware of all the buyers in the market without the broker’s help. In the same way, we are in contact with buyers every week. Receiving updates on their acquisition criteria, their funding commitments, their recent acquisitions, etc. We know the universe of acquirers that business owners do not have the time to research. We ‘make a market’ for private companies just as brokers did for public companies before electronic stock exchanges existed.
The next question on your mind is … didn’t a lot of those brokers get in trouble because they would recommend stocks just so they could get their commission? Yes. The difference with ASA Ventures is we only represent sellers. If you don’t like the buyer’s personality, the valuation, it could be anything, we move on to another buyer. We are not in any arrangements or agreements with buyers so our incentives are completely aligned with yours.
95% of the businesses we sold, the original owner did not know the buyer that ended up buying them
We will always include the input from our clients and their ideas around a strategic partner but we go out to the market and find it
We find the best partner with our process but it is usually one that the owner did not know existed until the introduction