The Top 5 Things I Learned About the M&A Process From the Sale of My Last Two Companies

David Circle

David Rubin

As a serial entrepreneur who’s had the good fortune to have a couple of excellent exits, I am often asked about what I have learned from the process of a sale. Here’s my top 5 list:

Don’t choose an investment bank, choose an investment banker

Investment banks often try to differentiate themselves based on their executed transactions in your industry, their recommended list of potential buyers, and the quality of the relationships with those buyers. Don’t buy it.  In my experience, what really matters is the quality of the individual(s) who will be interfacing with potential buyers on your behalf.  Get past the talk of the “team” and thoroughly interview exactly who will be on the phone setting up management presentations and negotiating on your behalf.

Don’t make assumptions early in the process

One frequent mistake made by entrepreneurs is making judgments on potential buyers based on limited information. Early in the ProfitFuel process, I asked our investment banker to remove one of the private companies from the list. My assumption was that they would not have the financial means to complete a transaction and I did not want to share competitive information with a company that would be unlikely to buy us. My banker advised that we keep them on the list and remove sensitive information until we were certain about their intentions. This turned out to be excellent advice as they ended up being the buyer which ultimately acquired us!

Treat the process like the job interview that it is

During both transactions, my team was extremely organized and timely in responding to due diligence questions. It is a mistake to assume that by being casual in your interactions, you are somehow strengthening your negotiation position by appearing non-desperate.  Your level of desperation may be obvious from your financials, but a casual demeanor can also be detrimental to your nascent relationship with a potential acquirer.  During the transaction, focus on demonstrating that you have a high performing team that is operating the business effectively.

Listen between the lines and watch for subtle clues about post-transaction life

I recall attending a meeting with the CEO of a public company that was interested in acquiring us. Immediately after our presentation, he mentioned that the first thing he would do post-acquisition was raise our prices. This was after we had already conducted several tests to find the optimal pricing and included this information in our presentation. His unilateral decree spoke volumes about how we would work together (or not) post-transaction.

When it comes to close calls – go with your gut

If you are fortunate enough to get to choose between several appealing options – don’t just simply go with the one that appears to be the highest offer. Many times other factors such as culture will play a much larger role in the success of the merger and the ultimate return to shareholders. Your gut will often take into account thousands of nuanced pieces of information that are not easily put into a spreadsheet. During my last transaction, my gut feeling was to go with what appeared to be the second highest offer, when ultimately it turned out to be, by far, the best offer for my employees and shareholders.