If you are considering selling your company, you should be aware of a certain menace that could have you in its crosshairs. There are direct buyers out there who intentionally prey on business owners, attempting to acquire a company by blindsiding its owner with big promises and, more importantly, taking advantage of their lack of guidance from a seasoned M&A professional. These buyers purposely look to avoid competition for a company because competition drives valuations higher, and they want to make an acquisition on the cheap—in addition to other shady maneuvers.
Bait & Switch
Some buyers will attempt to pull “bait & switch” tactics. To initially intrigue a seller, the buyer will present a high dollar amount. As they conduct due diligence and get the target more and more committed to the deal, they begin chipping away at the value until they reach a price and terms that are far more favorable for the buyer. This is typically an exhausting process for the seller and can lead to plenty of regret. If the deal falls apart, the seller may be reluctant to restart the process with another buyer, thinking the process will just be the same. In reality, it could have been completely different for the seller if they had a reputable M&A specialist on their side from the beginning.
Buy-side M&A Firms
Buyers are sometimes represented by buy-side M&A firms that only work on behalf of buyers. Direct buyers often want to consolidate the market so, if you don’t sell, they will buy your competitors and go after your trade secrets—eventually squeezing you out of the market. This gives you even more reason to be represented by a sell-side M&A firm so that you can go toe-to-toe in negotiations without the problems that come with being outmatched.
Long Exclusivity Periods
Another issue you may face with predatory buyers is the imposition of long exclusivity periods. An exclusivity period is a length of time (typically 30 to 60 days) specified in a Letter of Intent during which the seller is prohibited from carrying out further activities related to the sale of the business with parties other than that prospective buyer. This is sometimes called a “no shop” phase. Ideally, it should be long enough that the buyer is comfortable to complete due diligence and negotiate a purchase agreement. But for the seller, it should be short enough that the buyer cannot tie them up forever. Some buyers try to extend the original timeframe as a strategy to use information gained through a quality of earnings analysis to try to re-trade the deal. This can lead to price reductions or adjusted terms and put you in the position where you cannot pursue other deal options.
Another thing to watch out for is what is known as the “breakup fee.” It is designed to compensate the buyer for time and resources spent on the deal if the deal falls apart. Breakup fees can be used to prevent a seller from seeking other offers because they know that if the deal falls through, you will still have to pay the buyer, eliminating their bidding competition—as well as your options.
Sellers can also request a breakup fee to get out of an exclusivity period and let you recoup fees and expenses paid, as well as costs related to not being able to shop around if the deal gets called off. The problem is, these fees are difficult to enforce, and you can waste time negotiating them instead of the more important parts of an agreement. Proper M&A advisement can help you avoid these types of pitfalls and structure a deal that works in your best interest.
Why You Need M&A Representation
For all of the reasons discussed here, many buyers will specifically target companies without M&A representation in order to give them a better chance of spending less money and securing more favorable terms, leaving you on the raw end of a deal.
M&A specialists also enhance the overall value received upon exit for business owners.
A great example of how M&A representation can make all the difference in the world was the sale of Hi-Tech Products Limited to Siegwerk. The M&A expertise brought to the table by Benchmark International resulted in serious competitive tension and a final offer that was 30% higher than the original offer.
The experience offered by a reputable M&A specialist is critical to every aspect of the sale process, including the successful completion of a deal at the highest value possible. The M&A process is comprised of many stages and various levels of complexity, which can present many pitfalls for even the savviest of individuals, let alone an inexperienced seller. Negotiations can often be deceptive, and what may seem like a great deal can be quite the opposite if structured in a manner that only suits the buyer. An M&A specialist is accomplished and well versed in these negotiations. They also have the resources and connections to make the bidding process more competitive, carefully managing the prospective buyers, helping you get more money in a deal.
It is common for business owners to underappreciate how much time and effort is required to complete an exit. If you plan on managing the sale yourself, you will also be faced with the complex balancing act of doing so while still trying to run your company and maintain its performance. If you take your eye off the ball in either of these duties, it can lead to a reduction in the company value—and that means deal value. Selling a business is a time-consuming undertaking that requires constant focus and a lengthy due diligence process. And you already know how much attention and effort it takes to run a business. Imagine having to spend over 1,000 hours of your time spread over 9-18 months to close a deal on your own. Having an M&A specialist in your corner lets you focus on your day-to-day operations while your advisor maintains high standards in handling all the details involved in a transaction. Not to mention that they are likely to get a deal done quicker than if you go it alone.
Strong Marketing & Research Capabilities
Getting maximum value upon exit is contingent upon several factors. One huge factor is that the acquisition opportunity is properly marketed to as many suitable buyers as possible. This means that the M&A specialist must know how to identify all potential acquirers and effectively communicate with them on a global scale, due to the increasingly globalized M&A environment we find ourselves in. This requires a thorough understanding of research techniques and M&A knowledge, in addition to access to specialized M&A research software.
Understanding who would be motivated and capable of making an acquisition is not enough. Knowing how to effectively market the company to these parties is vital. An experienced M&A specialist must have the capabilities to do this on a global scale.
This includes careful analysis of your business and the development of a marketing strategy and marketing materials designed to attract a large number of high quality suitors. Combining global research and marketing capabilities allows for an increased level of competition surrounding deals, which is essential to creating maximum value.
The Benchmark Advantage
Benchmark International has brought together experienced M&A professionals from around the world to form a team that successfully—and consistently—markets our clients’ companies to appropriate parties worldwide. Combining a wealth of knowledge and experience, along with an on-the-ground presence across a global network, we continually provide clients with a selection of differing and highly motivated potential acquirers.
Benchmark International is also armed with a unique M&A suite of software built at a cost in excess of $4 million, which is combined with our proprietary processes to enable us to identify and engage closely with acquisitive parties on a global scale.
There is also something very different about Benchmark International. Our deal teams have a great understanding of what business owners go through, and how emotional the experience of selling can be. We get it, in a large part because most of us have been in your shoes. Our clients find our compassion to be important in trusting us and finding peace of mind along the journey. Let us do the worrying for you, and rest assured that we only have your best interests at heart.
If you want to sell your company for maximum value and get the most advantageous deal structure for your exit, it is essential that you do two things. The first is to remain focused on your business. The second is to engage an M&A professional who will unlock your access to the most suitable buyers, and provide the technical and marketing savvy necessary to leverage the interest in your favor. Remember, this is likely the most important transaction you will face in your lifetime, and you only get one chance to get it right.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkIntl.com
Europe: Michael Lawrie at +44 (0) 161 359 4400 / Enquiries@BenchmarkIntl.com
Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkIntl.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $6B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.