M&A Wisdom Across the Years

Cristian Anastasiu

One of my favorite courses in business school was business communications. One of the assignments was to summarize a 60- to 70-page business case, initially in a few sentences and ultimately in a few words. Thus, it’s probably no surprise that over my 20-plus years in mergers and acquisitions, I came to appreciate adages that capture so much wisdom in just a few words. Here are some of my favorites:

You can set the price if I set the terms. The key message here is that an M&A transaction has multiple components, not just the price. There are many key parts of a deal that have to be considered holistically when analyzing an offer: cash at closing, earnout, seller note, adjustments to EBITDA, asset versus stock transaction, working capital, escrow, covenants, and many other terms that are addressed in a 60-plus page purchase agreement. The approach a seller should use is to negotiate holistically and not piecemeal, while prioritizing his goals and focusing on the most important ones.

Would you buy it for $1? The late Len Fassler, founder of CORE BTS, architect of several highly successful M&A consolidation plays and a past client, used to ask this very simple question when initially analyzing a potential acquisition: “Would you buy it for one dollar?” This helped him focus on the fit, synergies and value creation rather than the intrinsic value of the company he was considering buying, without getting carried away by the deal structure too early. It also underlines that the offer a buyer makes is based on the value the acquired company has for the buyer, not the seller. This approach is typical for quality buyers not chasing a bargain or discount.

Every good deal has to die three times before it closes. This adage captures the complexity and life cycle of many M&A deals, the ups and downs the parties often must navigate before they get to closing. That is why building trust early on in a deal is so critical. Surviving several “deaths” strengthens the relationship and increases the clarity and the deal’s likelihood of success. Be flexible and focus on your goals. Never say never in deal-making.

Bad news first. This advice given to sellers might be in contradiction to the widely accepted “You never get a second chance to make a first impression.” But in M&A, it’s important to make the right impression, set the right expectations, and avoid opening the door for a buyer to lower the offer when something negative is being disclosed later in the process — something the buyer perceives as negative, even if the seller does not.

Time kills deals. I have found this to be most true in M&A deals. Every M&A deal has its own pace, set by the parties involved, but losing momentum will open the door for mistrust to build, the parties to second guess the reason for the slowdown, to explore alternatives, lose focus and eventually interest, and to disengage.

Surgeon versus primary care doctor. This is how one business owner selling his company compared working with an M&A adviser as opposed to another type of professional — such as a management consultant, attorney, CPA or peer group leader. A primary care doctor has the trust and a deep knowledge of his patient’s health, and a long-lasting relationship, but surgery requires a different, highly specialized set of skills just like the sale of a business does. The M&A adviser brings those specialized skills to the table.

Hockey stick effect. It’s not uncommon to see that the revenue projections made by business owners preparing the company for sale show the famous — or in this case infamous — “hockey stick” effect. Projections show revenue rapidly growing by 30% – 50% or more in the very near future after they have been flat or even declining for the last several years. While technically possible, in most cases those projections don’t materialize and lead to loss of credibility and a weaker negotiating position. Sophisticated buyers are less impressed by a seller’s projections. The risk is they reveal more about the owner/seller who displays them than the business itself.

Cristian Anastasiu, founder and managing director of Excendio Advisors, has participated in more than 80 transactions involving sellers with $5 million to $150 million revenue. His experience includes acquiring and integrating companies for Cisco, where he also was director of worldwide sales operations. You may follow him on LinkedIn.