The Usual M&A Suspects: Who is the fairest of them all?
Mirror, mirror on the wall. Let us update the question of “who is the fairest of them all?” In the world of sell-side M&A, the simple truth of the matter is that nobody really knows. Go on, take a guess.
15 October 2013
Mirror, mirror on the wall. Let us update the question of “who is the fairest of them all?” In the world of sell-side M&A, the simple truth of the matter is that nobody really knows. Go on, take a guess. Provide a hostage to fortune.
The final outcome is an amalgam of so many factors: strategy, timing, valuation, other demands on the cash, previous M&A experience, mood in the markets, financing options and more.
Predicting the outcome would be unwise. Most people sensibly duck the question and hide behind words like “the market will speak.” Generally your client will accept this, but they may lose their rag and have you sent into the woods with an axe man, or more likely, out the door with no mandate.
Let us examine the “market will speak” doctrine. An efficient market requires the following:
- Position the target correctly; and
- Address it to the correct audience; and
- Be a good advocate for value; and
- Run a good process; then
...you will get full market value from one of those in that audience. This begs a couple of questions…
First, where are the buyers?
Last time I looked, the world was getting smaller. Yes, the bad news for the middle market advisor is that your job just got a whole lot more complicated. By complicated, I mean “demanding” because there is a solution. We will get to it. If you are impatient, just go straight to DealNexus.
Over the years sourcing buyers has gone from local, to regional, to national, to international, to global exercise. The client expects you to shake that tree very hard. The ability to do that might determine who is awarded the mandate. Long gone are the days of calling up a few golfing mates and fixing a nice cozy deal. Even going to your list of usual suspects is not going to cut it in today’s market. No, the correct audience is a global one. You have to reach out to them, find them and attract their attention. You have to design enough time for them to respond and find the right person with whom to speak. Did you ever think that maybe you should have become a realtor if you wanted an easy life?
Second, who is the correct audience?
There are a lot of buyers with their noses pressed up against the window of the party, currently being left out in the cold. In M&A terms that means that the interested buyers are going to include people you have never heard of, ones you would like to contact but cannot get past the switchboard, ones with no M&A history, ones you identified but discounted (unfairly), ones making diversification moves or integrating up or down the channel, or coming from an emerging market, or others.
Bankers looking to develop a list of buyers must ride the tightrope between going narrow and possibly excluding a very interested, but unlikely party, and going wide and spoiling the market. Even going wide does not mean calling everyone in the phone book or air dropping memos around town. There has to be some good reason to include or exclude a party or to allocate them between Tiers 1-3 in order of likely interest.
The danger in a fast-moving and confusing world is to cling to the tried and tested. The people you know may well be natural Tier 1 candidates. Why bother with all that complication when you will sell the property anyway, right? No, not right. It is a form of denial - akin to sticking your head in the sand. Like it or not, technology has shrunk the world and made a broad geographic and outlier buyer search very practical. Technology takes the guesswork out of going beyond the usual suspects and allows you to develop a suitor list that is broad and deep and very intelligent.
Did you jump to DealNexus from way back, or were you able to defer gratification? I hope you were patient. If you have not experienced a deal sourcing network, now would be a good time to go look. It is the future. Look yourself in that mirror and be honest: are you shaking that buyer tree as hard as your client would expect?