M & A Rainmaker

The finished sales proposals that I have been involved in ( if I may say so ) are works of art !! The sales proposal for your business is probably the greatest ever sales proposal that you will work on.

Again, we will go into the detailed layout of a sales proposal elsewhere. However the sales proposal will follow the rules of all good sales proposals – not to be too long, keep it simple, minimum jargon, say what needs to be said and no more, use pictures and diagrams to enhance the words and because “a picture tells a thousand words “. Normally I would always recommend “ tailored “ sales proposals but at this stage it is impossible to tailor your proposal to every prospective buyer. Later on though, when you understand more about them you CAN tailor your presentation to them.

It will cover the financial background and future. It will describe the strategy and essence of the company, the products and services that it offers, the potential growth opportunities, the people involved and more.

Remember that this document may be read by non-financial and non-technical people in the first instance. They may have experience in these fields but now they are probably busy business strategists and entrepreuners. If they think that a business is “ the right strategic fit “ everything else will follow.

They will probably involve their “ specialists “ though – the F.D. for a financial analysis, the Sales and Marketing Director for confirmation of the sales enhancement, the Technical Director for a technical overview.

At the end of the day when it comes to a decision on whether to purchase or not although Boards are heavily influenced by their M.D.’s and Chairmen they will want ( and maybe need ) the buy-in and support of other Directors and Shareholders.

So, you see that this sales proposal is going to be read by a lot of very experienced business people. Let me mention something here – a spin-off of selling the company and marketing it is that you have an opportunity to develop new customers for your business even if they don’t buy it !! At the very least you can get them to say “ Well, I did not know what that company did in any detail but I do now and it’s a really great company with a really great team “. From a business development perspective you are not scrabbling around trying to find the right contact to listen to your ( usual ) sales pitch – you have just got your message to all the key people of a wide range of potential partners. Yes, you will be telling some of your competitors your innermost secrets but, if you have a good business, it’s more likely to unnerve them than help them.

Whilst we are on this subject there are probably a few people – may be “ co–opetition “ ( competitors that you co-operate with sometimes ) or key customers that could be competitors – that you would not send out the sales proposal and Teaser to. These people tend to come out as you go through the potential buyers list.

The Sales Proposal is likely to have been put together, as with the Teaser, by the M.D., F.D. and the M & A advisor. It will, no doubt , have also been passed around to the other Directors and maybe key shareholders for their comments and input.

The Sales Proposal is normally only released to interested parties that have signed a Non-Disclosure Agreement ( NDA ). This is a barrier to them talking to other people about you and the information in your Sales Proposal. Professional people are mostly pretty discreet ( they never know when they might be next ! ). You always get some unprofessional people with loose tongues.

The Sales Proposal will typically outline a set of timescales for the response by interested parties, presentations and the registering of expressions of interest and actual offers.

The M & A advisor will typically follow up the sales proposal and look to identify those that want to attend the presentations and make an offer.

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This blog post is a part of a series of posts describing The Sales Process – you can access the other parts of the series from the links below:

• Making the decision
• Alternative Options to an exit by trade sale
• Getting ready to sell
  
• Timing
• Finding an M & A Adviser – The Beauty Parade !!
• Who/where are the buyers
• “The Teaser”
• Prioritising Interest
• The Sale Document – your greatest ever sales proposal
• Presentations
• Offers
• Negotiations and Heads of Terms
• Due Diligence
• Contracts
• Closing the deal
• Objective Parties

Put bluntly you do not have time for “ tyre kickers “, competitors who “ just want a look “ or any other time wasters. You want to spend your time with seriously interested people and only with seriously interested people. Experienced M & A people, like experienced car salespeople, know how to weed out the “ tyre kickers “ from the serious punters.

Obviously there may need to be some clarification of The Teaser, some questions answered and some selling of the company but then it is largely Qualify, Qualify and Qualify again.

Is it a good fit for them ? Why is it a good fit for them ? Are they in buying mode ? Do they have an acquisition war chest ? Can they raise money quickly ? How ? Who will make the decision ? ( Is there a long decision making process, loads of shareholders etc ) Who would come to the presentation ? Have they got the time for this ?

When you have ticks in most of the boxes you can start considering the a “ hot prospect “. Then you can start to re-order your database with hot prospects at the top and those less so further down.

Typically the people most appropriate and most interested rise to the top.

Thos that you decide have serious intent will be the ones that will receive the full sales proposal.

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This blog post is a part of a series of posts describing The Sales Process – you can access the other parts of the series from the links below:

• Making the decision
• Alternative Options to an exit by trade sale
• Getting ready to sell
  
• Timing
• Finding an M & A Adviser – The Beauty Parade !!
• Who/where are the buyers
• “The Teaser”
• Prioritising Interest
• The Sale Document – your greatest ever sales proposal
• Presentations
• Offers
• Negotiations and Heads of Terms
• Due Diligence
• Contracts
• Closing the deal
• Objective Parties

Everyone is so busy these days and catching the attention of the Managing Director or Financial Director of a potential acquirer is not easy. You must make it as easy as possible. Creating the potential buyers list is a big step forward – the companies on this list are not random they are highly likely to be interested in a company like yours. You will also work out who, in those companies, deals with potential acquisitions. ( Sometimes it is the M.D., sometimes the F.D., perhaps an M & A or Acquisitions Director. It may be the Chairman or the Marketing or Business Development/Strategy Director. ) You need to know precisely who.

The Teaser is a one to four A$ side document at most. When it lands on a person’s desk they will look at it and be able to gain a relatively rapid view of the company that is for sale. They should be able to see the opportunity for them ( because you could see it ) It is a clear, quality, easy to read document with a number of key sections in it. ( To be discussed further elsewhere ).

It is likely to have been put together by a combination of the M.D., F.D. and the M & A adviser, with input from the other Directors e.g. Sales, Marketing,HR etc.

It is going to include key selling points, a financial overview, market background, team overview, and the reason for selling.

It will also outline the sale timescales and deadlines. It is very important for people to know that there is a process in place which will result in the company being sold. If they are interested they need to allocate time and resource to a response or the opportunity will be gone ( If you snooze you lose !! ).

The Teaser will be mailed out to the target list and then followed up by telephone a short while after when interest will be registered on the prospect list.

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This blog post is a part of a series of posts describing The Sales Process – you can access the other parts of the series from the links below:

• Making the decision
• Alternative Options to an exit by trade sale
• Getting ready to sell
  
• Timing
• Finding an M & A Adviser – The Beauty Parade !!
• Who/where are the buyers
• “The Teaser”
• Prioritising Interest
• The Sale Document – your greatest ever sales proposal
• Presentations
• Offers
• Negotiations and Heads of Terms
• Due Diligence
• Contracts
• Closing the deal
• Objective Parties

The buyer that emerged from the list when we sold Voyager came from the U.S. Recently, when we marketed 5i Limited we spoke to companies in the U.S., Europe, India and the Middle East although the final buyer was from the U.K.

You should think globally and consider wether there are buyers abroad. Contacting people abroad is now relatively easy in this Internet age. Social and business network connections may assist. Often M & A companies have “ partner” companies in other countries.

One of the first tasks is to sit down with your chosen M & A adviser and create lists of possible purchasers. These will include competitors ( especially those that are known to be on a buy and build strategy – consolidators ), complementary companies ( e.g. for Voyager and 5i – Telco’s, System’s Integrators and Internet Service providers – diversifiers ) and converging companies ( companies that see industries converging and want to combine skills – convergers ). Initially my advice is to cast the net wide and then refine it down later.

When you have a list you want to rank them by various criteria. In so doing you want to “ qualify “ companies. Are you a good fit for them ? ( at least from where you sit ). Are they in acquisition mode ? Do they have money or do they look like they could raise money ? ( Basically are THEY a good business with good people ? ).

Is the timing right for them ? ( You will often find that, for some reason e.g. they are just completing another acquisition or the Managing Director has just changed, they are just not “ in the zone” for acquiring. )

You will add details to your list – contacts, decision makers, email addresses, phone numbers etc etc

You will discuss these lists adding and taking away people as you go.

This list is going to be the basis for the mailing out of your “ Teaser “. It will be a living thing until you get into detailed negotiations with your chosen acquirer.

With such a list you will hopefully cover all the possible people that might be interested in your business and then create competition between the most interested parties.

This is what you want – competition and choice for yourself.

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This blog post is a part of a series of posts describing The Sales Process – you can access the other parts of the series from the links below:

• Making the decision
• Alternative Options to an exit by trade sale
• Getting ready to sell
  
• Timing
• Finding an M & A Adviser – The Beauty Parade !!
• Who/where are the buyers
• “The Teaser”
• Prioritising Interest
• The Sale Document – your greatest ever sales proposal
• Presentations
• Offers
• Negotiations and Heads of Terms
• Due Diligence
• Contracts
• Closing the deal
• Objective Parties

When we sold Voyager our peers ( companies of a similar size in the same sector ) could not understand why they had not been approached to sell  ( what I call a low buyometer reading )   or could not find someone to sell them – with any great interest.

The fact was that the “ buying spree” in this sector ( the period when Telco’s and I.T. systems integrators were looking to purchase network systems integrators ) began in about 1998 with approximately £100 Million plus turnover companies ( eg Chernikeef and Decision Data ) and completely stopped in 2000 having reached £10 Million turnover companies ( and the dotcom bust !! ). There were a number of influencing factors and observations to be made during this period.

Put simply ( some ) M & A advisers – like supermodels – don’t get out of bed for less than a certain number ( turnover number and therefore fee earning number ). In many ways you cannot blame an astute M & A guy for starting at the top in a buying spree and working down. Any salesperson would go for the big deals if they can win them and handle them. As in most “ solutions sales “ you can spend as much time on the little deals as you can on the big ones and you ( may ) not get as much return. £10 Million turnover is a “ break point “ number from many perspectives.

As  mentioned earlier there was an “industry cycle “ going on here related to the convergence, or at least perceived convergence, of voice,video and data. So, some of our peers failed to get noticed on two counts – they were too small ( below £10 Million ) and too late in the cycle to get onto the right people’s radar .

In addition we made the decision to go for a “ top-tier “ M & A adviser ( Ernst and Young ) which, it could be argued, was too expensive for us but which resulted in a very professional and global marketing campaign and at the end of the day a much higher sale price ( with a lot of our input ! ).

So,  lets talk about the M & A Beauty Parade !! This is a very valuable and also quite fun part of the process. M & A advisers come in all sorts of shapes and sizes !! They range from Tier 1 companies like Deloittes down through mid-range advisers like Grant Thornton, to “ boutique M & A companies “ like Nortons and then one man bands.

Generally speaking you are looking for one that specialises in your turnover range. You might do as we did and look at advisers that are a rung or two above your range. So size, in relation to your company, is one factor in your decision about M & A partner.

Experience in your business sector is another factor. How many deals – on the buy side and the sell side – have they done ?? If they have done quite a few deals, over a period of time, then they will have a good contact database. If they know their stuff they will know what sort of companies buyers in the sector are looking for and they will be able to broadly classify you and match you to buyers fairly quickly.

Unless it is a one man band the adviser will send in a team to “ pitch “. If you are lucky ( ? ) you might see the Head of M & A accompanied by his team. They will obviously tend to field a good “ pitcher “ – someone who has many of a salesperson’s attributes. They will complement him with other junior members. Typically the head of the team will be expensive !! More junior, less well experienced people will be cheaper ( rates may not matter to you as you may get a team for a package price. )

What skills do the team have ??

Often M & A people have either a law or accountancy background. ( You are probably going to have separate lawyers but an ex-lawyer in an M & A team is pretty handy – even if it’s just to watch you are not getting ripped off by your lawyers !! ).

Recently we had an M & A team with an accountant who had become an experienced M & A person ( he was Head of M & A ). He was a good salesperson and also a good negotiator ( there will be times when you want the best of both ). We also had a lawyer who had been the buyer in an Internet buy and build operation and then became an M & A adviser. This was a lot of experience to have in two people.

You want their skills to complement and enhance your own skills. ( When you eventually decide on an adviser you will then form a new team with them ).

Of course the cost – or overall remuneration package – is also a factor.

In addition you want to be able to get on with and ideally be able to have a laugh with ( in some pretty serious situations ) these people.

Where do you find the right adviser ????

You will have company lawyers and accountants – they MAY be one of the options. ( Actually I have rarely used the same lawyers and accountants during the life of the business and for the sale of it ). Typically the Directors will have contacts in various M & A companies made over the years – maybe on the golf course !! You can research who is selling and buying companies in your sector. There are lists of who has done what deals and when.

When you have got your list of possible advisers together you invite them in, present to them and then let them present or more likely ask you more questions and respond with some initial thoughts. Remember that you are looking for a few things:

• Thier experience in your sector
• The ability and knowledge  of their team
• Their initial ( ball park ) valuation
• Wether you can get on with them
• Thier global contacts

It is unlikely ( and probably preferable ) that all the answers are forthcoming at a first meeting and therefore a second round of presentations is normal. By this time they should have had time to research and to prepare thoroughly so that they can present to you.

In the second presentation you would expect them to give you more details on likely valuation, their charges, potential buyers, what’s happening in the sector, what your strengths and weaknesses are etc etc

From this you would produce a short list and then proceed to detailed discussions, heads of terms and contracts.

You may or may not employ lawyers at this stage but remember that the shape of the contract with your M & A adviser could be very important in terms of, for example, motivating them and the final fee that you pay.

Finally you will have your M & A adviser, new team members and probably drinking buddies !!

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This blog post is a part of a series of posts describing The Sales Process – you can access the other parts of the series from the links below:

• Making the decision
• Alternative Options to an exit by trade sale
• Getting ready to sell
  
• Timing
• Finding an M & A Adviser – The Beauty Parade !!
• Who/where are the buyers
• “The Teaser”
• Prioritising Interest
• The Sale Document – your greatest ever sales proposal
• Presentations
• Offers
• Negotiations and Heads of Terms
• Due Diligence
• Contracts
• Closing the deal
• Objective Parties

It is very clear that we got the timing of the Voyager sale very correct. Of course we were lucky that we were in the dot com boom.  We had however injected into the business some key new products and services during the initial 5 years or so that became very valuable at the exit (  eg Internet connectivity experience, our own national network, managed services business and ip telephony business ). Within the overall lifecycle of our business we had injected some key product and service lifecycles.

The Buyometer or Approachometer is a good indication of a sector that is building up a head of steam. When people ( other companies, M & A people, VC’s etc ) start calling you up you know that something is going on.

( However you have to be careful during this period because you can get pulled all over the place for meetings by people and they often come to nothing. Anyway to cut through a lot of discussion you only want to talk to people when you are ready to talk to people really.)

Remember however that when they were calling the bigger companies – as they probably were – you would not know about this. You would only know about it when the news of a sale broke – if it was publicised.

So you really need a view of where your company is in relation to your sector and the trends in it.

You have also got to be selling at a time when you are still on the upward trend of your company lifecycle. Far enough through it that you can show track record and improving results but not so far that the peak has been reached.

Of course you are actually trying to start a company that you can exit from when you are most of the way up your company lifecycle and the market is building into a new lifecycle that demands you as a component.

None of us have crystal balls but if you know your market sector you may be able to discern trends that will, probably, build into something in the future.

I don’t necessarily subscribe to the view that now ( the current economic climate ) is not the best time to sell. It depends on a number of things including where you are in your company lifecycle relative to your market lifecycle.

Obviously there are sectors that are booming at the current time and now might be exactly the time to sell. It also depends on the deal that you do to sell because when it comes to how you are paid for your shares you might decide to take some shares in the acquiring company aswell as cash. This extends the value of your business into a new economic period.

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This blog post is a part of a series of posts describing The Sales Process – you can access the other parts of the series from the links below:

• Making the decision
• Alternative Options to an exit by trade sale
• Getting ready to sell
  
• Timing
• Finding an M & A Adviser – The Beauty Parade !!
• Who/where are the buyers
• “The Teaser”
• Prioritising Interest
• The Sale Document – your greatest ever sales proposal
• Presentations
• Offers
• Negotiations and Heads of Terms
• Due Diligence
• Contracts
• Closing the deal
• Objective Parties

If you are getting ready for an exit then you should be thinking about all the things that you will go through and need  before you actually go through them and need them – if that makes sense !!

Things like:

• Getting your shareholders agreements and articles of association in order
• Cleaning up your accounts ( and taking an initial view of valuation now )
• Succession planning ( getting yourself out of the front line as far as possible )
• Deciding which Board members are likely to stay or exit post the sale
• Deciding who does what in the sale process  ( you MUST keep the business going during the sale process and only involve those people who need to be eg the M.D. and the F.D. )

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This blog post is a part of a series of posts describing The Sales Process – you can access the other parts of the series from the links below:

• Making the decision
• Alternative Options to an exit by trade sale
• Getting ready to sell
  
• Timing
• Finding an M & A Adviser – The Beauty Parade !!
• Who/where are the buyers
• “The Teaser”
• Prioritising Interest
• The Sale Document – your greatest ever sales proposal
• Presentations
• Offers
• Negotiations and Heads of Terms
• Due Diligence
• Contracts
• Closing the deal
• Objective Parties

In making the decision to exit it is probably appropriate to review the alternatives.

These might include doing nothing or carrying on as you are for longer ( beware the adage that a business must change, grow or die ), becoming acquisitive yourself ( ie becoming a buy and build operation ), enabling a Management Buy Out ( MBO ) by management that want to stay with the business longer ( or some variation on this like a Buy-in MBO ) or floating the company.

There are many many factors to be considered here but for example if you are to carry on then the key members of the Board and influential shareholders must be willing to do so. ( If you force people to go for longer then they are unlikely to be motivated to do so ). The timing ( in relation to what is going on in the market or the economy ) may be wrong to carry on.

To do a Buy and Build ( become an acquirer yourself ) you must have the skills to do so. You must have the right combination of people with the right experience to attract investors to provide funds to enable a buy and build. Typically this means that you must have a Board that is substantially comprised of people experienced in buy and build operations.

To do an MBO the people that are proposing to do the MBO must have the ability to raise the finance to buy-out the shareholders and Directors that are not staying. Often this is not the case because the most experienced people are leaving but it is sometimes the case that they ( or they and others ) can combine to make a backable team.

To float, leaving aside whether the ( stock ) market is ready for such a public offering, there is a considerable cost involved, considerable time involved and the management team must be rock solid. You are highly unlikely to be able to exit out of a float for some time and if you say that you are then the float is probably dead in the water.

What clearly comes out of all these alternatives to a trade sale is that you must have the right people committed to such a strategy. Even with the trade sale most people will be committed ( in all likelihood ) for a period of time.

To be continued…

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This blog post is a part of a series of posts describing The Sales Process – you can access the other parts of the series from the links below:

• Making the decision
• Alternative Options to an exit by trade sale
• Getting ready to sell
  
• Timing
• Finding an M & A Adviser – The Beauty Parade !!
• Who/where are the buyers
• “The Teaser”
• Prioritising Interest
• The Sale Document – your greatest ever sales proposal
• Presentations
• Offers
• Negotiations and Heads of Terms
• Due Diligence
• Contracts
• Closing the deal
• Objective Parties

Who actually decides whether and when you sell your company ??

Without straying too far in the direction of how much control board members and shareholders have over one another basically the Board of Directors, of which the head is the Managing Director, controls the company for the benefit of it’s shareholders.

Typically the Directors are also shareholders ( but not always ). Often Business Angels and Venture Capital investors will have the right to or an actual  place on the Board of Directors as an executive or non-executive director.

Usually the Managing Director or a majority of the Board of Directors will make the decision to sell or float.

Directors and shareholders with more than 51% of the shareholding of the company can probably force a sale or float.
Depending on the shareholders agreement and the articles a smaller amount of shareholding may be able to force a sale or float.

It is often the case that some of the Directors and shareholders want to sell and some don’t. The reasons why people want to exit or don’t are often very personal and perhaps, for example, related to their age or need or desire for cash.

Often people who do not want to sell when the idea is first mentioned are glad they did when it is all over.
The point is that making the decision to sell is often a complex process and sometimes people who think that they have the authority to decide on an exit actually don’t.

Perhaps the simplest situation is when a company was started with the clear objective of selling after an agreed period of time. In this case, hopefully, investors and Board members are aligned in their thinking and stay aligned up to the point of exit.

Hopefully people can be honest and straightforward in their views, desires and aspirations and a solution can be worked out but unfortunately this is not always the case. Boards and shareholders can be deadlocked and even lawyers involved. Typically this is in nobodies interest ( other than the lawyers ) and so should be avoided if at all possible.

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This blog post is a part of a series of posts describing The Sales Process – you can access the other parts of the series from the links below:

• Making the decision
• Alternative Options to an exit by trade sale
• Getting ready to sell
  
• Timing
• Finding an M & A Adviser – The Beauty Parade !!
• Who/where are the buyers
• “The Teaser”
• Prioritising Interest
• The Sale Document – your greatest ever sales proposal
• Presentations
• Offers
• Negotiations and Heads of Terms
• Due Diligence
• Contracts
• Closing the deal
• Objective Parties