by Brian Greenberg, CEO of Greenberg Advisors
The idea of M&A conjures up a variety of images, sometimes involving private jets, limousines, and Swiss bank accounts. The fact is there are many commonly held, yet false, beliefs regarding M&A transactions, how they happen, and why some succeed while others fail. Having advised buyers and sellers for many years in M&A transactions in ARM and related sectors, we’ve observed a number of recurring misconceptions. In this article, we will address 3 of these “myths”, and explain why they aren’t usually true.
Myth #1: M&A is Bad for Employees.
Substantial anxiety can result when employees and executives learn that their company is considering a sale. This is understandable, as transactions can bring changes and uncertainty. It’s important to realize, however, that new ownership will often bring a host of benefits to a company’s employees. These advantages can include new capital to fund infrastructure investment and growth, in order to better equip employees for success. They can also include new ideas and expertise to aid in running the company more efficiently, which will ultimately provide greater opportunities to all. In addition, certain groups (such as institutional buyers) often put into place incentive programs, such as performance bonuses or stock options that enable employees to share financially in the benefits of the company’s growth and success, which is usually not the case for a closely-held company that is still owned by its initial founders.
Myth #2: All it Takes is a Few Calls to Get a Deal Done.
It generally takes many hundreds of calls, meetings, and follow-up efforts to close an M&A transaction, not to mention significant resources to prepare a firm for sale, and to create marketing materials, in order to get the attention of the right buyer. To find that buyer, for example, we’ve found that it typically requires making contact with dozens of potential buyers. To be clear, we are referring to groups that are pre-qualified in order to meet certain initial criteria and to have interest in ARM companies, as it’s important to limit any outreach in order to ensure maximum confidentiality, and to avoid wasting time with groups that aren’t a fit, based upon the seller’s requirements and needs. A filtering effect then occurs, where certain firms are not interested, other firms are not a fit for one reason or another, and still other firms may be interested but unable to finance a deal. This “outreach funnel” will lead to the right buyer, which is interested, proposes deal terms and a structure acceptable to both parties, and is able to finance the transaction. The odds for finding the best group by calling just a few groups, or by listening only to the groups that contact you, are extremely low. In the end, even after the right buyer is identified and the right deal is proposed, there is extensive information gathering, analysis, discussion, negotiation, financing, and documentation legwork required before a transaction will ultimately close. Taking a casual approach to the selling process will rarely result in success.
Myth #3: Confidentiality is Always Breached.
Deciding to sell your firm is never a decision to be taken lightly. For many owners who are contemplating a sale process, one of the major concerns is whether “word” will get out about the company being for sale and if so, what the impact might be to the company. For owners, it’s essential to make sure a sale process is kept confidential to avoid negative repercussions. In order to do this, it’s important to assess who you’re working with, and how the process will work. If you are hiring an advisor, ask around regarding their reputation for keeping information private. It’s also standard practice to have potential buyer candidates sign confidentiality agreements in order to legally compel them to keep quiet about the fact that your company is entertaining a sale. And while in our opinion it is completely unacceptable, word does sometimes leak out. However, this doesn’t have to happen, as illustrated by 2 substantial transactions in which we recently advised; the sales of National Asset Recovery Services (NARS) and TRAKAmerica. In both cases, 100% confidentiality was maintained all the way to the closing, as many of the industry’s most connected people later informed us they had no idea those deals were under consideration.
There are many more “myths” regarding M&A in ARM that we haven’t addressed here, but we hope that this article helps to dispel at least a few of them. M&A transactions can bring a host of benefits to owners, executives, and employees alike. While change tends to bring uncertainty and it’s important to cover your bases, it’s also important to factor in the positive benefits that can occur as a result of a well-executed M&A transaction.
To learn more about how to achieve the best results in your own M&A transaction, or to ask other questions, contact Shaun Tiwari at Greenberg Advisors at 301-576-4000 x2 or email stiwari@greenberg-advisors.com.
About Greenberg Advisors
Greenberg Advisors, LLC (www.greenberg-advisors.com) provides value-added strategic advice to clients in the Accounts Receivable Management and related Specialty Finance sectors worldwide. With 15 years of experience dedicated to this niche, and the completion of more than 75 Merger & Acquisition (M&A) and strategic advisory transactions, the firm's success is a result of its distinct client-first approach, deep sector expertise, and roll-up-the-sleeves hard work. Greenberg Advisors offers market-leading advisory services focused on M&A, Capital Raising, and Valuation, as well as a variety of analytical and planning services to assist clients in understanding and enhancing the value of their business. The firm’s two most recent closings involve representing a strategic buyer from outside the US in its search and acquisition of a US-based ARM firm, as well as raising a significant credit facility for a US-based debt purchaser.
