We talk to many different people from all shapes and sizes of software, service, and technology companies on a weekly basis, and following are the 6 most common reasons people give when asked why they don’t think they need an M&A advisor to help them when they are considering selling their company:
Reason #1: Overconfidence in their Abilities
Entrepreneurs and business professionals are used to facing situations where they had to dig in and resolve problems or work through issues on their own. After years of operating this way, when the time comes to sell, they think “Who better to sell the company than me?” The reality is they may know everything about managing their business, but very little about selling it.
Reason #2: Weak Advice from their Traditional Advisors
At the risk of feeling heat from the legal and accounting professionals who read this, CEO’s often don’t get good or thorough advice from their trusted lawyers and accountants. To be fair, it may be because the CEO hasn’t shared enough background and only gets what they ask for. “I’ve been approached by company X who wants to buy my business. Can you help me?” the CEO asks. “YES!” is the reply and the process moves straight into advising on tax, accounting or legal services. A better response might be: “Think about it! What is the likelihood that of all the companies in the world, the one that called you has the best valuation, terms, and chemistry for you, your employees and customers? If you are thinking about selling, let’s talk about planning, preparation and how you’re going to market your firm to get the optimal outcome!”
Reason #3: They Think They Already Know the Buyers
Often a CEO may feel they already know all the likely buyers. A good advisor looks beyond the obvious, and has a database of dozens or hundreds of possible suitors in the same and related markets. They may know international buyers, or Private Equity Groups who are not known to the buyer but have a strategic interest in getting into this market. Good advisors often hear complements from their clients that “you found buyers we didn’t know about, and they are the ones that brought forward the better offers.”
Reason #4: They Think They are Saving Money
Wow, are they ever wrong. Easy to understand that after many years of building a business, they don’t wish to share “a percentage” of their proceeds with a broker. Ask most people who sold their business and the LEAST common complaint you’ll hear in successful deals is that their advisor cost too much. A good advisor can often increase the value of a sale by 20 to 50 percent. Investing X% to outsource the work, gain access to experienced resources, improve the odds of closing the deal successfully and getting a double-digit percentage increase in your value is a smart move.
Reason #5: They Underestimate How Much Time and Work is Involved
This one often comes back to hurt. To do a good job of packaging, marketing, presenting and negotiating with multiple bidders takes a huge amount of time, mostly unrecognized by CEO’s inexperienced with M&A transactions. While they’re focusing on this new learning curve, who’s doing all the work they used to perform to keep the company growing and profitable? If the corporate results slip during the process buyers pounce on the shortfall and valuations drop, or deals fall apart. Even worse, if the deal falls apart and the company’s results slow, you’re farther behind than where you started.
Reason #6: They Don’t Want Anyone to Know They are for Sale
After years of being protectionist and secretive, the thoughts of sharing information with current or potential competitors can be a hard mental hurdle to overcome. “What if my competitors, my customers, my employees, or others hear we are for sale?” This is another situation where the worries get overblown compared to the reality of what happens in practice. Public and private companies hire advisors on a regular basis to “seek out strategic alternatives”. This may mean finding financing, the sale of some or all of the company or its assets, bringing in a strategic partner who can help accelerate its growth, OR it may simply mean it’s looking at alternatives with no plans to do anything at this time. A good advisor coaches their client in advance on the staggered release of information, and how to handle so that it is a non-issue.
Kevin Tribe is owner and Managing Director of Tequity Inc. a boutique merger & acquisition consulting firm for entrepreneurs and shareholders of North American Software, Telecom and Technology businesses. These companies have strategic value beyond that shown on their balance sheets; in their intangible assets, intellectual capital, and knowledge-based workers.
A graduate of the Richard Ivey School of Business, Kevin’s worked at senior management levels with multi-nationals, mid-sized firms and owned and been CEO of several software companies.
He is a board member and past Chair of the York Technology Association and facilitator of their CEO Peer Group. He sits on the board of the Information Technology Association of Canada (ITAC). He is an angel investor and member of York Angels, and a member of Communitech, Ottawa Carlton Research & Innovation, Association of Corporate Growth and the International Business Brokers Association.
Since 2004 Kevin and his team have assisted dozens of CEO’s and their shareholder groups successfully achieve their personal and business objectives