The M&A playing field is tilted against entrepreneurs in ways that can negatively—even disastrously—affect their deal outcomes. That’s the first key takeaway from a recent article in Inc Magazine by Class VI CEO Chris Younger.
His point is that most organizations that buy companies have gone through the process dozens, even hundreds, of times. On the other side of the table, sellers have typically never sold a business before, so there’s plenty of opportunity for a seasoned buyer to take advantage of that inexperience.
I couldn’t agree more, and I’ve witnessed the harm that can come to business owners who aren’t aware of the imbalances at work. Fortunately, there are ways to level the playing field. Among the solutions Chris recommends is to think like a buyer to secure the best deal. From what I’ve seen, this vital but difficult shift in perspective can lead you from an average deal to a great one.
Seeing your business through a buyer’s eyes
A key difference between you and someone looking to buy your company is that you’ve been there since the beginning. You made the first hire, you’ve been involved in every major strategic decision, you’re kept up at night thinking of ways to improve the way people work together.
A buyer will naturally divorce this human element from the transaction and evaluate your company based on its financials, operations, and team composition. It may feel like they’re not focusing on what makes you unique, but they’re assessing value in the best way they know how. After all, buying and selling businesses is how bidders such as private equity firms make their money, and even strategic acquirers (companies in the same or adjacent space as you) hope to gain a business advantage from acquiring your company.
Viewing your company more objectively is a great way to find where risks are hiding. For example, you may be comfortable as the relationship manager for your top three customer accounts, but a buyer will see a high level of risk in this arrangement because there’s a possibility those customers could walk once you’re no longer at the helm.
You should hand off these relationships to another contact to reduce the risk before it has a chance to impact value—an action you wouldn’t necessarily take if you weren’t thinking like a buyer.
Finding balance
I encourage you to read the entirety of Chris’s article on the Inc.com website. It’s full of insights into how buyers operate and how you can prepare yourself and your business to meet M&A challenges head-on.
And reach out if you’re interested in talking to an advisory team like mine who can help you prepare for a deal by viewing your company the way a buyer would.
AUTHORED BY:
Zack Gibson | Managing Director | Class VI Securities, LLC
Zack joined Class VI in 2008 and currently holds the position of Managing Director. Zack’s primary responsibilities include leading Class VI ‘s investment banking division in executing and closing transactions involving the sale or financing of mid-market clients across a broad range of industries. He oversees pre-market preparation, financial modeling, creation of company marketing materials, client management and transaction negotiation.