March 3, 2020 at 7:15 pm #107541
How do you go about discussing the potential merger or acquisition with a small target company? We typically attempt to get to know the owner through tradeshow associations or potential joint projects but this may take years to mature to the point of engaging in serious acquisition discussions. After making acquaintance, we let them know to contact us when they are ready to sell the business. I’m looking for a more aggressive approach that won’t offend the owner.March 4, 2020 at 6:55 pm #107565
I think contacting the board may be a way of being a bit more aggressive. I am not sure if meeting a trade show gets the message to where it needs to go.March 18, 2020 at 4:02 am #108656
Small businesses are a different animal. Sometimes closely held, they may have sporadic levels of governance, and have higher concentration of key staff. They present transitional challenges that can be relatively larger than for a middle-market company. However there can also be greater value on the other side of the successful acquisition (and integration) of a smaller company that has a lower multiple.
In many small business situations the owners overlap management and the wrong approach can close and lock the door before a conversation gains traction. Especially when a small group or single owner may have less scrutiny over their decisions. I hear where you’re coming from on greater risk and caution required on the approach.
Some different levels to create a more active merger program can include:
A. At the technical and conversational level:
Give them what they want. Having ideally in person discussions about the future, focused on what they want and where they want to be, and crucially understanding why. Then, less to the point at first, but important in building a framework for future activities, also informing on your goals. Discussing growth through mergers and some steps to find out if it could be a good fit. As well talking about timeline concepts for both parties, if it were to be a good match.
Knowing more about the way they view their ideal future and why (potentially from different levels depending on the organizational structure), delivers the ability to position within that future. Additionally this provides the tools to accelerate the timeline if preferable by using the opportunity to help the target company owners and managers reach their goals faster, etc. Depending on more information about the specifics of a given situation, one way the conversation could start is along the following:
• Start with management, and go up from there when required
• Where are they now → How do they see the world, their place in it, challenges today
• Where they want to be → What do they want, why, problems it solves
• Gap analysis → How far is it, road blocks
Then this could go many ways from here, depending in part on the level of engagement expected. If they are a rare or occasional contact, then at a minimum also touching on the goal to acquire companies like theirs and talking about the existence of a theoretical timeline, even if there are no details. However, if there is a higher level of engagement anticipated, the initial conversation may be entirely focused on building understanding of their situation, challenges, gap analysis, etc, but with no solutions offered until after further relationship development.
• Getting to the point where they trust that you understand where they are, where they want to be and that you have the capability to help them get there faster, is a big win. If they start looking towards the opportunity, transaction timelines may be accelerated.
• Timelines can be relative or based on milestones – when we get to state (i), then we do (ii).
B. At the Business Development level:
Third parties can also help test the waters with mergers. Either on your behalf or as a separate interest, third parties can keep the initial outreach stages insulated from core and future relationships.
You’re absolutely right though, small business interactions are a tougher nut to crack. Ironically they require a lot of EQ (among other things) to get consistent results.
C. At the Firm level:
Setting up an M&A subdivision or department can provide a platform for moving forward with transactions more quickly and with less friction. When the M&A division is reaching out to a small company, they know exactly what it’s for, and they know the M&A team simply has a directive which they are following. During which they may look into all suppliers, compliments, etc, as a regular course of business.
An M&A subdivision can even provide a platform for approaching competitors, substitutes, new entrants and customers about combinations. Inquiries coming from an M&A division allow for preservation of core relationships and reputations, while using dedicated resources brings the continuity to push transactions forwards more aggressively.
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