How to sell the optimal price
Twelve techniques leading to four deliverables for owners
We call this the ‘optimal deal ecosystem’ where everything we do is designed to produce interconnecting benefit flows to lead to concrete deliverables which together lead to obtaining the best deal from the best partner. Few firms connect their actions throughout the M&A process to deliverables that feed into goals in this scientific way. As practitioners of ‘advocacy M&A’, there is nothing we do that has not been reverse-engineered to result in our owner client’s advantage.
STRATEGY
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IMPLEMENTATION
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attitude
12
More deal flow
With lower risk
Optimal transaction
The twelve tools of strategy and implementation
Our 12-step process is designed to give our client the advantage in obtaining an optimal transaction through a combination of strategic challenges, better selection of potential partners, presenting the opportunity strategically to each, and providing project management, evaluation and negotiation skills till its completion.
After understanding our client’s business and its strengths, the first step is to try to predict the potential acquirers who will have the strongest strategic fit with it since our data has shown this correlated with paying the highest price in a competitive situation. The limit to what an acquirer can pay is the synergistic value it places on the business and, with a competitive process, we can squeeze a reasonable percentage of that even if the first offers come in lower. It is thus vital to focus on acquirer profiles that are rich in synergy.
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​Our brainstorming is guided by looking for synergies across the five principle business dimensions we use as a taxonomy to describe or categorise companies in the human capital sector, which varies for other sectors falling into people businesses and their technologies.
1. Synergy predicting
Based on the configuration of strengths of our client’s business across the five business dimensions, with one or more capabilities for each, our experience allows us to identify buyer configurations that will logically enjoy multiple synergies from a deal and then paint a picture of each type of buyer and how they would view the business as being a strategic ‘silver bullet’ for their own profile.
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The perfect match never exists, for example a buyer whose only gaps with each of the five dimensions happen to be exactly the only activity of our client’s business in each. However, we can identify basic buyer profile types that are likely to have more than one synergistic opportunity from doing the deal.
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These profiles give us an initial view of some priority areas to focus on which will be amended with client input and iterative enhancements as we start to get initial feedback from a range of buyer and specific buyer discussions.
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Acquirers tend to look either for market power by acquiring in same area, or for cross-selling synergies. In each case as a permutation of some combination of the five dimensions of our HC sector taxonomy.
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For example, a company with a broad range of functions and verticals and one business model in a single country might be attractive to a foreign buyer with a similar profile that lacks that market, or to an acquirer in the same market that broadly matches on function and vertical but has a completely different business model.
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Conversely, a business focused on a single function in one location or country might be attractive to a domestic or foreigner acquirer weak or absent in that function which can use the acquired function as the beachhead to break into this activity, cross-selling it to existing clients and perhaps rolling it back into its existing locations.
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The hypothetical permutations are almost limitless which causes most M&A advisers to 'throw in the sponge' and simply disseminate the opportunity without customised teasing based on strategic fit and without the power of being able to prioritise chasing and prioritisation to cultivate with the most fertile pastures. We are searching for synergy value – value of the company to each acquirer over and above its standalone financial value as it would expected to grow without being integrated.'
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We are hunting, or brainstorming, where synergy value is most likely to exist, since the higher the value (albeit secret) that more acquirers put on the opportunity, the more they will be willing to pay, leaving aside our negotiation methodologies designed to squeeze the maximum from whatever those secret valuations happen to be.
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After brainstorming the initial priority buyer types, we develop a scoring system for each type that will be used later in the process to select priority companies within each group by measuring their individual synergistic matching according to the five dimensions. This later stage is what we call ‘prioritisation within prioritisation’.
Cross-border acquirers
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Since the goal is to maximise synergy value, foreign acquirers must be fully part of the process.
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they are critical because they are an active slice of deals in the sector, on average they tend to pay more because the value of entering a market and, even if they don’t always win the deal, they can help drive up the price of domestic acquirers which often only pay proper prices when they are pushed by competing offers.
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they are critical because they are an active slice of deals in the sector, on average they tend to pay more because the value of entering a market and, even if they don’t always win the deal, they can help drive up the price of domestic acquirers which often only pay proper prices when they are pushed by competing offers.
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We believe that before contacting any partner, it is critical to try to identify every partner in the market that could satisfy the need. We call this our 'Total Universe' approach.
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We only exclude companies when we have sufficient info to know that they will not be suitable to be the partner of client.​
2. 'Total Universe' attitude
Example of a 'Total Universe' process
3. Partner scoring ​
We start the process of ranking partners based on how closely they satisfy the need of client from the initial info we have available. We often use traffic light system to indicate the likelihood of a deal with each partner company.
Ranking is always an iterative process based upon 3 factors: 1) new info we obtain about partners during the deal process, 2) from comparing the relative suitability of different partners, 3) sometimes client changes the criteria of the ideal partner.
4. Client 'Beauty'
A well-presented client will be more attractive to partners, resulting in more interest and better sale/merger terms. We improve the presentation of client by:
'Beauty' checklist
5. 'Opening the door' skills
We pride ourselves on being able to open a high percentage of doors using a combination of determination (not giving up) and creativity (finding solutions to catching partner companies’ interest) and persuasion (a range of techniques we have developed to persuade companies to let us have an exploratory discussion with them).
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We put particular emphasis on persuading partners which seem to have a good strategic fit even if they are at first unwilling to enter discussions.
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We identify as many likely synergies as possible on a customized basis for each potential partner in order to increase the chance of opening the door.
Determination
Creativity
Persuasion
6. Strategic check
During the introductory meeting with a potential partner, we often act as 'synergy host' to steer the conversation to focus on strategic fit and catalyse the discussion of specific synergies. After the meeting, in conjunction with our client, we will pick the strongest synergies and use them to generate stronger interest from the specific potential partner if it is considered good enough for continuing discussion. Often we will use the priority synergy output to create an 'inspirational fit' diagram which can be shared with the potential partner to create FOMO by encapsulating the synergies as much as possible into a 'marriage made in heaven'.
1+1=3
7. Our 1-on-1 techniques​
We start the implementation by following a 1-on-1 approach where the focus is on developing a close trusting relationship with each partner company and also working with them on a tailored basis that takes into consideration their individual attitude, worries, goals and timings.
This approach starts from the first contact and runs through the entire implementation phase through to signing the LOI and to completion. ​ The purpose of these techniques is to get as many as possible suitable acquirers to pass the point of psychological commitment while they're still in competition with each other with the goal of driving the valuations up.​​
8. Joint business planning​
Joint business planning is the best way to investigate whether a partner has a strong strategic fit, allowing us and our client to start quantifying the impact synergies may have on the partner’s pro forma EBITDA. Having this information prior to negotiation allows us to show the counter-party their upside and demand a better valuation.
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In cases where the seller will be offered upside based on the synergies, JBP allows us to quantify the upside being offered.
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JBP also has the by-product value of being an early view of the cultural fit between management teams.​​
We hold the six keys to a successful economic negotiation:
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Have enough good partners we would accept and who want to proceed
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Getting the timing right
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Constant comparison and counter-proposing with support of comparison model recognizing the 'apples & oranges' nature of offers
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Comprehensive discussion of terms
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Negotiation skills
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X factor
9. Economic negotiations
Example of economic comparison
It is conventional that the acquirer or larger company makes the offer and therefore feels it has the right to draft the LOI. This is not necessarily in the interest of the owner, so we either take the initiative and agree we will produce the LOI draft or, as a minimum, engage actively and promptly with a redraft. The point is not to allow the counter-party to feel they are in control of the process.
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We also have a policy that there must be a very detailed LOI, where all of the critical economic points and other key elements are addressed before having a handshake agreement, and then they should be incorporated into the LOI. This is because these important ‘side elements’ can be very hard to agree later while it is much easier to agree them when the counter-party ‘wants’ to capture the deal. We therefore hammer out these points before or during the LOI drafting process. It makes the later document SPA negotiation much easier and also can protect against the deal failing due to disagreement on such issues.​​
10. LOI drafting
Post-LOI is not just paperwork because a reasonable percentage of deals that are agreed at LOI doesn't make it to the finish line.
Our philosophy is that if a deal isn’t good for our client they obviously should not enter into an LOI in the first place, so if an LOI has been signed it means it’s a deal of value. On that premise, we don’t want to lose a deal we have got this far and our driving goal at this point becomes to complete the deal before ‘the wind changes’.
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Given that time is the enemy of completion, we push the process forward as fast as possible. We also deploy our Transaction Loss Mitigation methodology, which is a checklist of about twenty common pitfalls, to identify them before they might happen and work to get the deal across this ‘mine field’.
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As issues invariably come up in due diligence and SPA negotiation, we work to protect the LOI terms negotiated in tandem with our client’s M&A-specialized law firm, which we can also introduce as required.​​
11. Post-LOI and project management
12. Rescue
We are experts not only in deal-making but also in deal-saving, which is often just as important because losing a deal at the end is worse than losing one at the beginning. Frequently a deal is lost because of what we call 'the 3 Fs'-fickleness, fatigue and fighting.
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The key reasons a deal is lost that our client wants:
Fickleness and fatigue are sort countered by keeping the pace most- LOI to try to sell the deal closed before the 'wind changes'.
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In addition to protecting against these common dangers, we deploy our 'Transaction Loss Mitigation' methodology which consists of a checklist of around 20 internal and external events that can derail a deal.
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We can rescue with negotiation skills or creativity and philosophical approach to disagreement, enhanced by our position as a third party.