Anyone that’s been through the process of securing capital, making an acquisition or transferring ownership knows how complex, time consuming and frustrating transactions can be. There are many things that can get in the way of a deal closing, like negotiating issues, due diligence surprises, unrealistic valuation expectations, and cultural differences, among others.
There are a variety of things that improve your chances to obtain a successful outcome, but there’s one thing you really need – that is often overlooked – and that’s discipline. It’s a long, winding and poorly lit road between wanting to do a deal and actually getting it done. Give yourself the benefit of a road map. Understand clearly what your objectives are…before you start…and then stick to them.
If you are raising capital, know the amount you are seeking, but more importantly you need to understand what the capital will do for you (what value will it create) once it’s deployed in the business. Also, raising capital is more than getting a check. Along with the check comes the check writer, too. So, it’s wise to start the capital raise process by understanding what you want in a capital partner and then, as the process moves along, evaluate them based on your criteria. Also, don’t hope that they will be a good partner, perform reverse diligence by asking to speak with companies that have taken their capital. Find out what they are like in the board room, how they handle unexpected situations, and if they would recommend the capital provider to others. If it’s a stand-up firm, they will respect and respond to your request.
If you are making an acquisition, understand why you want to make it before starting. What the strategic objectives are that you hope to achieve. Build a profile of your ideal partner and understand what your constraints are. For instance, if you will need financing to close the deal then you should talk to someone, like an investment banker, that can help you assess that before you start. There is a price you can’t afford. If you know that upfront then you can have the discipline to walk away rather than take ill-advised risk. Don’t chase deals.
Selling a Business
If the objective is to sell your business or a business unit, then understand what is important to you about disposing of that business. Obtaining the highest price is often the first response, but most Midwest business owners really care about their legacy – how their customers and employees will be treated post-transaction and whether jobs will be retained. Think about the cultural characteristics that have contributed to your companies’ success and use those as qualitative criteria when evaluating successors. Compromise, but don’t settle. You will never regret having the discipline to walk away from a bad deal.
The more time you take to identify what’s important to you early on, and having the right help to do so, the more clarity you will have when the process begins (and potentially less discord among family members, shareholders and/or the board). It will help define your prospect list. It will help guide your evaluation as discussions evolve into negotiations and ultimately documentation. None of this is to suggest that you will get everything you want. However, knowing what you want and having the discipline to understand and protect your parameters will increase the chances of your deal getting done and that you will feel good about it in the end.