Corporate Finance

Whether Buying or Selling a Company: Pick the Right Partner

By PAUL HAGER,  Partner of ONEtoONE Corporate Finance


Have you bought, or sold, a business lately?  If you did, how do you know if you received optimal value on the deal?  It can take years before the value gained can be objectively measured, or even whether the result was a business success.  Recent McKinsey and Harvard research shows that nearly 90% of all M&A deals fail to deliver the value expected, or achieve their M&A goals.  How can this be?

Well-known, high-profile deals like Daimler-Benz-Chrysler; Time Warner-AOL; Quaker Oats-Snapple; Sears-Kmart; Google-Motorola; Sprint-Nextel, are extreme examples of deals not meeting expectations.  A number of factors lead to poor M&A results.  These include: simply paying too much; fundamental cultural mismatch; massive infrastructure incompatibilities; significant redundancies; or no product synergy, whatsoever (i.e., the marriage simply wasn’t ever going to generate products customers would consider more valuable).

As someone who has bought companies as a Fortune 500 investment committee member, and as a valuation and investment advisor for M&A clients, I’ve found the team you select to be your investment advisor plays a significant role in the amount of value created in the deal.  I hope my thoughts might help you pick the right investment advisor, and significantly increase the likelihood of you achieving your M&A goals.  I’ve listed characteristics I think exist in all exceptional advisors.   An exceptional investment advisor:

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1) Asks “Why?”.

You’ve likely heard of Simon Sinek’s Golden Circle paradigm or Paul Ambruso’s use of the “5 Whys” to discern the root cause of success and failure.  The “5 Why” approach was derived from Taiichi Ohno’s 1960s Toyota Production System methodology.  Its purpose is to identify inefficiencies, waste, inconsistencies in manufacturing.  Most importantly, the technique can help people discover and objectively assess assumptions, biases, facts, priorities of any endeavor – personal or professional.  In our case, buying or selling a business.  The “5 Why” method states that clear insight leads to the best decision, and that insight is likely to come only after you’ve assessed answers to five iterations of “Why?”.  For example, your investment advisor might ask, “Why do you want to buy a business?, Why do you think buying another company will lead to greater innovation?, Why do you think this type of research capability will lead to needed innovation?  And, so on.  Asking “Why” throughout the M&A process leads to clearer understanding of why a certain type of company or investors would be the best match.  An exceptional advisor asks “Why” to constantly validate assumptions, eliminate wasted effort, explore new deal options, and sustain deal focus.

2) Understands your business

As an M&A advisor, there is no adequate substitute for deep understanding of a client’s operations and industry sector.  Having empirical insight into current and future industry trends, enabling technologies, and inter-dependent industries dramatically heightens the value ceiling.  An exceptional investment advisor will use this insight, and that of her other industry experts, to develop a set of optimal investment candidates for each client.

3) Spearfishes

Last year, a friend of mine told me of her exciting trip to Bora Bora (How nice is that?)  She said the restaurant would take their dinner order the day before, so that snorkelers could search for the exact type and number of fish needed for their guests’ dinners.   No waste in effort, time, or resources (fish not on the menu appreciated that).  The diver knew the depth and location to find the type and size of desired fish.  An exceptional investment advisor will find those investors and companies that most value a specific client’s offering.  Through use of the “5 Whys” and other analytic methods (e.g., Porter’s 5 Forces) to build a well-defined target profile, the advisor will quickly identify superior matches for each client.

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4) Leverages global reach and local insight

In searching for their client’s best investment candidates, it is sometimes more efficient and expeditious for advisors to contact corporate, institutional, and private investors with whom they regularly do business – “the usual suspects.”  Because of established trust and understanding regarding these investors’ preferences and capabilities, advisors will work within their established networks.  That’s understandable.  But, the best strategic partner, the one that may most value the client’s offering is often not within any investor’s direct set of contacts.  The best advisor is one who will leverage an expansive global investor network that connects multiple industries.  Investors who most value your offering may be in Singapore, Prague, Estonia, or Shanghai.  An exceptional investment advisor will leverage access to trusted M&A colleagues with deep understanding of financial markets, industries, and companies in each region of the world – allowing them to open discussions with new investors and corporate networks that promise to hold greatest interest in the deal.

5) Takes business, personally

If the human body is 60% water, I surmise at least 60% of a company’s value is its people.  Or maybe, applying the Pareto Principal, 80% of a corporation’s value is its people.  A good investment advisor is constantly mindful that M&A success depends on people to embrace and support implementation – before and after the deal.  Having been an entrepreneur, and having worked to grow small businesses for nearly twenty years, finding a phenomenal, successful M&A match helps to improve the lives of people in each company.  Or, it should.  Cultural rifts and redundancy layoffs can destroy the deal, its value, and peoples’ lives.  Applying the previous four facets helps create and expand deal value.  An exceptional investment advisor knows that business is personal, and that the company’s greatest value asset must be supported, nurtured, and challenged.  A successful M&A deal will do that.

There are many exemplary investment banks and advisory groups around the world.  Whether it be a top-tier large firm, or one with a boutique focus, these firms have phenomenal analytic research, and deal-making talent.  I know this from my own experience.

My only suggestion is that you chose an investment advisor who also possesses the five qualities mentioned above.  If you do, I am confident you’ll capture exceptional value in your deal.

If you are looking to optimize the value of your investment within an operation, I encourage you to evaluate ONEtoONE Corporate Finance: a firm dedicated to provided the highest value services to their clients through transparency and professionalism. For more information click the button below.

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