Skilled M&A professionals understand that people still buy from people, says Kevin Weidinger, president of Laudan Properties LLC.
“The relationships that are formed in the early phases of diligence are vital,” Weidinger says. “Investing time in discussing how the business was formed, the history and milestones achieved and what the seller plans to do after a transaction are good questions to get the conversation started. The analysis of the numbers will come, but you can learn a great deal by listening to the man or women that made it all happen. Nice guys finish first, unlike what the cliché says.”
Weidinger has taken that philosophy to heart as a nice guy who is also a talented entrepreneur and dealmaker. He was also one of six founders at OEConnection LLC, a startup joint venture between General Motors, Ford Motor Co. and Chrysler that has grown to become a $100 million business. As a partner at Dealer Tire, he helped drive sales at the company from $300 million in revenue to $650 million in three years.
Weidinger spoke with Smart Business Dealmakers about the steps he follows to either make a good deal or gain the knowledge he needs to walk away from the table and get to work on the next opportunity.
How do you approach financing a deal?
Creativity in structure is a valuable skill. Banks go through different cycles of what types of deals they want to finance and what types they don’t have interest in financing based on a variety of portfolio metrics. I like to ask banking partners what types of deals are interesting to them at that moment to ensure the correct degree of enthusiasm for our target. This approach also tends to move things along more quickly.
At that same time, we test many different deal structures to see what appetite the bank has for a certain type of operation. There are many different “puts and takes” that the buyer and seller can add or pull back from the deal.
What other skills are critical to dealmaking?
Being patient, yet staying engaged is another important factor in dealmaking. M&A activity is life and business altering for all parties. There are many moving pieces and being patient as things play out is critical.
While it may seem somewhat contradictory, staying engaged at the same time is equally important. Sharing a meal with the seller’s team and catching up and ticking through next steps, as well as just talking, tends to keep things moving. Plus, if a commitment is not yet in hand, staying close can alert you to others in the game, as you never want to be out-maneuvered or let someone snipe a great acquisition opportunity after you’ve invested your time and energy in it.
What is the best approach to closing a deal?
Be direct. If you like what you see, tell them and give the target company reasons why merging or selling to your firm makes sense for ownership/leadership. Discuss the timeframe and plan, after they say yes. This approach makes it real for the target company as it's all been paper pushing and questions until that point.
The same holds true if the target is not a good fit. Talk straight, explain that their firm doesn’t fit and that you have enjoyed and appreciated working through the process. Then get out and move on.
If you’re in too much of a hurry and you rush ahead to focus on the balance sheet and the P&L to justify the target’s asking price or terms, it can be catastrophic. You’re essentially reducing the company to numbers on a financial statement versus a place that manufactures, distributes or provides a service, not to mention creates jobs and opportunities for leadership and their teams.
Take the time to ask target company leadership what they are looking for, beyond financial remuneration. More times than not, there are details that you’ll want to flush out that, left unaddressed, can either stall or kill a deal later. It can’t always be just about multiples of EBITDA.
How can you avoid post-deal headaches?
You need to have a plan for what you are seeking in a transaction. Are you looking to diversify your customer base, grow top-line, take out a competitor, add talent, improve capabilities, open new markets, etc.? The list is endless, but having a definitive plan of what your ideal outcome is when you start your M&A pursuit is paramount.
Once the plan is in hand and you have mobilized your deal team, ensure you review your core values. Your core values drive your culture and your culture governs and protects the talent that makes your business go.
Introducing a culture that doesn’t closely model your values introduces a potential virus to an already healthy operation. In the first few interactions with a prospective M&A candidate, it's helpful to discuss values and culture for fit.
I will close with communication on multiple levels. Ask your team for doomsday scenarios if the deal is consummated. What will our competitors do to respond? What will happen to the base business? How would we exit the acquisition if things get sideways?
How to reach: Laudan Properties LLC, www.laudanproperties.com