Mike Sayre has been involved with mergers, acquisitions and the integration of companies for 20-plus years. In the beginning, he provided analysis for due diligence, as well as integration work. Then, he was asked to sell a business.
Sayre started leading deals to buy and sell companies, including spending nearly a decade at Pinnacle Data Systems.
To this day, however, one of his favorite M&A tales is what he fondly calls the black curtain story.
“It was a manufacturing company and I was doing the financial due diligence, but they didn’t know that I had been in manufacturing operations before,” he says. “So, they had all of their equipment behind — literally behind — a huge black curtain, and they wouldn’t let anybody go back there.”
After Sayre successfully argued that he needed to see the equipment for his diligence, they let him look.
“I guess he figured since I was the financial guy, I wouldn’t know anything about it,” Sayre says. “But when I went behind the curtain, they didn’t have the technology that they touted in terms of how far ahead or how advanced it was.”
Obviously, Sayre recommended his employer walk away.
Sayre, who today is the president, COO and organizational transformation practice lead at the Innovative Leadership Institute, shares lessons learned from decades of dealmaking.
If you’re going to sell your company, create competition.
Have the potential for multiple buyers and keep them active in that process until one actually comes forward with a deal or a letter of intent that you’re interested in.
When somebody gives you an LOI and they’ve got a price on it that they’d be willing to pay, the longer you wait to get through due diligence and close it, the more potential challenges can come up, which will allow them to potentially negotiate a lower price, whether they should be able to or not.
So, closing quickly is good. It doesn’t mean that you aren’t transparent, that you don’t do all the right things in due diligence. It just means you keep it moving, to the extent that you can.
The first company I sold was in what could be a not very environmentally friendly industry. It was a hard sell from that perspective, but we created competition by talking to several others in the industry who knew about the business. They all knew what the problems could be. It just so happened that the way we ran it, it wasn’t an environmental problem.
One of them really wanted it and moved a lot faster right through the deal. After the deal was closed, our attorney came to me and said, “Do you have a letter of intent for this company we just sold?” I said, “Didn’t we get the money?” “Yes.”
So, find the right buyer – they were incentivized by competition. They wanted it and we did the deal fairly quickly.
Buyers, keep your perspective clear.
If you’re the buyer, make sure you do the due diligence and don’t get caught up in how much you love the deal. Also, if you’re buying a company, look for points of leverage that could affect the price, but know what your plan is to change those circumstances.
When I was at Pinnacle, I helped close a deal for GNP Computer out of California. I was the CFO and their attorney was trying to negotiate. I said, “Did you know these guys aren’t even going to make payroll in two weeks? Let alone potentially pay you.”
He’s like, “Ahh, I’ve got to get back to you.” He didn’t know enough about the company he was trying to negotiate for. But I did, because I dig in. I did the due diligence.
We purchased that company. They were really good people, but the business model wasn’t working. We moved a good portion of the business here to Columbus and we had to shut it down.
I went out and talked to everybody face-to-face. They knew that they’d been in financial trouble before, so they weren’t surprised. But because we were so open and transparent with them, they actually helped us shut down the plant.
Culture fit is important.
Make sure that you and the CEO of the company that you’re purchasing and the leadership teams are of the same mindset when it comes to culture and how you run the company.
The acquisition that worked out the best was buying a small company in the Netherlands when I was with Pinnacle. I met the business owner, made several visits and had discussions over the phone. We talked through what his goals were, what our goals were, what our cultures were, and it was just a great fit.
That business quickly assimilated in. It started growing immediately.
Whether buying or selling, know your end goals.
Make sure you understand your goals for doing what you’re doing, buying or selling. Also, what are your goals, intentions or desires for all the other stakeholders in the business — your employees, your customers, the communities that you live in, even your suppliers, to some extent.
Sometimes when it’s not clear or the price is right, you jump on the prize. Maybe you didn’t realize that the plan was to change the strategy in a way that you knew wouldn’t work.
One thing that has happened in a couple deals is it looks like a good match. It looks like a good sale and you think everything is going to work out. You get a great price. You close the deal, and then realize that the new owners don’t have to do anything that they said unless it’s in writing, in a contract.
Those are the ones I have the most heartburn over. They didn’t understand what the niche market was and they tried to compete with national and international players who were in a different market. The business ended up closing its Columbus operations and jobs were lost here.
That’s seller’s remorse. Everything seems like it’s going to be great and then the new owners want to do it themselves, bring in their own people and they don’t understand the business near as well as they should or could.
The payout was great, but look what’s happened to everybody else that I loved working with so much. That’s probably the toughest thing in terms of selling businesses or selling majority ownership.