Murad Beg is a tough negotiator for his private equity firm's investors. But he always leaves emotion at the door.
“You can’t overreact, and you can’t underreact,” says Beg, founding partner at Provariant Equity Partners. “If you just say it’s all going to work for you, that’s being intellectually lazy. That’s not what investors gave us money to do. At the same time, you can’t overreact and think every time something doesn’t go the way we thought it would, we’ve got to over-engineer a solution.”
Beg speaks from experience. After a stint at Calfee, Halter & Griswold, where he co-led the M&A practice and advised clients on more than 100 transactions, Beg spent 10 years at Linsalata Capital Partners before he and three colleagues started their private equity firm, Provariant. The experiences taught him how to read a situation and take steps to protect his investors’ interests.
In this week’s Master Dealmakers, we talk to Beg about how he stays objective to make the right deals for his clients.
I never viewed getting a deal done as winning and losing. When you’re a younger professional, it’s natural to want to keep score. How many points did they get? How many points did we get? If you give me this, I have to give you that. More than anything, I have this knack to see the big picture and advise clients accordingly. When you’re an adviser in an M&A process, you have a real responsibility to educate your client about what’s a fair and appropriate result or what’s a fair market. I just had a knack for it. I didn’t make enemies. If I was working, the lawyers on the other side weren’t all mad at me. I was a tough negotiator, but I never lost sight of the fact that there is a goal in mind, which is the buyer and seller want a transaction. Our job as advisers is to facilitate that.
The single biggest mistake in dealmaking is a lack of preparation. Sellers often want to shortcut the process. They don’t want to spend the time, money or resources preparing their company for sale. Hiring a good lawyer or a team of advisers, getting an understanding of what’s expected of you in the market — these are important steps. When you skip these steps, it typically leads to the most failures. As a seller, you’re looking to minimize surprises.
When I first got in this business, from the time you decided you to sell your business to the time you sold it — it was six to nine months. Technology has changed that. We’ve had instances where we’ve been able to decide we’re going to sell a business and have it sold in four months. You must have all the right people in place and be very quick on your feet. You have to spend less time with people because you’re running to a finish line and other people are doing it too. The faster you move and the less amount of time you take, the greater the opportunity to make a mistake.
Identifying the right opportunity
We’re really helping founders, entrepreneurs and family-owned businesses transition their businesses. Many private companies struggle with succession planning. Either they haven’t designed for it or maybe their kids aren’t competent to run the business. Maybe they have other interests. One of the things I like most is partnering with a family and a founder to figure out how to transition that business from something that’s not as strategic. We allow companies and management teams to think about growth. We’re trying to bring capital and strategic resources to the table to help a company to get to the next level.
If we have alignment, we can survive the best of times and the worst of times as partners.Without alignment, it becomes difficult because people will start finger-pointing. We don’t just underwrite financial stats, we’re really underwriting people. Who will be our best partners? Who are we going to be the right fit for? There are lots of great companies where we’re not the right fit. But there are also great companies where we are the right fit. A lot of that is a function of being able to underwrite and have emotional and social intelligence about the people we’re partnered with. In some respects, that is the most fun part of the job.
You have to divorce yourself from emotion. You need to be sensitive to the fact that this is a relatively emotional milestone, but not allow it to overpower or commandeer a negotiation. We do all the financial diligence and we have to understand risk and opportunity. We also seek to understand the wants and needs of the people we’re partnered with. If you’re not keeping score and thinking about things in the long term, you can arrive at a resolution. The perfect resolution is one that is a bit mutually unsatisfactory. Sellers are not completely happy, and the buyers are not completely happy. But with good advisers and draining as much emotion out of it as possible, you can arrive at a conclusion that works for everybody.
The Last Word
The biggest mistake that buyers make is deciding they are going to do something, buy something or invest in something where they don’t have an angle. It doesn’t fit their strategy. They are just doing it to be opportunistic. You can’t buy something and figure out what you bought after you bought it. You need to be thinking about strategy even before you’ve acquired the company.