If there is a Dealmakers Hall of Fame out there, R. Louis Schneeberger must be in it.
Over the past 40 years, Schneeberger has played a lead role in more than 100 acquisitions, as well as the sale of more than 30 companies, public as well as private. He has done turnarounds, mergers and public offerings. He has extensive experience helping companies at all stages of development and in the process, has built himself into a go-to guy when it comes to closing a business deal.
“I can sense early on if a deal has a good chance of happening,” Schneeberger says. “It’s critical to get to the key issues as early in the process as possible. With experience, I’ve learned to determine or anticipate what those issues are much earlier than when I was relatively new at this.”
A 1977 graduate of Kent State University, Schneeberger began his career at Arthur Andersen, where he began building his expertise in M&A work. He would later serve as founding chairman at JumpStart Inc., chairman at Royal Appliance Manufacturing and CFO at two public companies — Olympic Steel and OM Group — and two private companies — Panther Premium Logistics and Austin Powder. He also served as president and CEO at Panther and was on the leadership team at MacroPoint when the tech company was sold to Descartes Systems Group for $107 million. He recently was elected executive chairman at Proformex, a Westlake-based SaaS provider for the insurance industry.
That barely scratches the surface of Schneeberger’s experience in the dealmaking world.
“I was lucky in that many of my clients early in my career acquired often,” he says. “This enabled me to gain the experience necessary to touch the various aspects of a deal. If you have an opportunity to get involved in a deal, you should take it.”
We spoke with Schneeberger about the critical first steps to take when looking to make an acquisition, the importance of understanding your industry and why you need to know who’s on your team before you close a deal.
Are you ready to make a deal?
M&A is a lot of work, no matter the size of the company involved.When you are buying a $100 million company, the amount of work involved is not 10X what it is when you buy a $10 million company. Take the time to conduct a self-assessment to determine if you’re actually ready to acquire another business. Is your company performing well? Does your team have the bandwidth and the bench strength to take on the additional workload that comes with working through and negotiating a deal? If it doesn’t, do you have a plan in place to bring in external support?
Great deals are typically a product of great preparation. When you take the time to craft a clearly defined strategy and a comprehensive set of goals before you begin the dealmaking process, you boost your odds of success. Focus on gaining a depth of knowledge of the potential acquisition target so that you can ask important questions that will inform your decisions as you go forward. Be clear about key points or issues that you’re willing to give on and determine how far you’re willing to go. Address these concerns before you move into final negotiations. At that point, significant changes become much more complicated.
Outsourcing your M&A activities can be costly. If you determine that you need outside help in order to negotiate and complete a deal, it’s a good step in the sense that you’re reinforcing an area of weakness. If it leads to a better deal for your business, the added expense can be more easily justified. There is another risk, however. When you use an external team, you don’t own the deal in the same way you would if you used your own people. When your own team is negotiating a deal, you’re working on the integration plan almost at the same time you’re conducting due diligence. You may still be in the midst of negotiations, but you’re already starting to think, ‘OK, how is this going to look inside our company?’ It’s different when you have outsiders in play. It can still work and if you build a strong partnership, the tradeoff can be minimized. But it’s something worth thinking about as you make that decision.
Understand your industry
Market multiples are different for each industry.Just because deals are being made at really high prices, that doesn’t guarantee that your next deal is going to be just as profitable. Business is cyclical and so are specific industries. It is constantly changing. You have to have a good perspective on what’s happening in your industry and whether now is a good time to make a deal. If you’re fortunate to be an industry that has a lot of analysts who are following it, that makes it easier to get a good read on what’s happening. If your industry isn’t covered as closely, it will take more effort to understand the dynamics of the market and the type of return you could get in a deal.
Don’t let lawyers drive the deal. M&A lawyers bring a certain level of knowledge to dealmaking that is very important. But they aren’t the ones who should be driving the negotiations. Lawyers represent the people on the buy side and the sell side. They are there to give advice and to help you properly execute a deal. It’s your company and it’s your job to make the best deal for your business. Do not let your legal counsel dictate how you move forward.
The Last Word
You’re buying people, you’re not buying products. When you make an acquisition, you’re buying a team of employees who each bring a particular set of skills to their work. So many of these people that the seller has been employing are going to stay with the company under your ownership, so it’s critical that you know what you have before you close the deal. As you’re conducting your due diligence, evaluate the team and make judgments on who to retain and who to let go. You don’t want to have death by a thousand cuts.
Many companies do that. When you take this approach, it’s an indicator that your due diligence was not good enough. The price you pay is that as you continue to make these cuts a little bit at a time, the really good employees are leaving to find a more stable environment. When you lose talented people from the company you just bought, you’ve lost much of the value that you paid for.
How to reach: Proformex, www.proformex.com