Dealmaking is an integral part of owning a business, whether you’re actively looking to make a deal or not, says Target Data CEO Ross Shelleman.
“There is more money than there has ever been in private equity,” Shelleman says. “If you're in an industry that is making good money, somebody is going to be doing an M&A strategy. The last thing you want to do is wake up one day and realize the music stopped and you were leapfrogged.”
In October, Target Data acquired Social Fulcrum, a Boston-based social media agency that specializes in Facebook advertising.
“All Social Fulcrum does and continues to do is Facebook advertising at a large scale,” Shelleman says. “While we certainly have operated historically and do a tremendous amount of work in the paid social category, the reputation, the expertise, the focus, the tools and the software that they've developed — acquiring them takes us to a whole other level in that specific discipline. The strategy that we’re executing right now is to really look at acquisitions as a way to provide scale and provide inorganic revenue and clients.”
Smart Business Dealmakers spoke with Shelleman about the dialogue he has with potential M&A targets and his strategy for minimizing stress when closing a deal.
Keep it simple
Shelleman sticks to the basics when assessing acquisition targets.
“Having looked at a lot of businesses — we’re in the middle of trying to get a couple more deals across the line right now — the way that I would articulate it from a top-down approach is one, do they do something that we want?” he says. “It’s also important, especially in the economic climate we’re in right now, to quickly ascertain if you have a willing seller.”
There are people who will entertain all sorts of conversations around dealmaking. That doesn’t mean they’re actually ready to do a deal.
“If they’re not really sure, you can spend a whole lot of time, and you’re never going to get a deal done,” Shelleman says. “So check all the boxes. Are they doing something we want to do? Do they have a good client base? Are they growing? Then have that very tough conversation about whether this is a willing seller. Those things sound simple but can take a while to flesh out.”
The next step is analyzing cultural fit. This includes things like the acquisition target’s view of the world and their industry, as well as how they use and process data and make decisions. But the willingness of the other party to make a deal has to take precedence.
“It’s being very open and honest about how much it actually costs on the buy side to go through due diligence and the resources it takes to make a deal,” Shelleman says. “We're not a multibillion-dollar company, so it’s emphasizing, ‘I need you to really think and give me an answer that, if we get to a certain point, are you ready to do this?’”
Put negotiating points into baskets
After the seller conveys a desire to make a deal and the negotiation moves along, Shelleman puts the components of the deal into baskets.
“Where I’ve seen deals not work is that people tend to lose sight of the forest through the trees, and they get hung up on one specific thing,” Shelleman says. “I personally have come to learn not to negotiate single points. Rather, negotiate baskets of points. The worst thing that can happen is you get hung up on one point, you spend a whole bunch of time negotiating it, and then you get through it, only to learn there’s another point you haven’t even discussed around the corner that would impact that point.”
Once again, Shelleman reiterates his preference to not make dealmaking harder than it needs to be.
“This is the start of our working relationship for the next three to four years,” he says. “I tend to take a very down-the-middle approach. We know what the market is, we have good representation from a legal counsel perspective. Let’s not play any games.”
He says they put a deal on the table that is right down the middle.
“We’re not going to come up with something that’s wildly in our favor and hope to negotiate it to the middle,” he says. “I declare that up front. It’s the fastest way to come to terms and get a deal done.”
Consider the future
Acquisition is one way to grow a business. Another is to do it organically, through hiring and creating internal initiatives that drive expansion and development within your existing team.
As Target Data moves forward, the company’s strategy could change.
“Every business, depending on what stage they’re at, is going to answer this question differently,” Shelleman says. “At our stage, it makes a whole lot of sense to do this through acquisition.”
He says they will probably do one to two more acquisitions in the near term, and then change course.
“Then it’s much more about organic growth, unless something interesting comes up,” he says. “We’re going to quickly get to a point where we would just be buying something that looks similar to us. It’s very much a point-in-time decision that is going to be different for every business.”