Wise dealmakers understand that there is always another helpful lesson to be learned when engaged in M&A activity. Among the more common trouble spots in dealmaking are misunderstandings between the buyer and seller, says Don Nystrom, president and CEO of Dynamic Aerospace and Defense.
“One of the mistakes we’ve made — only once — is we allowed the former owner in one transaction years ago to stay on and he became very disruptive,” Nystrom says. “He had seller’s remorse and didn’t want anything to change. We had to take steps to remove him because he wanted to retain control after the sale.”
The key thing is to understand the goal of the seller if he or she intends to remain in the organization an advisory capacity.
“It’s also critical that you understand the longevity of the management team that is already in place,” Nystrom says. “If you’re not moving the business into another facility, you better do your due diligence on the existing management team.”
In this Dealmakers feature, we return to our conversation with Nystrom and share more of his insights on common mistakes to avoid in the dealmaking process.
Build regional networks
Finding regional networks outside of the traditional avenues for sourcing deals is critical.
“Understand there are so many nice, quality, family-run businesses and other businesses that are having transition problems,” Nystrom says. “Don’t rely solely on databases and so-called dealmakers. Our focus has been developing multiple regional people who are looking out for us, understand what we like, and know what makes us tick.”
A lot of people in the M&A space work from the same database, Nystrom notes. “It’s when you get beyond the database and develop your own personal relationships that the quality of the transactions become much more solid. They are also more smooth.
“It’s important that the seller wants what you want. We’ve spent a lot of time understanding, ‘What’s the goal of the seller?’ The last thing you want is seller’s remorse. You want to be as transparent as possible throughout the transaction.”
Be ready to make changes
Not all of your A players are going to be A players once your organization substantially grows. You have to find a way to make them successful or consider making changes.
“As you expand, some people are capable of running one size organization,” Nystrom says. “But when you go up by double or triple, their skill sets are not the same and you have to re-evaluate and reimagine your team to make sure you can keep going to the next level.”
Historically, Nystrom has found ways to effectively work with the existing management team at companies he’s acquired.
“When you’re a buy-and-build organization, you’re not structured to parachute a team in for a couple years to run it your way so you can then flip it three or four years later," Nystrom says. "Our goal typically is to run with the existing management team with minor changes.”
When substantial changes end up being necessary, it’s typically because a problem was identified after the deal closed.
“We’ve had the scenario where senior managers received substantial bonuses from the seller and became distracted,” Nystrom says. “Suddenly you don’t have the same management team as you had the day you bought the business.”
