Looking at some of their most recent transactions, panelists at the Cleveland Smart Business Dealmakers Conference discuss some of the steps they took to get ready for a deal and how today's economic conditions might have changed their approach.
Vitalxchange Co-Founder and CEO Charu Ramanathan says one of the key things is to think about issues that are not financial. For instance, the health of your employees. In a startup entrepreneurial environment, particularly, they can feel as if they are part of your family.
"And what happens to them in the M&A world, especially in economic uncertainty?" she says. "Are they going to keep their jobs? They've been brought on board with a lot of stock equity promises, did we meet those requirements? Is the new partner going to be like, All right, guys, you're out. We've got our own team that does it?"
Another consideration mentioned during the panel on economic uncertainty and its impact on deal readiness, moderated by MelCap Partners, LLC President Al Melchiorre, is preserving important customer relationships. She says she saw a situation in which an acquiree had all of its customers dropped by the acquirer. That can be really bad, she says, especially for those exiting the business who plan to be part of the business world again after losing all the trust of their early customers.
"These two things, under any circumstances, are very important to note in an M&A transaction that are less to do with the money and the success, and more to do with value," Ramanathan says.
Taft Stettinius & Hollister LLP Partner Brandi Weekley says she's seen the importance of aligning yourself with advisers who understand your vision and know where you're going and can pivot if anything arises, finding creative solutions and creative structure changes.
"When you're in an uncertain environment, things just happen and things come up," Weekley says. "You need to be able to create either, if it's valuation issue, come up with some potential earn-out or roll-over alternatives to show them, we're not aligned on value anymore, but here's a way that we could ensure you future growth to the extent that the valuation is where you think it is, but it protects the buyer team in the event that the numbers just aren't there."
Vytalize Health CFO Kevin Murphy says it's important as you think about preparing for a deal to what the business depends on and where your risks may be for macro effects.
"So, if you're worried about oil prices or inflation or chip shortages, then I think there are some ways that you may be able to prepare for those," Murphy says. "There are some ways you may not be able to — it's a big economic question, I think for a lot of companies. This is where the buy-side of a due diligence process will identify those as potential risks and assess what the impact on value might be, positive or negative, as to your positioning against those dependencies."
Gibson Machinery LLC Co-Founder and Former President Lee Gibson had never sold a business before, but he time had come to consider the next step.
"This was our lifeblood and we received some offers in the past, unsolicited, and we followed them through, never knowing how much was actually involved when you find a partner that's actually going to make a deal with you," Gibson says. "But I wish we could have gone a little further with some of those people so I could have been a little bit more prepared for everything with the due diligence. I never imagined nine, 10, 11 months of due diligence."
When it comes to economic issues that affected the deal, he says he would have addressed differently by stocking up much more on equipment.
"There's shortages and cars and everything else," he says. "And with the interest rates changing, I think it would have been much more beneficial for the new owners to have a huge supply of inventory. But I mean, that's something that I thought about doing that we should have done."
Gibson says he's been working in the business his whole life — since he got out of college in 1979 and has had the company since 2003, and recognized it was just time to not have to go in there every day and fight the battle.
"It became time where we wanted to enjoy our life and do whatever we wanted," Gibson says. "That's when we knew it was time. And also the offer was very good."
