Wheresoever Gilead exclusively provide services for the acquirers of those businesses it makes little sense for us to engage on matters of the seller’s side of the ledger, or merger strategy in general. We might, however, reflect upon observations of the vendors' experience in the dozens of M&A processes we have lived through in our career.
In most cases, where we have observed sellers before and after their sale process, the merger & acquisition has involved a private business, moreover overwhelmingly they were tightly held. In addition, the notions that we wish to focus on today are those that are often omitted in the general M&A discourse. In order to do that we might start with one of those well recognised M&A actor’s lines and talk to the said omissions.”
“Any fool can buy a company”, said Henry Kravis, “you should be congratulated when you sell.”
Well we say “yes, of coarse Henry”; and due to Gilead’s stated mission when serving our clients, we heartily agree. But where might we discover the omissions?
A glaringly obvious omission is, of coarse, timing. As we have often said in this blog on other matters, luck features prominently in determining timing. The principal means of making your own luck as a proprietor, however, is to recognise early (from a realistic review of your own circumstances) that you will inevitably need to dispose of your stake in the business; and to address the timing and means of disposal within your business plan.
A set plan may be a good idea, but opportunities hardly ever arrive at your door looking like that plan unless they have been nurtured by means of entanglements with the party to whom you wish to dispose your stake-holding. Further, a sellers share registry entanglements and lack of alignment among stakeholders can be another reason that set plans can never be taken for granted.
The likes of Henry Kravis, Al “Chainsaw” Dunlap and the regular management consultant archetypes have an Achilles heel when it comes to M&A in the people-to-people services industries. It is plainly the element of legacy culture which retains loyalty, and subsequently, revenue.
Asset minded capitalists believe that buying something they identify as inefficiently run, and wringing its neck by means of being more demanding – cutting costs, and extinguishing culture, is by rote a value adding exercise. In a people-to-people business, however, this is not proved in real life retention of relationships and revenues.
For the vendors in our business, the emotional attachment they have for their business sometimes manifests itself in ways that reduces the value in their business during the sale process. The best way we have seen to ameliorate this negative for both the vendor and the buyer is to identify the right fit correctly in the first instance, and to understand each other’s culture, so that some cohesive narrative path emerges that improves upon the mantras lifted out of a management consulting textbook.
Some vendors, often those heavily emotionally attached to their business, have difficulty accepting the notion that they should buy into “fit”. The idea of walking out clean is one bred in their minds of the things they have seen go array in respect of post-sale remittance and warranty outcomes in other businesses. Unfortunately for them Mr Market with the chequebook has an unequal & opposite view of this proposition, based upon industry m&a process outcomes. The answer to this conundrum, for the party that for practical purposes will inevitably eventually sell in any case, is to circle back on the “fit”, “culture”, and “narrative planning” issues. They should work singly, and even at times in conjunction with the best prospective buyers, for your particular business on those issues.
And timing? One tip is that most of the businesses now coming to market are businesses that should have sold nearly ten years ago. Many are out there “trying to make it back to what they would have got”. Usually, however, past time on a tightly-held business is not a circular process, it is just past time.
Note: Gilead interests extend to research in respect of the vendor market in the freight forwarding, logistics, and transportation market space. However, we neither represent vendors, nor do we seek compensation from them.