How to Prepare for Common M&A Challenges
The traditional M&A model is highly effective at selling businesses. When the market functions well, M&A advisors representing the business owner will engage with multiple qualified buyers who compete with one another to make a deal. The seller gets the highest possible price in a relatively short period of time.
Not all business owners are so fortunate. These uncomplicated deals comprise less than half of all mergers and acquisitions. Most sales are more complex, demanding that owners make difficult decisions at a crossroads. Ultimately, most of these situations boil down to one of two challenges: too few options are available, or too many have appeared.
Not Enough Options
Sometimes a lack of options is because of your own choices or “red flags” within your company. If you rely on a single customer for most of your income or only make one product, you’re a riskier choice for buyers. You may be left with fewer options—and fewer still if you lose a major customer. In other cases, you might focus only on one buyer, ignoring other qualified and positive options. This tunnel vision can mean missing excellent offers, and undermine your ability to create a competitive bidding environment. An experienced investment banking team will not only uncover and bring attention to these potential “red flags” before taking your company to market, they will do their best to receive several offers for you.
Too Many Options
Too many options can feel like a dream come true—until it happens to you. This commonly happens with venture capital-backed companies that have failed to grow at the rate investors would like. In this scenario, investors create a sense of urgency as they try to get some of their money back. Investors are willing to accept just about any outcome—liquidation, sale, mergers, stock sale, and just about any combination of the above.
Important Investment Banking Considerations
In this scenario, an investment banker’s job is to sell your business. The fee structure guarantees that the banker is also invested in selling the business for as large of a figure as possible. What if doing so is not in the company’s best interest? This can happen with a nontraditional deal, or when no deal at all is the best option. This is why you must work with an experienced investment banking team that understands your situation, and will communicate effectively throughout the process.
An investment banker is an invaluable asset to all deals, but it’s important also to engage experts whose success does not depend on a deal happening, and who can act as advisors to help owners weigh various strategies from an objective standpoint.
You need a strong bench of trusted advisors, not just a single advisor whose advice you must take on faith. Building your team now can help you prepare for any situation the future presents, including crossroads situations that may put the interests of one or more team members at odds with the interests of the business.
About Madison Street Capital
Madison Street Capital is an international investment banking firm committed to integrity, excellence, leadership and service in delivering corporate financial advisory services to publicly and privately held businesses.
Over the years we have helped clients in hundreds of industry verticals reach their goal in a timely manner. Our experience and understanding in areas of corporate finance and corporate governance is the reason we are a leading provider of financial advisory services, M&A, and valuations. With offices in North America, Asia and Africa, we have adopted a global view that gives equal emphasis to local business relationships and networks.