The dynamics of family-owned and entrepreneurial companies raise unique challenges for strategic acquirers. This is the first blog post in a series of 3 that will offer several transaction concepts for acquiring print and graphics communications companies who have multiple partners.
We regularly advice clients who are growing by strategic acquisition to strive for a win-win transaction with the target company partners. Disgruntled former owners are bad for business. They can cause morale problems, disrupt efforts to connect with customers, and disseminate negative messages into the marketplace which could chill other M&A opportunities.
So what approach is most likely to get selling shareholders to say “YES” to the offer’s “price” and “structure”?
Here’s Plan A:
Buy all or substantially all assets of the business so that each partner gets a fair deal based on objective criteria.
When the acquirer reaches a politically correct juncture in the initial talks, ask the lead partner of the target company if they have obtained—or would consider obtaining— an objective business valuation.
Simply, the business valuation is a STARTING POINT for formulating an offer. The offer incorporates the valuation but also takes into account affordability, synergies, risk allocation, personal objectives, etc.
The acquirer needs to take into consideration the target business as a “whole” because that’s how the partners are viewing it. This is important as it ensures that each partner is getting a fair deal. Once we understand the overall business value, then we can construct a fair deal.
Most acquirers in the print and graphics communications industry don’t want or need all assets of the target company, but there is a trend starting in 2011 for buyers to include assets such as AR, inventory, and equipment and then liquidate out unnecessary or redundant assets. This is a proven tactic that gains favor of sellers who don’t want to self-liquidate.
The learning point for acquirers is: understand the full picture and frame an offer that addresses the overall situation of each partner. As the process evolves, you can determine whether you are buying all assets or just intangibles or intangibles and some equipment. Either way, the offer would be contingent on each partner agreeing to the transaction both legally and emotionally.
Plan A is the most effective approach to bring about ideal results in most multi-partner situations. The likelihood of partner acceptance is much greater if the partners perceive a fair deal based on objective criteria that yields a comprehensive yet customized solution.