The process of selling a consulting firm can be a fragile affair. For every M&A deal announced there are many more that fail or never get past the courtship stage for a wide variety of reasons.
We talked last week about some of the reasons deals can fall through including, taking too long to complete the deal, conflicting interests among shareholders, and sales famines while buyers are looking.
This week, we thought we would explore some more of the most common deal breakers and include tips on how to avoid them.
Don’t get cold feet
Deals can fall apart simply because owners have reservations or anxieties about selling. You don’t want to change your mind halfway through, so don’t enter the process half-cocked. Have clear objectives in mind and for each individual, pin down who wants to stay and who wants to leave and in what period of time. Do this and everything will be on the table up front and there will be much less scope for prevarication and indecision.
Don’t leave room for nasty surprises in the finances
The last thing you want during the pressure of due diligence is for the buyer to discover your ignorance or lack of understanding about the financials in your business. Or even worse, uncover something nasty that you should have spotted and dealt with in advance. This could be a simple accounting mistake, or a hidden bombshell like a fraudulent entry. If you have a finance director with an eye for detail and whom you’d trust with your life, you’re probably covered. If you’re not in this enviable position, then take measures to get your accounts professionally audited. Don’t enter the sale process until you’ve tested and retested your knowledge of all the numbers – the costs, revenues and profits – that govern your business.
Do find buyers with the right culture
Too many deals never get off the ground because of a culture mismatch between the seller and buyer. The buyer is going to walk away if they think integration will be difficult, and you’ll walk away if you’re worried about how your staff and clients will work with the new entity. Our rule ‘one buyer, no buyer’ applies here. The chances of cultural alignment are improved if you talk to a range of buyers. An M&A partner can be especially helpful here as it can undertake research and select buyers that ‘best fit’ your organisation. This is particularly important as the deal progresses through the due diligence phase when it’s likely that your team will have to meet at close quarters with the buyer’s management team to work on integration details. If your teams don’t get on the deal could be in jeopardy. By this late stage re-connecting with previous bidders is extremely difficult. It probably means starting the whole process from scratch at a later time and dealing with de-motivated shareholders that are rueing missed opportunities!
Do walk in the buyer’s shoes
When all the pleasantries are over, it always comes down to price. We’ve never met a seller who didn’t think their consulting firm was worth more to them than it was to the buyer. If you’re going to drag the buyer over the bridge between their price and yours, you need to be able to justify it and not come across as greedy. The best way to do this is to have a sound understanding of deal values in the current consulting M&A market, and know the synergy value of your firm to the specific buyer; something for which they will be willing to pay a premium. In short, it’s all about knowing the market, salesmanship, and seeking out a range of buyers with synergy who want to compete to buy your firm.
Finally, to conclude:
Don’t let bad luck strike
It’s difficult to mitigate bad luck. With all the best planning in the world, something unforeseen and unimaginable inside or outside your firm could happen. The best you can do is to plan for the unexpected just like you would with any other event in your organisation. If there is, however, one thing that’s more likely to thwart your progress to sale, it is your client market collapsing during the deal process. Diversity in your clients and markets is the ideal way to be safe from external issues. Back to our very first point, the longer the deal takes the more likely you expose yourself to bad luck, so aim to complete a deal as fast as possible.
You can of course make your luck by taking note of all our deal breakers to manage the risk…. then, it’s just a case of keeping your fingers crossed!
We have started a discussion in our LinkedIn Group on this topic. We would welcome your views and we will answer any questions you may have.