Dances with Elephants

Should you call the Doctor? Part 4 of 4 (M&A)

How often have you been involved in a merger or acquisition?

For most people it’s never – and for a few its once, with fewer yet more than once. Very few people have been involved with several acquisitions on the buy side, and an order of magnitude fewer have been involved in several acquisitions on the sell side. So when you are considering a life change that includes selling your business, there is a lot you don’t know, just like when you purchased or sold your first house – much of the process is a bit mysterious. So selling your business is definitely one of those times you want to engage a professional who has been through the process several times before – and has seen what works, what doesn’t work, and what to watch out for.

• Do you sign that “do not shop” agreement before talking to a potential acquirer?
• The potential acquirer is also a large potential competitor – how much do you let them know/see?
• How do you value a cash+stock offer versus a competing all cash offer?
• Should you agree to the 5 year non-compete clause – that with a 3 year employment contract can have you sitting around for two years "cooling your heels" unable to use your skills?
• What do you tell your employee’s about the employees of a partner or competitor asking detailed questions about your business?
• Do you need to restructure your business to make it more attractive (increase its value) to a suitor?
• How do you avoid losing key employee’s during the uncertainty of an acquisition?
• What happens if the deal falls through at the least minute?
• What is the likely tax bill – and what can you do to minimize it?

You may only ever sell a business once in a lifetime, and you have many years of your blood, sweat and tears invested.

You sure don’t want to muck it up.

So this is another one of those times you want to get professional help, and this is not the time to pinch pennies, or depend upon a friend or relative that doesn’t have the deep expertise and experience in M&A you really need. You want and need someone very experienced and real good.

So how do you find a good M&A Consultant?

This may sound like a broken record, but once again it’s about checking references. You need to take the time to talk with several business owners that the Consultant helped sell their business – talking to people that were in the same potentially stressful and highly emotional position you are in.  Along with helping you verify you have a great M&A Consultant, talking to other people that sold their business will giove you the confidence you'll need to get through the whole - sometimes messy - process.

What is it going to cost?

These M&A Consultants don’t come cheap – but if they do their job well you can potentially get 20%, 40%, 60% or 100% more for the sale of your company than if you “did it yourself”.

One M&A Consultant I am familiar with – that has been on both the selling and the buying side a number of times – and has deep understanding and relationships across the design and engineering software industry - is Ascentage Group.

So that wraps up “Should you call the Doctor?” set of postings. I hope you find it of value! Don’t be bashful dropping me an email – or contacting any of the companies mentioned if you want to kick some ideas around but are just not sure. Calling in a Doctor – putting you on a path to potentially having to make some hard decisions – is bound to make anyone nervous.

Should you call the Doctor? Part 3 of 4 (Research)

How do you make pricing decisions?  How do you decide what new app to develop?  How do you choose what country to focus your investments in?  When did you last talk to your current and target customers about what they think about you and your competition?

Do you make these important decisions based on a “feeling”, by asking your staff, or by talking to a handful of customers? That is how many/most small technology businesses make these key decisions that have dramatic impact on future sales growth and profitability.

There is a better way.  You can and should get professional research help.  Trying to do quantitative and qualitative research on your own is full of pitfalls – as you and your team will always be limited by your preconceptions and lack of research expertise.

How much data analysis expertise does your company have?  How familiar are you with best practices for surveying and running focus groups?  Again it’s likely you have little expertise in these areas – yet having good/great objective data to base important investment decisions will result in better decisions and more predictable results. 

Having a good research partner will help you turn unpredictable decisions based on hunches into fact based decisions that are more likely to be successful – and when they are not, you’ll more likely know why (learning why an investment didn’t work is a good use of your money – versus an investment that didn’t work and you don’t know why and therefore may make the same mistake again).

Can you afford to engage a good research firm? 

You can.  For just $5k you can get started with a small targeted research project – that has the potential to impact your business by hundreds of thousands of dollars in the next few months.  Maybe a price sensitivity analysis which could potentially impact your top and bottom line in just the next quarter or two?  Maybe research on what your target customers think about your website or marketing materials – that will potentially help you dramatically increase the number of sales leads you get every month. As you see ROI and build a trusting relationship with your research partner, you can move on to longer term research projects such as competitive analysis, and sizing up new markets in new countries you are considering investing in.  With a modest investment in research, you can remove a lot of uncertainty and subjectivity from key decisions you need to make effecting investments of hundreds of thousands of your dollars. How can you afford not to get some professional research done?

So how do you find a good research firm? 

Like anything, getting good references, and having a quality discussion with the references, is the place to start (sound familiar?).  Of course their having a broad variety of experience doing research work in technology markets is a prerequisite.  Be sure to ask them to share with you a research project they have already completed that is similar to the research project you are considering having them work on first.

One professional research partner Autodesk has a lot of experience with – having completed over 200 research projects for Autodesk – is Business Advantage (based in the UK though doing business worldwide).  Does this mean they are “too big” to do research for a small technology business?  Not at all.  They are doing research for a number of small businesses too – including a few Autodesk partners.

Next we’ll talk about the use of Merger & Acquisition Consultants when you are ready to “cash out” but are unsure how to go about it – how to avoid common mistakes that can result in your leaving a lot of money on the table and/or leaving your best customers feeling betrayed and abandoned.

Should you call the Doctor? Part 2 of 4 (Business Check-Up)

Do you see your doctor every year or two for a general check-up?  You know that time when the doctor pokes, prods, gets blood tests done, and will often give you advice on changes you should make in your lifestyle to stay healthy (exercise, diet and so on).  And once in a while the Doctor spots a problem you overlooked – or have been ignoring the symptoms of.  Do you ever ignore symptoms?  Many of us do. Sound familiar?  And your business is no different.

What makes for a great Doctor?  Along with all that training they get, the really great doctors are good because they see lots and lots of patients just like you.  They have a broad experience making it easier for them to both identify symptoms and proscribe how to best cure.

Maybe you have a mentor or partner that you use to bounce ideas off.  Maybe you don’t.

Once a business gets beyond 10 people and over $2m in annual revenue, I strongly recommend you get your business its first “physical”.  Call in a professional that has broad and deep experience with small technology companies to look at what you are doing, and identify areas for improvement.  I am sure you know areas of your business that “don’t feel right” – but you aren’t sure what to do about it.  Getting a fresh look from an outside without a vested interest can be enlightening – and can help you get your business back on the growth path.

Can you afford to engage a good business Doctor (Consultant)? 

You can.  For just $5k you can get started with an initial business analysis – that has the potential to impact your business by hundreds of thousands of dollars.  Sure it might lead to your investing $20k with the Doctor – but the ROI can easily by 10X – if not 100x.

So how do you find a good Doctor (Consultant)? 

Like anything, getting good references, and having a quality discussion with the references, is the place to start.  Of course their having a broad variety of experience working with small technology companies is a prerequisite.

One small technology business consultant I have seen a few of our partners have a great experience with is Phil Morettini (based in Southern California).

Next we’ll talk about the use of professional research to get your business back on the high growth path.