With the major deals that happened earlier in the year and more expected late on, business owners should know how to conclude a successful M&A deal. Here are some tips from top advisors on how to close a huge M&A deal.
- Mergers and acquisitions are a great way for business owners to exit, retire, or even sell their businesses for a significant sum
- Businesses should always know their financial status when looking to exit
- Understanding basic financial statements about your business can help you set a reasonable price for mergers and acquisitions
- A successful M&A deal should have the right team of advisors to ensure that the interests of the buyer and sellers are safeguarded
- It is important to establish a strong team with great leadership before you exit.
2021 has been a great year for M&A deals in the US and around the world. There were some mouth-watering deals at the start of the year and more big ones are in the pipeline. But how do you successfully negotiate an M&A deal when the stakes are so high?
The ability to negotiate a million-dollar M&A deal is a rare skill that few people have. If you are a contractor, you are probably well-versed with the ins and outs of your industry. Business owners of HVAC companies, for example, have a lot of insight into the workings of their business. They know each aspect of the business and can recite their financials while half-asleep.
When it comes to selling their business, however, things can get pretty tough. Mergers and acquisitions often take long hours, require a lot of mental fortitude from both parties, and can go south pretty fast. This is why it is always important to set things straight in your business and get a professional to walk you through an M&A deal.
While mergers and acquisitions are not everyone’s cup of tea, professional advisors recommend putting a couple of things in mind when seeking to buy or sell your business.
5 tips that will guarantee you win your M&A deal
We all see the huge M&A deals that hit the news. Some of these deals come with impressive numbers that can make you salivate. For example, Microsoft’s $30 billion acquisition of Nuance the other day. Here are 5 tips from top experts to keep in mind when negotiating a successful M&A deal.
1. Scrub the numbers
One of the most important things business owners overlook when preparing to exit is the financial state of the business. It is not uncommon to find sellers with unrealistic expectations that may be 5 times more than the actual value of the business. As a business owner, you should first be aware of your EBITDA.
Your EBITDA is important as it helps you gauge the profitability of your company. It eliminates some of the non-operating decisions made by a firm’s management, which gives you a better picture of the business’ value. Another way to scrub the numbers is by ensuring that the add-backs are right. Some business owners even carry out annual audits and use a scorecard to gauge their business performance. This helps you gauge whether you are winning or losing.
2. Work with the right team
If you want a successful M&A deal, you should always work with the right team. Sometimes business owners think they can do it alone and end up making mistakes along the way. Professional deal makers can create the exact leverage you need to reach a successful deal.
It is in your interest to have a deal maker by your side as the other side will also have a team of professionals. As Fred Silverstein, President of SF&P Advisors, puts it “You may think they treat you really nicely and they tell you all the things you want to hear, and you may not realize what they’re doing, but there are tricks to the trade. And there are different ways they can hoodwink you a little bit. We know all the tricks, and we’re able to push back and make sure that we get the best deal for our client.”
3. Think about the human element in the M&A deal
M&A deals and partnerships are not only about getting the most cash. Of course, it would be nice to sell to the highest bidder, but many deals either succeed or fail due to the human element in transactions. A buyer is likely to buy your business if they see good leadership skills in your top team during the initial meetings.
“When you look at a deal and think about who you’re selecting as your partner, you need chemistry,” said Silverstein. “What kind of chemistry do you have? It’s a little bit like college recruiting: Everyone’s putting their best foot forward. Everyone wants to win the deal, and you gotta be able to see through that. The leadership team is critical, and that’s something that drives value.”
4. Get your books in order
Your business should always have proper financial records, especially when you want to exit. It is important that you understand working capital, as it will impact the deal. Have a thorough understanding of how things flow in several accounting statements, such as a profit and loss. You should also have a good idea of your balance sheet when walking into an M&A deal.
If you are looking at selling your business or retiring, then you should never give unreasonable raises to your employees. Giving a 10% raise while negotiating a merger or an acquisition will impact the deal. If you give your employees a regular 4% raise every year, then you should stick to that. Getting your finances in order and operating on a normal course, even during an M&A deal, is key to having a successful deal.
5. Use data to improve your business
Another way to improve your business is to use data and track every metric in your company. This comes in handy when you want to sell your firm: Buyers love a company with proper financial records because that makes it easier for them to verify the financial status of the company.
One great way to track metrics is by understanding how you get your leads and the cost of getting them. Do your clients book calls or find you from paid ads? Having such information makes you an attractive acquisition target.
Work with SF&P Advisors to get the best M&A deal
Professional deal makers are a necessity when there are big stakes in an M&A transaction. Working with a team of advisors with years of experience is a great way to arm yourself against other devious parties in a negotiation. SF&P Advisors has made many successful transactions over the years, and we can help with yours, too. Simply contact us today for a quick consultation.