What must be on a seller's to-do list in a hot M&A market
By
Ross Wilkers
Yes, the government market is running hot again regarding deal activity and the right kinds of companies are fetching high prices. But those looking to sell also have to perhaps be even more prepared than in years past.
An apparent unanimous verdict is in that merger-and-acquisition activity in the government market is running hot at the moment and the right kind of companies are fetching high prices from hungry buyers.
A second apparent unanimous verdict is in from investment bankers speaking Wednesday at a webinar hosted by law firm Pillsbury Winthrop Shaw Pittman: preparation, documentation and listening are key for sellers even in an active environment.
Changes in the nature of interactions from in-person meetings to conference calls with remote connectivity have apparently freed up time for other aspects of getting a deal done. That includes due diligence functions by advisers such as law firms and bankers among others, according to the panelists.
“They’re diving into things into more detail, the level of diligence I believe more intense, not necessarily that people are trying to find things, but they are just turning over more stones and being thorough in their analysis,” said Cameron Hamilton, managing director at FON Advisors.
Advisers are there to help any business owner be prepared for and during that process to sell but that is a two-way street. Prospective sellers should listen to them on how to be prepared and the timing on when to go to market, said Bob Kipps, founder and managing director at KippsDeSanto.
“The market is so hot now it’s tempting to recklessly abandon logical plans,” Kipps said. “You’re hiring qualified advisers for a reason, listen to that advice and not just presume because your friend’s company got a very high multiple that now is the perfect time to go.”
After all, each business is in its own individual situation no matter the broader backdrop they find themselves in.
“Market frothiness will not overcome inherent company issues,” said John Song, managing director at Baird. “Just because you’re seeing a lot of your peers trading or some very high publicly-disclosed M&A deals that are happening does not necessarily mean that you’re ready.”
Consider also that buyers are smart and will eventually figure out the less desirable details of any business they end up acquiring, especially considering the ramped-up nature of due diligence these days.
“Not being upfront about the issues, the bad and ugly, only leads to breakdowns in trust and broken deals,” said Greg Van Beuren, managing director at Houlihan Lokey. “With knowledge and positioning, we can overcome pretty much any issue, but you’ve got to know what they are and you’ve got to be leading with the right positioning around it to build confidence and trust with the buyer.”
Joel Kallett, managing director of Clearsight Advisors, said his firm that predominantly represents commercial technology sellers in M&A processes has seen an increase in items such as quality of earnings reports and diligence reports that look at the overall competitive landscape.
“Some of those third party items help our client or prospect get their own house in order because they learn from those items as well,” Kallett said. “It positions you to put a set of marketing materials together that hang together and tell that story both quantitatively and qualitatively.”