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Anatomy of a Successful Acquirer
Recently, we represented a multi-unit operator in the sale of a tier-one franchise business which had numerous hurdles to overcome in order to achieve a successful outcome. The company had suffered as a result of the recent recession, challenges in the local economy, and some operational challenges on the part of the existing operator. The company was underperforming the brand and lacked the resources needed to pull itself out of the downward spiral it was in. Many units were old and tired, and in desperate need of remodeling. Several units needed to close.
Operations had suffered and turnover and employee morale were a continuing challenge.
In order to arrive at a successful transfer, concessions were required from landlords, lenders and the franchisor. During the process and afterwards, we were able to reflect on the unwavering commitment and perseverance on the part of the buyer, which were paramount in reaching the finish line. The character, tenacity, and insight we observed on the part of the buyer were so compelling and refreshing that we just had to share the story with our readers.
We have been doing transactions for over 30 years and seen a lot of different types of buyers: Strategic Buyers, Financial Buyers, Consolidators, Opportunistic Buyers, you name it. We've seen parties to transactions make many mistakes along the way, but have also seen many successes. What this particular transaction reinforced for us is that an acquirer must have a truly intuitive feel for the opportunity upfront, and an unwavering commitment throughout the process to get it done. This particular buyer was able to look past the “small stuff” because he had a clear view of the big picture: the tremendous value he knew he could create. The opportunity was not centered on what the seller had or had not done, but rather it was centered on what the buyer knew he could do with the business.
The buyer in this instance was a very successful, long-term industry player with a tremendous historical track record. His focus was on assessing the value of the opportunity and what it meant to his organization -- prior to submitting his offer to acquire the business. He also knew that investments in people, facilities, systems, and operations would result in dramatic improvements to the business. He never lost sight of the prize and once he decided to move forward, all hurdles were treated as if they would be overcome. His focus from the very beginning was to close the deal without getting hung up on the obstacles of the process.
He understood the importance of demonstrating to the Seller that he was the right buyer for the business. He removed any doubts about his commitment to close. He resisted the temptation to be “penny wise and pound foolish” in negotiations. Of course, he understood there would be some financial issues from the onset and factored it into his initial assessment of the business. The buyer was not going to let minor price negotiations (correct as he may have been) kill the deal. Too often, a buyer can kill a deal over minor items that can arise in due diligence if they are not truly committed to the big picture from the start. He understood that this was right deal for him and wasn’t going to let it slip away.
This all sounds simple enough, but often times this isn’t the case. In a deal world consumed by data, financial models and over analysis, many buyers have lost their ability to intuitively assess an opportunity and fail to rely on their instincts.
The ability to assess the future potential of a transaction over a longer term horizon separated this buyer from an overreliance of trailing multiples or standardized financial models which didn't fully portray the potential of the business. Now we are not suggesting that financial analysis and due diligence is unimportant; to the contrary, it is a critical part of the overall assessment process. What we are suggesting is that you don’t let historical data completely control your decision-making and lose sight of your ability to stand back and assess the situation.
Furthermore, invest the time upfront to define the right strategic characteristics of a transaction for your organization. Not all transactions represent the right fit for all companies. Know what is important to you. Many buyers we come across don’t really even know what they are looking for in a transaction. So how can they know if the right situation is staring them in the face when they have no idea what they should be looking for? We are reminded of the old adage: “If you don’t know where you are going, any road will get you there.”
Finally, if you come across an opportunity that seems to meet your criteria, invest the time up front to fully understand the transaction prior to presenting an offer. Too often, buyers want to chase and prematurely lock up a deal before they truly understand it, only to back off or retrade on an once they dig in to an assessment of the transaction. Attempting to understand the details of the business only after a deal has been agreed to is often a recipe for disaster for both parties.
Conclusion: Establish criteria for what you are seeking in a deal. That way you will recognize the right deal when it becomes available. Do your analysis, but focus on the big picture: given my skills, experience, and organization, what specific avenues to create value does this opportunity present to me? And then don’t let distractions derail the process: have the tenacity to see it through to a successful outcome.