The calls inevitably start the moment you win a big contract away from a major. The major is publically traded and annoyed. They also have a corporate development group that is in the business of turning upstarts into acquisitions. The phone rings, “We’ve taken notice of your company in the market; we’re impressed; we’d like to discuss a partnership; are you available to chat?” And so the courtship begins, and it’s a highly codified one for which CEOs are often not well prepared.
As your financial partners will take the opportunity to remind you at quarterly board meetings, any company that is on the institutional equity capital financing path is expected to yield a liquidity event; that fuse was lit many moons ago, when the first big VC cheque landed in the bank. And not just any old liquidity event will suffice; if you’re emerging as a fund-making investment in your partner’s portfolio, it will need to be significant multiples of invested capital, and it cannot take forever. LPs are waiting for a return; the next fund is brewing; time is ticking along.
On the presumption that you rebuff these early approaches and continue to focus on growth, dialogues will develop over time. Some should actually evolve into new commercial partnerships, and others will have originated with existing commercial partners. Inevitably, though, it will be time to act; the time will come to originate a fulsome process to crystalize the value of the business; to retire obligations to your financial partners, and to collect the hard earned financial reward for founders and employees.
In the context of M&A for exit, it has often been said that businesses are bought, and not sold. It’s an age-old truism in transaction advisory, and it generally holds. The only robust counterexample is when a business is either so attractive on a financial basis, or so far ahead of the rest from a strategic perspective, that it trades at the will of the seller to one of a few obvious buyers. But as is far more often the case, a process doesn’t start until the first willing buyer knocks on your door – and typically not for the first time, but at that right time when the board agrees now is the time to seriously consider an exit.
Once this happens, the CEO and executive team are plunging into a territory of the largely unknown. They are on the precipice of immersion in a process that is typically far too distracting – and time consuming – to execute successfully, if one also expects to run, grow, and operate a company in parallel. After all, no process guarantees an exit, and you must run the business in the meantime; it was a full-time job before, and so it remains. In short: the breadth and depth of transaction experience, knowledge, time, and energy required to orchestrate a fulsome sell-side M&A process is immense. It will cost you sleep, and it will hurt your head. You’ll need a market savvy, dispassionate, confident partner in the process – and a robust and capable team behind them that can provide the analysis, preparation, marketing, and due diligence functions that are either beyond your experience, or beyond your capacity, or both.
In the end, there are myriad reasons to hire a professional advisor, but a few in particular stand out: a dispassionate partner with whom you can continuously discuss and rationalize strategy, who is compensated only when a successful outcome is achieved, can unburden you from an immense investment in time and energy, and who is bound to increase the value of the offer by a multiple of their ultimate compensation.