A look inside the world of M&A from leaders who have seen it all

A matter of timing

The Riverside Co. is a global private equity firm with an international portfolio of more than 80 companies and more than $5 billion in assets under management. The firm has invested in more than 410 transactions, and most of them have been quite profitable. But co-CEO Stewart Kohl says they haven’t all been winners.

“We have lost money on several of them due to fraud, mismanagement, failed strategies or sometimes just buying the wrong company or betting on the wrong industry,” he says.

“Our biggest mistakes have been not buying some companies that would have been huge winners — like Burt’s Bees, a terrific brand of natural health and beauty products that we could have bought for well under $100 million when it was young, but the price seemed too high. Many years later, after significant growth, Clorox paid almost $1 billion for it.”


Stewart Kohl, co-CEO, The Riverside Co.

Here are the four critical elements Kohl looks for that reduce your odds of making a mistake and give you a better chance to turn an OK business deal into one that leads to substantial profit:
■  Buying the right company (defensible niche, compelling value proposition) in the right industry (winds at your back).
■  Quickly improving the management team by adding top-level talent and/or replacing underperforming executives.
■  Improving the company’s management information systems and taking advantage of opportunities to close pricing leaks and reduce costs.
■  Supercharging growth through add-on acquisitions that are then properly integrated.

In addition to his role at Riverside, Kohl is vice president of Citicorp Venture Capital and COO of the National Cooperative Business Association in Washington, D.C. He has seen a lot and experienced a lot in business. One of the most common misconceptions he sees in the world of M&A is the distorted view many entrepreneurs and business owners have of potential investors.

“Some think of private equity as just being ‘financial engineers’ who try to leverage up and then cut costs to make money,” Kohl says. “Nothing could be further from the truth. In almost all situations, the only way for a private equity investor to make money is to help the company become bigger and better.

“The best private equity firms have developed proven skills and tools to accomplish this outcome on a regular basis. Most often, we partner with the company founder/owner and work together toward this goal with a strong alignment in terms of risks and rewards.”

Fear of disruption is an attitude that tends to drive the concern about investors, says Julie Boland, Cleveland managing partner for EY.

“There is sometimes a fear from entrepreneurs that investors may be disruptive to the managers and owners of the business,” Boland says. “Through the diligence and deal process, entrepreneurs and investors should discuss working protocols and how involved the investor expects to be in the business.

“Cultural alignment is critically important and is often a factor in deal execution failure,” she says. “We are seeing more buyers and sellers evaluating culture in a deal setting to either ensure a complementary culture or to better understand what change management may be required to align interests.

“Without a cohesive culture, management will not perform and execute as a high-performing team, which increases the risks around integration. Plus, a company runs the risk of losing the people and talent that were acquired.”


Julie Boland, managing partner, Cleveland EY

Poor execution on integration is one of the most common factors in a deal not meeting expectation, Boland says.
“An organization can mitigate risks associated with execution by specifically defining roles and responsibilities, having strong governance and project management and ensuring dedicated resources are available,” she says.

“Lack of appropriate due diligence is another common challenge we see in the deal process. Surprises in quality of earnings acquired can have a material negative impact on value. Careful diligence around all aspects of a deal (earnings, competitive environment, regulatory challenges, etc.) and good business judgment should minimize, but not eliminate risks.”

The importance of alignment and a sense of common purpose in the negotiation of a merger or acquisition cannot be overlooked, Fedeli says.

“It’s not necessarily what you think, it is what they think,” he says. “It’s also having the right questions in this whole process and also making sure that you really listen to and talk to as many of the various people that are important in making the decisions.

“You always want to make sure that you really have dealt with the decision-maker. If you are dealing with people who are not the decision-maker, you may not really find out what their real concerns, real issues and real points are, and perhaps you could end up with some issues that could be a deal breaker.”

Mal Mixon made 50 acquisitions when he was CEO at Invacare Corporation. One of his key tenets was to never overpay for an acquisition.


Mal Mixon, former chairman & CEO, Invacare Corporation

“You should buy for what the company is worth, not for what it’s worth when you get it,” Mixon says. “A lot of companies, when they decide on the price, they include the value that they bring to the table. And therefore you don’t get anything accretive out of it.

“All of my acquisitions were accretive. They brought earnings per share to Invacare. So I didn’t want to overpay for them. When I looked at an acquisition, these are the issues I looked at: Do they really fit with Invacare? Do they make us stronger? Is it a new product line? Is it a new geography? Does it eliminate a competitor?”