A look at M&A from leaders who have seen it all

Deals are more successful when an entrepreneur gets to a trust stage faster, Denove says, which may mean reframing both of their viewpoints.

John F. Herubin

Often, business owners fear that investors don’t have the best interest of the business’s long-term success in mind, will look for ways to throw them out as soon as possible after a transaction, or won’t treat employees well, says John F. Herubin, managing director at EdgePoint. But, in many instances, the investor wants a partner with an opinion.

Stephen J. Gurgovits Jr.

Stephen J. Gurgovits Jr., managing partner of Tecum Capital, echoes that sentiment: “Taking on an investor is really the beginning of a new partnership and it is important that not only do the economics work, but so does the cultural and strategic fit.”

Lauren Townsend, principal and founder of Balcony Advisors, runs across those same fears — private equity firms are slick and greedy, investors haven’t walked in the entrepreneur’s shoes and the investor group will cut costs and not reinvest in the business in an effort to pay down debt.

Lauren Townsend

Making assumptions goes both ways, however. Townsend says investors tend to underestimate the value of a business owner’s involvement. They risk losing years of institutional know-how and commercial relationships if the owner walks out the door.

Another fallacy relates to large, institutional acquirers. Lieberman says they can underestimate the emotional challenge that selling presents to entrepreneurs and multi-generational family business owners, and fail to appreciate the importance of non-financial deal terms.

“Often, buyers who are accustomed to acquiring businesses from private equity firms and corporate owners aren’t prepared and aren’t willing to invest the time and attention that entrepreneurs need to get comfortable that their ‘baby’ or their family’s legacy will be well-taken care of after the closing,” he says.

Pete DeComo

Pete DeComo, chairman and CEO of ALung Technologies Inc., has experience raising capital and developing startups. He realizes deals must be mutually beneficial; otherwise a one-sided deal has the potential to eventually implode.

The entrepreneur is also willing to walk away, understands his fixed, variable and hidden costs, and defines and agrees on the selling price and margin targets before going to the negotiating table. DeComo knows the bottom limit beyond which he will not go when negotiating.

Align and integrate

Even when a relationship is developed and the deal makes sense, cultures that don’t align still cause transactions to fall through. If these problems arise after a deal closes, they can slow or stop integration efforts.

Francis A. Muracca II

“Merging is easy, but successful integration is challenging, particularly if multiple cultures are involved,” says Francis A. Muracca II, partner at Jones Day.

You have to develop a solid integration plan that incorporates the views of the key people you wish to retain to ensure a smooth transition, he says.

Lewis says both parties need to evaluate pay structures, benefits, seniority classifications and all other aspects that will affect the employees being integrated to identify potential misalignment.

And don’t expect to suddenly become a combined business that can operate cohesively. Even the most amicable deal partners take time to mesh.

“Appreciate that you can’t coach culture and you shouldn’t expect the other side to change,” Denove says. “So, look for that match upfront.”

The biggest mistake Howard Hanna has made came from not understanding the business it was buying or the culture of the people.

“When this has happened in the past, it makes it difficult to manage and run the business. When you don’t have a good grasp of the business or have a culture that doesn’t relate well, it makes a huge learning curve for everyone,” Hanna says.

However, Ford cautions that the importance of culture often depends on the industry. Sometimes it’s critical; in other situations, not so much.