Michael E. Gibbons
Relationships drive this dealmaker’s approach to his craft
Michael E. Gibbons is a Cleveland guy through and through. When it comes to dealmaking, however, he has connections that span the globe.
“We have partners in 35 nations and people are coming and going at the margins all the time,” says Gibbons, founder and senior managing director at Brown Gibbons Lang & Co. “When you’re going to sell a business, it’s not unusual to have strong bidders in Austria or Scandinavia or the UK. You have to be able to talk to those people. It’s pretty easy to talk to the British buyers. It’s a whole different conversation with Swedish or Norwegian buyers.”
BGL was founded in 1989 and has become one of the leading middle-market investment banks in the country. The firm does transactions that range between $35 million on the low side up to close to $1 billion. Locally, it has played a pivotal role on a number of the new downtown multifamily buildings that have been built recently.
“Our real estate operation has put together the capital structure on a lot of those very complex transactions,” Gibbons says. “Without the tax credits, the new market credits, the federal historical tax credits, these transactions wouldn’t be getting done.”
But it’s on the international stage where Gibbons’ ability to cultivate relationships has really paid dividends, making him a stronger M&A adviser both at home and abroad. He’s past chairman and still serves on the board of Global M&A Partners, a network of 34 independent investment banking firms that have helped complete more than 1,500 transactions valued at nearly $50 billion over the last five years.
“Everybody claims they have access to the international market,” Gibbons says. “There are groups out there that almost every investment bank belongs to. But there is a difference between belonging to a group and actually having access to these people. I fully recognize the difference. In our case, I think we have just the right combination.”
In this week’s Master Dealmaker feature, we tap into Gibbons’ expertise on selling a business, his perspective on the growth of the international M&A market and the thing you need to know when you negotiate a sale — and then get cold feet about completing the deal.
The path to a sale
You want people who are experienced in doing M&A transactions. The fact that you’ve used an accountant for a long time may not be suitable for producing the kind of numbers that a buyer may demand to see before he buys your business. You may be using a lawyer to do your day-to-day legal activities. That does not mean that lawyer can handle a merger or an acquisition. People will say, ‘I can do it without that investment banker, I can do it without that fee.’ First of all, the fee is not that big. And in relation to running the right process when you’re selling a business, it’s really de minimis.
We may send out 200 books to various types of buyers, both strategic and private equity. We’ll establish a date, we’ll answer questions and we’ll ask for preliminary indications of interest. And I can tell you that over a period of time, the difference between the highest preliminary indication of interest and the lowest preliminary indication of interest is roughly 50 percent. So the likelihood of you finding that one buyer that is going to be at the top end of that range is pretty remote.
You may just not be aware of what the market is really like for a good company. The multiples right now that we’re seeing are as high as they have ever been. And for good companies, they may be the highest. The market is flush with capital. Strategic buyers usually have a limit as to what they can pay. They don’t want to have a dilutive transaction if they are a public company. If they’re a private company, they may have an idea of what multiple they’ll pay. If they’re not willing to compete with the private equity markets, they’re not going to buy anything. So you have these two forces, strategic and private equity, driving prices up. In order to take advantage of that as a business owner, you need to go through a process that puts those people in competition.
Evolution of the international market
We’ve sold innumerable businesses in most of the Western industrialized economies. We’ve had buyers and sellers. We also oftentimes have entered into a co-management relationship with these various partners. I can think of one in Hungary where the obvious buyer was an American buyer. So they’ll team up with us and we’ll cover the American buyers because we know that marketplace and they’ll handle the European buyers. If you know your industry, and you will if you’ve been running it, you should know where the acquirers are.
We’ve seen Chinese bidders in the marketplace for many, many years. They come in and for many years, they just didn’t compete. They couldn’t get a handle on the value of good will, they couldn’t get a handle on the value of brands or customers. They kind of looked at it as, ‘Why would I pay that? They don’t have that much good equipment. I can reproduce that in China for a fraction of the price.’
For the first time, we sold a middle-market company in Michigan to a Chinese market buyer. So all this noise that has been made about how China is buying on the international market is starting to come true. Western European companies have been buying actively in the U.S. for the last 15 or 20 years and now China is active. So instead of just clearing the American market, you’ve got to clear the international market. In order to do that, you have to have an investment banker that has the capabilities of getting to the international buyers that may be strong bidders for your business.
The Last Word
It’s a pretty ugly life to have to live where you finally determined you didn’t want to sell your business and you still did it. I’d rather have that owner come to the self-realization that she or he doesn’t want to sell, particularly if they are going to take a piece other than sell 100 percent, and pull the transaction out of the marketplace. But once you pull a property or an asset off the market and it’s gone through a process and that information on that sale has been generally disseminated to the people who buy those kinds of companies, you’re probably out of the market for three or four years. It’s not unusual for a $100 million company to have somebody spend $2 million in time and money in preparation to determine whether or not that business is what they want to buy. So going through that and then finding out the business isn’t going to be sold is not a very good feeling.
How to reach: Brown Gibbons Lang & Co., www.bglco.com