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

Entrepreneurs and business owners each have a unique way of viewing the world.
Those variances are what make it exciting and stressful, exhilarating and exhausting. The passion to broker a deal and create a new opportunity for business growth is what drives dealmakers to actively pursue what they hope will be the next great deal.
Here’s a look at the world of mergers and acquisitions from some of Pittsburgh’s top dealmakers:
 

When it comes to your business, it’s often difficult to take an objective view of its worth. Entrepreneurs and business owners just don’t always understand how an investor evaluates a business, says John Lewis II, founding member of Metz Lewis Brodman Must O’Keefe LLC. They’re involved in their optimistic view of their companies and don’t realize investors are looking at the investment in a more professional, realistic way.
Bob Petrini, president of Chick Machine Co. LLC, who has been a banker, CPA, CFO and operational leader, has had a similar experience.

“Many entrepreneurs misunderstand value and see it as a discrete number, rather than falling within a reasonable range, and often base their expectations on what they need to support their retirement versus what the business is worth without them,” Petrini says.
It’s also hard to stay objective and detached, which M&A necessitates.

Whether buying or selling, you have to avoid becoming emotionally committed so you can walk away from a bad deal, says Jeffrey A. Ford, a partner at Grossman Yanak & Ford LLP.
Value is based upon how the asset will be used, says Mike Denove, a partner in EY’s Pittsburgh office.

“Don’t be afraid to leverage experts who can help you expand the buyer universe exponentially because they see the adjacencies that have become so popular in today’s market,” he says.
Just like when selling a home, it’s important to clean, repair and prepare for a sale. Sellers should perform due diligence to understand how potential buyers will scrutinize and challenge the business. They need to establish strong positions that support their views of the business and mitigate the risks.

Peter J. Lieberman, a partner at Schneider Downs Corporate Finance LP, has found entrepreneurs and family businesses tend to underestimate the importance of building infrastructure that can generate clean information in an M&A process.
“Being in a position to provide complete, accurate diligence information to buyers when first requested builds trust and credibility,” he says. “Alternatively, constantly tweaking information, taking excessive time to provide data and showing up with surprises often damages credibility more materially than the straight financial impact of any particular negative disclosure.”
Business owners should also never do a sale alone.
“There’s no way for an owner to provide their full attention to the business while running the process of selling it. Something has to give, and it is usually the underlying performance of the company,” Lieberman says.

In addition, if you think it’s too early to start planning for business succession — whether that’s a sale, transfer, outside investment, etc. — you may end up being too late, says John T. Welsh, vice president of wealth strategy at BNY Mellon Wealth Management.
“While the succession planning never stops when transferring or selling a business, trying to do so in the most tax-efficient manner has a definite sweet spot,” he says.

Building trust; seeing clearly

M&A requires trust between investors and business owners. For example, Howard W. “Hoddy” Hanna III, chairman at Hanna

Holdings Inc. and Howard Hanna Real Estate Services, uses his lenders as allies before a transaction, even if the company isn’t borrowing from them.
“We’ve actually backed off of investments we were going to make before, on their advice,” he says.
There is a misconception that investors are in it for a quick return, Denove says. As such, entrepreneurs sometimes miss out on opportunities or critical timing.
“While investors do want to maximize returns, investors often search for the investment that matches an interest of theirs, or a capability or an expertise that they feel can bring value to the go-forward proposition,” he says.