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Getting the most out of investigative calls from M&A companies

Updated: Nov 2, 2023

Good manners cost nothing

- But they could make a key difference in obtaining a premium exit value

Let’s face it – unsolicited calls (nuisance or otherwise) suck! They at best can be a distraction and at worse can be down-right irritating when the caller is trying to force the discussion on a topic, which you would rather not have. Indeed it is not uncommon for our treatment of these calls to be dismissive if not plain rude to ensure the caller fully registers our annoyance.

At times a successful entrepreneurial business is often like a bright light in the night to which insects are attracted. In this analogy of course the insects are interested buyers and in the current environment of Private Equity and strategic players with surplus funds, it can sometimes feel more like a swarm. It is therefore not uncommon for business owners to view such approaches as nuisance calls and swat away such attention either by ignoring the approach or terminating any further interruption by issuing a blunt and sometimes rude response.

Such an instinctive response is however short-sighted and can ultimately damage a future premium exit value.

To better understand this issue, entrepreneurs must accept that ultimately the success of their years of hard labour building the business will catch the attention of a particular set of interested parties looking to acquire it or at least assist in your divestment. These will range from strategic or financial buyers (PE) and also M&A advisors who will seek to represent you to potential buyers. With strategics and PE suffering from a massive build-up of unutilized dry powder funding for acquisitions, the frequency of such calls are on a upward spiral.

Despite however an exit being the ultimate end-game for the entrepreneur, such attention of potential buyers and advisors can ironically become quite irritating, particularly when they continue to work day and night to develop their businesses future success. Entrepreneurs rarely spend time planning the timing of their exit, favouring instead to focusing on driving business growth and the continual interruption of keen and well-polished M&A executives trying to discuss your exit strategy can indeed be tedious.

We need to keep in mind however that these M&A executives will have performed research and prepared an extensive target list of interesting companies in their priority sectors – of which you are one. They will then effectively try to farm these targets and seek to engage with business owners by whatever means available (email, phone-call, Linkedin) with the sole intent on starting a dialogue with the hope that it can lead to a future divestment discussion. Despite both their honorable intent and their undoubted influential link in the chain to acquisition funding, it remains amazing that a large percentage of all attempted contacts are either flatly ignored or aggressively shunned, as if the executives were selling toxic sub-prime mortgages.

Such anti-social attitudes from business owners are usually have a range of justifications such as having no time for discussions, not wanting to divulge confidential information, having no interest in selling at this time and to top them all, have heard bad stories about the particular PE or strategic buyer themselves. Entrepreneurs are indeed a breed apart, and no doubt could fill a conference hall of psychologists in a bid to understand their rationale, however as strong as their emotional ties to their business, they seek most of all recognition of their life’s efforts which ultimately is most usually shown through a healthy premium exit value.

This can most readily be achieved by creating competitive tension which is fundamentally driven by the amount of interested parties. This interest is best nurtured by building a relationship and dialogue with buyers over a number of years, so that they can be slowly acquainted with both management and the business strategy. This raises the buyer’s anticipation and excitement leading to either a pre-emptive offer or a healthy interest when the business comes to market through a competitive auction. The fact that both PE and strategics place higher value (and is often a pre-requisite) that owners remain engaged within the business post-deal, means that they will naturally be more comfortable with owners whom they have already built a healthy relationship with.

While a highly attractive business which has actively shunned all external contact should in theory still gain interest in a competitive auction, it understandably starts from a position of having to overcome the opinion of leadership being “difficult” and in a crowded M&A market place with limitations on M&A executive’s time, it is not surprising that they will prioritise a target with known management over one where contact has been previously rejected – potentially depriving the build-up of competitive tension.

Arguably there is rarely a downside to discussing your business with interested parties and you should be open to having such general discussions, without of course divulging any sensitive information which could harm a future process. The trick is to be polite, courteous give a general high-level overview of your business mission, and then (most critically) listen!

This last part is of supreme importance, since the M&A executives having set-up the conversation will naturally feel obliged to fill a large part of the conversation disclosing facts about his own business and strategy, market and competitor trends and recent developments or acquisitions. They may even tell you (and I would heavily encourage you to ask them) why specifically your business would be of interest to them. This is invaluable intelligence which the entrepreneur can use to good effect since it is always serves to know the competition – what their strategies are – how they perceive your own business, and how you can best calibrate your own business to augment the future exit value.

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