The primary reason why mergers and acquisitions fail in the printing and print-related industries really boils down to one simple thing: Greed.
I’ve been actively involved with M&A transactions for over 30 years. I’ve seen and completed hundreds of deals, from small business liquidations to multi-billion dollar growth projects. As I’ve written time and time again in this blog, M&As are a tremendous way for you to accelerate the growth of your company.
But be forewarned: There are winners and losers in this game. The winners will fly straight and focus on a transaction where all parties benefit. And the losers -- they’ll fall victim to greed, which will cost them much more than just the deal.
Let’s take a look at what separates the winners from the losers in this game, and what you need to do to come out on top.
Why They Lose: M&As Always Fail When People’s Greed Shows Through
Time and time again, M&As fail. According to the Harvard Business Review, “Study after study puts the failure rate of mergers and acquisitions somewhere between 70% and 90%.”
There are a number of reasons why these deals go south, including:
- Wrong strategic fit
- Poor price structure
- Cultures don’t align
- Poor communication
But there is one overriding issue that causes M&As to fail. It’s greed.
For the buyer and the seller, this means simply ignoring reality and either asking for too high or too low of a price.
But let’s not forget the M&A intermediary, whether it’s a broker or a consultant.
Look, these deals are remarkably complex. They take a great deal of skill, time, resources and endless strategic maneuvering. They require a disciplined process to help a seller establish the strategy behind the M&A, conduct the due diligence, find a synergistic partner, and then transition to long-term success.
An M&A intermediary, such as a business broker or a consultant, is paid a significant amount of money to assist with this transaction. And it’s well-earned.
But sometimes, when it comes down to big money, you also get people too focused on the cash ONLY. They want to close the deal, even when the situation isn’t right. They subscribe to the stereotypical “Wall Street” mentality, without fending for “Main Street.” (Here’s a great post on “the greed syndrome” for more telltale signs.)
I’m not sure if this is a whistleblower post, or me just being transparent, but a lot of what I see behind the scenes in M&A deals is based on greed. Whether you are the buyer, the seller or an intermediary, you must avoid it at all costs, or it will cost you dearly.
Why They Win: What it Takes to Put Together a Successful M&A
Ok, so being greedy will cost you the deal. So what does it take to succeed?
We’ve talked about a number of factors on our blog in the past, but here are some of the things you’ll need to do to assure success:
Get an Accurate, Industry-specific Business Valuation
It’s essential that you start out with a solid understanding of the valuation of your business. What is your company truly worth? Are you giving more weight to your assets than you are your profit margins?
Knowing your company’s value is the important first step, as it will allow you to benchmark against other sales, and give you a level playing field in dealing with the competition.
Your M&A partner should align you with a business valuation service specific to your industry. You don’t want generally-applied multiples of EBITDA -- you want to know what other packaging or label companies are generating.
Most importantly, it will give you a reality check. It’s hard to get greedy when you have a non-biased number as a starting point.
Focus on Capabilities
If you want to capture the highest returns on the sale of your company, position yourself as a business that has a unique capability. As John Jullens, a consultant with Strategy& has noted in his firm’s research: “The overall premium for capabilities-driven deals over other deals was a 14.25 percentage point compound annual growth rate.”
You see, if you have a great market niche backed by tremendous capabilities, you don’t have to worry about greed clouding your picture. You’ll likely be paid a premium for your business, perhaps even a price that exceeds your own expectations.
Keep Your Eye on Revenue and Profits DURING the Sale
This may be one of the most important factors. Too often I see sellers dreaming about their post-sale life, assuming they’re heading for a cozy retirement before the deal is done. Then profits sink and they lose their asking price.
Building your revenue and profits during the sale will keep your price steady, and reassure your investor that you and your company are committed to the future. You’ll enjoy a smoother transition if your sales are climbing and your systems are operating effectively.
Work With a Team, Not by Yourself
Whether it’s someone like the LaManna Alliance or another M&A consultant, you need to seek the help of an expert skilled in this area, especially one who understands the industry. Don’t go it alone.
There are simply too many complexities, and you’ll quickly find yourself in over your head and ignoring your own business -- which is a huge mistake.
I’ve known plenty of owners who have gone it alone, hoping to skimp on the costs (that greed thing again). Or, as an independent entrepreneur, they might think they can tackle anything on their own.
Unfortunately, they typically wind up being taken advantage of by the buyer, and they have to settle for a lower selling price. No matter how skilled or savvy you are, this is just too big to go it alone.
Get a Non-circumvention, Non-disclosure Agreement
The entire process begins with a Non-circumvention, Non-disclosure Agreement. This agreement is “used by brokers at the start of business transaction to ensure:
- that they are not bypassed and
- the non disclosure of the negotiation information to third parties”
This is a critical part of the transaction, and allows for the confidential exchange of financial information and other aspects germane to the deal. Keep your discussions private, which includes confidential ideas and strategies that are specific to your company.
As Craig Delsack notes in this post, “an idea is free to copy - so you need to protect them as a secret.” In this case, greed might be very good. You don’t want to give anything away, so make sure you have a protective, enforceable and formal agreement like this in place.
Make Sure Your M&A Partner has Industry Understanding
Understanding the industry applies to so many aspects of a deal. From pricing assets to fostering CEO-to-CEO introductions, you need someone who knows the business inside and out. For example:
- Are they current on the industry technologies, jargon and latest developments?
- Are they members of industry trade associations?
- Are they contributing and active in the marketplace?
- Are they trustworthy, with industry-specific references?
- Is your business broker advisor licensed in your state?
- Do they partner with people who are as equally as trustworthy and discreet, and know your industry as well?
They also need to be trustworthy, transparent and responsive to your needs. Find someone who is true to the industry, and it in for the long haul.
Like I said earlier, there are unscrupulous folks out there. No matter who you pick, be sure to have a general understanding of pre-sale, due diligence and post-sale transitions.
Avoid the Greed, Go for the Gold
Remember, the right M&A strategy can produce eye-popping growth. Perhaps that’s why it so easily lends itself to greed and the typical miscues of an M&A gone bad.
I’ve seen many deals -- the good, the bad and the ugly. I’ve learned to “do the right thing” and act with integrity. It always pays off in the end.
Too many people focus on just the short-term gold. Think of the money more in terms of success and fulfillment, and less in terms of buying this or that. Find trustworthy, skilled talent to help you develop a strategy and execute your plan, and invest the resources it takes to get the job done right.
Ultimately, this is a team game. It’s also extremely competitive. For an M&A combination to succeed, the buyer, the seller and the employees who are there when the dust settles need to win. There is no room for greed in a win-win-win situation.