How Having a Preconditioned Mind Gets You Noted On A Strategic Acquirer's Shopping List

Achieving a peak market value when selling your business requires a combination of predictability of operations, bankable growth and having a compelling story that attracts strategic buyers.

This truism begs three questions:

1. Which buyers are strategic?
2. How do you find them? and,
3. How do you craft a compelling story, i.e. is it one story tailored to your "strategic customer persona", or is it specific to each potential buyer?

You might think this work is the job of an M&A firm that you plan to employ to manage your sale. And if you have not taken prior action yourself, this will be, by necessity, a self-fulfilling prophecy.?

However, suppose you ask among owners that have sold through this process. In that case, you'll discover that while their M&A firm added tremendous value in providing exit options, financing, deal structuring, and negotiation, the search for strategic buyers was more ad hoc. The exception is where recent deals have provided a pathway to a potential buyer.

Finding the ultimate strategic buyer is your job

Think about it. Your knowledge of your industry, your customers, and the internals of your business are what give you the very conviction that your business is worth more than an everyday financial valuation . You believe that a top strategic buyer is out there and that they will pay a premium.

Finding this ultimate strategic buyer is not the core business of an M&A firm. They have a book and will build on that book of excellent buyers, they know how to structure and do the deal, but their business is about creating a cadence of deal flow that yields strong references from their clients.

To achieve your ultimate exit - one that satisfies or exceeds your monetary goals and also your deep personal concern for the future of the business and your staff - you need to put in the hard yards at least 18 months before engaging an M&A firm.

It is your role as an owner to shape your business to catch the attention of those top-tier strategic buyers that you know in your gut are "out there".

Use your team, do your homework without spilling the beans

You must do your homework and uncover areas of strategic overlap and operational and expertise synergies. Next, you need to map out pathways to learn more about buyers who qualify into your funnel of prospects. Your best pathways are your team and your customers.

However, there is a caveat. You should do this work in sufficient time to tune the business to be supremely attractive to your top strategic buyers - ideally to catch their attention. At the same time, you must avoid signalling your exit intentions to your staff, customers and competitors.

The best way to develop your exit options without broadcasting your intent is to build the analysis into your quarterly strategic planning meetings with your team. Here are three items to add to the agenda.

1. What customers say

Everyone is to report on their customer visits during the quarter. From each customer:

1. What squeezes are coming down from the top, and how is that making their life difficult?
2. What interactions with other business units are a headache, and why?
3. What common challenges do they hear from across their business unit?
4. What is the hardest thing about getting their business cases approved?
5. What joint projects do they have going with third parties, and how are they progressing? and,
6. What companies and competitors have you seen or become aware of during customer visits that surprised you?

2. Observations from exhibitions

Reports from exhibitions or industry events attended during the quarter:?

1. Which companies were there that surprised you and why?
2. What offers were complementary, and which were competitive with ours?
3. Which offers were potentially transformational for the market?
4. How many large companies were new to the market and were using the exhibition as a springboard?

3. From Ultimate Exits, the book

As a team, answer these 10 questions from Tom McKaskill, Ultimate Exits (Chapter 9). These are invaluable and timeless:

1. Who makes money when we make money??
2. Who does not make money when we make money?
3. Who can make more money than we can from my products??
4. Who can remove a constraint on my business?
5. Who has a problem we can fix??
6. What threat can we reduce or eliminate??
7. Who sells to the same customers we do??
8. Who uses the same technology we use??
9. Who needs our customer base??
10. Who needs our technology or people?

The team should answer these questions in the context of finding new and better services for customers and new strategic partners to offer those services.

Takeway

Your preparation prior to engaging an M&A firm should be focused on developing a deep understanding of which buyers will extract the most value from your business. The earlier you have this knowledge, the more incremental innovation you can do to tune the company to be of more value to those buyers.

Once primed, you will also start seeing other opportunities, connections between your company and strategic partners and new technologies that now jump from the page.

Your preconditioned mind will recognise value from within what others see as confusion and complexity. Capturing this value in your offers will make it more likely to be noted as an "acquisition of interest" by potential acquirers.?

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This Week's Reading

Two articles from my reading list to help you grow and exit successfully.

Article 1: Charting a route to success in technology mergers

In 2016, Alaska Airlines acquired Virgin America. Merging the two airlines into a single company required a radical shift that empowered employees to take the initiative and make decisions. This shift transformed Alaska Airlines' culture.

The top priority on the technology side was focusing on the fastest way to merge disparate systems. This merger required a framework of quick decision-making.

Alaska's technology group started twice-weekly stand-up meetings, allowing them to surface issues quickly. For example, if anyone on the team encountered a roadblock, they could bring it to the meeting, and within 24 hours, whoever was responsible for the block had to fix it.

People began to view this process as a way to enable leadership to get stuff done and help the company move forward. It changed how the company worked, moving from a hierarchical atmosphere to a better-functioning organization.

The integration team felt empowered to work as one group and not worry about senior management overriding decisions.

The deed closed in 2016, the merger launched work in January of 2017, and by mid-2018, the commercial phase, which was 90% of the merger transformation, was completed. And the merger teams had entrenched a new culture for decision-making in the combined business.

Article:?MIT Sloan Management Review

Article 2: Igniting your next growth business

Knowing what kind of acquisition strategy is most successful for large companies helps you understand which companies are more likely to acquire your business successfully. For example, is a conglomerate approach more successful than sticking to the knitting?

McKinsey found that those companies that prioritised growth opportunities in business areas where they are "natural owners" generated the best shareholder returns.

McKinsey analysed the strategies and performance of the largest 3,000 global companies (by revenue), the number of different industries their portfolios cover and the similarity of those industries.

They discovered that the similarity of the industries in the corporate portfolio most strongly correlates with performance.

Of the one in four companies that chose to expand into new industries, those that expanded into similar areas were almost twice as likely to generate shareholder returns above their industry median than those that expanded into nonsimilar areas.

What matters is the nature, not the number, of industries. Therefore, being in a similar industry is an advantage if you are selling your business, even if not the core industry.

Article: McKinsey

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This Week's 3 Business Books

Free for you as a subscriber to my newsletter: Three of the world's most essential and popular business books in acclaimed 12-minute videos. Listen, or watch and listen, so you never miss another big idea.

Book 1:?The Customer Loyalty Loop by Noah Fleming (watch on Monday-Tuesday)

Most companies don't truly understand what they need to do to keep a customer. Noah Fleming does.

He wrote The Customer Loyalty Loop to teach us the psychology of customer experience and what we can do to influence our customers to continue to do business with us over and over again.

Watch or listen to Book 1

Book 2:?Stumbling On Happiness by Daniel Gilbert (watch on Wednesday-Thursday)

As human beings, we spend much time predicting what will make us happy in the future.

This book is about why we are particularly bad at this task and what we can do about it to lead a happier life.

Watch or listen to Book 2

Book 3:?Radical Candor by Kim Scott (watch on Friday-Sunday)

Author Kim Scott has seen a lot during her career. She's run startups, worked at Google for Sheryl Sandberg and worked at Apple at their famed Apple University.

Along the way, she's picked up what makes leaders at companies like Google and Apple so successful, and she calls this leadership style Radical Candor.

Watch or listen to Book 3

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? Previous Newsletter: Why Not To Be Distracted By Innovation When On An Exit Path

? Next Newsletter:?Improve, Prevent, Fix - 3 Ways To Tap Into A Strategic Buyer's Positive Ulterior Motive

Keep winning, Walter

P.S.?If you know you’re ready… it might be time to explore my?Proactive Exit Mastery?model, to see how you might capture the ultimate exit value for your business.?If you'd like to know a bit more, just message me or comment below with "Ultimate Exit Value".