What Makes A Successful Merger In 2024? It’s About Selling, Not Buying
High interest rates, persistent inflation, geopolitical uncertainty and heightened regulatory scrutiny in many jurisdictions, conspired to make 2023 a tough year for global M&A activity. This was straight on the back of a difficult 2022. However, in spite of the prevailing headwinds, the most successful outcomes are achieved when dealmakers focus on selling rather than buying.
Over the last four years, we have completed more than 250 deals worth a total of $700 million. Prytek comprises several firms, many of which have joined via merger. The ethos of the business has always been to move away from an investment industry where capital gains speculation stands above long-term value creation and create a global corporation that acknowledges the vested interests of those global entrepreneurs he negotiates with.?
Deals need to be structured so that everyone is motivated to play their part. What I say to the other party is that when I buy their asset, I will protect their legacy. They also get my promise that we will increase the value of their shares, which enhances their legacy for their family. My message to them is that I am going to be working for them. At this point I'm not buying, I'm selling something of huge value. I don't acquire businesses, I merge them.
“In recognition of the value, expertise and leadership skills of the founders and entrepreneurs I am negotiating with, my objective is to create deals that involve cash and stock with a strong emphasis on collaborative efforts to grow together. The key to my deal-making success thus far is knowing who I am speaking to, for example, the age and personal interests of the other party, and what motivates them to seek a deal.
Age can be very important in determining whether this is the last round of the game for them, or whether they have more years ahead and therefore more rounds to play. When you negotiate with an older person, often what they are thinking about is their legacy, so there is more of a personal stake for them in the deal. What will he be leaving behind him?
For them it is not just about the money, but about leaving jobs and long-term prosperity, giving people a place to work, to create; a place that they can enjoy. That’s the legacy they want to leave.
Younger people are often less interested in their legacy and more focused on what they will be doing in the next 10 years. They just want cash to fund their next venture, and they won’t be staying. That’s a cash deal, not a merger deal.
Prytek has been built from companies that I have bought, but whose leaders have stayed with me. To me, this is the bedrock of a successful merger. During the negotiations, I show the person I am negotiating with the future that we can build together; bringing in new clients as an ecosystem, expanding the business, if they become part of it. I’ve had to work very hard to make it happen and I am continually showing them the results and proving to them the value of the deal and the fact that they made the right decision.
Ultimately, the success of any merger is dependent on the strength of the long-term relationship between the people involved. It is like a marriage; the initial wedding, the honeymoon, can be amazing, but the important question is what will happen in the next few years? With every merger deal that I’ve signed, it’s never been an endgame deal. End-game deals are done when you are doing a cash-out. In merging, as long as we are together, there is no end game.
The current economic climate of high interest rates and inflation has created a buyers’ market, with opportunities for the biggest players to get bigger. But the key to success is not doing deals under pressure. It is about getting yourself into a position where you have the upper hand in terms of time, and there are different ways to win time, for example, reducing manpower, reducing projects. But never negotiate when you are under time pressure. Without the advantage of time, you are effectively playing a game of chicken.
One trend that has emerged in business circles is the importance of softer skills, such as emotional intelligence, understanding people’s feelings, and concern for their wellbeing. But in many cases, hard bargaining tactics, bluffing, puffing and outright lying to gain the upper hand are evident around the negotiating table. That approach has never been my MO (modus operandum). I place fundamentals above any tactics. If you screw somebody in a deal, what have you achieved? You might win the game, but there will be repercussions. The most important thing when negotiating a merger is convincing the other party that a future together is far better than a future without one another.
I see the process of negotiating as an occupation in itself. It's something that you need to be professional at, and the more skilled you are, the better the outcome. You can be the best at taking a balanced approach to negotiation, but if you have no financial or economic skills, and no legal skills, for example, how to structure deals, you are at a huge disadvantage, especially during more structured, sophisticated deals. When someone with a very sophisticated brain who has high-performance thinking is negotiating with someone who doesn’t have those attributes and is therefore not as skilled in the structuring of the deal, they will lose.
One issue that I have strong views about is the role of legal representatives in negotiations. There is no question about the valuable expertise that lawyers bring to the wider deal-making process, however, I believe that the actual deals should be done between the two individuals. The role of the lawyer is to execute what has been agreed, in a collaborative role alongside the parties involved. Lawyers often lack the deep understanding of the relationships that make a successful merger. Many just want to win, but don't understand the consequences of their winning. Negotiating should never be about one side winning. When you go in with the right approach, selling a great deal rather than buying a business, both parties win.
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