For every merger and acquisition that goes through there are several that fall through. It’s a risk of doing business. In some cases there are clauses built into the deal to keep one side from backing out: clauses that cause a side to pay a large fee if they decide to bail on the M&A before the deal is done. These can be steep in the case of multi-billion dollar deals, but in smaller M&As these fees are smaller percentages or even non-existent, giving the cold-feet seller a chance to back out without ever getting through to the nitty gritty details–or even after.
So what can you do to save a deal–something that you may have been working on for months or years–if it suddenly starts to go south?
We Haven’t All Been Through This Before
In many cases, if you’re the larger company, you may have gone through an M&A before. This may be old hat. But the company that you’re acquiring–this may be the life’s goal and dream of the CEO and founders and they have never had to face the prospect of being bought out before. They don’t know what it’s like–and this is their baby. This is the company that they poured tears, sweat, and blood into to make it a reality and now it’s going off to be a part of a larger conglomerate. Maybe they’re staying on as management, but they’re not going to be calling the shots as they always had (possibly since they started this company in their garage) and it’s no surprise that they’re going to get cold feet.
Now comes the time to finesse the seller, to assuage their concerns. A hostile, brute-force takeover bid might not be the thing that wins the hearts and minds of the people who represent the intellectual capital of the company that you’re purchasing. It’s time to put on the kid gloves and treat these individuals like the rookies they are, coaxing them through the process, putting their minds at rest, calming their fears. You may not think that a CEO of a successful start up needs hand holding–and they may not think they want it either–but going through an M&A is traumatic, and being tolerant of their concerns is a totally rational (and strategically smart) thing to do.
In it For the Long Haul
Mergers and acquisitions take a long time, and when you first make the proposition to buy a company or merge with them, it may seem like their ship has come in and everything from here on out should be smooth sailing. But what a company may not be ready for is all of the inevitable bumps in the road and the constant complications that make an M&A one of the most difficult maneuvers in the corporate world.
As evidenced by the need for Virtual Data Rooms (and the past need for brick-and-mortar data rooms) there are tons of documents to be pored over and examined in detail: financial records, operating records, personnel records. It’s a laborious process and it can lead to friction between the two companies when the honeymoon period of the M&A announcement has worn off. Knowing you’re in it for the long haul–and knowing how to assuage the concerns of the other company’s stakeholders–is key to making sure that the deal gets saved and that the merger and acquisition goes through.
Understand Privacy Concerns–and How to Overcome Them
No matter how clean your records are, opening them up to the employees of another company who is looking into buying you out or merging with you can be a harrowing experience, not just for the executives, but for the finance team and the operations team, and the human resources team. You have a personal relationship with this company, and what may have been a bump in the road–a month with bad sales or the loss of a big customer–may look embarrassing when you have someone going through it with a magnifying glass.
Now comes time for the Virtual Data Room. You want your information secure and inspected only by people who have the right permissions. The last thing you want is for a data breach to happen and to lose valuable information–that will put a quick end to any M&A. Using a fully encrypted VDR will negate the possibility of precious documents getting leaked and losing the faith of your stakeholders (or the stakeholders of your acquiring company).
All throughout the process, there will be stakeholders who have opinions about the M&A. Maybe they have invested and don’t like the terms that you agreed to in your merger agreement and they’ve been stewing. Maybe they’re employees who aren’t certain of whether they’re going to have jobs in the coming months. All of these are legitimate concerns that need to be handled with kid gloves and made to feel part of the process and needed. Saving the deal means saving the stakeholders’ interest in the deal, because they make up a significant portion of the deal to be saved.
Inevitably there are going to be culture clashes. Leadership styles are different. Company culture is different. Perhaps the M&A will actually move the headquarters of the office to a different place, requiring a significant portion of the staff to uproot their lives and trek across the state–or country–to resume their new (and changed) duties. Saving a sale means that you’re saving the things about the acquired company that are good–there are reasons you bought it, right?–while incorporating them into the new company dynamic. Preserving all of that human capital is essential to making the M&A worth it.
Saving the Deal
As we’ve outlined above, buying a company is not as simple as buying a product off a shelf. It is a long process that causes stress on everyone–your company and their company–and you need to preserve the things about them that made you want to buy them in the first place. By keeping the seller in mind, and watching out for them throughout the whole process, you can ensure that you’re getting the best of your purchase–and saving the deal.
Learn more about our Company and how VDR can save you time.