There has been much ink spilled on the topic of mergers and acquisitions (M&A) transactions.
How to set your company up properly for a sale (good idea), when to do an acquisition or sale, what your major concerns should be, how to engage advisers and what to expect from them, how to leverage your acquisition, how to get an auction for your company going and the many pitfalls you can encounter along the way have all been fodder for panels and conferences. Why do we keep revisiting it?
Why isn’t it possible in this age of increasing automation to just plug in a few metrics and come up with a successful transaction? Artificial intelligence software can review contracts and highlight key terms more quickly and with a more consistent rate of accuracy than a human being trained in the art of review. Transaction agreements conform to certain commercial norms, and there can be only so many ways that a buyer can ask for a seller to stand by its disclosure. Negotiations tend to centre on about half a dozen key issues.
But no two M&A deals are the same. As rigorous and disciplined as you might be in following a well-thought-out playbook and as armed with education as you might be before you embark on a transaction, each deal requires its own strategy and approach. There is no pithy chapter in that playbook that captures human dynamics. People own companies. People make the decision to sell companies (and to buy them). People negotiate terms. There is nothing static in the human dynamic.
The rationale and motivations underpinning deals are different for buyers and sellers. Even further, sellers’ primary drivers and their “only say this in front of the bathroom mirror to myself” motivations differ from one deal to the other and sometimes change in the middle of a deal. Advisers have to figure out the whole range of factors as they go. Beyond the motivations behind deals, the end result, the pre- and post-closing success rate of deals, varies widely.
The one thing that makes all of the precedents and market studies, all of the processes and checklists seem secondary to success, is the human factor. Owners, founders and executives make decisions in different ways. People with their own approaches, defined in part by the culture of their companies and the expectations and norms of the industries they operate in, will carry out transactions in very different ways. People will negotiate differently, and will be more or less open to outside guidance in a transaction depending on their personalities, and the environments in which they are operating, among other factors. All of that messy, unpredictable humanness is why you really can’t determine with any precision how a deal will unfold.
Owners, founders and leaders also significantly affect the culture of a corporation, and trying to figure out how a change in the ingredients will affect the end result is an important consideration for buyers. Private equity firms will tell you that finding a good investment opportunity has as much to do with the ownership and management team and the culture and cohesiveness of a team as the business that team runs.
As Klemens Wilhelm of Fulcrum Capital has noted, “the fit with prospective business partners creates the foundation for a successful partnership. The art in creating such a partnership lies in discovering the alignment of core values and interests with owners and managers who drive value of the business and structuring a framework and culture where everyone is enabled and incented to create future value.”
Why does all of this matter?
If you are new to deals and are considering an acquisition or sale, it is helpful to have experience on your side. Being able to navigate the myriad issues that arise in an M&A transaction, while being alive to people dynamics, is fundamental to success.
The financial metrics are important, as is the modelling to determine what a post-merger business looks like. But so too is being sensitive to and constantly reading and assessing an organization’s culture, and noticing the way everyone on a deal team treats people on the other side of the negotiating table. When you’re entering into a decision to do a transaction, including through the negotiations, diligence and integration discussions, keep your spidey senses alive. Listen to your instincts and put voice to the information they provide to your trusted circle. Everyone wants a merger to be successful, and spending time on the people and culture quotient will pay big dividends to securing that result.
Valerie Mann (firstname.lastname@example.org) is a partner at Lawson Lundell LLP and practises in M&A, private equity/venture capital and technology law. She is also a director of the Association for Corporate Growth’s B.C. chapter.