In M&A, most acquirers don't like a competitive process. Auctions can drive higher prices, shorten the diligence process, and increase uncertainty. However, competitive processes are almost inevitable as sellers are looking to maximize the value of their company. This article will discuss how to engage in a competitive M&A market, featuring Tyler Rodewald, VP, M&A at EIS Holdings.
"Money talks at the end of the day, but it helps when the seller likes you." - Tyler Rodewald
Building a good relationship with the seller is vital to competing effectively in an auction. Make sure to actively engage with the seller every two to three days, whether it's asking questions, constantly updating them, or being transparent about the deal strategy and plans. The seller often looks for certainty to close, and gaining their trust and confidence will be a huge advantage.
Show them that their opinion matters while communicating the overall strategy of the transaction. Be very transparent about earning early alignment, which helps build that relationship while securing a high-level view of the integration plan.
Educating the seller about the pros and cons of the competition is also beneficial. Sellers don't always understand the level of integration required to achieve synergies.
However, a strong relationship with an investment bank can help avoid an auction altogether. Obtaining a first look at companies for sale is a massive advantage while having the option to match their expected price and avoid a competitive process.
While wining and dining is a great way to start a relationship, earning their trust and confidence is better for a long-term partnership. If bankers understand the company's overall strategy, they can accurately offer the appropriate target companies.
Also, bankers love companies who have a fast deal process. They want certainty to close and the ability to execute smoothly.
Getting alignment with key stakeholders in the company helps prevent deal fever. Rationalizing the transaction is easier if more people know about the investment thesis. Put egos and biases aside and honestly communicate with one another to discuss if the forthcoming deal is best for the organization.