In today's ever-evolving business landscape, companies need to stay ahead of the curve by constantly innovating. One way they can achieve this is through acquiring smaller companies, which can provide access to game-changing technology, bridge knowledge gaps, and accelerate growth. However, acquiring smaller companies comes with its own set of challenges. In this article, we explore the intricacies of smaller deals with Kevin Griffin, Executive Director of Corporate Development at JLL.
“There are no easy deals. They all come with some level of complexity, but if you've established that level of trust from the beginning, you will have a lot more success working through those issues later on as well.” – Kevin Griffin
Proprietary deals are always better, but as sellers are seeking to maximize the value of their business, auction processes are becoming inevitable. Here are some of the complexities of both processes:
A competitive auction process can lead to inflated pricing due to the number of bidders. Also, tight deadlines result in rushed decision-making and communication breakdowns that could impact retention rates.
On the other hand, investment banks bring a level of sophistication and analytics that can add value and structure to the deal. Everything will be prepared neatly for buyers, unlike deals with inexperienced sellers.
For smaller deals, Kevin favors proprietary deals because they foster more open communication with the seller. The transparent communication with the seller builds trust and understanding, which are both essential for a successful transaction. However, dealing with smaller companies can also be challenging due to a number of factors.
A big part of dealing with smaller companies is educating the founder about the M&A process. The key is to be open and transparent when communicating, especially during valuation. Most sellers have certain expectations derived from peers, and they must understand the rationale behind the valuation.
Furthermore, money is not the only factor when negotiating a deal. There are also other things that matter to the seller, such as how their employees, often family members, are treated post close. The more transparent your relationship with the seller is, the better.
When acquiring a smaller company, ensuring that key employees stay on board is vital to post-close success. Smaller companies have fewer talent pools, making retention even more important. Creating an inclusive environment where employees feel valued, offering competitive salaries and benefits, and highlighting opportunities for growth can go a long way in retaining key employees.