How Relationships Can Become Acquisitions (and How to Manage Them)
Acquisitions are finicky. When you’re on the buyer side, it’s almost like playing a game of poker, or like buying a used car. You don’t want to show all of your cards to the other players. You don’t want to let on exactly what you’re doing or hint at your next move. It sounds sketchy, but even when the other party is someone you know and would consider a friend, it’s a tightrope walk. Your relationship is built on the precedence you’ve created as peers, not as buyer-seller. If you do it right, you can thrive together and keep your relationship intact. But, if you don’t, it can be like one of those situations where high school friends try to be roommates in college and grow to hate each other and then a TV gets thrown out the dorm room window.
Kevin Mullaney, president of PDF Print Communications Inc., Signal Hill, Calif., is no stranger to mergers and acquisitions within the print industry. Within the last year, the company has acquired Trade Printers and Orion Press. The latter acquisition was finalized as recently as February. He said that some of his best experiences in the acquisition game come from pre-existing relationships.
“I have always tried to form a relationship with my competitors,” he said. “I find this to be beneficial when it comes to acquiring their business, as a relationship already exists.”
In a similar vein, Jim Anderson, founder and president of Corporate Development Associates, Scottsdale, Ariz., has built a career on providing personalized M&A advisory services during the deal-making process within the print industry, specifically.
He said that having a relationship as peers before acquisition time can certainly help, as deals don’t just happen in a vacuum. Somebody has to approach somebody. But, what’s more important is that the two parties see eye-to-eye during the actual acquisition phase, which isn’t a guarantee for anyone.
“Knowing each other in the beginning is nearly as key as how they get along during the process,” Anderson said. “Selling your baby, if you will, particularly if we’re talking about the owner or founder of a company—he’s selling something that he put his life’s hard work into. And if he doesn’t like the buyer, unless the buyer is just willing to spend an outrageous amount of money, we get told many times after a first site visit, ‘Hey, unless you don’t have anyone else to buy my company, I really don’t want to deal with this guy. I don’t like him. We just don’t hit it off. I don’t want my employees to have to work for him. Because if I don’t like him, there’s a good chance my employees may not like him.’ That’s called culture. The culture of the business needs to mesh.”
If it’s a small matter, or what Anderson calls a “personality quirk,” it’s likely something that the two parties can work past. But if they are fundamentally different in their ways of doing business or goals, some sellers would rather not make a deal than force one through the acquisition machine just for the sake of a buck.
“Doing a deal to sell your business to somebody is much like trying to close a deal on a big customer,” Anderson said. “Everything has to be right. He’s got to like you. You’ve got to like him. The price has to be right at the end of the day. Those are all the factors that go into getting two companies together. They hit it off, so to speak.”
So, let’s say you’re in a position where you have heard of the potential buyer or seller, and may have even met them at a trade show once or twice, but you wouldn’t say that you “know them” know them. You go on that first site visit, and it’s OK, but things aren’t perfect. As it stands now, you’re not sold on dealing with this person. How do you choose to try to work through those differences instead of moving on?
“I think the most important way to maintain a professional relationship with a potential acquisition target is to listen,” Mullaney advised. “If the selling party is looking for a particular type of transaction or has a value in mind that is close to what you were prepared to pay, then it really helps to ask them upfront.”
It shouldn’t come as a surprise, but sometimes people forget that business conversations and conflict resolution are just like the ones we have in our personal lives. Who would’ve thought that open, honest and direct communication to make sure both parties thoroughly understand one another would lead to a more fruitful relationship? Truly amazing.
Set your targets
If you’re a potential buyer, it’s important to shop wisely. If you went to the store for something specific, only to find it didn’t have it, just buying the first thing you see for the sake of spending money at the store would be foolish.
That logic translates to acquiring businesses, too. You shouldn’t go at it willy-nilly and buy up anything. If you choose to go the route of acquiring a company where you don’t know their owners or staff personally, this can be challenging.
“I have always looked for acquisitions that add value to our existing business and customer base,” Mullaney said. “If I find a competitor that is in a segment we are not currently selling or has a customer base that is different than ours, it usually is a good fit.”
To use a sports metaphor, if a baseball team’s starting second baseman goes down with a season-ending injury and the depth chart is weak, the general manager isn’t going to start shopping for pitchers. Just like someone buying a consumer good or a promotional product, what you get should fulfill a need.
That doesn’t mean that you have to have the exact company in mind, however. Similar to using a dating app, you can “plug in” the things you want, figuratively speaking. In those situations, a service like Anderson’s becomes more helpful.
He gave an example of a theoretical company in New York looking for a distributorship in Boston that’s about as half as big in sales volume.
“I think the likelihood of reaching out and finding prospects for a sale is pretty tough for him to do,” Anderson said. “First off, he has to find the time to do it. The business owners that I know within the print industry, they’re busy running their businesses. They’re either in charge of the plant, the sales force or whatever.”
Having a mediator of sorts adds some credibility and allows business owners to focus on the day-to-day operations rather than prospecting for a company to add to its portfolio.
Remember, they’re just people
Companies often can present themselves as giant, faceless entities, but you, as a businessperson, know better than anyone that that’s not true. At the end of the day, these acquisitions you’re working on are just interpersonal conflicts, and they should be treated as such. Also, since you already have a relationship with this person, you know what makes them tick. You know what they want, and they know what you want. It’s a matter of putting egos aside and collaborating as much as possible. But, as with your personal relationships, there can be little bumps in the road. You’ve worked on those before; you should commit the same effort to your professional relationships, especially when they can result in a good boost to your company. That is, as we said before, as long as you choose something that fits in with your goals and helps you complete them. No one likes buyer’s remorse.
“Be prepared for mistakes,” Mullaney said. “All acquisitions involve risk, and you will make mistakes. Just be sure that even with a few ‘hiccups’ or mistakes, you will still be happy having completed the transaction.”