How to Run Your M&A Process

The decision to sell your company is a critical juncture in the lifecycle of a company, with most founders having spent years of their professional lives building their organizations. The strategy and approach for running a successful M&A process should not be handled lightly and depends greatly on your industry and the size of your business. While each approach has its advantages and disadvantages, ultimately, the best decision is the one that the founder feels most comfortable with and believes will maximize their company’s market value. 

Confused on how to decide how to start your own process? We can help with that! Book your free consultation with Syncquire here.

M&A Marketplaces

For companies doing less than $1 million in annual revenue, digital marketplaces have emerged as a popular platform for running your M&A process. These platforms can serve as digital meeting grounds where sellers can list their businesses, attracting a wide range of buyers.

Additionally, buyers can source many smaller businesses to add to their portfolio and M&A strategy. For founders, marketplaces can also provide a shortcut to a traditional M&A process, requiring much less time to get their companies on the market and shortening the buyer sourcing process by providing access to their company for a large range of buyers. 

The best known is acquire.com which hosts the largest range of businesses both by type and revenue. A bulk of the deals through the platform happen in the sub-$1 million range but it can be a great place to get your startup seen in the eyes of key buyers. Additional marketplaces have emerged which provide a more niche market view for services businesses and SaaS businesses alike. Depending on your business, it is always best to investigate which marketplace might be best for you. 

Pros

1. Accessibility and User-Friendliness: When it comes to marketplaces, the platforms are designed to be intuitive providing an easy-to-navigate interface. This can be ideal for smaller companies unfamiliar with the complexities involved in an M&A process. 
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2. Cost-Effective Nature: Marketplaces often present a more budget-friendly option compared with engaging with M&A advisors and consultants, marking them a suitable choice for companies that have limited resources. Typically marketplaces are free to use and only require payment during a successful transaction, which can help to offset the traditional retainer fee structure of an advisory or monthly fees for a traditional SaaS platform.
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3. Exposure to Diverse Buyer Pool: By listing on a marketplace, companies can gain more visibility amongst a vast array of potential buyers, increasing the likelihood of finding a match that aligns with their business values and goals.

Cons

1. Limited Customized Guidance: Given the low touch nature of many marketplaces, they lack the personalized advice that many founders need as they navigate through the M&A process for the first time.
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2. Highly Competitive Environment: The open nature of these platforms can result in intense competition amongst all the listings, which can lead to undervaluation of the business. Also, as marketplaces have become overcrowded, many buyers have shied away from them recently as they require a lot of sorting through listings to find the appropriate one for their organization.
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3. Challenges in Negotiation: Many marketplaces require you to value your company upfront which means you may be undervaluing your company when compared to a competitive traditional M&A process. Moreover, small companies might struggle to negotiate favorable terms on their own, lacking the expertise and leverage that professional advisors provide.

M&A Advisors and Investment Banks

Perhaps the most traditional method for running and M&A process is to hire an external M&A advisory and / or investment bank. While there are advisories and banks that work with companies of all sizes, this route is the preferred method for companies who are doing over $25 million in annual revenue. Any smaller and advisories will not take your deal or they will take the deal with a large retainer (upwards of $10,000) and outsized success fee (between 8% and 15%).

If you do find an advisory or bank who does not specialize in small cap deals or is a larger advisory or bank who takes your deal, you risk your company becoming back burner for them as they focus on the larger, more valuable deals for their organization. 

Finding the right advisory or bank is key to the success of the deal. Thus, it is important to meet with a handful of advisories and banks to see which is a best fit for you and your organization. It is important to find a partner with the industry expertise and appropriate bandwidth to support your deal so that you can get the most out of it as a founder. If you get the right advisor, they can provide you with a tailored service that helps you to bring your deal to a reality.

Pros

1. Expertise and Deep Industry Knowledge: M&A advisors and investment banks offer a level of expertise that is crucial for structuring and navigating complex deals, providing invaluable insights into market dynamics and industry trends. For example, professional advisors and banks excel in negotiating terms that can significantly improve the financial outcomes of the deal, ensuring the selling company achieves optimal value.
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2. Access to Extensive Networks: Their broad network of potential buyers, investors, and other key players can significantly enhance the prospects and reach of the M&A process. 
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3. Tailored Service: Since M&A advisory and investment banks guide you through the process, they can be there to provide you with a tailored approach to your deal. For highly complex and large deals, this can be invaluable in closing at a favorable value.

Cons

1. High Cost of Services: The fees associated with these professional services can be substantial, impacting the overall returns of the M&A process. For small to mid-cap deals, this can be upwards of $10,000 in monthly retainer fees and between 8-10% as a success fee on the sale of the deal.
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2. Added Complexity: The involvement of advisors or banks often introduces additional layers of complexity, potentially extending the timeline and decision-making process. For some buyers, especially for smaller deals they want to move quickly, this can be an indication of poor management and lead them to abandon the deal.
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3. Risks of Misalignment / Mishandling: There can sometimes be a disconnect between the goals of the M&A advisors or banks and the objectives of the company, leading to potential conflicts. This happens especially when advisors or banks represent both buyers and sellers as they may be incentivized to find a buyer in their network, not one that is in the best interest of the company and founder. In addition, for larger advisories and banks, smaller deals can fall to the wayside as they focus on larger, high revenue generating deals.

Founder-Led M&A Process

No matter the size of the deal, founders always have the option to drive their own M&A process. While founders might not be experts in M&A, they are deep industry experts given the time they have spent building their business which gives them an edge in sourcing buyers and producing marketing materials.

For companies that are doing between $1 million and $25 million in annual revenue, this can be the best option as it avoids being undervalued on a marketplace and the high fees associated with working with an advisory or bank.

The approach of running your own M&A process can provide you with autonomy in directly dealing with buyers who you have a relationship with and also allow for you to represent your company in the best possible way to maximize value. It puts you in the driver's seat to help you maximize on opportunities as they arise as part of the deal process.

Of course, for founders who have never dealt with the process, it can be overwhelming. It also can distract from daily company operations, hurting the business. It is important that if you lead your own M&A process that you find the tools, structure and process that helps you succeed in selling your company.

Pros

1. Increased Control and Flexibility: Founders who run their own independent M&A process can tailor their own process according to their specific needs and timelines which is often not available with advisors or marketplaces. Also, the deal process can be flexible around major operational times in the business.
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2. Industry and Network Expertise: Given their time in the industry, founders deeply understand their industries and are typically well networked throughout. For strategic acquisitions, it’s more than likely founders are already aware of the players in their market and thus can do a lot of the buyer sourcing on their own.
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3. Founder-Led Selling and Conviction: When it comes to presenting an organization, there is nothing quite as strong as a founder’s own conviction. Founders can take the lead on describing their business and its strengths as well as be directly available to buyers making the process smoother and easier for all stakeholders.

Cons

1. Lack of Knowledge: For founders who are going through the M&A process for the first time, approaching the deal can be unnerving given they do not understand the steps to drive a successful process and sale. While there are many resources available that can explain the process, none are there to support in real time during the process.
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2. No Process Support: When doing an M&A process on your own, it can take a lot of time setting up a data room, reviewing documents for accuracy, developing marketing materials and replying to buyer requests. For bandwidth constrained founders, this can cause additional stress in ensuring the process stays on track.
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3. Buyer Sourcing: For some founders who are not well networked in their industry, this can hinder their ability to source a buyer for their company. For companies who are relatively niche, it is most likely they are aware of the buyers in their industry and can easily access the institutional investors who might be interested in their space as well.
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Knowing what it takes to complete your own M&A process, you should ensure you have the right process and tools in place to support you and your team. Syncquire is your M&A co-pilot helping you to mitigate the risks of a founder-led M&A process through our technology-enabled platform and best-in-class service.

Syncquire can provide founders with an end-to-end program management tool that helps to prepare your company for the sale, source buyers, conduct a due diligence process and close the deal, all while providing you with community support and best-in-class practices along the way. If you are interested in leading your own M&A process, Syncquire can be a great solution that can provide you with the support and knowledge you need to be successful in your own process. 

Want to know more about how Syncquire can help you in your M&A process? Sign up for a free consultation here.

Conclusion

Each M&A strategy comes with its own set of advantages and disadvantages. For smaller companies with limited resources, a marketplace offers an accessible entry point into the world of M&A. These platforms provide a cost-effective solution with a broad reach, although they lack the personalized guidance and leverage that a founder-led or advisory can provide.

For larger companies, an M&A advisor or investment bank can be a great option as they will handle the process from end-to-end bringing the company and founder along through a sale. Of course, these services come at a premium, especially for smaller deal sizes. 

Finally, founders can be empowered to lead their own M&A process which can help them to maximize their deal value. However, leading an M&A process without support can be time intensive and stressful for founders who are already constrained running the business. Syncquire can be leveraged by founders to provide support to them during the M&A process through the platform and service team. Syncquire presents a balanced, intuitive solution that combines control with strategic insight to empower them to run their organizations and a successful M&A process at once.

No matter which avenue you choose as a founder, ultimately you need to choose the one that is best for you and your organization regardless of the size and industry. Ultimately, the M&A process is not just about completing a transaction; it's about doing so in a way that maximizes value and aligns with the company's future aspirations. As the market continues to evolve, staying informed and adaptable is key to navigating the complex and rewarding journey of M&A.