Chapter 6
Finding and Contacting Buyers or Sellers
In This Chapter
Creating Buyer and Seller lists
Navigating the phone labyrinths of large companies successfully
Dealing with people who can’t help you
Any acquisition or sales process depends on having an appropriate target list. Not having enough targets lowers the odds of a successful closing; having too many makes it an unwieldy process. Selling a company is probably the only time a sales call is easy; buying a company is a trickier affair. Business owners get tons of buy offers, so as a Buyer, standing out from the crowd can be difficult. Luckily, knowing whom to talk to, how to get to that person, and what to say when you do can make a world of difference.
In this chapter, I introduce you to the target list — specifically, how to create one and then use it to make contact with potential Buyers or Sellers. I also show you how to avoid wasting time on the phone with people who can’t help you.
Creating a Target List
Before you can have a conversation about selling your company or acquiring someone else’s company, you need to have someone to speak to! It’s one of those crazy things about mergers and acquisitions. If you want to find a Buyer or Seller, you have to seek it out, and that starts with a target list (list of potential deal partners).
Getting started
Creating a target list starts with basic brainstorming of any and all companies that you would like to buy, merge with, or be bought by. As with any brainstorming session, no idea is a bad idea. Even if you think of a company that isn’t a right fit, merely mentioning that company may cue your memory (or someone else’s memory) of another type of company that is a suitable fit. Consider this your shortlist.
The most obvious targets include competitors, but vendors and customers may also make suitable M&A targets. You need to weigh the relative merits and risks of contacting competitors, vendors, and clients; every situation is different, so working with an experienced M&A advisor, who also probably has a shortlist of possible targets, is so important. (Head to Chapter 5 for more on picking advisors.)
Spending time on the Internet is important. You can learn a lot about a company by reviewing its Web site and searching for news articles. I also recommend using proprietary databases to conduct research. A couple of my favorites include CapitalIQ (www.capitaliq.com) and OneSource (www.onesource.com).
After you complete the basic brainstorming, you’re ready to compile a target list.
Buyer: Considering what kind of business you want
For Buyers, the job begins by defining the “whats” of the target:
What type of business do you want to acquire? A product extension?A new product or service? Entrée to new markets? A competitor? Chapter 2 helps you answer this question.
What’s the revenue range? What revenue level does the target need to be worthwhile? How much is too much or too little?
What are your earnings requirements? Does an acquisition need to be accretive to (increase) your company’s earnings per share, or are you willing to acquire a money-losing company?
What are you willing to pay? Are you prepared to pay a premium or are you strictly a bargain-basement Buyer?
What do you want ownership/management to do after the deal is done? Do you want or need the target’s higher-ups to stay on board and continue to run the business? Or do you prefer to replace them with your own team?
Where do you want or need the acquisition located? Okay, this one isn’t really a “what,” but it’s still an important consideration. Does the target’s location matter to you? Do you intend to keep the acquisition at its current location or fold its operations into your existing locations?
None of these questions has a right answer. The right answer is whatever constitutes the right fit based on your specific needs as Buyer.
Accretive is mostly on the minds of public companies. If a public company has earnings per share of 25 cents, the acquiring company probably won’t pay a price for an acquisition that erodes that earnings per share amount. For Sellers, pay attention to who is buying you. If you’re asking a public company to pay a purchase price that isn’t accretive (dilutive, in other words), the company probably won’t be able to agree to your demands.
Seller: Knowing who’s buying you
Seller’s target list is a bit different than Buyer’s target list due to one key aspect: Seller’s main concern is Buyer’s ability to close a deal. In other words, does Buyer have the dough?
That’s not to say you as Seller should be blasé about who buys the company. Even though you’re selling, you likely still have some sentimental or financial stake in the company’s success. Here are a few points to consider when listing targets:
Can the new owner continue the company’s successful operation? If a selling owner plans to stick around for a period of time as an employee — especially if she plans to accept some kind of contingent payment (an earn-out, a note, or stock, for example), as part of the sale — she wants to make sure the company continues to be successful in order to increase the likelihood of collecting that contingent payment.
Does the target have a history of taking care of an acquisition’s current employees? Most Sellers (especially those who are retiring) want their companies to continue to be successful for the sake of the employees. Does your potential Buyer’s record show a history of integrating existing staff into operations or canning everyone and starting over with its own people?
How will the new ownership affect the company’s legacy? Even if you aren’t sticking around post-transaction, you probably want to see your company continue as a going concern.
If you’re selling a company with losses, look for a strategic Buyer (a company seeking to fold another company into its operations). Financial Buyers (such as private equity firms) aren’t likely to be interested in a money-losing enterprise.
Expanding and winnowing the list
Because contacting every company in this world and beyond doesn’t make much sense (those interstellar telecom charges will kill you), you need to make sure you have the right type and number of targets on your list.
You do this by initially making the target list larger than it needs to be. To create the initial target list, take all the targets on your and your advisors’ shortlists and then expand that list by applying your search criteria. Really dig in by dive-bombing online research sites (see the appendix for some site examples). If a company is obviously not a fit, discard it, but if you’re not sure whether a company should be included in the initial target list, leave it in. The idea of this step is to err on the side of too wide a fit. If the company isn’t a right fit, you weed it out in the next phase.
The initial target list will be larger than the final target list. Having 200 to 300 targets on the initial list isn’t unheard of, nor is that a bad thing. Having an initial target list of that size increases the odds that you’ll have a strong final list after you winnow it down.
After you’ve created your initial target list, you want to review that list with your team and reduce it to a reasonably sized final list. See the following section for more on determining what the length of this final list should be.
To prepare for this review, have someone who works for you print up as much information about the targets as possible, including pertinent reports found from online research sites. These reports contain contact info, URLs, financial info, employee counts, and brief descriptions of the companies. Next, you want to further torture the person by having him go through and print the Web sites of the target companies. If you want to save a forest and someone’s sanity, use a projector and a computer to review the Web sites. However, and with apologies to environmentalists, printing copies of reports so everyone can have quick access to the financials is still probably the best bet.
Usually, a junior executive or some other low-level creature does the target list research because it’s rather tedious and time-consuming work. Don’t let this delegation make light of the importance of the research, though. Without a good target list of Buyers or Sellers, your M&A dreams stand a very good chance of being dashed. Take this duty very seriously; if you aren’t doing it yourself, entrust the right person. Alternately, you can also hire an investment banking firm to take care of it.
During the review, the idea is to assess each company and talk about what it does, its financial situation, its history of doing deals, and whether it’s a suitable target. This process is a pain. It’s a bit like going to the dentist: It’s no fun, but it’s ultimately a good thing. Doing this review as a group is important. You need the feedback and the ability to rapidly bounce ideas off each other. I don’t recommend conference calls for this rap session; get the group together in one room.
Reviewing the initial target list will likely take half a day. At the end of this process, you should have a manageable final target list that’s shed of all the tweeners, borderline cases, or whatever term you want to use for “almost, but not quite.”
Hold on to all those “rejected” targets. If your A-list targets don’t yield what you’re looking for, you can review the previously rejected targets and consider adding them into the mix.
Capping the list: How many (and which) companies to include
It takes only one. That’s the phrase of the day. It takes only one Buyer or Seller to close your deal. That said, you need to consider the odds of successfully closing a deal when your target list amounts to a random sample of one. Those odds are poor.
Even if you do manage to develop a deal with that one suitor, the terms would likely be less than ideal, especially if you’re the Seller. After all, how can you talk to other Buyers about a better deal if you’re only talking to one prospective Buyer?
Because the odds of successfully closing a deal increase with a larger number of targets, you want a good-sized list. But how many make a good-sized target list?
Buyers: For Buyers, I recommend a target list of 75 to 100 Sellers. Depending on the particularities of the industry and general market conditions, a suitable list may be 50, but I don’t recommend going below that if you’re serious about closing a deal. If you’re seeking to make multiple acquisitions over a period of time, you’re better off with a list of at least 100 targets. If this list doesn’t result in a successful transaction, review your assumptions and perhaps change your search criteria.
Sellers: For Sellers, I recommend a target list of at least 100 Buyers. A list of at least 100 qualified targets increases the likelihood of receiving multiple offers — the more targets you have the greater the odds you’ll receive offers.
In both cases, I caution against the target list being much higher than 125; the larger the list, the more difficult managing that list is.
However, your target list may wind up with more than 125. As you make calls, you may discover a company on your list is actually a subsidiary of a parent, and you need to add the parent to the list. Or the parent is on your list but you end up dealing with someone at one of the subsidiaries, which you also have to add.
Should I include competitors?
The competitor issue is a tricky one. Companies are wary of divulging proprietary information to competitors for fear that a competitor will use the information against them in the competition for customers. And they’re right for having a healthy amount of hesitation.
That disclaimer aside, contacting competitors usually doesn’t create a problem for Buyers. Think about it. Letting your competitors know that you’re so successful that you’re poised to make acquisitions isn’t likely to create any fallout.
For Sellers, on the other hand, letting the “we’re selling” cat out of the bag can be disastrous, even if proprietary information doesn’t change hands. Having a competitor find out your company is for sale (or even possibly for sale) can wreak havoc on your operations because that competitor may be able to scare customers away.
If you’re selling, make sure you have a strong confidentiality agreement in place before proceeding with any discussion about selling your company. If an executive contacts a competitor with a message of “we’re for sale, but we need you to sign a confidentiality agreement first,” the damage is done. The competitor is under no obligation to sign anything and therefore isn’t under any obligation to refrain from disclosing that the company is for sale. Chapter 7 gives you the lowdown on confidentiality considerations.
Although a confidentiality agreement is a key step before divulging proprietary information, the cat is out of the bag.
Hiring an intermediary is an absolute must if you’re going to contact competitors with the message that your company is for sale. Because a nonemployee of the company (the intermediary) is making the contact, the competitor doesn’t know the identity of the company until the confidentiality agreement is in place.
Should I acquire or sell to a vendor or customer?
The main question here is one of vertical integration. Vertical integration is your supply chain. That’s it. If you do an M&A deal with an entity above or below you on that chain, you’re integrating vertically.
For example, if your company is a paint distributor that sells paint to retail stores, the manufacturers are your vendors and the retail stores are your customers. If you want to sell your paint distributor, you may consider contacting your suppliers, the paint manufacturers, thinking they may be interested in doing their own distribution.
In most cases, however, the paint manufacturers probably don’t want to get into the distribution business because distribution means carrying many different types of brands. The paint manufacturers would inherently have a conflict of interest: They would want to sell their own products and would have little or no incentive to sell a competitor’s brand. Plus, the competitors would be less inclined to sell to the manufacturer-owned distributor, likely lowering revenue and profits.
Or maybe you think to target one of your customers, such as a retail store chain. Although the retail chain may be able to cut out some costs by acquiring a distributor, the reduction in costs to the retail stores would come at the cost of reduced profits to the distribution business, making acquiring that business less lucrative. And other retail stores may decide to find another paint distributor, thus further reducing the revenues and profits of the acquired distribution business.
Sellers on Your Mark: Contacting Buyers
Here’s the skinny, the honest-to-Elvis truth, the bottom line: Some companies are sitting by their phones like a high-school girl waiting for an erstwhile date to call. But they aren’t waiting to see whether Johnny wants to buy them a soda; they’re hoping to hear from a company that’s looking to sell.
These waiting-by-the-phone companies come in two types: private equity (PE) firms (which are basically pools of money seeking to buy companies) and strategic buyers.
Strategic Buyers can be a little more difficult to navigate, and the larger the firm, the more complex the hunt. But almost all buying companies will hear the sales pitch of another company that’s for sale. The following sections show you how to get your foot in the door with the right person and what to say after you do.
Resist the urge to e-mail a target before calling. Most people consider e-mails from people they don’t know spam and delete them sight unseen. And the recipient may not even be an employee of the company! For best results, have a phone call be your first contact with the organization. Have a conversation. Determine the appropriate person to speak to. Leave a voice mail if you have to. After you determine your target actually works for the company, and especially after you’ve left a message, a follow-up e-mail may not be a bad idea. But make the call first.
Speaking with the right person
Speaking with the right person seems like a basic tenet of making a sales call, but you’d be surprised how many people simply (and often nervously) plow through their script to whoever first picks up the phone. Bad idea; you just waste time. Instead, follow the lead in the following sections.
Phoning a PE firm
Finding the right person to speak with at a PE firm isn’t difficult. Anyone will take your call. Despite managing hundreds of millions of dollars or even billions of dollars in capital, PE firms are often small (in terms of staffers), and everyone at a PE firm knows why he’s there: to buy companies.
I recommend doing a little bit of homework prior to calling a PE firm. Look at the Web site, which often lists the firm’s portfolio companies and/or its areas of interest, sometimes along with the specific partner who handles a specific area. If you can determine the correct person, call that person. If you’re not sure, simply dial the main number at the PE firm and say
Hi, my name is [your name]; I have company for sale. I’m not sure who to talk to; can you help me?
Don’t delve into your spiel right away. Most people have a limited attention span; the longer you speak, the less they listen.
The person on the other end will almost certainly be ready to help you and will ask a simple question:
Tell me about the company.
Here’s where you need to be concise and to the point, which is why having a script with some talking points is important. (Flip to the later section “Following a script that works” for more on planning this document.) The main, if not only, facts you want to convey at this time are product/service, customer of that product/service, revenues, and EBITDA. That’s it. That’s all an employee of a PE firm needs to be able to route you to the correct person.
Don’t go into hyperbolic hyper-drive when making calls! Some people, especially beginners, tend to gin up their company and attempt to add a mega sense of urgency to the call. That just makes you sound like a snake oil salesman. Keep your pitch objective. State the facts without offering subjective opinions (such as “This is the greatest company! You better act fast!”).
Navigating the phones when calling strategic Buyers
Finding the right person at a strategic firm can be a bit trickier than finding the right person at a PE firm (see the preceding section). After you find that person, your pitch is essentially the same as the one I lay out in the preceding section for contacting PE firm employees, so instead of reinventing the wheel, here I simply focus on getting to that right person at the strategic Buyer.
The first point to remember is that the larger the company, the more complex the process of simply finding the right person. This situation has something to do with the “the greater the number of people, the greater the chance you’ll talk to someone who really doesn’t care” theory. As a result, calling the general number on a company’s Web site without knowing whom to talk to almost certainly gets you routed to a time-waster who can’t help you. Check out the later section “Overcoming screener roadblocks” for help getting to the person you’re contacting.
Search the company’s Web site and/or use a fancy online research site if you have access to one (check out the appendix for some examples). You’re looking for anyone with “corporate development” in their title. You can even do a general Web search by using the company name and “corporate development”; you may turn up someone quoted in a newspaper article or tagged as the author of a magazine column. If you can’t find a corporate development person, go ahead and call the company’s main number.
If you have to call the main number, don’t ask for the CEO. CEOs make two or three decisions a year. Seriously. Now, those decisions are enormous and typically impact the direction of the entire company. But the CEO (the capable kind, that is) doesn’t make a slew of small, nitty-gritty decisions. Those are for the CEO’s lieutenants: VPs, directors, and all sort of sundry underlings. As far as acquisitions are concerned, the decisions the CEO makes are usually of the “go make acquisitions” variety.
Instead, ask for the office of the CFO. This line is great because you’re not asking for the CFO. The CFO is a good bet, but depending on the size of the company, the CFO may fancy himself a quasi-CEO and therefore only make a handful of decisions each year. Most corporate phone-answerers are trained to be very careful about whom they route to those C-level executives. Every pesky Tom, Dick, and Harry salesperson in the world is calling up these people and asking them to get in on land deals or buy a hot penny stock, crap IT system, or insurance that no one really cares about.
Asking for the office of the CFO implies you aren’t looking to speak to the CFO, which immediately becomes a point of relief for the person who answered the phone. Now, that person doesn’t have to argue with you about how he’s not allowed to connect you with the CFO.
After your call is being routed to the office of the CFO, you’ve got it made. Whether the CFO’s assistant answers the phone or whether you get voice mail, you want to say the same thing:
Hi, my name is Bill Snow, and I represent a company that is for sale. I think your firm might have an interest. I’m hoping to have a quick chat with the person who handles the initial screening of mergers and acquisitions opportunities to see if this opportunity might be a right fit. Can you help me out?
Piece. Of. Cake. The secretary may ask a couple clarifying questions about your company (product/service, size of company, that sort of thing), but because you have a script or talking points, that’s a breeze. Most likely he’ll tell you whom you need to speak with and what that person’s number (and perhaps e-mail) is and then connect you.
If a seemingly earnest person says she’ll find the right person for you and forward him an e-mail for you, realize that this exchange will most likely result in nothing. Don’t expect someone else to do your job. Make sure you get the name and contact info of the person you want to speak to. This anonymous stuff never works! As a second choice, send an e-mail to that person’s secretary with explicit understanding the e-mail will be forwarded to a specific person (as I discuss later in the chapter).
Following a script that works
When you get the right person on the phone, you need to be prepared. I always have a script in front of me. It quickly covers the basics: what the company does, its clients, the revenues and profits, and what the company is seeking to do. No hyperbole. No bragging. No subjective statements. I get to the facts quickly and I leave it at that.
Here’s the standard script that I use when starting a conversation or leaving a voice mail for someone:
[Individual’s name], this is Bill Snow with [name of investment bank]. My number is 312-XXX-XXXX. I’m hoping to talk with you for a moment about a client of mine to explore whether this might be a suitable acquisition target for you.
My client is a highly profitable marketing services company. It provides lists, list management, and data-aggregation services for companies that market to medical/healthcare providers. Customers include medical publishers, pharmaceutical companies, medical equipment/device suppliers, healthcare recruiters, and more.
The company represents a great add-on opportunity for a marketing services firm (especially one with a medical/healthcare focus), a publishing firm, or a data analytics company.
The company has grown at about 18 percent per year since inception in 2001; ’07 revenues were about $19 million with $3.4 million in EBITDA.
[If leaving a message] Please call me at your convenience to discuss further, 312-XXX-XXXX.
Don’t worry if the grammar isn’t perfect! You’re not reading the script as is. You simply want the salient points in front of you for quick and easy reference because you can easily skip or omit an otherwise important fact during a conversation.
Another benefit of the script is that, uh, having those, er,, main points in front of you helps you, you know, uh, cut down on those nasty verbal, uhhhh, stumbles. Those unfortunate syllables come because you know you need to add something else, but you just can’t remember what. Having a concise script helps you avoid using those crutch words.
Practice your script a few times before making a call. You want to focus on getting the gist of the message across, not rereading the whole thing verbatim. Don’t read it exactly the same time and time again, either. That just makes your pitch sound canned, and you want to sound conversational. The script is just there to help cue your memory about what to talk about.
The script’s abbreviated cousin is the talking point document. If you feel a full written script may make you sound too rehearsed, you may find simply having the salient points in front of you helpful.
Here’s an example from my past:
$50 million manufacturer of food equipment
Well-known brand names
Biggest bang for buck for Buyer is someone who can move production to own facility, which would result in $15 million of contribution
Company is profitable, roughly $3.5 million in EBITDA
Owner is in his 80s, in the midst of estate planning, hence the interest in selling — would keep it otherwise
In this case, the basics of this deal were always in front of me and my specific words were based on the flow of conversation I had with potential Buyers.
Often Seller has one or a couple of top targets he believes will likely have the most interest. If you have top targets, don’t call them right out of the chute. Work out the inevitable delivery kinks in your script on lower-ranking targets. After you smooth out your delivery, you can then call your top targets more confidently.
Just in case you get cut off when leaving a message, always start by stating your name and number at the beginning of your message. When leaving a message, speak slowly and clearly, especially when stating your name and leaving your number. This point is especially important if your name is unusual, has a strange spelling, or is simply difficult to pick up (see the nearby sidebar). Nothing’s wrong with stating your name and number at the beginning of a message and again at the end.
Don’t rattle off your phone number is a rapid fire, staccato fashion. I’ve heard many voice mails were the caller spoke at a nice, relaxed pace until he got to his phone number, which he sped through so fast I had to replay the message multiple times before I could decipher it. Make calling you back easy for the recipient of your message.
Easy Does It: Contacting Sellers
Contacting Sellers is easy. You pick up the phone and call. What’s tricky is having a meaningful conversation with a Seller.
When contacting a Seller, you want to speak with the owner, not an executive (even if it’s the president). A high-ranking executive is only an influencer. You need to speak with the actual owner.
Sellers don’t know they’re Sellers. Sellers often don’t even want to sell; you call them “Sellers” simply because you hope they’ll take that role. What they currently are are business owners deluged by calls, e-mails, and letters offering to buy their companies. These communications all say the same thing:
We have money, we have industry experience, we’re different, and we want to buy your company.
The sad fact is that most would-be Buyers don’t realize they say the same thing. In a typical week, I receive two or three phone calls and another three to five e-mails (often more) from Buyers. And I’m not even a business owner; I’m just an investment banker.
As Buyer, you have to understand that you’re a commodity to Seller. And the more profitable the Seller, the more that statement is true. Sorry if that sounds harsh, but it’s the truth. Those constant calls, e-mails, and letters simply become background noise to a business owner, so you have to know how to cut through the eardrum buzz.
Having a meaningful conversation with a business owner means grabbing that owner’s attention and ingratiating yourself to that owner. The following sections give you some pointers on doing just that.
Sending an e-mail or a letter rarely helps you make solid contact with a Seller. Those communications are passive and easy for Sellers to throw in the recycle bin (virtual or otherwise). For best results, pick up the phone and have a conversation.
If a company that isn’t for sale enters into a sale discussion as a result of an overture from a Buyer, that Seller may be in a strong-enough position to negotiate a deal with Buyer. After all, Seller can easily walk away because Seller wasn’t planning to sell! Seller probably hasn’t retained a full-service investment banker at this point — an offering document (see Chapter 8) isn’t being compiled, research isn’t being conducted — so the expense to Seller is relatively minimal.
Getting the call off on the right foot
Similar to Fight Club, the first rule of buying someone else’s company is you don’t talk about buying someone else’s company! If you immediately come out and say, “We want to buy your firm,” your approach is no different than the myriad other Buyers who have approached this owner.
But that’s just the beginning. Here are a few more guidelines that can help you make the most of your call:
‘Fess up. Simply saying, “I know you get calls like this one all the time” is a great way to acknowledge that you understand and respect the Seller’s situation.
Keep it conversational. Be willing to steer away from business. Talk about sports, the owner’s kids, your kids, your crazy neighbor, music, travel, anything. If you show genuine interest, you show you’re a real person, not just someone reading a script and dialing for dollars.
The key word here is genuine. You have to truly enjoy these conversations. If the talk eventually becomes a serious acquisition conversation that leads to a real deal (see the later section “You’re having a serious conversation! What now?”), you need to have a rapport with that business owner during the process and perhaps after (if the owner is staying on board as an employee), and faked camaraderie is no way to achieve that. You and the owner have to play well together for real.
Get the other person to talk. You don’t want to have a one-sided conversation; you want the other side’s input. A great technique is to simply tell the owner your acquisition thesis (your idea for combining the businesses) and ask whether it makes sense. Get her opinions on this thesis and let her showcase her expertise.
Be honest. If an owner asks, “Are you looking to buy my company? I’m not interested in selling,” simply reply with the truth: Yes, you’re acquisition minded. You can add the caveat that specific talk of an acquisition is premature because you don’t know her interest or even whether the company would be a right fit. All of that is true. That’s why you have these conversations: to determine interest and fit.
Ask killer questions. These big questions quite often start a deluge of information and sometimes end in an M&A transaction:
• What do you want to do?
• What are your goals?
• Where do you want to take the business?
These questions may seem simple, and they are, but if you pose them in the right way, they can get someone to go beyond her current day-in, day-out grind at the company and get talking about life after work. When you’re trying to buy a company, understanding what the owner wants to do in retirement and when she is thinking of retiring are some of the most important bits of data you can collect.
If you can successfully engage an owner in a conversation, at a minimum you’ve made a solid business contact who will take your call in the future. At best, you have a viable acquisition target.
Not all calls go swimmingly. Despite your best intentions, some owners hang up on you (sometimes after telling you exactly what to do with your acquisition-minded company). Be prepared to handle rejection.
Using a successful script
The following is the basic script that I work from when I make acquisition search calls. As with the script I use when I’m selling a business (see “Following a script that works” earlier in the chapter), I rarely read this text verbatim. Instead, it sets up the flow of the basic information I want to convey during the initial call.
[Owner’s name], my name is Bill Snow. I’m with a business advisory and investment banking firm.
One of my clients has asked me to help them grow their business. I know you probably get calls like this all time, but I was hoping to talk with you for a minute, explain their vision and plan, where they want to go, opportunities that we see to create a lot of value, and see if anything holds water for you.
• My client is a profitable, midmarket telecommunications company.
• They’re led by former top execs from leading telecommunications companies.
• They have deep industry knowledge, experience, and connections.
• Their company currently has strong customer relations with large companies, federal and state governments, universities, and mid- market companies.
• We believe there is a compelling story to combine with other well-run companies in a few seemingly unrelated industries, which include data centers, software, and alarm, fire, and security systems.
They’d like to build off of and leverage further their existing sales relationships and add other products to the mix. We believe the combination of my client’s collective experience coupled with the management expertise of companies they merge with, or otherwise partner with, could build a billion-dollar revenue company, which would obviously create quite a bit of value for those who are involved. I’d like to talk with you to explore whether our notions might fit with your goals.
As I note earlier in the chapter, don’t worry about your script being grammatically perfect. You’re not going to read it verbatim. The goal is to pique someone’s interest and have a conversation about the thesis, whether that thesis makes sense to the business, and eventually, whether the business owner is interested in exploring a deal.
Not every call results in a great conversation; that’s why your target list (which I cover earlier in the chapter) needs to be large enough. But if you have enough conversations, are willing to immerse yourself in the calls and communicate, and are a genuine person with an approachable personality, you can find success with this technique. Believe me, it works much better than the usual “We have money . . . .” spiel.
You’re having a serious conversation! What now?
If you segue into a conversation about doing a deal, start asking questions! Ask about the business: what it does, its history, the revenues, the EBITDA, how the company is incorporated. You can also inquire about customer mix, how the company goes to market, and who its vendors are. Of course, you’ve already researched this information to some extent; the idea here is to get the owner to start providing more detail to augment that research.
An owner eventually pulls back a bit as you ask her for more and more information. When that happens, suggest enacting a confidentiality agreement (CA) between your respective firms. (Check out Chapter 7 for details on confidentiality.) If you’ve planned ahead, you should have a CA ready that you can e-mail to the owner.
I’m also a big fan of managing the expectations of others, so lay out the next steps. Tell the owner that after the CA, you want to review the company’s financials (income statement, balance sheet, and if handy, cash flow statement), and then set up a visit at his office/factory/facility if everything is “green light go.” See Chapter 10 for more information about these early face-to-face meetings.
After the owner has sent you the financials, and if the company’s numbers look like they meet your criteria, set up a meeting with the owner. If the owner asks for your intentions prior to setting a meeting, submit an indication of interest (which I cover in Chapter 9).
If you get into a serious conversation and find the Seller seems unusually reluctant, be wary. She may simply be seeking a free (or inexpensive) valuation on her business.
Additional Tips for Getting Past Screeners
Screeners. No, it isn’t the latest horror flick by David Cronenberg, but it can be the name of your own personal horror when calling a potential Buyer or Seller. Screeners are the people who get in the way of you and your intended target. I discuss types of screeners in the following section and then tip you off to some common obstacles and how to best deal with them.
Recognizing who you’re dealing with
Screeners usually come in two distinct flavors: those who are hopelessly clueless and the dedicated doer of evil. This section takes a look at both types.
The hopelessly clueless
At big companies, the person answering the general phone line is clueless about who you need to talk to. That person is either a receptionist at the front desk or (if it’s a really huge company) a call center employee. They know nothing that can help you. You need to move on as quickly as possible.
Many times, these people go through the motions. They hate their mind-numbingly boring jobs and just want to get rid of you and your pesky questions as soon as possible. Of course, this description probably doesn’t apply to all these employees, but I haven’t yet spoken with the exception.
The dedicated doer of evil
Companies are full of personalities. You have the boss, you have the workers, and you have workers who think they’re the boss. Speaking with the boss is ideal, although talking to an employee is acceptable if that person can route you to the appropriate decision-maker.
The problem arises when you fall in to the trap of a non-decision-maker who acts like a decision-maker. I politely call these people the dedicated doers of evil.
These people are usually lower-level employees such as associates and receptionists. Their intentions may be good — they’re trying to do their jobs — but they’re ultimately overreaching and making decisions when they have no authority to.
The dedicated doer is evil because he inhibits business and growth by throwing up roadblocks left and right. Trying to extricate yourself from the clutches of a dedicated doer is difficult because they can be so exhausting! They have little to do and worse, they’re often so fearful of doing something wrong that everything they do to prevent doing something wrong turns out to be wrong!
How can you avoid getting stuck with a nondecision-maker who is suddenly acting like one? Do your homework. If you know exactly who you need to talk to, you can call that person directly. Worst-case scenario, you can tell the receptionist exactly who you need to talk to without requiring him to do any strenuous work.
Ultimately, if you get stuck in an endless loop of dedicated doers of evil, it’s your own darn fault for not preparing more thoroughly.
Overcoming screener roadblocks
Getting past screeners is akin to fencing. No, I’m not talking about selling stolen goods, I’m talking about the verbal thrust-and-parry you need to master in order to improve your odds of getting past a roadblock.
If you find yourself in the grasp of a roadblock, level with the person. Tell him exactly what you’re going to say to the person you’re trying to reach. If your approach is level-headed, quick, and objective, most people relent and let you pass.
Don’t get confrontational with a roadblock. Yelling and showing anger only make matters worse, so check your ego at the door. Kindness, a sense of humor, and honesty win the day.
Just send me an e-mail, and I’ll find the right person for you
Back story: This person is confused and tired of talking to you. In an apparent attempt to appear earnest, he graciously offers to do your job: find the person with whom you need to speak. This approach never works. After the roadblock receives your carefully crafted e-mail, he realizes following through means doing work! The e-mail probably sits in his inbox for a few days or weeks before he simply deletes it.
Answer: “No, I appreciate your offer, but in my experience that never works.”
Next steps: Explain one more time what you’re trying to do; you can even recite exactly what you’d say to the person you’re trying to contact. Bluntness, honesty, and patience are your best bets to get through this roadblock.
We don’t do that kind of thing
Back story: I’m constantly amazed how often I hear this statement. I’ve even heard this roadblock recited by employees of companies that have a long list of recent acquisition activity on their Web sites! Anyone who makes this comment probably doesn’t know what they’re talking about. Instead of being stopped dead in your tracks, a simple little quip more often than not takes care of the issue.
Answer: “Oh, so you’re the final decision-maker for acquisitions?”
Note: You may think this line sounds rude, but frankly, the person informing you that the company doesn’t do that kind of thing is the rude one. I dealt with this roadblock so many times that I sat down and brainstormed a quick response; the next time I got the “we don’t do that” line, this reply got me through to the right person’s voice mail.
Next steps: After delivering the line, shut up. The first one who speaks loses. I’ve delivered this line many times, and it almost gets me past the roadblock, who quickly realizes the folly of his ways and almost immediately routes you to the right person.
What is this about?
Back story: This roadblock is heard most often by screeners at companies that are under constant barrage of callers trying to buy the company. The owner, tired of talking to these wannabe Buyers, instructs his receptionist to always quiz anyone who asks for the owner.
Answer: “I have private business that I need to discuss with your boss directly.”
Next steps: If the boss isn’t in the office, ask for voice mail. If the roadblock insists on taking a message, simply leave your name and number. If the roadblock presses you for a reason, reiterate your original answer. You may want to add, “I have a business opportunity I want to discuss.”
You need to speak with Mr. So-and-so. I’m his secretary; send me an e-mail and I’ll forward it to him
Back story: This scenario may sound similar to something I warn against earlier in the chapter, but it’s slightly different. In this case, you’re speaking with the person who has direct contact with the person you want to talk to. Although sending the e-mail isn’t the best option, you’ve identified the specific person, and this solution can be an acceptable plan.
Answer: “Okay, I’ll send you something shortly.”
Next steps: Craft your e-mail and send it. If you’re unable to get the contact info of your target, make sure you get the contact info of the secretary and then follow up with a call the next day. And the next day. And the next day. Always be professional and courteous. Your persistence will pay off, and the secretary will forward the message to the boss. And in many cases, you’ll receive a direct reply from the boss.
If you’re talking with the secretary or personal assistant to the boss, take steps to ingratiate yourself. Never be rude; always thank that person. A great way to get that person to help you is to simply ask, “I sure would appreciate your assistance — can you help me? I’m not going to waste your boss’s time.”
[nervous laugh] Like, I don’t know what you’re like talking about and stuff [nervous laugh]
Back story: You’re interfering with this person’s reading of his gossip rag. The best thing you can do is hang up the phone! Do not go back to this person, do not pass go, do not collect $200. The roadblock is clueless, isn’t paying attention when you speak, and therefore is a consummate time-waster.
Answer: “Thank you, I’ll talk with someone else.”
Next steps: Do your homework. Redouble your efforts and check the Web site again. Find the right person.
Tracking Your Calls
Like any good salesperson, you want to keep track of your calls. I typically use a customer relationship management (CRM) system (a program that keeps track of contact info) coupled with a spreadsheet. The spreadsheet lists the company name, the contact name of the person I’m trying to reach, and a column for “last results.” The last results column simply indicates where I am in the process with each target. Though I may tweak the specific wording of the entries in the last results column based on the specifics of a job, when I’m selling a company, the options for that column usually consist of the following:
No contact: Before I start my calls, every target has a “no contact” in the last results column. My goal is to make sure every single target has something other than this initial “no contact” by the end of my calls.
Left message: For inexplicable reasons, some people never return your call. Knowing who hasn’t called you back allows you to try a different tack in trying to contact them. But if someone hasn’t returned your call after five or eight messages, I think the old adage “My lack of response is my response” applies.
Sent e-mail: If making calls fails to result in a live conversation, I may decide to send an e-mail, preferably to a specific person rather than a general “info@” address. I don’t usually expect replies from “info@” addresses, but fortunately, very few of my targets end up in this category.
In contact with parent: Sometimes the person I need to speak with works at the parent company, so I use this designation instead of simply deleting or writing over the name of the person at the subsidiary.
In contact with subsidiary: This category is the flip side to “in contact with parent.” Sometimes I speak with someone at the parent company, who informs me I need to speak with the subsidiary.
In contact with broker: I use this note when a company has an M&A intermediary. This way, I have a record that I spoke with the actual company before shifting efforts to the broker (or investment banker).
Not a fit (no contact): After I begin making calls, I discover some targets aren’t suitable fits, in most cases because the target is out of business.
Conversations: I end up speaking with most of my targets, so most last results columns have this entry at some point.
Teaser sent: I usually end up e-mailing more than 50 teasers during a sale process.
Offering document sent: When selling a company, I typically allow access to the offering document (or deal book) from anywhere between 25 to 50 targets.
Indication of interest: After a target reviews the deal book, I record how many indications of interest I get; it’s typically 5 to 15.
Management meeting: I usually end up conducting five to ten meetings.
Letter of intent: I like to have as many letters of intent as possible, hopefully at least five.
Purchase agreement: This entry is the ultimate goal! One lucky target with whom you’re hammering out a purchase agreement gets this designation.
At a glance I can tell where I am with each target. I can also very easily add up how many teasers I’ve sent, how many books are being reviewed, and how many targets are stuck at the left-message step.
I keep a similar spreadsheet when buying companies, with a few minor differences. For example, the teaser sent and offering document sent categories become teaser reviewed and offering document reviewed.