Chapter 10
Ensuring Successful First Meetings between Buyer and Seller
In This Chapter
Exploring the benefits of face-to-face meetings
Organizing a management meeting
Presenting the company to Buyers
Getting ready for a facility tour
Gauging the effectiveness of a meeting
After Buyer has reviewed the book (or offering document — see Chapter 8) and submitted an indication of interest (see Chapter 9), the next step is to meet with Seller’s key management and/or ownership. The management meeting (run by Seller) provides a financial update (and any other pertinent updates) and allows a prospective Buyer to interact with Seller. It may even include a tour of the facility. Think of it as M&A dating.
In this chapter, I introduce you to meetings and more meetings all kinds of meetings.
Understanding the Importance of Meeting in Person
Over the years I have advised my clients that the management meetings effectively take the proceedings from black and white into Technicolor. A company described in a two-dimensional, black-and-white offering document suddenly becomes a living, breathing, three-dimensional entity when actual people meet face to face. The M&A process really comes alive.
Also, meeting in person rather than on a conference call, for example, gives you the chance to read the body language of the folks on the other side. Are they bored? Shifting in their seats? Playing with their smartphones? If you can’t see someone, you can’t observe body language.
Sellers shouldn’t take a meeting with a potential Buyer until the Buyer indicates its interest in writing. Even a Seller who wasn’t looking to sell and was contacted directly by a Buyer should refrain from meeting with the Buyer until the Buyer submits an indication of interest.
The following sections present a few reasons why personal meetings are so crucial.
The buyer gets to interact with key management
Not read about them, not talk to them on the phone, but meet face to face. Having a chance to engage in real-time interaction is far different from merely reading about people or processes. That’s why people go on dates!
The “coming alive” aspect of the meeting phase manifests in the ability of one side to ask impromptu questions of the other side. Instead of merely reading a black-and-white book, Buyer gets the chance to engage in a discussion when a question or comment pops up.
Both sides perform due diligence on the other
Yes, Buyer does the vast majority of due diligence, but during the meeting phase Seller gets a chance to learn more about Buyer.
This step is keenly important if Seller is planning to stay involved with the business after closing. And even Sellers who plan to sell 100 percent of the business and retire often have a parental view of their employees: They want their people to continue to prosper and succeed.
Sellers (or their intermediaries) observe prospective Buyers at the management meetings and attempt to gauge which group has the best chance of continuing the business’s success post-sale; who has the right skill sets to run the business; who has the ability to close a deal; and frankly, who they like. I know that criterion is subjective, and in most cases a high valuation trumps all other considerations, but sometimes doing a deal comes down to the more visceral “We didn’t like them, let’s go with the other guys.” (See the following section for more on chemistry between parties.)
Buyers should remember that Seller is speaking with other Buyers in most cases. As Buyer, don’t take it for granted that Seller will choose you. Put your best foot forward!
The parties gauge chemistry
In other words, do Buyer and Seller play well together? Chemistry is another subjective concept. Both sides either like each other or have some sort of tension.
Keep in mind that the actions of one side or the other can affect how chemistry develops (or dies) at a meeting. For example, a Buyer once told me he was bringing a “consultant” to the management meeting. The “consultant” turned out to be the CEO of my client’s main competitor! The Buyer didn’t inform of us of this fact; we didn’t know the true identity of the “consultant” until we exchanged business cards at the start of the meeting. My client immediately said he wasn’t going to continue until the offending “consultant” left the meeting.
This moment turned out to be the high point of the day; the discussions turned contentious and heated. Needless to say, the Buyer and Seller had no chemistry, and any chance of a deal between both sides was effectively DOA.
Ironing Out Management Meeting Logistics
Although the purpose of the management meeting is for Seller to impart information to Buyer, Seller shouldn’t forget the goal of the meeting: to eventually obtain a letter of intent (LOI) from Buyer.
Before the Buyer and Seller can get to the LOI (see Chapter 13 for more details), they need to go through the song-and-dance routine of the management meeting.
Seller’s team should run the management meeting; Buyer is Seller’s guest. Seller does a lot of talking, explaining, and updating. Buyer takes notes, occasionally interjecting with clarifying questions.
Assembling key players
Some combination of Seller’s ownership and management should attend. Of course, who exactly that entails varies from company to company, but basically the attendees should encompass people who can answer questions about day-to-day operations, the current and future financing needs of the company, and decisions made at the board level. In some cases, one person can address all these aspects, but more often than not these three broad areas require multiple people. Seller should also have her intermediary in attendance. In fact, that person will probably play the role of the emcee for the meeting.
Buyers should bring the people responsible for making the final decision. This group may include the president or CEO, the CFO, and sundry corporate development people. People who aren’t decision-makers (or influencers to the decision-makers) shouldn’t attend. They aren’t needed at this juncture. If Buyer is utilizing outside financing, allowing the financing source to attend the management meeting may be permissible. Lastly, if Buyer has an intermediary, that intermediary will probably attend the meeting.
If occasional detailed information (say, the new marketing plan) needs discussing, bringing in a specific person (in this case, the VP of marketing) to cover just that issue is okay. But that’s the only part of the meeting that person is involved in.
Lawyers and accountants shouldn’t attend the management meeting! The meeting is for the businesspeople to discuss business issues, which are separate from legal/accounting issues. Although very important legal and accounting issues need to be settled or determined at some time, the management meeting isn’t that time. Lawyers and accountants can later memorialize what the deal people create.
Agreeing on a venue
The meeting location largely depends on the type of company. Service firms probably don’t hold the meetings their offices because the offices aren’t that important; they don’t have manufacturing equipment and inventory that a Buyer may like to see. Instead, a service-firm Seller should utilize the office of her intermediary.
Traipsing a series of strangers through the office only tips off the employees. Most Sellers don’t want employees to know the company is for sale, but employees figure out pretty quickly that the hush-hush and unannounced meetings with mysterious people probably means the company is for sale.
If Seller is a distributor or manufacturer, Buyer may want to see the facility. This desire makes sense and is a reasonable request. In this case, the meetings may be held at Seller’s facility. Another option is to conduct the meetings off-site at a nearby hotel (if the intermediary’s office isn’t close). Seller can then take Buyer to the facility for a walk-though before returning to the hotel to continue the meeting.
As Seller, schedule a stealthy facilities tour if you’re especially concerned about employees figuring out the company is for sale. Give the tour after hours or on a day the facility isn’t in use.
Setting the meeting agenda
I recommend that Seller circulate a written agenda. Keep it simple: roughly five to eight items. Although specific agendas vary from deal to deal, a management meeting should generally include the following aspects:
Introductions: The whole point is to get to know the other side, right?
Buyer’s discussion: Buyer introduces himself, talks about his company or fund, his investment strategy, and his reasons for pursuing this particular Seller.
Seller recap: Seller provides a simple reminder of what she’s seeking to do (sell 100 percent or some other amount of the company), whether she’s amenable to structuring (including an earn-out, note, and so on), and whether she prefers cash at closing. If a selling owner is interested in staying on board after the sale, she should communicate that at this time as well.
Seller-owned real estate isn’t part of an offering document, so if Seller is open to selling the real estate, she should mention that at this juncture.
Opportunities for the buyer: This section represents the thesis from Seller’s offering document, updated if necessary or appropriate. Listing some of Seller’s key strengths — recognizable brand name, revenues, profits — isn’t a bad idea.
Recent improvements or changes: Think of this section as Seller’s brag-and-tout section, where she can discuss any pertinent updates, such as new systems that have improved margins, changes in the inventory techniques, new customers, better terms with vendors, or anything that’s an improvement or change from the offering document.
Financial update and forecast: In this part of the meeting, Seller provides Buyer with updated post-offering document financials and gives guidance on future financial results. In other words, are the projections in the offering document holding firm, does Seller think the company will actually be more profitable, or is the company failing to achieve the projected results? If the company isn’t achieving its projections, Seller should be able to discuss why the company’s financials are falling short of plan.
Additional opportunities for Buyer: I call this part the “roadmap to value” section. Typically, these items are post-sale opportunities for Buyer. Although convincing Buyer to pay for improvements he’ll bring to the company is difficult, showing him how the benefits that may accrue after closing helps him understand that the future prospects of the company are solid. After all, if Buyer believes the future is bleak, he probably won’t proceed with a transaction.
Q and A: A good meeting should allow at least two hours for a question and answer session. During the Q and A, Buyer usually takes the lead and asks Seller a lot of very difficult questions, although Seller can certainly return the favor as well.
Notice the flow of this agenda. The meeting starts with the basics, segues into the benefits Seller can offer Buyer, provides updated information and a forecast, and then addresses where Buyer will be able take the business. In other words, the meeting gets the basics out of the way first, thus clearing the table for where you want the discussion to go: doing a deal.
Seller should maintain strict control over the interaction between Seller’s staff and Buyer. The employees may not know about the pending deal, and if Buyer starts calling employees to ask questions, the cat will be out of the bag. Also, Seller’s employees don’t work for Buyer yet, so Seller needs to guard against Buyer wasting the employees’ time with question after question.
Perfecting the Seller’s Presentation
The presentation deals with Seller: past, present, and future. Because many months (probably three to six) have transpired between finishing the offering document and sitting down with various Buyers in management meetings, Seller should focus on providing Buyer with an update from when the offering document was written. But you’re not just throwing some updated figures on the table and leaving; you’re presenting the info to Buyer. The following sections give you some guidance on acing that presentation.
The goal of management meetings is to get Buyers to submit a letter of intent (LOI) and then choose one lucky Buyer to close a deal with.
Gathering the right material
First and foremost, a management meeting should provide a financial update as well as updated guidance for future performance. Discuss the sales pipeline; in fact, the pipeline report (a listing of upcoming potential sales) often makes a good handout during the meeting. Specific customer names do not need to be divulged at this point (using codes such as prospect A and prospect B is perfectly acceptable).
I note in Chapter 8 that Sellers should avoid overly optimistic financial projections in the offering document, and the management meeting is why. Eventually, Seller needs to defend those assumptions in the management meeting, and the best way to do so is to simply do what he said he’d do: achieve the projections.
You should also discuss any and all material changes. These items can include, but certainly aren’t limited to, new key employees, new customers, new contracts, new competitors, changes in the industry, lawsuits, and so on.
Don’t re-create the wheel! Although the presentation will undoubtedly cover some information from the offering document, the focus should be on providing Buyer with new information.
Making Seller’s presentation shine
The greater the number of people who attend a meeting, the greater the odds someone hasn’t actually read the offering document. At the beginning of a management meeting, ask, “Okay, so who has read the book?” If few people raise their hands, you may need to take a few moments recapping the basics of the business. Of course, you (or your intermediary) should be well versed in the offering document so that you can refer Buyer to the appropriate page or section if she asks a question that’s already covered in the book.
Divide and conquer the parts of the presentation. In a general sense, the intermediary should provide the introductions and act as a navigator. Different members of your team should handle the various parts of the presentation based on their areas of expertise. If you don’t have an intermediary, the employee or owner who’s been the main point-person during communication with Buyers is probably the best bet to be the navigator.
A good old slideshow is a great way to give the presentation. Make sure the meeting room has a projector and a screen or a clean white wall. Yes, a slideshow. I know. You’ve sat through far too many painful presentations using the tiny fonts with enough text per page to make it seem as if the text was ripped from Atlas Shrugged. But your slideshow doesn’t have to be that way. Here are a few pointers for effectively presenting your information to Buyer with slides:
Don’t pack in tons of information per page. Keep each slide to two to five bullets. Each bullet should be short and to the point: no more than five or ten words.
Make your font readable. No 10-point fonts! Use big 30- or 40-point fonts. Also, avoid cutesy or hard-to-read lettering; you’re in a business meeting, after all.
Use the bullets as a memory cue only. The bullets aren’t the presentation; they’re just there to help with the flow. Read one bullet and elaborate on it, and then continue similarly through the rest of the bullets. Reading word for word from the slide makes the presentation sound boring and canned, and you want to come off as conversational.
Do a practice run of the presentation prior to the first Buyer’s meeting. Inevitably, the presentation has some kinks that need smoothing out. Better to find those kinks in practice than during the first meeting. Furthermore, schedule the weakest Buyer as the first meeting if at all possible. If you’re going to screw up a presentation on an early meeting, better it be on the weakest Buyer and not a favored Buyer.
Prepping Buyers for Management Meetings
As Buyer, you should prepare for management meetings by reading the offering document, reviewing the financials and Seller’s Web site, and conducting research about Seller (to the extent that public information is available). Spending some time researching the industry and getting a handle on other companies and industry trends shows you’re serious.
Come prepared by having read the materials provided; don’t expect Seller to review information already discussed in the offering document. I always love seeing a Buyer come to a meeting with a dog-eared copy of the offering document with sticky notes jutting out from numerous pages. This situation tells me Buyer has done her homework and is ready to ask good questions.
If a facility tour is part of the day, take care to not inadvertently tip off otherwise-unsuspecting employees about the potential business sale. Asking a warehouse worker, “So, what would you think if I were your new boss?” is a big no-no! When in doubt, keep your mouth shut.
While walking through Seller’s offices or facility, Buyer should pay close attention to the seemingly small things. Is the place clean and organized? Are the employees smiling and happy? Are lights burned out? Any water damage in the ceiling? How clean are the bathrooms? Although these aspects may seem to be rather small, a company that has issues in these areas often has employees (or management) who’ve simply given up and let things go to seed.
Plan ahead with Seller to determine whether a cover story is necessary. I’ve often asked Buyers to use the cover story of “We’re investors, and we’re thinking of investing in your company.” This setup downplays the business-sale aspect but is still an accurate statement.
Reading the Tea Leaves: Did the Meeting Go Well?
Trying to determine whether a meeting went well is a difficult proposition. People are usually polite; regardless of whether they’re interested in pursuing a deal, they usually end the meeting by saying something to the effect of, “Thanks for your time; my colleagues and I will confer over the next few days and get back to you with our thoughts.”
Most Sellers will gladly accept an offer from just about any Buyer. If Seller set a meeting, most likely Seller is interested. Judging Buyer’s interest level is the trickier job. Here are some clues you as Seller should look for during the meeting:
Was Buyer prepared? Did she have a marked up copy of the offering document? If Buyer is genuinely interested, she’ll come the meeting prepared.
Was Buyer actively engaged in discussions? Did she ask a lot of questions, or was she otherwise preoccupied? Did she fidget with her phone or constantly shift in her seat? These signs indicate that someone is losing interest and would rather be elsewhere. Spend some time during each meeting looking at Buyers and paying attention to their facial expressions.
What was Buyer’s mood and tone? Was the conversation lively, animated, and frankly, fun? Or did the meeting take on a testy atmosphere? Personal chemistry is often a big part of getting a deal done.
Did the meeting end abruptly, or could you have talked all day? Another sign of lack of interest is a meeting that ends sooner than you planned. Conversely, a meeting that could easily continue for a few more hours is often a good sign of interest by Buyer.
If you’re Seller, the best sign of actual interest from Buyer is to get an LOI. And if you’re Buyer, Seller’s request for an LOI is a good sign of interest as well.