Reijmer/Russell on M&A Directions: Can We Talk? Not Necessarily
Unfortunately, we have seen them happen more than once: breaches of confidentiality that have disrupted and even destroyed what otherwise would have been successful mergers of printing and packaging companies. Because playing close to the vest in M&As is more complicated than it may seem, a review of best practices in this sensitive area of dealmaking is well advised for every company owner with a transaction in mind.
Maintaining a discreet silence can be worth its weight in gold, literally, in several key phases of the deal. We'll address each of these points from the perspectives of the buyer and the seller.
Disclosing to Those Who Need to Know
The rule for sellers is straightforward: the fewer the people who know that the company is being sold, the fewer the obstacles there will be to closing the sale. The owner may share information on a need-to-know basis with the CFO, the director of sales, an executive assistant and, in all likelihood, no one else. The restriction on disclosure should remain in place until both the seller and the buyer are ready to go public with the news.
Buyers in acquisition mode don't have to be this tight-lipped. Letting staff know in general terms that the company intends to grow in this way can be good for morale. It also encourages employees to come forward with suggestions for acquisition opportunities.
Note, however, that we said "in general terms." As a buyer, you would not want all hands to know that you had a specific company in mind—rumors leaking prematurely to the acquisition target could blindside its owner and kill the potential deal then and there. Naturally, if a non-disclosure agreement is in place between the two parties, the buyer will be under the same constraints as the seller when it comes to sharing details. Think before speaking!
Approaching the Other Party
Here the best strategy is to let a proxy choose your words for you. By "proxy" we mean an experienced M&A adviser who understands the nuances of the situation and knows how to take the awkwardness out of the initial communication between the parties.
M&A advisers help buyers by confidentially scouting the territory, identifying the most suitable acquisition candidates, and making the buyer's intentions known to the owners in a way that will not arouse suspicion or resistance. There is almost always more openness on the seller's side when a trusted third party initiates the conversation the buyer wishes to have.
A seller who is well-acquainted and on good terms with a potential buyer in his or her region probably can approach the buyer directly—the mutual knowledge and trust are already there. Be advised, though, that approaching only one buyer candidate may not result in a favorable price for the seller.
In most cases, it's wisest for the seller to let a skilled third party manage the introductions. A do-it-yourself overture to an unfamiliar buyer might not be taken seriously or, worse, might stir negative rumors about why the seller's company is being offered for acquisition.
Understanding sellers' and buyers' mindsets as thoroughly as they do, qualified M&A advisers make sure that communications between the two sides are based strictly on fact. They also can judge whether a prospective buyer has the management strength and financial wherewithal to make an acquisition a success. Advisers can identify not only the right buyers, but the right people within those companies—people who will take the call and listen attentively to what the seller, through its representative, is proposing.
Announcing the Completed Transaction
New Direction Partners usually advises sellers against disclosing anything to the workforce at large until the last minute—the point at which the deal is fully and finally closed. This is recommended not in order to keep people in the dark, but to head off anxiety-driven behaviors that could undermine the deal: for example, resignations by key personnel reacting badly to the knowledge that the company was in the process of being sold.
When the time comes to break the news, we urge sellers to do so in a public meeting with as much candor and honesty as possible. Being up front with your business and personal reasons for selling will go a long way toward allaying fears and minimizing disruption during the transition of ownership. An all-hands meeting also is a good opportunity to talk about who the new owners are and how the transaction will benefit the company and the people who work for it.
If facilities will be merged as a result of the sale, there may be job attrition. There are no hard and fast rules for sharing this admittedly painful information except to tell employees that affected personnel will be notified in due course. For the sake of workforce stability, sooner is better than later for eliminating redundant positions.
For buyers, going public with the news usually is a cause for celebrating and for welcoming newcomers from the acquired company into the fold. In due diligence, the buyer will already have briefed top accounts about the pending change, perhaps with the help of the selling owner. Post-sale, the objective will be to bring the news in person to as many other customers as possible.
Bringing Suppliers into the Loop
With all due respect to paper merchants and other vendors of consumables and trade services, they should be the last to know that a sale has been closed. The seller who lets a premature word slip to a supplier may quickly find that the story is all over town and that, as a result, discussions with potential buyers have been compromised.
Informing suppliers after the fact usually falls to the buyer, who notifies them of the new ownership structure and the terms that will be expected going forward. At this stage, the buyer establishes credit (if necessary) and compares prices charged to the seller with the prices the buyer is accustomed to paying. If the seller pays more, the buyer's pricing structure should be used. If the seller pays less, that is pricing the buyer will want.
In our experience, print company owners have a healthy respect for confidentiality and conduct themselves professionally in M&A negotiations. Mistakes, however, do happen, and because most owners attempt to sell a company only once in their careers, the opportunity killed by a careless disclosure could be an opportunity that will not be seen again.
Acquiring or being acquired by another company can be a long, drawn-out and distracting process in which the proverbial cat can be hard to keep in the bag. With the guidance of a professional M&A adviser, you can be sure of what to say, when to say it and whom to say it to. PI
About the Authors
Albert Reijmer and James Russell are partners in New Direction Partners (NDP), the leading provider of advisory services for printing and packaging firms seeking growth and opportunity through mergers and acquisitions. NDP assists its clients by giving them expert guidance and peace of mind at every stage of the process of buying or selling a printing or packaging company. Services include representing selling shareholders; acquisition searches; valuation; capital formation and financing; and strategic planning. NDP's partners have participated in more than 300 mergers and acquisitions since 1979. Collectively they possess over 200 years of industry experience with transactions in aggregate exceeding $2 billion. For information, e-mail firstname.lastname@example.org