The Unexpected Happened—Now What?
Nobody likes interruptions to their best-laid plans, but they happen—and M&A deal making isn’t exempt from them. When something happens to impede the sale of a company, it’s natural to want to proceed with caution until the obstacle is safely out of the way. Sometimes, that’s the correct strategy. In other cases, it can be a mistake.
We recently had a client who was all set to proceed with putting the company on the market. Then, for reasons that weren’t entirely clear, the financial performance of the business deteriorated. Now the question was whether the setback was temporary or a signal of an underlying problem that might take a long time to fix—if it could be fixed at all. Either way, a new decision would have to be made about the timing and the expected outcome of the sale.
In cases like this one, it’s crucial to understand what went wrong and how the mishap is going to affect the value of the company in both the near and the long term. If the problem is a one-time occurrence that’s relatively easy to explain, chances are good that the financials will have recovered by the time a buyer is identified, a letter of intent is signed, and due diligence is performed. In other words, fix the problem and get on with the offering—there’s no need to postpone anything.
Non-recurring problems are the "good" ones to have in the sense that the economic damage they do probably won’t be severe enough to upset your plans. Spoiling a big job, let’s say, has saddled you with an unanticipated (but a one-time) expense. A major piece of equipment went down, and that cost you money. Or, you may have lost days of production in a weather incident like Katrina or Sandy. They’re annoying, but once they’re behind you, they shouldn’t change the perceived value of your company in buyers’ eyes.
But, if the situation is more complicated than this, so is the judgment call. Do we suspend the sale until we’re certain that we’ve made up the lost ground? Do we go to market as planned, but with a lower valuation? Or is the safest course to give up the idea of selling altogether?
Every case is different, but in general, there’s little advantage in holding a distressed company off the market when a relatively quick fix can’t be found for whatever is causing the trouble. Waiting, in these circumstances, is like gambling: you simply can’t know what print markets will do or how much more value the company might lose. On the brighter side, even a company stuck in a slump has assets that can be converted into value in an advantageously structured sale.
You might be able to justify delaying the offering if you’re convinced it will give you the time you need to bounce back from something serious—for example, the loss of a major account or the defection of a key salesperson. But the longer the recovery takes, the more uncertainty you are injecting into the mix, both from your point of view and that of potential buyers.
A qualified M&A advisor can help you determine whether the negative performance is a one-off or a symptom of problems that go deeper. The news may not necessarily be easy to take, but it will give you the insight you need to make the best decision about what to do next.
Thomas J. Williams is a partner 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 more than 200 years of industry experience with transactions in aggregate exceeding $2 billion. For information, email firstname.lastname@example.org