Über die Autorin bzw. den Autor

MARK A. FILIPPELL is a co-founder and Managing Director at Western Reserve Partners, an M&A boutique. He has nearly thirty years of investment banking experience and has personally completed over 125 merger and acquisition transactions. Prior to co-founding Western Reserve Partners, he was the manager of the Mergers & Acquisitions Department at KeyBanc Capital Markets and McDonald Investments. His clients have included Eaton, Novar Electronics, Claymont Steel Holdings, Liqui-Box, General Electric, Computational Systems, Excel Mining Systems, and MascoTech.

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Mergers and Acquisitions Playbook introduces a street-smart approach to the mergers and acquisitions (M&A) process. It’s straightforward, it’s savvy, and it’s designed to prepare you to understand and manage the sale of your business with an investment banker’s know-how.

Drawing from his nearly three decades of experience, during which he completed over 125 merger and acquisition transactions, author and successful investment banker Mark Filippell uses his wealth of real-world experience and true case studies to reveal the nuts and bolts of valuing your company, marketing it, negotiating the deal points, and closing the transaction―all with an insider’s perspective.

Even if you don’t plan on selling your business yourself, you’ll need to understand all the players―and “plays”―involved in this transaction that will be the most important of your career as a business owner. Mergers and Acquisitions Playbook helps you gain invaluable insight, with coverage on:

• Preparing to sell your business
• Whether or not you should hire an intermediary
• Finding out what your business is worth
• The difference between “value” and “currency”
• How to create competition (or the impression of it)
• Identifying and cultivating the right buyers
• Approaching prospective buyers
• Negotiating strategies
• Moving from letter of intent to closing
• Working with lawyers

Whether you’re in the game or just watching, you’re going to need to know what’s happening―especially if your business is one of the major players. Anecdotal and packed with practical advice on the mergers and acquisitions process from start to finish, Mergers and Acquisitions Playbook prepares you to enter the M&A process like an expert―no matter what your playing field looks like.

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Mergers and Acquisitions Playbook introduces a street-smart approach to the mergers and acquisitions (M&A) process. It's straightforward, it's savvy, and it's designed to prepare you to understand and manage the sale of your business with an investment banker's know-how.

Drawing from his nearly three decades of experience, during which he completed over 125 merger and acquisition transactions, author and successful investment banker Mark Filippell uses his wealth of real-world experience and true case studies to reveal the nuts and bolts of valuing your company, marketing it, negotiating the deal points, and closing the transaction—all with an insider's perspective.

Even if you don't plan on selling your business yourself, you'll need to understand all the players—and "plays"—involved in this transaction that will be the most important of your career as a business owner. Mergers and Acquisitions Playbook helps you gain invaluable insight, with coverage on:

• Preparing to sell your business
• Whether or not you should hire an intermediary
• Finding out what your business is worth
• The difference between "value" and "currency"
• How to create competition (or the impression of it)
• Identifying and cultivating the right buyers
• Approaching prospective buyers
• Negotiating strategies
• Moving from letter of intent to closing
• Working with lawyers

Whether you're in the game or just watching, you're going to need to know what's happening—especially if your business is one of the major players. Anecdotal and packed with practical advice on the mergers and acquisitions process from start to finish, Mergers and Acquisitions Playbook prepares you to enter the M&A process like an expert—no matter what your playing field looks like.

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Mergers and Acquisitions Playbook

John Wiley & Sons

Chapter One

"When faced with two equally appealing bales of hay, the donkey could not make up its mind which to eat and so died of starvation." Jean Buridan (1295–1358), French philosopher and theologian

I remember when a realtor told my wife and me, "Selling your home is the most important and stressful transaction you will ever undertake." While a truism for most people, selling a home is, for most businesspeople, child's play compared with selling the family business. Most entrepreneurs will go through four or five homes while selling their core business only once. They will have spent at least as much time on their businesses, which will have been the focus of their productive lives. Although the sale of a business is usually not as traumatic for a management team without an equity stake in the company, the whole process, and especially orchestrating the sale of a business where one works, is bound to result in many a sleepless night.

So why do otherwise sane, logical people put themselves through all the long hours, stress, and nail-biting inherent in a company sale? In my 26 years of investment banking, to say nothing of my partners' 150 years of the same, we have seen all the reasons: retirement, differences among co-owners, an untimely illness or death, a change in the company's strategic position that makes a sale timely or necessary, financial pressures forcing a sale, financial opportunities offering the prospect of a lucrative transaction, the closing-out of an investment fund, or an unsolicited offer, to name a few. The preponderance of our experience has been with family-held businesses, and this book is focused primarily on their situations. However, the lessons are just as applicable to corporate divestitures and sales of publicly traded companies.

HONESTY IS THE BEST POLICY

Before examining each reason for selling in turn, I urge every prospective seller to be brutally honest with himself, along with his investment banker and lawyer, about the real reason for the sale. This is critical for two reasons: First, it is virtually impossible to conduct an effective sale process if the seller will not make explicit why the transaction is being undertaken. This makes it difficult, if not 100 percent impossible, to market the business to achieve the seller's underlying objectives. Second, buyers are always probing to learn why the business is for sale. If the reason given does not fit the facts, they will become suspicious of everything they are told, true or not. They will see ghosts where there are none if they feel the reason for the sale is bogus, often reducing their offer or refusing to bid.

I recall one situation in which a client told us that his motivation for selling his company was to retire from full-time management, even though he was a vigorous man on "the sunny side of 60." However, as our marketing process unfolded, we learned that he was selling because he was terrified of technological developments that would undermine his company's market position. We learned this when he became frustrated at us for entertaining proposals in which he would retain a significant ownership in the enterprise after closing or accept part of the purchase price in the form of an earnout (more on these concepts in Chapter 4). Given his technological concerns, the most appropriate course would have been to focus on strategic, all-cash acquirers that could absorb his customer base and finance the new technology. To this day, I am not certain whether he was either not being honest with himself, not being honest with his investment banker, or some combination of the two. Whatever his reason for misleading us, the effect was a marketing process that was going 180 degrees in the wrong direction.

Ego and family politics are common reasons owners are not forthright about their reasons for selling. After all, they are accustomed to being the CEO, the patriarch, the boss. To many owners, selling the business means losing that power. When the business employs family members, the emotional stew becomes even spicier. Furthermore, many business owners are not used to confiding their personal plans, self-doubts, and vulnerabilities. To them, selling the business is often perceived as an act of weakness, or even mortality. I have often found that the Young Presidents' Organization or the owner's long-trusted attorney can act as a sounding board.

In the corporate arena, deciding to sell a business is usually a much less traumatic, less personal decision. Typically, senior management decides to raise cash by divesting a division or subsidiary that does not fit with the strategic plan. Sometimes, managers object because this means that the business units under their personal control will be reduced, but the stock market's expectations and the corporation's need for the cash make a powerful argument. The board approves the decision, hires an investment banker, and the divestiture is on its way. For top management, the decision is about as gut-wrenching as deciding whether they are going to have bacon and eggs or pancakes for breakfast. The direct consequences on the careers and livelihoods of the managers and employees of the unit being sold are another matter, but they are not the ones making the sale-versus-no-sale decision.

Unlike the divesture of a public company's division or subsidiary, the decision to sell the entire company is generally quite emotional. Here, the board members and senior management have much of their professional lives and identities wrapped up in the company that they themselves have to decide to sell. Thus, the decision dynamics for the entire public company are often similar to those in a privately held business. The distinction is that the public company managers and board members, unlike many owner-managers of privately held companies, generally only own small portions of the company's stock. Thus, however much they try and claim not to act on them, they almost inevitably have interests in some ways distinct from the shareholders on whose behalf they serve. The most professional of these persons focus on the shareholders' needs and put their own on the back burner. The not-so-professional executives sometimes don't mince words about "what's in it for me?" It has been a big step forward that most members of public company boards have positions independent of those public companies, a situation that did not exist all that long ago.

The reactions of financial sponsors, organizations that raise pools of capital, invest it to purchase numerous companies, work with the companies' managements to improve their performance, and then harvest their invested funds through the companies' sales, public offerings, or recapitalizations, are similar to those of corporate executives. The financial sponsors are run by professional investors, and thus are not emotionally tied to any one company in their portfolio. Their limited partnerships are raised to start new or buy existing companies using financial leverage, so company sales are part of their world. Although the general partner's financial incentives are tied to successful sale transactions, each fund generally has a broad portfolio, thereby tempering the effect of any one deal.

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