So many buyers. So little time.
Last week Brent Beshore of adventur.es wrote an Axial Forum article on 4 Frustrating Initial Approaches of Investment Bankers. It was a well done piece and I congratulate Brent on articulating key nuisance factors and behaviors that investment bankers should avoid.
I now offer this unsolicited companion piece in the same spirit seeking to inform, create some bi-directional introspection, and perhaps amuse — all from the perspective of the intermediary.
For certain, you meet all kinds in this business. The dramatic variety in sellers, strategic and financial buyers, lawyers, accountants, and supporting cast of characters makes the work fun and challenging. The vast majority of these people do good work and the deals get done. But as Brent pointed out, there are always “the other folks.”
So enough with the qualifications, let’s get right to the five types of financial buyers that intermediaries dread.
The Cliff Notes Graduate
No matter what kind of buyer you are, you need good information on the front end to gauge how deeply to pursue an opportunity. In order to get all that information and present it well, intermediaries expend time and energy to understand the client, get educated on their customers, and the market they serve. There are financials to review, adjust, and prepare. Done correctly, it is an exhaustive effort.
Here is the scenario that creates the heavy sigh. After all the work to get a financial buyer on the phone, the conversation sometimes goes like this:
Intermediary: “Hello this is So-and-So, I’m the dealmaker on the Widget Company you’re taking a look at. Thanks for picking up the materials. Have you worked your way through them and can I answer any questions for you?”
Financial Buyer: “Uh. Yeah. INSERT HERE THE BASIC QUESTION THAT IS ALREADY ANSWERED ON PAGE ONE OF BOOK.”
Ironically it seems much more likely that the poor associates who read 30 of these puppies a week have more fully scanned the information memo than the VP or Partner we get on the phone. Not being even slightly prepared sends a message that you’re too busy to be interested in our deal flow. Most of us won’t stop sending it. But we won’t bother to call things to your attention either.
The Thesis Builder
Good intermediaries appreciate when a financial buyer spends time with them to explain their firm’s criteria or how they work, what they think differentiates them, and what they’re seeing in the market in general. On the other end of the spectrum, there are some financial buyers who “like” and look at everything. They want to talk about every deal but never declare interest with a serious value. Are they simply great seekers of knowledge, stacking up their books working on the killer thesis?
Not too long ago I had a conversation with a pair of financial buyers like this. I spent a good deal of time with them. They wanted to know everything about the industry, the opportunity, and the competitors on an in-market deal — and lo and behold, my deal was exactly what they were looking for! However, my answers and explanations to their many questions were met with consistent negativity and disbelief. Finally, I said “Listen. I appreciate the interest but it’s clear to me that you can’t get comfortable with what I’m telling you about the business. I don’t think you’re the right buyers.” They seemed stunned.
The “Value” Buyer
Here is a phrase that makes intermediaries cringe: “We’re not going to overpay for this deal/company.” Value is in the eye of the beholder, for sure. Kindly do not imply that because you don’t see value that someone else who does see value is “overpaying” for my client’s hard work and effort. ‘Nuff said.
The Black Hole
Then, yes, there is the dreaded “black hole.” We call, text, email, smoke signal, and never hear back. As explained recently by Stephen Hawking, a black hole is a one-way portal to another universe. I visualize a digital pile of my stuff stacking up in the great ether of that other universe: emails full of teasers, NDAs, and books alike. Oh yeah, and a lot of voicemails, too. But at least all of these lost digital tidbits are in good company with all the same stuff from all the other intermediaries. So there’s that.
The Wannabe Sole Buyer
Most sell-side intermediaries follow a process that they’ve developed over time because it works for the seller, and that’s who we work for. I don’t apologize for following a process that benefits my client. Not too long ago I was working on a deal that had 25 viable indications of interest. Can you imagine the colossal waste of my client’s time had I entertained every request for a management call or visit? No calls or visits to my clients before you offer up a reasonable value range on the business, amongst a few other #facts on how you plan to get the deal done, thanks. A good intermediary will tell a buyer what the process is and keep them informed on where they stand through-out it. If that’s too stringent, this is one intermediary who won’t mind losing that buyer.
Here are the takeaways for financial buyers:
- If you can’t get to the materials, be honest. Or just pass. It’s okay if you say you’re too busy with other deals and can look later. Just be specific. Your time is important — and the intermediary’s time is too.
- If you’re not interested in this particular deal but want to pick up additional information from the intermediary’s viewpoint about it — say so. Most intermediaries are happy to share what they know.
- Intermediaries understand that different buyers will value deals differently. Steer clear of phrases regarding value that could be misinterpreted.
- Please just respond. We honestly appreciate any feedback, even the NO. Even a short “not in our wheelhouse,” or “backed up on deals right now but come back to me in a month,” or “we’re a pass” — really any feedback is helpful.
- It’s always fair game to ask about process and deal your firm out. No harm, no foul. Just don’t expect that you can jump ahead in the line.
If you’re a financial buyer, we know you don’t believe our deal is special. As Brent pointed out, “So many opportunities, so little time.” Conversely, keep in mind that intermediaries from Woodbridge, as an example, send our deal flow to 4500+ financial buyers. That’s not 4500 contacts mind you. And that’s not even the strategic interest, which typically is another 2000+ global buyers!
Here’s what I know: intermediary work, done correctly, has a noble purpose. The business owners we represent have thrown their lives into their business. They’ve risked their money, egos, and reputations, even their families to be entrepreneurs and build something great. Clients are looking to their intermediary to not only find a buyer, but to find the right buyer and the right deal, and to guide them through a process that they will likely only go through once in their lives. It is a nerve-wracking, emotional, and scary journey. And the good intermediaries care about their client first and foremost, and believe that the deals and the people they represent are unique.