The soft sides of a deal — the people, their behavior, and what it signals — can make or break a deal just as easily as business metrics. It’s impossible to do a good deal with bad people.
As a private equity firm, we review thousands of opportunities every year and are constantly in conversation with investment bankers and M&A advisors. There are certain behaviors that come up often — and give us pause every time.
1. The NDA is over the top.
Protecting a seller’s interest while evaluating investors is an important responsibility. That said, the necessary clauses for a strong confidentiality agreement aren’t that complicated. Excess legalese makes us question the experience, intentions, and agenda of the intermediary, as well as whether they plan to run a fair process.
2. No talk. All paper.
Information memorandums and financial documents are extremely helpful in allowing all parties to get a basic understanding of the opportunity. However, if access to the intermediary and/or seller is heavily restricted (i.e., no management calls, little communication), it signals to potential investors that, at best, this deal is all about the Benjamins. At worst, there’s some major deficiency lurking to be discovered after a major investment of time and money.
3. Financial summaries are restricted.
Most professional investors are good with numbers. They can understand changes in accounting procedures, or other oddities that must be interpreted when looking through historical data. So when financial summaries are limited and require “further explanation,” investor skepticism will skyrocket.
4. Site visits are requested before indications of interest.
Site visits are time consuming, expensive, and emotionally taxing, as they should be. We’re trying to figure out if we want to spend the rest of our professional lives working together. In our experience, intermediaries who insist on site visits prior to indications of interest think the investors will radically increase their valuation of the company post-visit. While this can create an exciting negotiation process, it is also unlikely to attract high-quality investors. Site visits should confirm, not create value, and should be focused on establishing rapport and determining if there’s a cultural fit.
5. Emotions run high during the negotiation process.
Part of an intermediary’s role is to help a seller rationally evaluate potential options, while the seller goes through the emotional roller coaster. The intermediary should be the emotional support system during an always-challenging situation. But occasionally, the intermediary is the emotional instigator, at which point an already difficult process becomes nearly impossible.
6. Interjections are constant.
While we always welcome clarification, an intermediary isn’t the long-term partner and ultimately the leadership team needs to stand on their own. A great intermediary sets the stage, then lets organic interactions bubble up. But if an intermediary must consistently interject to make sure something is properly understood, it’s hard to get a handle on reality.
7. Loads of deals and little commitment
While we can appreciate the need to juggle multiple projects at once, some intermediaries cannot recall even the most basic information about those they represent. If it isn’t worth the intermediary’s time and attention, it never has been worth it for us.
As investors, we know our job is made much, much easier by great intermediaries. We hope this quick look through our eyes serves to smooth the process and shine the spotlight on a few potential areas of improvement.
If you found this helpful, we recommend reading our previous post on signals from sellers to potential investors.