M&A - what makes for a good buyer?

Economic turmoil in the UK is driving consolidation across sectors, and a weak pound makes British marcoms agencies an attractive target, particularly to US buyers. Now is a good time to ask, what makes for a good buyer?

A great deal is written about how agencies can make themselves appealing to potential investors, but the other side of the coin often doesn’t get the attention it deserves.

That’s why we’ve identified 10 key pointers for acquirers who want to plan for a smooth process. In no particular order:

  1. Have a strategic business plan, not just a 12-month financial budget. All too often, a business focuses on the funds is has available for M&A, when what it needs is a clear strategic brief and list of priorities – what targets have the right price, the right quality and the willingness to sell? Do the due diligence and be disciplined.
  1. Make sure your leadership team and stakeholders are involved in the planning and M&A decisions. Get your stakeholders (shareholders, bank and others) on board at the strategic level of any deal before diving into the financials. It’s important to keep them informed in a regular and structured way.

  2. Start by evaluating the strategic fit against the plan. Understand the capabilities, clients and stated personal and business objectives of the target company before diving into the financials. Corporate development teams should facilitate the deal, not decide on targets because they’re swayed by a high margin and profitability. Good M&A is about people and chemistry, not bean counting.
  1. Do what you say you’re going to do when you say you’re going to do it. M&A is all about confidence and it cuts both ways. Normally the focus is on the target company delivering, but the buyer is also ‘selling’ itself right until the deal is done. Make the target comfortable that you’re solid and reliable – especially in turbulent times.
  1. Standardise your M&A approach as much as possible. Try to codify your key deal terms, the red lines around what makes a suitable target; required level of financial returns, financial metrics for the target company and so on. This is particularly important if you are a serial buyer, so you don’t end up re-educating the stakeholders over and over again. And if you have those rules, stick to them – negotiate key points in the round and in person.
  1. Watch for the late red flags. Deals can collapse at the eleventh hour and the week running up to closing is usually frantic with two sets of lawyers and principals all stressing about announcements. Don’t get caught up in the FOMO – there are always more sellers out there.

    However, you know it’s gone wrong when the principals fall out of the calls and avoid face-to-face meetings. It can be as simple as smelling cologne because the person on the other side of the table is stressed and their body temperature has risen.
  1. When agreeing terms, make sure everyone’s on the same page. It can be vital to illustrate the outcomes in a financial model as well as writing down the terms, which can be especially important for cross-border deals. Different countries might have different definitions, terminologies and of course languages, plus the audit trail might be spread across texts, chats and emails. Make sure everyone is agreeing to the same details.
  1. Don’t throw it all to the advisors once you’ve shaken hands on the headline terms. The deal sponsors and deal technicians need to work hand-in-hand throughout the entire process, beginning to end.
  1. Don’t be lazy or avoid the ‘difficult stuff’. For example, deal norms: sellers and buyers might have very different interpretations of what “normal market” means when it comes to non-competes, restrictive covenants and earnout protections. This is an area where private equity are often good buyers, as they cover off the tricky discussions upfront. You might not like what they say, but they’ll be clear about it.
  1. Have a plan for the first three months and six months post-deal. For many buyers, the deal stops at the point the contracts are signed and everyone goes back to doing what they were doing before. This is one of the biggest contributory factors to earnout underperformance and post-earnout churn.

Being a good buyer can often make the difference between a deal that brings long-term value and one that disappoints. If you’d like to chat with Waypoint about our take on how to identify “good buyer behaviour” when you’re selling your most precious asset, please get in touch with us.

Jim Houghton

Post by Jim Houghton

Partner at Waypoint Partners

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