The paradox of actively marketing a company in “receive” mode
13 May, 2011
M&A advisers do not like being confronted with the question: “who will pay the highest price for my company?” They prefer to say the market will speak. The market means an auction process. A list of possible buyers is drawn up and they are all contacted at the same time in the hope one will emerge as the front runner. Privately, advisors do harbour views about who will be the front runner, but the evidence is that it is often a surprising name or outlier who pays the top price for reasons that could not easily be divined from previous activity.
The instability of present market conditions are not well suited to the auction process. An aborted process can hang over a target for years. That position has led owners of businesses who would otherwise have gone to market, being forced to hold the asset, wait for approaches and to hope for better times ahead. There is a growing list of stranded companies in “receive” mode.
At the same time, the owners will always say to their advisors something along the lines of “if you know of a serious buyer, let me know”. They are usually dreaming of a corporate they have never heard of in a BRIC market or beyond. If only the advisers could see into the corporate world, they could approach the ideal buyer and negotiate a quiet bi-lateral deal at a benchmarked, if not market tested, price.
So the conundrum arises for advisers who still want to help owners move on. What can they do? Hit and miss conversations with occasional buyers is not the solution. What is required is a process without the dangers of being in the market.
The problem for the advisor is that these fabled buyers do not just drop by. They have to go and find them. But that is an exhausting and frustrating and potentially dangerous process of identifying and speculatively calling up the buyers.
There are so many unknown factors in determining if a buyer is interested.
- Identify the decision-maker. Corporates operate high fences and private companies are opaque on governance issues.
- Strategy. Deals are either on or off strategy but strategy is often a private matter.
- M&A appetite. Companies are either digesting, suffering from indigestion or getting ready for the next meal. Again, often a private matter.
- Finance. Availability of funds is not a given.
From the outside it can only ever be educated guesswork as to what reaction to expect. Be prepared for these typical reactions. “Great fit but we are not doing M&A” to “we are de-emphasisng that activity” to “we do not want to distract management who have their hands full”.
What the advisor really wants in these “receive mode situations is the impossible: to stir the pot without spilling the beans. To have an anonymous one-way conversation with the decision-makers at the buyer community from which they can work out who is really serious and ready to make a move, all without giving anything away. They can then engage with that buyer secure in the knowledge that they have been through a “process”, just as much as the first round in a typical auction.
Until very recently that was the position. Many frustrated owners wanting to engage in a process to identify ready, willing and able buyers without going to market. Advisors making some speculative calls to potential buyers hoping, like in the grid game of battleships, that they would score a hit.
But now there is a way. MergerID was originally designed to deal with traditional marketing to multiple buyers. It was the members who petitioned to open the platform to these stranded “receive” mode situations where the adviser has the authority of the owner to post. The “Sale Opportunity” was born. What these members had realised was that uniquely on MergerID, the marketing in both cases was actually the same exercise, protected by full anonymity. In other words, a full marketing process to separate the casual from the serious, without disturbing the market. A strange case of the internet being more confidential than existing phone and email methods.
The sell-side advisor has complete control over the process on MergerID. They can look through the buyers with whom they match sure in the knowledge that a true and very live decision maker lies behind the posting. They control release of the teaser and, based on the responses, can make a fully-informed decision to engage with a selected buyer, sure in the knowledge that it is a well-chosen genuine prospect.
Sale Opportunities on MergerID have risen consistently to reach 30% of all sell side postings, opening up a new market and helping advisers to service their clients even in these challenging conditions.
