Arthur Petropoulos’ Post

Transcript

If you're in a choir of a business and you're wondering how do I win the deal, the best place to start is how do you avoid not losing it? And if you want to lose a deal once, we say buyers beware. These are the five ways to ensure that you will definitely not win a deal. I'm Martha Petropolis, managing partner here at Hillview Partners. We're a middle market, lower middle market M and a capital advisory firm helping companies generating 1,000, 000 to $10 million a year and pre tax earnings Rita sell their companies of fine capital. And so we're selling businesses all day. We're talking to hundreds if not thousands of people on each particular deal. And while there's only a handful of people that ultimately get to the end of acquiring the business, there's tons of dialogues that take place before that. And along the way, there's a lot of winnowing down of that audience. And we've seen as we have the painting in our office here, the good, the bad and the ugly. All of these different interested parties and a lot of them are wonderful to work with, but we can say we have highlighted recurring themes, recurring behavior patterns that if we see it exemplified in the party, we're not gonna wanna deal with them. We're not going to advise our client to sell their company to these people. And we would strongly suggest acquirers do not do if they want to win a deal. So the first of these is ask 100 questions without giving any information as to your background into your intentions, right? And so conversation, communication has to be a two way street. If someone comes to us and asks a handful of questions for the business relative to the. Business, we will respond to that. We do as a part of our process, gather follow up questions for the companies or if there's layers and layers and layers and more and more digging and we say, hey, we want to know what your interest is. We want to know what your capabilities are in terms of financial and operationally. We want to know what your experiences and do you have a track record? Are you involved in this industry? We want to understand some of these things so that we can validate the veracity of this party so that we know we should be allocating time or resources, right? Just like anything in this world. If someone just walked up to you at the bus stop and said, you know, what do you think about? Geopolitical tensions throughout the world. And you gave them an answer and they said, OK, can you give me the 12 best outcomes over the next five years versus the 12 worst outcomes over the next decade? And then said, you know, who are your five favorite historical political figure, right? If things pelted you with questions, you say, hey, who are you? Why are you asking me these questions? What is the intention here? What's the objective? Why should we be allocating our time to you? And look, if there's that give and take and if someone says, hey, we're a bona fide, we have a track record in this, we have experience, we have. Natural capabilities we have the interest, we're happy to indulge in these dialogues to the extent necessary to get a deal done. However, again, two way St. So building off of that number 2 is asking for 10 meetings with ownership without putting any indication of interest or preliminary offer together, right. And so think about it. People hire investment bankers so that they are not constantly talking to interested parties, having to sift through the prospects and the suspects. They want to hire somebody. So the process is effectively taken care of for them and they can drop in at times which the banker says it's appropriate. To further elucidate or discuss certain topics as you're either nearing or shortly thereafter an offer. And so sometimes in our processes is a Zoom meeting prior to offers being submitted. And sometimes it's just after offers are being submitted depending on the situation. But in either case, there's not going to be 5 meetings ownership until you have an offer. There's going to be two, right? There's typically one at most before an offer needs to be put in place. And so when we say to people we need an indicative offer, we need an indication of interest and it can be arranged, doesn't have to be on letter head. There's ways around to make it that it doesn't have to be. Terribly formal. It just has to be an indication as to how you're looking at this business from a value, from a structure, from a transition, from an employee perspective, because it's not worth having all these dialogues, It's not worth taxing our clients. If we're going to be a mile apart on all of these variables. We need to start getting things on the paper. And that's what we emphasize in all of our transactions. We need to start getting things on the paper. We need to make sure that we are tracking the same railroad tracks here, that it makes sense to again, allocate resources and we have to be particularly prudent about that. Because at that juncture of a deal, we're not just allocating our own resources now, we're allocating the resources of our clients and their time and their distraction, if you will, or potential distraction from running their business. And so if we are going to spend our clients time, we have to be 10 times as certain that's going to be a good use of time as if we were even to contemplate using our own time #3 Now getting into a bit of the nuts and bolts is changing the terms all the time. If you are a buyer of a company and you say, I think I can be within this range if the conversation progresses such that you need to narrow the range the office. Should not evolve to something outside of that range unless there's some materially undisclosed element, which in our deal is not going to be. It should be getting tighter and it should be getting narrower. The deal should not be getting worse. It should just be getting more certain. And so a retrograde, if you will. If someone just arbitrarily saying I would like to pay less, I would like to change these terms dramatically. I would not like to hire this person. I'd like to change this important structural component of the deal. Oh, we were going to pay 90% of closing, now would like to pay 50% if you do something like that. Fairly arbitrarily, you will not get the deal. We will say, look, this isn't gonna be the right fit. You can't do these types of things. This is not the right way to do business. We negotiate hard. We expect all of the acquirers and deals to negotiate hard. However, it's up front, face to face, and there's a level of integrity that takes place in it that if someone just comes back and completely rewrites the deal and has amnesia as to the initial deal, it's not going to end well for everybody. And we avoid that at all costs #4 and this is somewhat of the simplest answer, but you'd be surprised that it comes up is you don't have the money to buy. The thing, right, if you go to a hot dog stand and say I'd really like the hot dog and he says that's $2.00 and you say great, I've got $1.50, he's gonna say we're not here to negotiate. Do you want the hot dog or not? Right. In our deals, obviously there is an element of negotiation. However, people have to have the capital and not just have the capital in the sense that they say, yeah, you know, I think it's in my couch cushion somewhere. I can find it. But have a either a letter from a bank indicating that the capital is there, a letter from a bank indicating that they are fairly committed to providing you the capital. It could be. Investor committee letters, there's other ways of substantiating it other than just sending us a screenshot of a bank account. However, that proof of funds are proof of financial capability for a deal is important. And so if someone says, yeah, I think I just kind of want to tie this deal up and then I think I can go find the money because I have a rich uncle in Europe that I'm going to visit next month. It's just not going to cut it. And it's not to say that deals don't happen in funny ways, perhaps outside of this process, but the purpose of our processes is to bring bona fide parties to the table and make sure that they are financially capable, that we're not just. Tying things up to wait for someone to try to run around and find the money. The money has to be there, or the money has to have a very certain and specific path to getting there to earn the belief and credence of the process. And #5 again, this might even be simpler than not having enough money is missing all the deadlines. If you miss all the deadlines in a deal, I can assure you, you're not going to get the deal. And it happens. We get emails three weeks after the deadline for offers on something and they say, I'd like you to answer these. 25 questions for me, and we say you missed the deadline for the offers. Not only that, but there was two weeks before that where we had the question deadline. You missed that too. And now you're dumping all these questions on us, half of which have been explained in the data room that you have access to because you signed the NDA. What's the issue here? What are we missing? And sometimes the people that fade away, sometimes they come back with a more aggressive offer. But even if they come up with a more aggressive offer and there's a valid reason for it, they're going to have to pay to get back into the process in the sense that, you know, they're going to have to be that much more aggressive. Relative to their terms. And so if someone wants to buy a company, the best thing to do is just follow the script. We've got a very clear path to introducing the opportunity to the market, to facilitating the process through NDA's, data rooms, indications of interest, meetings with ownership, letters of intent and intelligence. And so if you want to buy something, just stick with the process. Respond when people ask you to respond. If there's a deadline, just just meet the deadline if you really need. And we do have parties that call us up and say, hey, look, I'm traveling from Istanbul back to the States or I'm traveling back from. You know, Dubai to London, I need an extra day here. That's fine. We're not going to hold everyone to the fire. If there's a communication and mutual trust that, then that's OK. We don't shut our phones off at 6:00 PM at this timeline. However, that's the exception. And if you ask for this section too many times, it's not going to happen either. But don't miss all the deadlines. That's simple. And so to recap, if you want to get the deal, if you're an acquirer and you've been chasing down deals and you really want to optimize the chances that you're going to get it, sometimes the most important element is just don't do the things that are gonna blow it for you. And so if you're saying what are the five? These things are going to blow it. Let's recap them. So the first is don't ask 100 questions before you ever even tell the seller or the sellers banker who you are why they should be talking to you. 2 Don't ask for 10 meetings with ownership if you're not willing to put down indicative terms, right? You're going to get maybe one meeting with ownership prior to putting in an offer, but after that you got to put some pencil on paper and you got to kind of play the cards #3 don't change or retrograde terms of a deal if there's not a very, very valid reason. Instantiating it, that can be discussed with both parties. Otherwise, it just seems capricious and it seems like you're trying to game the process for you're not gonna get the deal if you don't have the money to buy the deal. That should seem like common sense. However, if you don't have the $0.50 to buy the Hostess cupcake, I'm just gonna buy one out of the two. You gotta have it or not #5 do not miss the deadlines. It's as simple as just send the e-mail. Even if you need more time, just at least send the e-mail. Don't vanish, reemerge, forget everything and be put off and miffed if someone says, hey, you know what? That window is closed at this point. So if you wanna blow a deal, do these five things. If you want to get the deal, avoid them. That's our thought for today. Hope the week continues to go well for everyone. Keep pushing forward. God bless. We'll see everyone next time.