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The six essentials of every M&A transaction

Navigating buyer/seller objectives is what makes or breaks a deal, writes Bob Cronin

Even in today’s opportunistic market, buying and selling shouldn’t be taken lightly. While more companies are jumping into M&A, many are falling short in reaching their objectives. Entrepreneurs tempted by the 8X+ multiple their neighbors are (supposedly) getting are failing to think past the ‘advertised’ sell price. While valuation is important, it’s only one part of the equation. There are numerous considerations that affect your outcome.

1. Does the company really want to buy or sell? The hype surrounding M&A draws in plenty of prospective participants – some who in no way can manage the venture. Whether selling or acquiring, consider the following. What is reason for purchase or sale? Is company leadership cognizant of the prospective implications? Are systems in place to accommodate a new entity or a move to a different platform?

Get to the heart of leadership motives – and ‘acceptance platforms’ – before you leap. Many players are still small, family-run entities that have a lot of moving parts. Determine first the ownership structure. Are the people seeking the buy/sell the actual decision-makers? Have they demonstrated – through representation, investment, or action – that they’re equipped to follow through? The question of preparedness must be raised and answered. 

2. What are the company objectives, and will an M&A deal accomplish them? There are a variety of opportunities that a client may wish to pursue. But the entity will benefit only if the outcome of the selected opportunity achieves the intended goal. 

As you consider a purchase/sale, define your full objectives. The more specific you are, the better your chances of attaining them.

Look at the opportunities, challenges and constraints. Then consider what’s realistic. If M&A is the best option, involve the right team to manage it. If your collective company objectives don’t merit an M&A move, don’t attempt one. Today’s market is alluring. But misaligned efforts can be problematic.

3. What is the ownership structure, and what is each party’s influence? Many of the greatest, most innovative label businesses today are still family-run. A multi-person ownership structure can be arduous if everyone isn’t in agreement. We’ve had a number of deals break down because one of the owners didn’t like their slice of the transaction. Whatever you do to grow, get all decision makers on board from the start. Have all voting parties weigh in on their vision and their thoughts on reaching it. 

4. Are the financials in good shape, and ready for scrutiny? Nothing guarantees a doomed deal like having an issue with the financials. Financials spell out a company’s revenues, earnings, cash flow, profitability, debt, etc. They also track history. Buyers want to see growth in all key measures, with any negative fluctuations explained. They want the assurance that their move is warranted, and that ‘hard data’ (numbers) support their proposed investment.

That said, you may wish to present your financials with any applicable add-backs and adjustments that will result at deal consummation. Owner salaries, incentives, and other perks can be large numbers at privately held businesses and can drastically change your EBITDA. 

5. Is the end vision/exit realistic? As you consider your M&A path, clearly define your objectives. If multiple ownership parties have various hopes, lay them all out. Then, determine whether these are actually attainable in this market, with your particular company, at this juncture. You may have a monetary target, but the post-exit structure can be even more important. Many times what happens to the remaining employees, brand, buildings and other assets factor in above and beyond. All of these need to be understood and a direction determined prior to heading to market.

Buyers have different considerations. Their end vision – and what’s important in the future – may not immediately seem to align. The key is to identify the sales and profit-enhancing synergies and market advantages. From there, you can create a great transaction for all. 

6. Is this really the right time? Optimal timing of any deal – hot market or not – is what best ensures transaction, integration, and ongoing business success. As you continue to hear and read about the current M&A frenzy, it may be hard to believe that it might not be the right time for your business. But you need to consider a couple things. What does the current market look like for financing? What are the results of similar, recent transactions in your particular business segment? These two items will greatly impact both sides of any deal. Evaluating these ahead of time is vital.


Bob Cronin is a regular columnist in Labels & Labeling, writing about M&A activity in the industry.

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