Given varied estimations of how many M&A deals fail ranging from 50 to 75 per cent, it is also not a decision many business owners will take lightly.
Before looking to take part in an acquisition, here are a few points to bear in mind:
Examine M&A motives carefully
A lot of those investing in creative businesses are private equity, which frequently look for rapid and sustainable rates of growth to make back their investment. More broadly, those looking to acquire could be seeking a complete overhaul of the business to take it in a wholly new direction, or to add its IP and skills to a wider group structure. This is a case of seller beware; before banking the cash, understand the targets you may need to hit and the possible disruption to your business. Ensure the reasons for sale are clear, and line up expectations with the buyer too so everyone is on the same page.
‘Date’ your prospective partner
M&A is often seen as anonymous, with terms like ‘hostile takeover’ being used and existing staff feeling threatened. It doesn’t have to be this way, and if the long term future of the agency is important, it is vital for sellers to ensure that the new owners of the business understand precisely what makes the business tick. These aren’t always factors which would show up on a balance sheet. A successful culture or unique approach to thinking aren’t necessarily plotted in by new hands on the tiller. Take the time to properly get to know potential business partners – and not just across a boardroom table.
People are often the greatest asset
This is true in almost every business, but it is doubly true in PR. The impact on the staff cannot be dismissed. If communication with the workforce is poor or they aren’t considered during the merger, staff will start to leave as the DNA and direction of the business changes. This can be disastrous to clients used to a specific and longstanding team – and hands the business a fresh set of hurdles to overcome while a new management team is in place learning the ropes.
The devil’s in the due diligence detail
Creative types aren’t typically motivated by the detail behind a business. If an agency is smaller or founder-operated, they may have been very hands-on when it comes to clients, potentially behind on the policies and business infrastructure which larger organisations or longer-established companies will have on tap. This doesn’t free them up from the process of due diligence, but they may need additional patience to ensure the buyer’s due diligence is answered and these processes are all in place to their satisfaction. Sellers should know that taking time to make sure all the paperwork is in order can reduce confidence in the deal. Tidy desks are annoying, but useful!
Explore the deal structure
Everyone’s assumption when it comes to a company owner selling will be the traditional ‘earn out’ structure. It sets business goals and tenure in place to stop a longstanding company figurehead from destabilising the business through a swift exit. However there are other ways owners can stay connected without having to commit to a long earn out, and it is worth discussing the merits and downsides of each before signing on the dotted line. A savvy buyer won’t want to remove key team members and harm the business either.
Tessa Laws is a partner at Acuity Law