Learning from other buyers’ M&A mistakes can save you hundreds of thousands – if not millions – of dollars when the dust settles. This fall at our Distribution M&A Executive Workshop, MDM and IRCG are bringing together a team of experts to share their lessons learned over decades of experience executing distribution-specific transactions.
We recently asked our experts to share the easily avoidable mistakes they’ve seen buyers make. Here’s what they said:
1. Falling in love with the deal.
Buyers must avoid “falling in love with the deal.” Even CEOs of major corporations sometimes get emotionally involved with a proposed acquisition and tell their deal team to “throw away the playbook and get the deal done no matter what it takes.” A few tweaks with the assumptions in a spreadsheet can make a bad deal look good. Great slide decks can mesmerize buyers into delusions of grandeur. Buyers need to avoid the temptations to rationalize themselves into overpaying.
– Brent Grover, Evergreen Consulting (Workshop sessions: “M&A Strategy Fundamentals: Two Success Stories” and “Financial Due Diligence”)
2. Not getting lenders involved early enough in the process.
One common mistake would be assuming that the financing needed to fund the deal will be available under terms that are both possible and/or acceptable. I have seen many deals fall apart at the tail end of the process because the buyer made assumptions about the amount or terms of the financing that ended up being incorrect. This is after spending countless hours, resources and dollars on the acquisition. This results in unhappy parties on both sides. Get lenders involved early. They will help a buyer understand how a deal can be financed and bridge the gap between expectations and reality.
– Joseph Pease, chairman, Pease & Associates, CPAs (Workshop sessions: “The Art of the Well-Crafted Deal” and “Non-competes, Representations & Warranties, Tax Implications”)
3. Rushing to close.
Buyers that rush to close and don't secure a deep understanding of the seller's operations and management's objectives during due diligence will not be prepared to lead a successful integration. A buyer needs to collaborate with the seller’s management team and understand their corporate culture to avoid headwinds post-transaction.
– Jim Miller, principal, Supply Chain Equity Partners (Workshop sessions: “Distribution M&A Strategy Drivers” and “Financial Alternatives”)
4. Making unrealistic assumptions about synergies.
To show desired returns, buyers make unrealistic assumptions about cost and revenue synergies, as well as organic and inorganic sales growth targets that can be achieved after closing. Aside from non-recurring owner expenses that can be verified, most middle-market distribution companies have lean cost structures that tend to yield minimal cost savings. In fact, a buyer often makes a net investment after a transaction closes. These investments support additional salespeople, inventory, ERP and CRM systems and facilities. A razor focus must be maintained on pursuing growth initiatives that can realistically drive above-market growth rates.
– Charley Hale, former CEO, FCX Performance (Keynote speaker: “M&A Best Practice: What I Wish I Knew 20 Years Ago!”)
5. Not employing professional advisers.
Having good advisers helps keep the emotion out of the equation when buying a distribution company. In the end, the deal is all about the money. Watch the video below from workshop co-host Mike Marks of Indian River Consulting Group to learn more about this common mistake:
Read more from Mike Marks on what's driving M&A in distribution in Distribution Playbook, pt. 1: Unlocking Shareholder Value.