We were having lunch at Bravi, an upscale Italian restaurant in downtown Toronto. Across the table was the head of corporate development for a large advertising agency holding company. Fifteen years my senior, he was perfectly turned out with a crisp shirt underneath a tailored suit. He had flown in from Montreal to discuss “a possible partnership.”
Once the lunch plates were cleared, he got down to the real purpose of his trip. “Have you ever considered selling your business?”
At first I was flattered and excited and thought, “This is it. Finally, someone has recognized my little business for all of its potential.”
My enthusiasm quickly waned as he described the deal he had in mind. He wanted me to join his agency's “family” of companies. I would earn a good salary, and the agency would buy my business over time based on my success in hitting goals, which he assured me would be easy to reach with all of their resources. Having seen friends give away their companies for next to nothing in similar earn-out schemes, I politely declined his offer.
The year was 1999, and it was the first of a few lame attempts by ad agencies to buy my market research company. The ad agencies that approached me all used a variation of the same formula: a little money up front and more if I stayed and met goals over the next three to five years. Once I understood their formula, I did everything I could to avoid being categorized as a “marketing service” business. Over the next nine years, I bristled any time someone described us as an “agency.”
When I decided to sell my research business in 2008, my M&A firm and I agreed not to approach any marketing agencies. Instead, we focused on companies that had a history of buying businesses outright.
I have found that companies have a certain formula for acquisitions that has been approved by the board, so they tend to trot out the same methodology every time.
As you contemplate who the natural acquirer is for your business, you may want to have an M&A firm check out the prospective acquirers' prescriptions for buying companies. Do they buy businesses for cash plus a one-year employment agreement? Or do they force the principals to take stock for compensation? Do they buy 50 per cent of companies with an option to buy the other half in five years? Do they insist vendors finance part or all of a deal? Do they put most of their offer into an earn out?
Do some digging, and you'll find most acquirers have a default formula for acquiring businesses in a certain industry. If you like their approach, you can start positioning yourself for a conversation with that company and their competitors. If you don't like the formula that is typical of any one industry or acquirer, it's time to start positioning your company as part of a different industry.
Special to the Globe and Mail
John Warrillow is the author of Built To Sell: Turn Your Business Into One You Can Sell . Throughout his career as an entrepreneur, Mr. Warrillow has started and exited four companies. Most recently he transformed Warrillow & Co. from a boutique consultancy into a recurring revenue model subscription business, which he sold to The Corporate Executive Board in 2008. He is the author of Drilling for Gold and in 2008 was recognized by BtoB Magazine's “Who's Who” list as one of America's most influential business-to-business marketers.
