Having spent the last 18 years in Asia working for global staffing companies who have increased their footprint in Asia, I been involved in opening 8 countries – grown management teams to run the businesses from $30 million to over $200 million pa, internal headcount of over 500 personnel, I have been very hands on with four very different M&A deals.
As an independent consultant now I wanted to share my experience, observations, and thoughts on how to build trust in an M&A deal, particularly in Asia.
The rational reasons are easy to understand and translate around the business world, but the emotional reasons vary considerably based on each situation and must be dealt in a way that allows flexibility for all to get to an end goal.
As the M&A deals were across India, Korea, Philippines, and Indonesia they ranged from well-established large family concerns to bespoke businesses to an opportunity for business partners to accelerate their other businesses. There was a common theme amongst them all. Building Trust is about truly understanding each other’s goals.
What the buyer wants to achieve
- To get the best possible deal which will allow the speed of access to markets, services & personnel to deliver those services. Typically, it could be part of a strategic initiative to drive into new territories, new service lines and to broaden key skills by having staff who are knowledgeable in that space and location.
- Access to new and or complimentary clients are critical to broadening diversification, create better margins, profitability, and longer term sustainability.
- To convince a board or major shareholders that it is a good ‘buy’. the amount of data/metrics required will be very broad and very deep to strengthen the case for such an investment. Again the information required is fundamentally the same in most deals but it will be aligned to the buyer’s language and key metrics. The accuracy of information is critical to the buyer to allow the speed of decision making.
- If any location is duplicated by physical space and or personnel – then through consolidation, savings can be met to create more shareholder value.
- Through the above, the buyer is looking for new revenue and or profit streams that ultimately add value to the shareholders by increasing any future PE valuation.
What the seller wants to achieve
- Get the best possible valuation. All the motives for the sale need to be understood in its entirety but it could be for them to retire – change direction entirely and or to payback family/business investors or any combination. This understanding will have an impact on how the negotiations go, but not fully understanding this could ‘fog’ ongoing discussions or even cause the deal to collapse
- If the seller (or his family) has built the business then they may want little change to their company and importantly their staff. In Asia owner operators have a strong bond with their staff, it is about family, so understanding this emotional connection is important when negotiating.
- To transact at their speed of doing business which could be either faster or slower than the buyers. Aligning expectations of timing is critical but just as important is understanding what the underlying reasons are if they differ. Is it to hide something or rather the information simply does not exist.
- To protect their ‘name’ in the community and market for as long as possible post deal. This is about Face to family, friends and the wider business community. So how you structure their involvement after the deal, their earn out and communication, goes a long way to ensure a smooth transition.
Aligning upfront what the buyer and seller want to achieve, their motives short, the mid and long term will give solid foundations to build upon. This dialogue will shape both parties views and dictate progress.
The rational reason for the deal will be easy to understand but the emotional one – which is the biggest threat to trust – is harder to understand and if not fully understood will impact the price. If the buyer does not Trust the seller and vice versa then the valuation may not meet either parties’ expectation. A solid foundation of Trust will take you well beyond the expected timeline post-M&A, to have a better chance to meet the expected ROI.