Approaching a target company can be a delicate act.
As a general rule, the closer the competition that the target represents to your own company, the more delicate the approach should be.
For this reason, many business owners chose to use an intermediary such as an attorney or an investment banker as a proxy. However, this risks coming off as impersonal at a time when you should be building affinity.
A well-written letter, on the other hand, is likely to achieve everything that an approach by an intermediary will, while also carrying a personal touch that many owners will warm to.
If you strike the right balance with a written acquisition proposal, you can find the middle ground between being upfront enough for the recipient to appreciate the honesty, and yet allowing a polite distance so as not to come off as threatening.
Below, we provide some tips on how to strike this balance.
1. Develop a convincing narrative
Generally when we talk about mergers and acquisitions, we say that there should be a good motive in place before the process begins - a good ‘why’ for wanting to do a deal.
When approaching a target directly, you’ll need even more than that. You’ll need a narrative; that is to say, you don’t just need a good motive for the deal.
You’ll also need to think about how it plays out for everyone involved.
This has to be attractive to the target owner, but more importantly, it has to be honest.
Remember the adage, “beware of strangers bearing gifts.”
Furthermore, how you see the deal playing out doesn’t have to be written explicitly in the letter, but it should drive the content. If you don’t have an endgame in mind, you shouldn’t write the letter in the first place.
Bear in mind, the recipient may also decide to call you as soon as they get the letter, and you want to be ready if they do.
2. Avoid legalize and waffle
It’s remarkable how many people become would-be attorneys as soon as they begin writing a formal letter.
It pays to remember here that you’re writing this letter as one business owner to another. You’re not the intermediary in the deal, and the writing should reflect this.
And even though it’s technically a formal letter, it’s okay to introduce a more informal tone (not too informal) if it helps to break the ice.
Arguably even worse than using a faux legal style of writing is filling a letter with waffle. If you find yourself using words that you don’t use in everyday language, you’re probably on the wrong track.
To cite the Economist Style Guide on writing:
“[the word] strategic is usually meaningless except to tell you that the writer is pompous, and trying to invest something with a seriousness that it doesn’t deserve.”
3. Be humble
You will never go wrong by showing some humility.
The best investment bankers get their feet inside the doors of companies by showing humility. Often, the apparent humility is nothing but a facade, but the humble approach has been shown to work, so why not use it.
In a similar vein, don’t write about how wonderful your business is. This is not a marketing pitch. You’re using the letter to make an introduction. And nobody likes braggarts at an introductory stage.
4. Write in broad and complimentary terms
The approach letter is not a letter of intent. Think of it as an expression of interest.
That means you don’t have to talk about the specifics of your financials or indeed your operations.
You might say, for example:
- our company has a strong balance sheet that can accommodate a transaction or
- I believe we could bring several of our existing clients onto your platform.
Mentioning figures at this stage is not only unnecessary, but it also risks coming off as brash.
Like any expression of interest, you should also be complementary. Business owners don’t like being told what they’ve done wrong and what you’re going to change.
Avoid sentences like:
- ‘I see some things that we can improve,’ or
- ‘you’ve done a pretty good job.’
If you patronize them, you’ll lose them.
- ‘you’ve done a great job’,
- ‘I’ve got a lot of admiration for what you’ve achieved’ or
- ‘I’ve been an admirer of your business for quite some time.’
Don’t be afraid to be complementary. We can all assume the reason you’re writing the letter in the first place is because you like the business.
It’s quite common in mergers and acquisitions for companies to be approached by buyers, who, trying to be coy, spend most of the time knocking the business.
Being complementary doesn’t mean you have to pay over the odds for the business. It serves to create that affinity that an intermediary cannot. So leverage it.
5. Let them know why a deal will work
The letter shouldn’t just be about throwing an admiring glance in the way of the target company, of course.
Let them know, again in broad terms, where you see your industry going and how combining your two companies is the best way to address that change.
Think of this as the ‘I believe we’ll be stronger together because…’ part of the letter. Of course, this has to be as compelling, but it also has to be realistic or you’ll lose the recipient’s attention.
6. Suggest a face-to-face meeting
Regardless of whether the target company is located in your city or at the other side of the company, it is good practice to suggest meeting face-to-face.
This shows commitment and courtesy on your side. It also allows you and the target company owner to prepare more, before getting into the nitty gritty details of a deal.
What’s more is that if your proposal for a face-to-face meeting is successful, your approach letter will ultimately have performed its function.
Get a sample acquisition proposals
You can download a sample acquisition proposal here.