March 29, 2017

This Is Why Value Matters More Than Price in M&A

Jeremie Bacon is a long-time Chicago resident with 13 years’ experience building SaaS companies. One of his success stories is Synap Software Labs, where he is the Co-Founder and CEO. Synap Software Labs builds post-sales relationship management software that helps drive revenue, reduce churn, and strengthen communication and collaboration.

Jeremie originally started his career at Goldman Sachs and spent time in investment banking focused on equities, equity sales, and trading. He has experience on both sides of M&A, as an acquirer and “acquiree,” and says the deals he has seen in the past 10 years — some successful, others not — have changed his perspective on M&A.

“The reason I believe most M&A fails in the first place is because too many companies focus far too much on what they’re going to get out of a deal versus what they’re going to give to it. It sounds really simple… but it’s true.”

Determining what value you give to the other side comes from the pre-diligence diligence process. Jeremie believes great pre-diligence starts really, really early — sometimes a year to 18 months before a deal is mentioned — and includes lots of people. This is more than just browsing a website and talking to the CEO. It’s indirect analysis through customers, customer visits, and independent surveys.

As Jeremie points out, “The reality is, the executive viewpoint of a business is always different than the operational,” so it’s important to review the business as an outsider from multiple perspectives. He urges buyers to familiarize themselves with employees at all levels of the company and understand the ground-level viewpoint. It’s also important to analyze what’s going on in the market.

While Jeremie advocates for thorough and lengthy pre-diligence diligence process, he takes the opposite stance when it comes to integration — the quicker, the better.

“When you walk into the deal knowing how you want to use the assets, the rest of the diligence process is just you figuring out if your assumptions and hypothesis are correct. And if they’re correct, then you’ve already made the plan, so executing that plan should be relatively straight forward. You close the deal, you rip off any band-aids that need to be ripped off, and you run.”

Some believe slow integration mitigates “resistance to change.” While it’s important to be thoughtful, cautious, and aware of what you’re doing, Jeremie doesn’t believe people are fearful of change. “They don’t fear change. People fear punishment and retribution.” And the single most punishing aspect of change as it relates to M&A is uncertainty.

“You don’t know what’s going to happen to you, or your job, or your post, or your team, or your product, or the company you’ve been working so hard for.”

This prolonged uncertainty can kill motivation and leave employees searching for another job.

“You want to go in on day one and say this is what we’re doing, this is how it’s going to work, this is who it’s affecting, this is why it’s affecting you — your teams or your products — and the reality is, we’ve already made the decision. It’s going to happen.” It’s less painful to be open, transparent, and get it done.

“Prolonged uncertainty is just unbearable.”

With ten years of deal-making experience, Jeremie has learned quite a few M&A lessons. When reflecting on his biggest lesson learned, Jeremie went back to the concept of getting versus giving.

“In my earliest interactions and experience with M&A, I think I was too focused on what value was going to be extracted by the deal versus created by the deal.”

His advice is to think about those transactions the same way you would if you were selling something to a customer. You want to help the person in front of you get more from a transaction, rather than focusing on what you will gain from the sale.

“Price is the wrong thing to focus on as a buyer or seller. You’ve got to focus on value.”

In his experience, this focus can make or break a deal. “When both sides are giving to each other, you can build a much better relationship from day one.”

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Listen to the full podcast here. This Podcast was brought to you be DealRoom, a technology company that helps corporations on both the buy and sell side transform their outdated M&A process. See for yourself what a modern deal process looks like.

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