Looking to the Exit? It’s Never Too Early to Know the Options with James Marciano
Notes and takeaways from our session
Thank you for joining us for a great session with James Marciano from Tuck Advisors on startup M&A and preparing for an exit.
Below are clips and the full video recording of the session, along with a list of takeaways for those who couldn’t make it.
We hope you can attend the next session: GTM Tools: Find and Respond to Public Sector RFPs and Education Institutions, with Justin Wenig, co-founder of Coursedog.
Register here for November 21, 2024.
— Avalanche & ECMC EIF
Takeaways
1. Understanding the Sell-Side M&A Process
The sell-side M&A process is divided into three critical phases:
Phase 1: Building Go-To-Market Assets This initial phase focuses on preparing the core marketing documents: the Confidential Information Memorandum (CIM) or "book," a one-page blind teaser, and a prospective buyer list. Marciano recommends casting a wide net by including buyers outside the U.S. for a global auction, while a limited auction may require a more targeted list. He cautions that Unsolicited Flying Offers (UFOs) can be distracting and often not legitimate.
Phase 2: Running the Auction Process Using the materials prepared in Phase 1, the goal of Phase 2 is to conduct an auction and secure a signed Letter of Intent (LOI) from the top bidder.
Phase 3: Due Diligence and Agreement Finalization The final phase involves extensive due diligence, legal agreements, and other documents essential to closing the deal, including employment contracts.
2. Time Kills Deals
In M&A, "time kills deals." After the LOI is signed, it’s essential to complete due diligence and finalize legal agreements promptly to prevent external factors, like economic shifts or company changes, from jeopardizing the deal. Marciano emphasized that a smooth process where the buyer feels they’ve gotten a good deal at closing is ideal. For this, business leaders need proactive legal support to avoid delays.
3. Stay Focused on Core Business Operations
Marciano stressed that while M&A requires significant time and energy, neglecting daily operations can collapse a deal. Business leaders should continue prioritizing customers and employees to maintain the company’s value and momentum.
4. Transparency with Advisors
Clear communication with M&A advisors is vital. Weekly calls begin with the question, “How’s business?” Marciano urges clients to be fully transparent about any operational or financial changes.
A lack of transparency can lead to deal-threatening surprises in due diligence. As he puts it, “Deals die a thousand deaths,” and openness can prevent these close calls.
5. Navigating Unsolicited Offers (UFOs)
If approached by an unsolicited buyer, business owners should immediately seek M&A advisory services to assess the offer and maintain negotiating leverage. Reviewing the NDA thoroughly is crucial, as Marciano illustrated with a story about securing a better deal by halting negotiations until a stronger NDA was in place.
6. Involving the Right Team
Successful M&A relies on teamwork. Leaders should strategically involve key team members based on the auction type, company culture, and the process stage. Early on, including trusted advisors—such as M&A bankers, lawyers, and accountants—is crucial, especially in Phase 3, where extensive due diligence requires thorough, multi-department collaboration.
7. Addressing Indemnity Caps Early
A significant negotiation point in Phase 3 is the indemnity cap, which limits the seller’s liability in case of a breach of representation or warranty. Marciano advises discussing indemnity caps in the LOI stage to maintain leverage before turning down other bidders. This approach can prevent unforeseen financial liabilities and provide greater security for the seller post-sale.
8. Keep the End Goal in Sight
During M&A negotiations, minor issues may arise. Marciano suggests adopting a “5% rule”: mentally setting aside 5% of the purchase price to handle small challenges, preventing these minor matters from jeopardizing the deal. This mindset allows focus on more significant issues, such as the indemnity cap, that can have more substantial financial implications.
Material referenced in the webinar:
Link to the deck shared
Clips from the Session
Revenue, Growth, or Profit? Which Should a Startup Prioritize?
How an Advisor Can Help You Maximize Your Sale Price. Insider Tips.
Why I Turned Down A Deal:
Upcoming sessions: Please sign up!
November 21, 2024 | GTM Tools: Find and Respond to Public Sector RFPs and Education Institutions
Expert: Justin Wenig, co-founder of Coursedog
Register: here
December 5, 2024 | Metrics That Matter: Proving Efficacy and Implementing the Right KPIs
Expert: Susan Cates, Managing Partner of Leeds Illuminate
Register: here