Warren Buffets Of The World vs The Uninitiated

the mine lakesA local family business unfamiliar with acquisitions,  hired a seasoned president (John) who claimed to have a significant M & A background.  My first meeting with John clearly demonstrated that he had not developed meaningful criteria for target candidates or an effective plan for finding them.

When John was hired he began the search process by calling brokers nationally with a generic request for businesses that were in his industry and under X dollars in sales volume.  Over four years John and the 3 key management employees looked at about 200 broker delivered companies, and deeply investigated over 40.

This represented almost half of the president’s time & about 25% of the other three key company management personnel.  There was one transaction possibility but the team’s negotiating tactics killed the deal.  I was asked to restart negotiations with this candidate but I did not think anyone could save it so I declined the offer.

A conservative estimate of time spent by the management team, direct costs of travel + outside consultancy equaled considerably more than a million dollars in direct expenses, and at least that much in lost opportunity costs and the fact that this firm was losing market share and profitability each year it did not complete an acquisition.

Definition and database building are the key ingredients to finding a pool of qualified candidates.

Warren Buffet wisely states that one should not ask the barber if you need a haircut.  Non-brokered opportunities based on defined specifications would have been exponentially more likely to become successful transactions than the method John employed.

It is appropriate to point out that M & A attorneys indicate that about half of all transactions don’t get to the closing table (generally for very good reason) and of those that do, a very big percentage just don’t add value & many destroy value.

Companies that have criteria, tools, and process for finding well suited candidates do far better than firms that jump up from the board meeting charging ahead with a great energy and minimal definition, talent, or process for this complex undertaking.

It’s not overstating it to say that the Warren Buffet’s of the world have developed the tools, talent, & process necessary to make acquisition a measurable and low risk endeavor (and are well rewarded for their efforts).

My suggestion;

*  Determine precisely what fits and create a weighted averages criteria model to measures candidates and allow comparison in ranked order.

* Create a plan for building and contacting a large number of specifically chosen candidates with a well crafted contact letter & learn how to search for specific niche companies that fit a more defined criteria.

* create a system for compiling and managing information from the many companies that will be reviewed over the coming months,

* Build a team that can execute the different elements of the process from definition and search to closing and integration.  There is considerable expertise that needs to be in place for each stage of this process.

Having the tools, talent, & systems in place to discover and research the best candidates, manage the information, put the right people and procedures in place in a timely fashion (acquisitions are time sensitive) will pay dividends for years to come.

That is what it’s all about after all.

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