10 ways to get M&A deals across the line

Viet Nam has recently become one of the favoured destinations for M&A for foreign investors, particularly those from Japan, Korea and Singapore. Key sectors of interest include real estate, food and beverages, retail, and to a lesser extent, manufacturing.

M&A activity is not, however, confined to foreign investment. A report by the annual Viet Nam M&A Forum shows that 17.72 per cent of the total value of M&A deals in H1 2019 involved Vietnamese buyers. The corresponding figure of the previous year was 8.2 per cent. Such a rise shows Vietnamese investors are and would be “more active” acquirers, though foreign investors will continue to lead the market.

Here are 10 ways in which a vendor (seller) can prepare their business for sale and get a deal over the line. The same principles apply to large corporations, medium-size companies and both large and small family-run businesses.

Don’t delay: waiting too long, or not planning in advance, can cause many business-owners to miss their window of opportunity. It takes an average of one to three years to sell a business. Therefore, long-term planning is key to any successful business sale. Keeping updated records, a detailed business history and sales portfolio on hand at all times will pay off. You just never know when that perfect buyer may walk into your business and make you an offer you just can’t refuse.

Succession planning: neglecting this is a common, major misstep by retailers. Even if you do not have a successor who is a relative, you are still thinking like a succession planner. The person “succeeding” you needs to be set up for success. If they see you have been planning and considering this for quite some time and that it’s not a quick “I’ve had enough” type sale, your price will be much higher. Add to that the confidence the buyer will have in a retail store purchase if they see there was a strategy for the sale and that it’s not driven out of desperation.

Be realistic about timeframes (and focus): completion can be a long and drawn out process, meaning the senior team can become dangerously distracted with six or nine months of strategic drift having the potential to do real damage, particularly in a country such as Viet Nam where business-owners have to be fully focused at all times. Business-owners should resolve to either keep running the business or to lead on the transaction – but not both. It is important to have realistic expectations and to keep your eyes on the ball.

Be open-minded on price: price is a key determinant in getting a deal over the line and can be influenced by various factors. Supply and demand in the market place is an obvious influence, but valuations are a subtly nuanced thing and depend on a combination of factors. For a financial firm these might include the spread of client size, the demographics and geographical spread of the client list and the service proposition, to name just a few factors. In any event, negotiations can break down when the expectations of either party are not met in relation to price.

The formula used will look to take account of any uncertainty with regards to liabilities and work out a valuation for a business that countermands the potential upside with the potential for complaints and business that might fall away. Interestingly, in many cases the best price is not necessarily the first or final choice of the seller.

Whilst the seller wants to achieve the best price possible, they are frequently more concerned as to whether the acquirer has the right people and proposition in place.

Also be prepared to be flexible on terms: the terms on which any deal will be struck can also be make or break. Conventional purchases with large upfront payments can put a big strain on balance sheets, particularly on small to medium-sized acquirers. Partial and staged deals are now very common, reducing risk for acquirers and making transactions much easier to digest for them. However, vendors will need to find the terms acceptable and deals may falter if they are not.

Large acquirers will be more likely to have access to finance than ambitious small and medium-sized ones, which might find it less easy to obtain the funds to support expansion. Vendors will want reassurance that funding is in place, so acquirers should have the evidence available to prove it.

Seek a good cultural fit: unlike buying a house, even once the price is agreed, it is not simply a case of getting the keys and moving in. In order to retain existing business, staff, contractors, clients and their relationships, there will inevitably be a large degree of working together in the months and years after the purchase. When cultures clash, the chances of success drop dramatically.

Be democratic: buyers should consider involving senior managers in the acquisition discussion, sharing their strategic vision from the outset. Otherwise an acquirer could find managers, staff, and contractors abandoning ship the moment it takes the helm – along with their clients and much of the revenue the buyer thought it had just acquired.

Find the right adviser: finding the right broker and/or consultant to help you sell your business is crucial to your success. Often, businesses select the first consultant they meet just to list their business and get the process going. This can cost time and money in the long run. Within a few months, you may see no results and have to commence the search all over again. Taking time to interview many brokers and looking at a realistic outcome of what is expected will get you going in the right direction.

Take ownership: thinking a broker will do all the work in promoting your sale can be deadly. You know your business better than anyone else. No one is more motivated, passionate and knowledgeable about your business than you. The consultant should spend a great deal of time with the vendor, so that they fully understand all the nuances of the business and feel as excited about the business as the vendor.

Be selective about meetings: ensure that the potential buyer is not just testing the waters and wasting your time. Your consultant/broker should only introduce potential purchasers to you if they know with certainty that your business is one that at least in principle matches their acquisition target sector. Some brokers will introduce you to businesses that have no real intention to buy just to give impression that they are actively working on your behalf.

There is a real opportunity for small to mid-size Vietnamese businesses to scale their own success via acquisition. Many think that acquisition is beyond their means, but with the right advice and professional guidance they too can compete in today’s bustling M&A market. The important thing is to prepare well in advance.

If your business is international or local, large or small, by following these 10 steps you and your business will be well on the way to success.

* Brian Spence is managing partner of S&P Investments. He has more than 35 years of experience in the UK financial services industry as an investment manager, financial planner and M&A specialist. He is a regular contributor to the UK financial press and has a deep understanding of the financial services community. Brian’s column will reflect on all the challenges and opportunities within the Vietnamese market, bringing a fresh perspective to today’s hottest issues. The columnist’s email address isbrian@sandpinvestments.com.