Warp Drive to Acquisition: Teams Tested. Lessons Learned.

 

Captain’s Blog: Over the past 3 years the team put many hours into setting up the company up for an acquisition. Getting the RIGHT people, in the RIGHT seats, doing the RIGHT things, and we had worked hard developing our processes and updating our systems. We had a clear mission that everyone was on board with: grow the company with the goal of being acquired. Now we were ready for the next leg of our quest – find the buyer that would be the RIGHT fit for our company AND our employees.
 
Flashback to 2014:  We had 2 main partners in the communication space that we identified as potential acquirers of EXTOL.  Both companies had similar technology and were filled with incredibly talented individuals. After working with the first company for a little over a year, we broached the topic about bringing our technologies together.  There was a lot of synergy and the teams worked very well together. I truly saw great potential with our companies merged. Unfortunately, the type of organizational consolidation that worked for them was not in line with the outcomes that our EXTOL shareholders needed.  Mission aborted.
 
Meanwhile, in another galaxy not too far away, our Director of Business Development met a new partner at an industry trade show.  Cleo developed the same type of communication software, one that would complement our integration software well. Over the next year, we worked as strategic partners. The synergy was there, and we began discussions on what it would look like to come together as one company.  
 
September 2015: The mission entered a critical phase and the next 6 months would be very intense. Both organizations danced around what it would look like to come together. The top priority for EXTOL’s shareholders was to ensure that the company would stay intact and that the employees would remain employed. It was very important to EXTOL that an acquisition would not simply take our IP and then divest the organization.
 
As the negotiations continued, there were countless meetings back and forth from Rockford, IL to Pottsville, PA.  The leadership teams learned about each other and the processes each company used to develop, sell, support, and service software.  It was clear from the start that the technologies were much stronger together than apart. We now had to figure out if the companies could work together as well as the products did. While the business strategies were being developed, these questions were on the minds of both leadership teams:

     • Would the cultures be able to merge and withstand an acquisition?
     • Would the employees be able to become one team and not fall into the US vs THEM trap?
 
Statically, many do not make it. As a point of reference, a 2011 Harvard Business Review article cited the failure rate of acquisitions to be between 70-90%. The dance is real.
 
This was on all of our minds as we dug deep into the organization’s operations and cultures. Even though this acquisition made sense technologically and financially, that did not guarantee it will be successful.
 
And let’s be honest here – an acquisition is like a marriage. To make it work long term, you better know your partner well BEFORE you make the commitment, and you need to be able to communicate through the hard stuff. The more Cleo and EXTOL worked together, the more we all began to see this marriage working.
 
December 2015:  Final stretch…Acquisition was imminent.
 
As we worked through the minutia of the negotiations, we relied on our advisors to help us take the emotion out of the decisions we needed to make so that we could come to an agreement. After 2.5 months of back and forth (yes, warp speed thanks to our due diligence while we were still just strategic partners), we reached an agreement that worked for both parties and decided to close the deal at the end of the 1st quarter.
 
April 2016: EXTOL was acquired by Cleo. Mission complete!
 
The next chapter: Cleo --- To infinity and beyond!
 
* * * * * * * * * *

Capitan’s Postscript: The best advice I can provide about the acquisition process is be prepared for it:

  • Do your homework and surround yourself with the right advisors. You will need legal representation, an investment bank, and wealth/tax advisors.  Make sure that this team has a champion, so that they are all working together and not in silos, unable or unwilling to talk to one another.
     
  • HAVE A PLAN, take the time to analyze what the sale will look like, understand how you are going to manage the cashflow, know what you are going to do after the sale and be ready for the deal to fail. Most deals fail at least once before they come to an agreement and close. 
     
  • Recognize that selling your business is emotional. You have spent years of your life creating something, understanding its true value from your perceived value of it, is not as easy task.

Just as having the right players, in the right seats, doing the right things is important for your business to be successful, the same is true about your advisor team. Have the right advisors on your team that you trust. They can guide you during this emotional time to get the RIGHT deal across the finish line.

*******************************************************

Matthew is a Senior Business Advisor at Compass Point Consulting and provides hands-on consulting & coaching to help family businesses close performance gaps; give owners practical, actionable tools that drive growth; deliver training to develop leaders and position the business for successful ownership transition - all on their terms.

 

Learn more at: http://www.compasspt.com

@2019 Compass Point LLC - All rights reserved