Many are convinced that the buyer with the most money always wins the deal. Although many acquisitions by financial acquirers and strategic buyers are driven by the desire to grow revenue and the company’s bottom line, it is possible to win an acquisition without offering the most amount of money.

A successful acquisition is about finding the right equation for the seller, which includes, of course, financial compensation, as well as many other non-financial aspects including prestige, value, excitement, or strategic fit.

It can be difficult to visualize this concept, so let’s take a look at a recent example from the news. Amazon announced it would acquire a Dubai-based internet retailer. While terms of the deal were not disclosed, Amazon reportedly paid between $650-750 million, beating out a competing offer for $800 million from Emaar Mall. So why would Souq sell to Amazon for a lower price?

From Amazon’s perspective, this deal makes a lot of sense because it will allow Amazon to enter into the Middle East while circumventing regulatory hurdles, the headache of building new infrastructure, and the cost of raising brand awareness. is already a very popular in the Middle East where e-commerce is expanding among a growing young, tech-savvy population. Kuwait, Saudi Arabia and the UAE are the top markets for mobile penetration. In addition, Middle Easterners are willing to pay a 50-100% premium for Western products and brands from the US. The Souq acquisition will help with top-line and bottom-line growth.

So what’s in in for Souq? Why agree to a deal for less money?  The answer is Amazon’s experience and reputation. As one of the top global companies, Amazon has a large network, resources, and deep experience with e-commerce. Souq can leverage Amazon’s experience to continue growing.

It is also exciting to be acquired by a well-recognized brand and be a part of Amazon’s team. While we can’t know what the founder of Souq, Ronaldo Mouchawar, was thinking, we can safely assume emotion had some factor in the decision-making. Don’t completely forget about the human factor and emotions when it comes to M&A, especially when dealing with owners and privately-held businesses. In fact, understanding the owners motivations – excitement, family-members in the business, community pride, desire to leave a lasting legacy, risk aversion, or financial – is key to developing the right equation to persuade him or her to sell.

Photo Credit: Mike Mozart via Flickr cc

The Guideline Public Company (GPC) Method is one of the more popular valuation methodologies because people often hear about it in the news or in presentations. This method identifies prices for individual shares of publicly traded companies that are subject to the same industry dynamics as the subject company (the company you are trying to value).

The valuation multiples calculated from these companies provide an indication for how much a current investor in the marketplace would be willing to pay for similar situated company that we are trying to value. For comparison sake we might be looking at things like similar businesses, sizes, geographic regions, and other operating characteristics.

Is the GPC Method Appropriate for Middle Market Businesses?

Depending on the size of the subject company, using the GPC method can be hard to implement realistically. Many middle market companies are better suited for the completed transaction method or the Discounted Cash Flow (DCF) approach. However, for some industries such as cloud or information technology, GPC data can be very robust and indicative of what’s going on in the industry, even for smaller-sized companies.

Selecting Guideline Public Companies

There are a number of resources both paid and free that we use to identify guideline companies.

  1. Cap IQ – This is a paid resources that provides research and analysis on publicly traded companies and overall market awareness. You’ll be able to use the Cap IQ database and tools to identify a list of companies that are similar to the one you are trying to value.
  2. Securities and Exchange Commission – The SEC has a search tool called EDGAR that allows you to search by industry code and provides a list of all public companies that characterize themselves as being in that industry. This typically generates a lot of results which you’ll need to narrow down in order to make sure the public companies are really comparable to the subject company.
  3. Yahoo Finance / Google Finance – These online tools provide key data on publicly traded companies. Once you find a few good comps for your subject, you can look up their competitors on Yahoo or Google Finance and start developing your list of GPCs that way.

How Many Companies Do You Need?

For a good GPC you need at least five public companies in your comp set; we prefer to have at least 10. It provides for a lot more analysis for the range of industry multiples. I’ve seen as many as 30 companies used, but bigger is not necessarily better. When using the GPC method, you really have to ask, “Is the subject company really comparable to these public companies?” And if this causes you to whittle down your comp set to five or six companies, that’s fine.

Photo Credit: Jorge Franganillo via Flickr cc

“Why should I let you buy my company?” Chances are an owner will ask you this question during the course of your acquisition and you must have a convincing answer. While the strategic fit and benefits of an acquisition may be abundantly clear to you, an owner may not share your perspective. As a leader, you have years of experience working in your organization and a deep understanding of the business, but the owner may be completely unfamiliar with your company or even have false impressions. In the world of not-for-sale acquisitions, many owners have not even considered selling their business to anyone, let alone you!

What Makes Your Company Great?

In order to build a convincing argument, start by analyzing your own company. What makes your company great? Do you have a new technological capability? Are you leveraging unique distribution channels? Do you have the leading product or service? Are you strategically positioned in the marketplace?  Clearly communicate your the advantages of working with your company and your strategic value as a buyer. Don’t assume the seller already knows everything that you know about your business.

Communicate Strategic Value

After you have an understanding of your own company, it’s time to move onto the seller. Make sure you do your homework before meeting with the owner. Obviously you may not know everything about the seller, but it’s important to take the time to be knowledgeable about the company and the owner. Even simple touches such as tailoring your presentation materials can show that you are invested in the acquisition. In your meetings with the owner, show why an acquisition with your company makes sense and how you can grow together. You must sell your vision for the newly merged company and get the owner inspired and excited to join your team. Make sure you also listen to the owner and take their perspective into account.

For an owner of a privately-held company, the business is their baby and using hard-nosed tactics to negotiate for the lowest price is ill-advised. The human factor cannot be overlooked when pursuing M&A and establishing trust with an owner is critical.

Buying a privately-held business is not like buying a car where you can negotiate the lowest possible price and then drive away and never see the salesperson again. In this case you end up driving off the lot with the salesperson in the car. Often, in a privately-held acquisition, the owner stays on and continues to work in the business for a number of years. Focusing on cost-cutting and financial engineering is no way to establish a successful (and profitable) working relationship.

Here are three ways to remember the human factor when speaking with owners:

  1. Communicate strategic rationale – Most owners receive numerous offers for their business so it’s up to you to stand out from the pack. Clearly communicating the strategic rationale for an acquisition and prove that you’ve done your research to differentiate you from others.
  2. Buy often, sell once – There is an asymmetry with buyers and sellers. You can buy as many businesses as you want, but the owner can only sell their business one time. It’s important to establish trust so the owner feels comfortable giving their “baby” away.
  3. They are all for sale…for the right equation – Just because a company is “not-for-sale” doesn’t mean it’s not for a sale. It simply means the owner isn’t actively trying to sell the business. It’s up to you to find the right factors – financial and nonfinancial – that will change a “no” to a “yes.”



Q: When a company has two owners that are equally involved is it advisable to ask them to choose only one negotiator, especially at the final stages?

A: Negotiating with one owner of a company and convincing them to sell their business can already be challenging. The situation becomes more complex when the company you wish to acquire is owned by more than one person.

When you are dealing with a company that has two owners, our experience tells us that you are actually in two negotiations and you will want to have conversations with each individual. Since both owners are actively involved in the business now, you should assume that they will both be actively involved in the future.

Before moving down the path of multiple negotiations, first make sure you understand their operating agreement. It may be that one of the owners cannot call the shots based on the legal documentation that papers their partnership. Once you have an understanding of how the company is set up, you can begin handling the two negotiations.

While one owner may have control of the company, you absolutely do not want to have exclusive communication with this person. The controlling owner may accurately portray the situation in some cases, but on the other hand, they may blatantly misrepresent the second owner’s feelings and thoughts.

What we’ve found is with multiple owner – two or more – each owner has a different time horizon, different motivation to sell, and a separate list of things in their “equation” that will make the deal work. It ifs important that you have multiple conversations so you can negotiate the right deal for both owners.

* This post was submitted by Capstone Managing Director John Dearing. This question comes from our webinar “Successful Negotiation Tactics.” Learn more about Capstone’s webinar series.

We recently had a situation where our client, the buyer, was pursuing the acquisition of one of their suppliers. The buyer expected the process to be relatively easy because he and the seller had known each other for years.

However, when he tried to speak to the owner about possibly selling his company, he was mysteriously unavailable. The buyer couldn’t figure out why his calls weren’t being answered.

From our client’s perspective, he had a good working relationship with the owner and they had been doing business together for a number of years. We did a little research and discovered that in actuality the seller had been holding a grudge.  The buyer had no idea why the owner was upset or that there were any problems at all!

By digging deeper we were able to get to the root of the issue. The seller was concerned that our client had never really been serious about acquiring his company. He didn’t want to spend all the time and effort going down that path just to be left at the altar.

Fortunately, because we discovered the issue, we were able to communicate that our client was indeed serious about pursuing the acquisition, and we were able to massage wounded egos.

What’s to be learned from this? There are many things that an owner of a company, especially one that is “not-for-sale”, will feel uncomfortable communicating to the buyer. Many owners are going through the M&A process for the first time and may simply feel nonplussed or overwhelmed. They may have questions that they are afraid to ask the person who could later become their boss.

This is one of the reasons why having a third party advisor can be beneficial. An owner may be more comfortable speaking more candidly with an outside party. At the same time the advisor acts as a buffer between the buyer and the seller, handling any hurt feelings or frustrations in order to preserve the relationship.

In order for a deal to be successful, both buyer and seller must be aligned on the terms and the strategic value of the deal. Creating that alignment requires tact, skill and sometimes a little outside help.

As we near the end of the fourth quarter, everyone is wondering what will happen in 2016. Will the frenzied M&A activity of 2015 continue into the new year?

There seem to be mixed reviews on what activity will look like next year. The Intralinks deal flow predictor indicates a 7% increase in global M&A in Q1 2016, but Mergers & Acquisitions Magazine has been citing a downward trend in the middle market for the past few months.

On the other hand, on a recent Deal Webcast “2016 Middle Market Outlook,” dealmakers were a bit more hopeful, expecting to see activity continue due to the high levels of dry powder and capital on the sidelines, while they did admit there may be a slight downturn.

The lending environment will be similar in 2016 to what it was in 2015 and in the middle market private equity will continue to be highly competitive, according to Michael Fanelli of RSM.

Healthcare and Technology Will Dominate

The Affordable Care Act brought about widespread changes to the healthcare industry, spurring a wave of mega-mergers by massive pharmaceutical companies. Despite this wave of mega-deals, for the most part much of the uncertainty surrounding ACA seems to have worked its way out of the middle-market companies. Tim Alexander of Harris Williams says that by and large, healthcare has become less of a due diligence item for dealmakers, especially those in the upper middle market.

On the other hand, in the lower middle market, the ACA may still raise some red flags, especially for businesses with part-time employees or ones that don’t have healthcare plans at all. While some sellers may have thought about the impacts of ACA, many are waiting to begin talks with a buyer before engaging professionals to deal with these issues, according to Fanelli.

The focus on healthcare is not only due to changes brought about from the Affordable Care Act, but is also indicative of a larger health and wellness trend we’re seeing in the U.S. Expect shakeups in the consumer and food and beverage spaces as people focus on healthier, organic specialty products.

As for technology, there’s plenty of disruption that will continue over the next one to two years, with a constant flow of innovative startups. This continuing trend will have its own impact on the middle market.

The U.S. Middle Market Remains Strong

For the most part, all three dealmakers agreed that middle market M&A is much stronger in the U.S. than it is cross-border or internationally. Most investors see the U.S. as the locale where they can expect their highest returns. This regional focus is not unique to the middle market: In the first 9 months of 2015, the U.S. accounted for 47% of global M&A transactions ($1.5 trillion).

Engaging with Sellers Remains Critical

When it comes to deal-making, building a connection with the owner and sharing your strategic vision remain the critical starting points. There are numerous reasons why an owner may decide to go with a financial buyer over a strategic buyer, even though technically strategic buyers should have an advantage from a cash perspective. In our experience, the same has been true (less money for strategic acquisition vs. financial). What it comes down to is really understanding the owner’s priorities and what he or she wants out of an acquisition. Hint: It’s not always more money.

As Marc Utay of Clarion Capital Partners said, echoing one of our key principles: “Price is important, but not the most important thing. It [the company] is like a child to them.”


It goes without saying that the introductory meeting is a crucial step of the acquisition process. If it goes well, your partnership could result in a successful deal. If it goes badly, you may be throwing away a great opportunity and have wasted hours of time and resources chasing the deal.

Your goal for the first meeting is to impress the owner or management team of the acquisition prospect and keep them interested in learning more. In not-for-sale, strategic acquisitions, it’s especially important to convey your strategic rationale and vision for the future. The owner is not looking for a reason to sell, so it’s up to you to convince them to even consider it — and why you would be the best buyer of their company.

I’ve found that, without proper guidance, buyers tend to make the same mistakes in first meeting with owners. Here are 5 common errors:

1. Using a Generic Presentation

Failing to customize your presentation for each target company is a huge mistake; a generic presentation is the best way to get ignored or even kill a deal. No one wants to receive a boilerplate presentation that is irrelevant to their business and current situation. Take the time to tailor the presentation to the acquisition prospect. Think about what you have learned about the company during research and your introductory call. What are the owner’s hot buttons? And what might motivate them to consider selling? Even simple touches like adding the prospect’s logo to the footer of the presentation really make a difference and demonstrate that you are serious about the deal.

2. Bringing In Lawyers Too Soon

Lawyers and advisors are necessary and important figures in M&A, but lawyers aren’t needed at a first meeting. That only elevates tensions and can close off communication with a seller who may be less experienced than you in M&A. Even if the seller decides to bring their lawyers, leave yours at home. We once had an anxious owner who scheduled our first meeting at his lawyer’s office. We agreed, but said we wouldn’t be bringing any lawyers. Upon hearing this, he changed his mind and we ended up meeting at his company and even getting a tour of his plant. Not having lawyers completely changed the atmosphere of the meeting and our conversations. Our client was able to connect on a deeper level with the owner that ultimately led to a successful acquisition.

3. Not Selling Your Vision

Even though you are the buyer, you are effectively trying to sell your vision of a successful acquisition to the owner. How would the transaction benefit both companies? Why do you want to acquire this specific company? Why are you the best buyer for their business? These questions should already be answered and your goals should be clearly defined before you even approach an owner about acquiring their company. Then, once the owner expresses interest, you’ll be able to share your vision and strategic rationale in a clear and convincing manner rather than scrambling to put together an explanation.

4. Taking Charge

Demanding the first meeting be on your terms, or on your turf, puts sellers on the defensive. Let them pick the location and allow them to be your hosts. Making them comfortable may mean they are more willing to talk openly about the possibility of an acquisition.

5. Talking too Much

One huge mistake buyers make is saying too much too soon. The introductory meeting is like a first date. Don’t spill all your secrets right away or expect the owner to tell all. It’s important to keep some information back until a later time. A great way to make sure that you don’t put your foot in your mouth is to limit the time spent during your first visit. Typically we will have a dinner the night before and a three-hour meeting the next morning. Specifically, avoid having breakfast with the owner, and do not stay for lunch. The simple rationale: If you stay too long you may be tempted to fill dead air and venture in too deep too soon. Remember, if all goes well there will be more meetings and more opportunities to share information.


What is the best way to position your company to be sold? I’ve often heard this question from owners and executives who aren’t quite ready to exit their business but who may be thinking about its future over the next five to 10 years. If you’re in this position, you’re wise to begin thinking about the process early on – planning is essential in preparing a business for sale. Spending time on preparation will increase your likelihood of selling to the right buyer.

In my experience working on the buy-side, I would say the most important thing buyers are looking for is profitable growth. They will want to know that they can take what you have built and continue to grow it; otherwise the only other synergy would be cost savings.  Therefore they want a business that does something unique that other companies, start-ups or technology can’t easily displace.

Every business is different, but here are some areas that buyers tend to focus on when looking at an acquisition:

  1. Customers — Ideally, you have lots of them because customer concentration creates vulnerabilities.  You also need a system in place to bring on new business that doesn’t require your hands-on engagement, preferably with multi-year contracts.
  2. Audited or Reviewed Financials —  Potential buyers will have a lot more confidence in your business and the numbers if you have 3 years of audited or reviewed financial statements.  It goes without saying that a high-margin business is always desirable.  Tax returns will be asked for so make sure to file them — truthfully!
  3. People – Who is instrumental in the success of your company? What is your balance of employees and 1099 contractors?  These are increasingly important factors for a buyer. You’ll need a robust HR system for recruiting, hiring, training and retaining? Buyers also look at the quality of management. Do you have a team in place to run the business for the new owner, without you? A company that’s over-dependent on one individual has lower value as an acquisition, so make sure there are others ready to take over the operation when you leave.

SABMiller has agreed to Anheuser-Busch InBev’s $106 billion offer to acquire it. Together, they will form a global beer conglomerate with $64 billion in annual revenues that is estimated to make up 29% of global beer sales. The new company would be three times bigger than its next competitor, Heineken. Given that this is such a large acquisition, the merger will of course, be subject to regulatory approval and the two companies will likely need to sell off some assets in order to gain approval.

Strategic Rationale

With this acquisition Anheuser-Busch will gain access to fast growing markets like Latin American and Africa as sales in traditional markets like the U.S. and Europe have slowed down. This trend is widespread across the beer and even the liquor industry and is forcing large companies to take action. Earlier I wrote about liquor giant Diageo’s strategy to woo African drinkers with its own brand of spirits and beer. It seems like Anheuser-Busch is pursuing a similar path to growth by following future demand. Originally founded in Johannesburg, South Africa, SABMiller is the largest brewer in Africa, with a 34% market share. An acquisition may be the fastest and safest route for Anheuser-Busch to enter into a new market and attract new customers.


The agreement comes just days after SABMiller rejected Anheuser-Busch’s offer. As with many publicly traded companies, there were multiple shareholders to convince which took many talks over the course of several weeks. The investment bank 3G Capital which helped put together Anheuser-Busch, negotiated with two of SABMiller’s biggest shareholders: the Santo Domingo family and tobacco company Altria.

In any acquisition, understanding the motivations of the seller is critical to the success of an acquisition. In the case of Anheuser-Busch, without the approval of the two largest shareholders, SABMiller would not have agreed to its offer. Although privately held, middle market companies typically do not need to negotiate with multiple, large shareholders, especially not publicly, you may need to negotiate with two owners or even a family. These owners may want different things out of an acquisition. As a buyer, it’s up to you to figure out what the owner or owners really want and what will motivate them to sell. In this case, SABMiller, wanted something in addition to a high premium, it wanted assurances that the deal would pass regulatory approval and a $3 billion breakup fee.

Photo Credit: nan palmero via Compfight cc

As you might expect, sellers look for a premium multiple. Buyers typically will only consider paying a premium to market if they are adequately convinced that the value of the potential target justifies it.

This begs the question: How does one derive a rationale for discount and premium multiples on a business?

There are a number of factors that contribute to and ought to be considered when assigning a discount or a premium to a market valuation multiple. Typically when using the term “multiple,” we are referring to EV/EBITDA or EBITDA multiples. Sometimes Revenue Multiples are applied when EBITDA data is not available.

Here are some factors that buyers and sellers consider when evaluating a business that may lead to premium valuation:

Customer diversification

A more diverse customer base is looked on more favorably than a heavy customer concentration, even with a blue-chip company. The risk of a big customer leaving after a transfer of control will typically be reflected in lower valuations from a bidder. Customer diversification may refer to geographies, product lines, end-users, or market segments. Anything that reduces the risk of a significant disruption or potential variability of revenue streams is a source of valuation premium.

Financial controls and accounting systems

Are there financial systems in place? Are statements audited? Audited financial statements are especially important to buyers because they demonstrate a level of sophistication and accountability in the seller’s business. Companies with their house in order from a financial, operational and accounting standpoint will command higher multiples. At the same time, having these functions organized makes diligence quicker and easier for the buyer. This reduces deal risk and improves the probability of a successful close.

Recurring revenue streams

If a company’s revenue is more recurring in nature, it can command a higher multiple than a business that needs to find new customers in order bring in revenue. A subscription-based business is very attractive to buyers because the money keeps coming in without any additional sales. For example, Netflix only needs to sell its services one time to a subscriber. After that, each month Netflix is guaranteed $7.99 without doing anything. On the other hand with a single-sale business, the company has to expend time, money and resources to ensure another sale to keep the money flowing in.

Past growth and performance

The past is often used as an indicator of future performance and a company with a history of sustainable growth will get a premium.

Sales pipeline and voracity of projections

The bigger the sales pipeline and the quality of the pipeline, the higher the premium. The credibility of the future revenue streams is also important. The more verifiable and believable, the higher likelihood of harnessing a premium valuation based on the potential growth in the business.

Management team and leadership

The experience, track record and quality of the management team are all taken into account when valuing a business. An experience team of executives who have worked at the business for a number of years will fetch a premium.

Human resources and staff

Training resources and protocols, quality human capital, well-functioning human resource systems and a track record of retention of key employees are all important aspects to consider when assigning discount or premium. The better these structures are when compared to similar businesses, or peers, can drive higher valuations as well.

Logistics, distribution strategy and operation infrastructure

What channels does the company use to reach the market? How efficient are distribution networks? What kind of infrastructure is in place and what is its quality? Companies that need additional CAPEX to shore-up holes in this area will typically command lower valuations.

Preparation – How well is the table set for a transaction?

On a whole, how prepared the seller is for sale will affect the valuation multiple. The more prepared the seller is, the more likely the business is to fetch a higher multiple.

Buyers and sellers may evaluate some of the attributes above in order to determine if the company deserves to be assigned a discount or a premium valuation. Ultimately, however, “the right multiple” is the one that the buyer and seller come to agree on, so don’t get too caught up in the technicalities or if you’ve checked all the boxes. Depending on the particular strategic rationale for sale, one of the items above may be more important than another. Valuation aside, nothing is more important than getting the transaction rationale right. Valuation is a tool for evaluating a potential acquisition that informs us on appropriate deal structure and allows us to begin exploring financial and operational due diligence from a quantitative perspective.

Q: Who is the internal champion on the M&A team? What is their role?

A: The internal champion is an important member of your M&A team. Your acquisition team should include people from your own company such as the CEO, CFO, the internal champion, and functional leaders, and external experts such as lawyers, accountants, valuation experts, due diligence experts and M&A advisors. Each members is critical to completing a successful deal.

The internal champion ideally is the person to whom the newly acquired business will report. This person has the passion and responsibility for the specific business area and will have to live with the acquisition once the deal closes. The role of the champion is to provide overall direction to the team, keeping members informed of what is going on, pushing through roadblocks, and moving everyone forward toward a successful outcome. The champion should be the main point of contact with the seller and must have insight into the business and the seller’s motivations and concerns.

This becomes especially important during negotiations when the internal champion often leads negotiations. Understanding the seller is crucial to putting together the right equation for sale. Without understanding the other side it would be impossible to negotiate a deal and motivate an owner to sell.

This question comes from our webinar “Successful Negotiation Tactics.”Learn more about Capstone’s webinar series.


CEO Paul Villella of HireStrategy recently shared why he sold his company ─ despite not actively looking to sell ─ and the results one year after the acquisition.

Paul addressed a packed room of CEOs, CFOs and senior-level executives from the Washington-DC area at “Grow or Die: A Panel Discussion on Middle Market M&A” hosted by Capstone and Access National Bank on April 23 at the Tower Club.

Paul, who founded HireStrategy in 2000, grew the firm from a three-person startup to the leading staffing firm in the Washington, DC area and to one of Inc. Magazine’s fastest growing firms in the U.S. By 2014, the company had reached $33.17 million in revenue. Paul was focused on investing in, and growing, the business when he received an unexpected phone call about a potential acquisition opportunity from the Addison Group, a Chicago-based staffing firm.

In his comments, Paul said he had a “walk away” attitude for most of the acquisition talks. Like many owners, he was not interested in selling his company. HireStrategy was growing without the acquisition – so why sell?

Paul Villella, CEO of HireStrategy, shares his acquisition story.

Paul Villella, CEO of HireStrategy.

In our 20 years working with not-for-sale transactions, we’ve found this attitude is not uncommon. There are many reasons why owners say “no” to selling and also many reasons why they say “yes.” It is up to strategic-minded buyers to find the right equation that will change “no” to “yes.” Acquirers should remember that this equation includes much more than financial incentives.

So why did Paul decide to sell HireStrategy? “The Addison Group was willing to truly partner with us and structure the deal in a way that would allow me to continue running the business with my team,” he said. Paul and the Addison Group arrived at a solution that suited both parties.

Under the agreement, Paul maintained control of HireStrategy and, equally important, retained his core team. In addition, HireStrategy kept its own brand and his staff received improved benefits. The Addison Group was also willing to pay an aggressive multiple for the firm because it was a key part of its strategy plan to expand on the East Coast.

The staffing industry is notorious for poorly handled mergers, but HireStrategy’s transaction was successful. One year after the acquisition, the company has reached all its 2014 targets and is on track, or ahead, for all of its 2015 goals. In addition, the majority of the staff has stayed on.

During his presentation, Paul explained the process of the acquisition, including how and when he involved his investors, outside advisors, and legal experts, and how and when he communicated with the rest of his team. On a more personal note, Paul discussed the opportunities for growth not only for HireStrategy for himself as a leader.

Mike Clarke, CEO of Access National Bank, and David Braun, CEO of Capstone, also commented on trends in lending and banking, and the state of middle market M&A today.

HireStrategy’s story prompted lively engagement and questions from the executives in the audience. Our hope is that through this event and events like these, owners and executives will continue thinking about external growth as a pathway that holds great potential.

“Grow or Die” was our third event hosted by Capstone and Access National Bank.

Below are some photos from this exciting event.

Interested in strategic growth and mergers and acquisitions? Contact Capstone today.


Mike Clarke, CEO of Access National Bank speaks on lending trends at "Grow or Die."

Mike Clarke, CEO of Access National Bank speaks on lending trends at “Grow or Die.”


CEO, CFOs and senior-level executives in the Washington-DC area gather for Grow or Die: A Panel Discussion on Middle Market M&A.

CEO, CFOs and senior-level executives in the Washington-DC area gather for Grow or Die: A Panel Discussion on Middle Market M&A.


David Braun, CEO of Capstone comments on M&A at "Grow or Die"

David Braun, CEO of Capstone comments on M&A at “Grow or Die.”


Grow or Die David Braun Paul Villella Mike Clarke

David Braun, Capstone; Paul Villella, HireStrategy; and Mike Clarke, Access National Bank at Grow or Die: A Panel Discussion on Middle Market M&A.


Time your negotiations by understanding owner psychology.

Everyone wants to talk about price in mergers and acquisitions. It’s often the number one focus of buyers and sellers…but for opposite reasons. Both are likely to say they are looking for a “good deal,” but this can have a completely different meaning depending on the perspective.

Buyers often tell me they are considering an acquisition, and if a “good deal” appears, they will buy the company. And by “good deal” they mean a cheap deal. On the other hand, sellers are usually hoping to offer their business to the highest bidder. This disconnect between buyers’ and sellers’ expectations is further emphasized when they put price as their top priority and use it to qualify a deal as good or bad. The truth is there are many nonfinancial factors to consider when you’re contemplating a purchase. The key is to understand owner psychology and what a huge part this plays in the decision to sell. Continue reading this post on AMA Playbook.

*This post was originally published on AMA Playbook. Visit David Braun’s author page to read all of his articles.

I’m frequently asked about the “right” price to put in the letter of intent. As you will know, the LOI is an important milestone in the M&A process, because it establishes a “gentleman’s agreement” before the formal deal is settled.  You have yet to compete due diligence at this stage, and figuring out the right price before you have all the information can be difficult. Do you go in with a high number so the seller signs the LOI? Or do you use a more modest number and risk losing their interest?

Think Before You Price

The number you present in your LOI should be a reflection of how you want your transaction to play out. Be aware of the unintended consequences of using too high or too low a figure. Each transaction is different, and buyers and sellers have different priorities, so no one number is right for every scenario.

Notice I did not say the price in the LOI should be the amount you are willing to pay or “an honest value.”  I shy away from these types of statements because they imply that both buyer and seller are on the same team. While you don’t need to be combative, your role is to strike a deal that is to your benefit, and that means negotiating effectively.

Sometimes people use a very high number in the LOI to get the seller to sign it. Then during negotiations and formal due diligence they try to identify risks so they can reduce the purchase price.  This strategy sometimes works. For example, when negotiating with a publicly held company it may be advantageous to have them sign the LOI sooner rather than later to keep momentum in a deal.

However, in other situations, especially with privately held businesses or first-time sellers, the owner may feel like you have “stolen” from them or misrepresented the transaction on the LOI. They may become frustrated and decide not to sell. Or if they do sell to you, and you intend to keep the former owner on as part of your management team, you will have a very sour relationship moving forward.

Keeping the Big Picture in Mind

When writing a price in the LOI, consider the big picture and your desired relationship with the owner. Remember, acquisition price is just one piece of that picture and there are many other nonfinancial issues that you will be discussing with the owner to come to the right deal.

How often do sellers have unrealistic expectations of their company’s value? What’s the best way for a buyer to approach them early in the process and address their concerns?

Todd Nelson, Capstone Valuation Advisor, answers:

This is a common issue where sellers hold high value expectations for their businesses. While price is not the only factor to consider when buying a business, it certainly plays a key role.

Keep in mind is that many sellers divesting a business for the first time may not understand their company value. For many, this business is their “baby,” so they may have very high expectations.

We counsel clients selling a business for the first time to go through a pricing analysis to gain a realistic understanding of the company’s value before they speak with potential acquirers.

For buyers, the way to address this issue directly with a seller is to clearly present your assumptions in your valuation model that has been developed with appropriate methodologies.

For example, the seller may believe their business is worth $20 million, but you only think it’s worth $11 million.

Walk through your valuation model with the seller. If you’re doing a DCF (discounted cash flow), show how you arrive at a value of $11 million when you discount the seller’s cash flow back at the proper rate and that is what you think the business is worth. Using the market approach, demonstrate that according to the market comps and multiples their company is worth about $11.4 million. These two methodologies should show that the business is worth around $11 million – not $20 million.

Of course, you may be willing to pay more for the company because of the strategic value or synergies you expect from the acquisition. And there are many factors other than price that may convince an owner to sell.

By presenting a sound analysis that involves reason, logic, and assumptions based on industry standards you can sometimes overcome a seller’s high expectations of their company’s value.

Successfully executing a deal can be tricky, even if you already know the acquisition prospect. In fact, your existing relationship may complicate the deal. Acquiring a company that you’ve worked with can make it difficult to objectively evaluate the opportunity.

Bonnie Ciuffo, President of South Carolina Financial Solutions (SCFS), and John Dearing, Capstone Managing Director, discussed these dynamics in the webinar “Finding the Right Equation for Successful M&A” hosted by NACUSO on June 26.

Last year Capstone guided SCFS, a credit union service organization (CUSO) that provides benefit solutions, in its acquisition of long-term business partner Innova Plan Strategies. So the webinar was informed with plenty of shared experience.

“Just because you have a great relationship with the owner doesn’t mean it’s a great acquisition,” Bonnie said.

Even when it is the right decision, many pieces of the puzzle must fit together to successfully execute the deal. It’s important to understand the owner’s motivations for selling and to facilitate open communication between parties to put together the right equation.

Bonnie and John used the SCFS-Innova acquisition in the webinar to illustrate the M&A process for CUSOs and how the deal was structured to the mutual benefit of both buyer and seller.

For more information and to view the webinar archive, please click here.

M&A can be a powerful tool for transforming your business, but it’s important to find the right partner who is aligned with your strategy  in order to accomplish your goals. For sellers, oftentimes acquisition means saying goodbye to a business you’ve built from the ground up. You don’t want to sell your life’s work to just anyone.

So how can you make sure you find the right buyer who shares your vision for the future? I’ve offered my top ten tips for selling your business in the Examiner. Read the full article: “An Expert’s Top 10 Tips for Getting Acquired.”

Yesterday, we learned that Facebook’s bid for Israeli startup Waze has ended. According to reports, negotiations broke down over disagreements on moving the Waze team from Israel to Facebook’s headquarters in Menlo Park, California. Facebook was rumored to be in talks to buy Waze for $1 billion.

This is a great example of why it’s important to understand the seller before even entering into negotiations. You don’t want to be far into negotiations only to have the deal fall apart.

Understanding the “seller’s equation,” or what will prompt the owner to sell his or her company, can save time and energy during the acquisition process. Often the seller’s equation goes beyond price and can include timing, reputation, and other factors related to the owner’s aspirations and values.

Pay attention to details like the number of family members working at the company or the owner’s involvement in the community.  In my experience the seller’s equation has included everything from dental insurance for the owner’s son to donations to local civic causes. Understanding what the owner truly wants early on in the process will make for smoother negotiations.

In some cases, you may discover the owner wants something you are not willing to compromise on. In the case of Facebook and Waze, it seems that neither buyer nor seller was willing to compromise on location. It is much better to find this out early in the acquisition process so you don’t waste valuable time and resources chasing a prospect who you will never reach an agreement with.