You do not need an M&A advisor to pursue acquisitions. You might think I’m crazy for saying this, after all, we are M&A advisors, but the truth is you can pursue acquisitions on your own. In fact, for those of you who are so inclined to take the do-it-yourself approach, I lay out a step-by-step process, the Roadmap to Acquisitions, in my book Successful Acquisitions and regularly provide tips and tricks for free on this blog and through my firm’s educational resource M&A U™.

That being said, there are many benefits to bringing on an experienced M&A advisor. Think of it this way: Technically, you do not need a CPA to do your taxes. Depending on your situation, you may be able to go through the paperwork, file your taxes on your own and hope you don’t get audited. Or, you could consult an experienced professional and rest easy, knowing the job will be done right.

The advantage of an M&A advisor is having an expert by your side for every step in the process. Unfortunately, especially if your company has never done an acquisition, it’s difficult to tell if you are missing any important steps until it’s too late. An experienced advisor will help you navigate the process and avoid making mistakes.

Here are five advantages of using a third party:

  1. Objective outsider to help evaluate decisions – Acquisitions can be emotional and as a third party, an M&A advisor can help facilitate discussions and resolve conflicting perspectives.
  2. Experienced market and company research team – In addition to accessing to multiple databases of industry information, a third party can speak directly to key industry players without giving away your interest in making an acquisition.
  3. Discreet approach to owners – One of the advantages of privately-held acquisitions is the ability to execute your strategy under the radar. An M&A advisor can approach companies – even competitors – on your behalf without exposing your plans to marketplace.
  4. Maintain negotiation momentum and overcome roadblocks – Negotiating during acquisitions is not about “winning,” it’s about understanding the motivators that will prompt an owner to sell. It takes experience to discover these underlying desires that will help move the deal forward.
  5. Ensure early preparation for success integration – When it comes to integration, experience has taught us that preparation begins very early in the process, well before the deal is consummated. With the help of an advisor, you can address integration issues early so that you successfully weather the challenging first 100 days of integration post-closing.

Capstone Strategic announced today that Lintec USA Holding, Inc. has acquired VDI, LLC (DBA Vacuum Depositing). The acquisition brings together complementary technology and broad research and development capabilities that will allow for expansion in the industrial films market.

Capstone Strategic, Inc. (Capstone) announced today that Lintec USA Holding, Inc. (Lintec USA) has acquired VDI, LLC (VDI). Lintec USA will leverage VDI’s capabilities with its current assets to bolster its marketplace position. Capstone advised the acquirer on this transaction.

Lintec USA is a global leader in manufacturing and selling highly engineered, multilayer films for energy, automotive, safety, security, and architectural applications and the owner of Madico, Inc. (Madico), which manufactures window and specialty films. Lintec USA and Madico are owned by Lintec Corporation (Lintec), a publicly-held company traded on the Tokyo Stock Exchange. Founded in 1971, VDI is headquartered in Louisville, Kentucky and is a custom roll-to-roll metallizer of evaporative, sputtered and dielectric coatings.

The acquisition will allow Lintec USA to accelerate its growth and strengthen its position in the industrial market by adding a complementary sputtering capability and a spectrally select product line. Lintec USA will also apply Lintec’s research and development, marketing, and distribution strengths to further expand VDI’s capabilities. The transaction is expected to benefit all parties as a result of leveraging VDI’s metalizing capability with parent company Lintec’s metalizing products.

Using our proprietary process, the Roadmap to Acquisitions, Capstone served as a third party M&A advisor and facilitated the acquisition between Lintec USA and VDI. Capstone guided Lintec USA through the process from initial strategy development to prospect identification and negotiations to papering and executing the deal.

“Throughout the acquisition process, the Capstone team was instrumental as our guide, sounding board, and stabilizing force as negotiations proceeded. We jointly developed our proactive growth through acquisition program and then Capstone approached owners and assisted as we prioritized candidates and resources. We leveraged Capstone’s focus and experience in the privately-held, not-for-sale acquisition world as we worked through the journey and ultimately attained our objective. I’m confident that the deal would not have been completed without their insight and involvement,” noted Paul Moynihan, CFO of Madico.

“Throughout every step of the process, Capstone worked diligently to address key challenges, and, most importantly, actively listened to uncover important issues on both sides. They certainly helped forge a positive relationship between our organizations and I’m excited about our opportunities to grow together in the future,” commented David Bryant, Owner and President of VDI.

“The team stayed true to the strategic external growth objectives established, and as a result of the acquisition, Lintec and Madico will glean benefits that will help them expand for years to come,” said Capstone Managing Director John Dearing.

Capstone Guides Acquisition of VDI by Japan's Lintec USA

About Capstone

Capstone Strategic, Inc. is a management consulting firm located outside of Washington DC specializing in corporate growth strategies, primarily mergers and acquisitions for the middle market. Founded in 1995 by CEO David Braun, Capstone has facilitated over $1 billion of successful transactions in a wide variety of manufacturing and service industries. Capstone utilizes a proprietary process, “The Roadmap to Acquisitions,” to provide tailored services to clients in a broad range of domestic and international markets. Learn more about Capstone online at http://www.CapstoneStrategic.com.

About Lintec USA and Madico

Lintec USA Holding, Inc. (Lintec USA) is a subsidiary of Lintec Corporation (Lintec), a publicly-held company traded on the Tokyo Stock Exchange and a recognized technical leader in adhesive chemistries. Madico, Inc. (Madico), is owned by Lintec USA and is a global leader in the coating, laminating, and converting of flexible films in wide width, roll-to-roll format. Its products are multilayered, engineered films primarily targeting applications in Window Films and Specialty Films. For more information visit  http://www.madico.com.

About VDI, LLC.

Founded in 1971, VDI, LLC (VDI) is a custom roll-to-roll metallizer of evaporative, sputtered and dielectric coatings. Its primary business and production site is in Louisville Kentucky. The company is respected throughout the industry as a leader in both quality, innovation and customer service.

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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.

“We have a strong vision and a clear plan for growing the company in the future,” Sarah, the CEO, told me with complete confidence during a recent strategy session.

Her CFO disagreed: “We have no vision.”

Various members of her executive team shared similar sentiments privately with my team and me. Many expressed anxiety; they had no idea where the company was headed.

So what had happened? How could the CEO be 100 percent confident while her team was plagued by doubts?

This scenario where the CEO has one vision in mind while others within the company have another is a classic example of a disconnect between leaders and their teams. The worst part of the misalignment is that the CEO thinks everyone is in agreement.

Differing perspectives about a company’s future can arise because:

  •  The vision has not been communicated clearly – Perhaps it was a simple communication issue. Either Sarah had not fully described her vision or the team was having difficulty understanding what she had told them. This could be solved by restating the vision and answering questions about the company’s future.
  • Disagreement over the vision – On the other hand, maybe Sarah did share her vision, but her executives disagreed with her on the direction of the company. In this case, it would be helpful to have an open dialogue about why people disagree. Perhaps Sarah was a visionary with a great idea that the executives couldn’t quite grasp yet. Or, perhaps she was too wrapped up in her own perspective and was missing warning signs that the executives could clearly see.
  • There is no vision – Sometimes, a CEO does not actually have a clear vision to lead the company forward, even if they think they do. Sarah’s ideas may not be fully developed, or her perspective may be unrealistic given the current market. In this scenario, the first step would be for Sarah to acknowledge the problem and work with her executive team to develop a strong vision for the company.

In this case, Sarah did have a vision but had failed to communicate it clearly to the rest of the team. And, most of the executive and management team was afraid to express their concerns with her. This is understandable. It can be intimidating to disagree with your boss! During the strategy session, we used our role as third-party advisors, and some proprietary tools, to facilitate a dialogue that clarified and deepened everyone’s understanding of the company’s vision.

Having these conversations is necessary for successful strategic growth. You can’t be successful if half of your team is lost or confused. If you find yourself in this situation, I encourage you to foster a dialogue with your team. Try an internal strategy meeting, writing down your vision statement and creating a culture where people can speak openly with you.

Because people can be hesitant to be honest with you, sometimes you might need to use an anonymous survey to get feedback.  Or to break through the communication barrier, you can host a strategy session facilitated by an outside third party, like the one we had with Sarah and her team.

Remember as the CEO or president you’re not single-handedly taking the company into the future. While you might be the leader, it takes a team to help a company grow and execute a strategy. Make sure everyone on your team is following the same path.

During due diligence, you may uncover deal-changing issues, or what I like to call “red bucket items.” Identifying these risks doesn’t necessarily mean you walk away from a deal, but you will need to negotiate new terms with the seller.

Among the ways to protect yourself as the buyer when you find major issues:

1. Ask the seller to fix the problem and continue on good faith.

For example, if you find there is broken equipment in the seller’s plant, insist that the equipment be fixed before the deal closes

2. Require indemnification so the seller is legally bound to cover the costs if the problem materializes.

Let’s say the plant equipment is very old and likely to break soon. In this scenario, the seller would be required to pay for repairs should that occur.

3. Institute holdbacks, where a certain portion of the payment price is withheld to cover the specific issue of concern.

If the broken equipment costs $100,000 to replace you would withhold this amount from the purchase price, guaranteeing resolution before making full payment. You only pay the seller once the problem is fixed.

4. Request that funds be held in escrow to cover the problem and other potential contingencies.

With an escrow account, a percentage of the purchase price is held in a separate third-party account. It is paid to the seller a certain amount of time after closing to make sure all the seller’s claims are true. This serves as a “risk shield” for the buyer.

5. Offer less money for the business.

Sometimes uncovering “deal changers” means the value of the business changes. As a buyer, taking on some risks can mean paying less for the company.

Negotiating “red bucket items” is one of those tougher tasks which may merit involving your third-party adviser. He or she can protect the relationship between buyer and seller, acting as a “marriage counselor” while investigating and developing possible solutions to present to the seller.

*This post was adapted from David Braun’s Successful Acquisitions, available at Amazon.com

 

From my perspective of largely successful acquisitions, most acquisitions end in failure because they are missing a third-party advisor.

A third-party advisor can play an irreplaceable role on your acquisition team as an ‘‘outside insider’’ who can unearth hidden intelligence, resolve stubborn conflicts, help cooler heads prevail, and maintain a strategic perspective from beginning to beginning.

One of the most important roles a third-party advisor serves is as a “marriage counselor” through the negotiation phase. There are bound to be rough spots on the road to any acquisition agreement, and the advisor can serve as a trusted ear for both sides. I have found that an expert third party can act as a lightning rod for negative energy that the seller might have, such as doubt, anxiety and frustration.

The seller needs to express those feelings, but may be uncomfortable talking to someone who could be his future boss or partner. The third-party advisor provides the perfect outlet for these feelings and disperses them, minimizing any potential damage to the relationship between buyer and seller.

*This post was adapted from David Braun’s Successful Acquisitions, available at Amazon.com

Photo Credit: Marco Bellucci via Compfight cc