The Highest Offer Doesn’t Always Seal the Deal with Founders
Cash is king; however, the highest offer doesn’t always seal the deal. This is especially the case when the seller is a founder-based company, i.e., the seller is the founder or an heir of the founder. Most founders, of course, want to maximize value, but that is generally not their sole focus, particularly when they are doing a recapitalization with a private equity group.
Founders can be focused on a variety of other factors, including certainty of close, reputation/culture or the buyer, expertise and track record of the buyer, the fate of their employees, their role post transaction, business synergies, deal structure, etc. Buyers who are only differentiated by price are at a disadvantage for several reasons, primarily because someone else can always outbid you. Smart buyers seek to understand the desires of the seller and craft their offer accordingly, not just focused on price but also on the seller’s overall objectives in a transaction.
This is another compelling reason for sellers to run a competitive market process. Using an M&A advisor to run a process provides the seller with more options and a higher probability of reaching the terms they desire in deal. It also allows the seller to see buyers side-by-side to compare the different individuals and cultures involved. This is extremely important when doing a recapitalization, because you’re not just seeking liquidity, you’re also picking a partner.
As a founder, a crucial component of the sell-side process is setting aside time to determine your priorities. There isn’t a right answer as it differs for each person. Gaining clarity on the desired outcomes early on in a process can help tremendously once you get into the weeds of a transaction later on. It also helps to set expectations with your advisor, so you’re aligned on what variables you are optimizing over.