When you decide to acquire a company, you are embarking on a journey, which generally takes 6-9 months form the initial contact. It is no rocket science, but there are many cross-roads to overcome, and the process requires manpower and resources.
As a rule, the acquisition process should not be managed with somebody, who is in the process of learning it. There are too many expensive mistakes to be made.
It is quite common, that one or more board members or leadership team members are fully involved in the acquisition process, but this may be problematic. The processes can take 6 to 9 months in total, and this time is away from the operational tasks, which the team should be doing instead. The worst situation is when the CEO is fully involved in the acquisition process as this way, she/he is neglecting the development of the company and especially sales. If the deal finally fails to go through, the company will suffer greatly, as the sales for the 6-9 months period are not as expected. This is when the board and the shareholders are getting worried.
Larger companies may have a dedicated business development team, who does all kinds of internal and external development projects, including company acquisitions. Will this team be available when the acquisition process starts, or will it be tied to other business development project? When I have been representing the sellers, I have almost always noticed that the supposed M&A responsible is too busy as she/he is involved in other internal business development issues.
Traditional investment banks and boutiques are expensive, and they are very deal oriented. If the uncertainty of the deal is high, their focus may end up to another deal, which is more likely to yield high success fees. It is quite common knowledge, that several banks will not pick up the phone unless the fee potential is north of 300,000 euros (normally higher).
This means that especially small and medium-sized companies are not getting quality service for their acquisition processes. The generally cannot attract, hire nor keep good quality inhouse M&A resource for longer term. Nor can they attract good quality bankers for their smaller-size transactions, because of the limited fee-potential. This is a pity, as smaller companies should also have a chance of growing via acquisitions.
We try to address this niche challenge with Larzon Capital. Our approach is an outsourced M&A department, which can take full responsibility of the acquisition process without charging high salaries, what the in-house M&A persons do (trust me, I know what I am talking about as I have been there). On the other hand, our outsourced service can do this with lower success fees that traditional bankers or boutiques (trust me again, I’ve been there). Our outsourced M&A department is between in-house resource and an investment bank, and it can provide service for a single project or a handful of M&A projects simultaneously.
Our strength is in the fact that we understand what all parties in the acquisition process think and we can relate to them. We have been sitting on all sides of the negotiation table in more than 100 acquisitions, being the advising banker for buyers and sellers, the acquiring company, and the selling company.
We hope that we can bring good quality M&A knowledge also to smaller companies with our service. Just to refresh your memory, the following illustration gives you a summary picture of the add-on acquisition process:
We hope that this blog encourages you to think of acquisitions as one route to grow and we also hope that you will not leave this thought because you do not know where to start. Because now you do.
Have a great week!
Lasse Mäkelä
Founder and CEO
Larzon Capital