How is it possible that corporate giants AT&T and Time Warner reach an agreement on the terms of a merger in only two months while many small business owners languish over deals for six months, nine months, or even years?
Having cut my teeth as a young attorney at mega law firm Chadbourne & Parke some thirty years ago and now in my 26th year of private consulting practice focused on family-owned and entrepreneurial companies in the printing and graphics communications industry, the announcement in October that AT&T and Time Warner agreed on an $85.4 billion merger stoked memories of my upbringing in corporate M&A law: due diligence that left “no stone unturned,” rigorous attention to detail on every technical issue, and voluminous legal documentation meticulously drafted and presented.
With all what goes into the deal-making process, it’s counter-intuitive that the larger deals with more money, greater public scrutiny, and massive complexity are often achieved faster than what looks like smaller-easier-quicker-quieter M&A transactions. The basics of the M&A process are very similar regardless of size of company. The journey is much the same for companies on Wall Street and Main Street, as they go from “leadership vision” to “M&A concept” to “exploring opportunities” to “preliminary negotiations of price & structure” to “letter of intent” to “definitive legal agreements” to “closing.”
So why is it that the small business owners who dot the landscape of America in general and the printing industry in particular are slower than their big corporate brethren when it comes to M&A? Here are three observations as to why big corporations are able to move quickly on M&A deals. These observations also serve as guide-posts for owners of family business and entrepreneurial companies who want to go faster with M&A:
Timely and Accurate Financial Reporting Enables Speed in M&A
The management of companies whose shares trade on public stock markets must comply with stringent legal requirements on financial reporting. This forces management to make accounting a priority. “What you’ve got to keep in mind is that the accounting for public companies is great, making analysis simpler than you’d imagine,” commented Rick Mager, Managing Director, Graphic Arts Advisors, LLC. By comparison, private company owners are often more likely to engage in tax minimization strategies and planning that saves money on income taxes but hinders efficient M&A financial analysis.
Advice to owners: have your house in order with timely and accurate financial information that is M&A-ready.
M&A is Just Business
When ATT’s Randall Stephenson and Time Warner’s Jeff Bewkes chatted over lunch in August, neither was considering the succession planning scenario of giving the business to his eldest child. The notion that family implications could affect M&A decision-making at that level is simply ludicrous (however, not unheard of, such as with Viacom and some select other closely controlled large public companies). Removing or significantly minimizing family implications is one sure fire way to speed up small company M&A.
Advice to owners: speak with your family in advance of opening the door to opportunities and be candid about the business and your situation.
Be Prepared for When Opportunity Knocks on Your Door
After ATT’s Randall Stephenson decided to move forward and called his advisors to help on the Time Warner deal, it’s not as if his team had never considered growth by strategic acquisition; you can bet that M&A is an integral part of both companies’ corporate planning, whether it be acquisitions or sale of the company itself. Conversely, many small private companies think of M&A as an after-thought, to be looked at only “when we’re ready to do something.” By contrast, well-managed public companies are always ready to explore M&A opportunities. It’s part of what they do; they know the questions to ask, the answers that require more digging and those that don’t. They have their own house in order and are prepared to survive rigorous scrutiny from potential M&A partners. The big public companies also think nothing of having meetings with colleagues or competitors while small private companies often feel intimidated by having visitors that will raise eyebrows among employees. One successful client of mine that I’ve known since the mid-1990s said it best: “I always run the company as if it was for sale.”
Advice to owners: demonstrate the willingness to put your company under the microscope of a strategic M&A transaction on a moment’s notice.
– John Hyde