Mergers made in heaven

Source: Technology Digital

Date :8/31/2007 2:44:47 PM

CEOs that live through multiple corporate acquisitions may find they get easier as you go. But as merger consultant Robert Sher warns, no deal is a small deal

By David Weldon

There is an old saying that, “The Third Time is the Charm.”

And for corporate CEO and business consultant Robert Sher, that adage certainly holds some degree of truth.

President of CEOtoCEO, in Dublin, Calif., Sher has become a bit of an expert on the topic of managing mergers and acquisitions — including how to avoid disappointments, such as the one he experienced with his fourth company purchase.

“I’m not an authority in the sense that I have brokered millions of dollars worth of deals,” Sher notes. “But I have personally been through the process four times.”

For a number of years, Sher ran a successful wholesale art company, serving a number of national retailers in Canada and the United States. Most active in the Toronto area, Sher includes Target Stores among his top clients.

Sher grew the business to become one of the top niche artwork distributors, but there were a number of art styles and artists not represented in the company’s portfolio.

“We handled quaint, middle America style artwork,” Sher says. “The demographic that would buy art by Thomas Kinkade would buy ours.”

That worked out just fine for a few years, Sher says, but eventually he wanted to take the company to the next level — and be not just a niche player, but a market powerhouse. The problem: “we didn’t know the other styles well ourselves. If we wanted to be an industry leader, we needed to diversify.”

The first step, Sher says, was to get a better handle on what the competition was offering. And that led to an adviser recommending that he meet with the female owner of a particular art line that might be a nice complement to what Sher was handling.

To hear Sher describe the experience that led to his first acquisition, one would think he was discussing a blind date.

“I called her. We arranged to meet. We chatted a bit. It wasn’t terribly comfortable,” Sher says.

But then, like an almost-forgotten first date that apparently went better than you thought, “three months later, she called,” Sher says.

That call soon led to another meeting, and then a more serious relationship, in which Sher soon popped the question — and asked the other company owner if she would consent to join forces. She did, she sold her company to Sher, and she signed-on as an executive with Sher’s now-larger company.

What Sher says he quickly learned from the experience is that, despite the temptation to think otherwise, corporate CEOs are very approachable to discuss company mergers and sales, as long as they trust the people approaching them.

“CEOs are just as shy, on average, as the rest of us,” Sher says. “But if you’ve talked a bit, even just a few words, you can pick up the phone and just call them.”

Another lesson that Sher says he learned is that, “deals come together on a certain path. There are things that you should do, and there are things that you shouldn’t do. You just don’t want to get off that path.”

Since Sher was new at this game, he sought out an acquisitions mentor, as he calls it, to help guide and advise him through the process. One of the first pieces of advice was to put off talks on price for as long as possible in the process.

The reason for that, Sher explains, is that the vital first step is to establish a relationship with the CEO you are trying to woo. The one thing that will most make the deal happen is trust. And the quickest way to guarantee failure is to get hung up on the final price.

Once Sher had established that trust, “she offered the company for a price that was far below what I was willing to pay,” he says.

Sher partially attributes the low asking price to the seller’s inexperience in mergers and acquisitions. But on top of that was the seller’s desire to stay involved with “their baby,” as Sher puts it. So this particular experience worked out to the benefit of both parties.

Sher met the asking price, and also welcomed the CEO into his organization, where she could stay involved with the company she had nurtured.

Intangible value

Another important lesson that Sher says he learned from the first acquisition was how to best assess the true value of a company that you may be interested in buying, or for a company that you are trying to sell. That process goes far beyond Profit and Loss statements.

As the seller, “you have to consider the value that you bring to the buyer. Explain how no one else has this special piece that you bring to their overall picture,” Sher advises.

Likewise, from the buyer’s perspective, Sher says the CEO needs to look beyond the balance sheet, and evaluate how the new company fits with the strategic mission of their company.

“Acquisitions should be strategic, rather than optimistic, whenever possible,” Sher notes. “Opportunistic purchases (when an opportunity suddenly presents itself, but hadn’t been in the works long-range) are OK, but they tend to be more painful.”

Armed with the lessons he had learned from his first company acquisition, Sher says he shortly thereafter made a second acquisition, again expanding the product portfolio for art lines he could offer.

“The second acquisition went similar to the first,” Sher says, “though we bargained a bit more over price.”

His third acquisition was a lot more work, and “involved a two year dance to convince him to sell, and that he should want to sell to me,” Sher explains.

The lesson from the third acquisition was patience, Sher says. “Allow one to three years” for an acquisition attempt to ultimately bear fruit, he recommends.

Patience is also important simple to make the whole affair manageable, Sher explains.

“We did four acquisitions in four years,” he says. “My team was very tired. It got easier each time, but it still needed a lot of everyone’s time with each round.”

For executives that target mergers and acquisitions as their key strategy, Sher says the only way to manage the process is to be “ready to sit down immediately” with a potential partner. That is a momentum that is hard to maintain.

Sher made his fourth — and last — acquisition three years ago. But in hindsight, he says he wouldn’t do it again.

“It was a small deal, so I said, what the heck,” Sher acknowledges. “But it ended up being a bad deal. It wasn’t strategic enough. It was too much work for the payoff. And he wasn’t who I thought him to be,” Sher says of the other CEO.

Despite what Sher assumed to be a quick and painless acquisition, he says the lesson was that “no deal is a small deal, and no deal is an easy deal.”