At first glance, an acquisition may seem to improve the long-term growth and profit of only the acquirer. Many times, the acquirer gets to absorb an already successful company, and its assets, operations, employees, and trade secrets. Yet, there are many benefits of being acquired for the seller as well – if the M&A transaction is well-negotiated and the integration/assimilation well-executed. Here are five upsides the seller can realize through a successful acquisition.
Buyer synergies. By being acquired, the seller can lay claim to a new position in the space, which can result in what’s often referred to as “buyer synergies.” These could be in the form of:
- Better volume pricing
- Enhanced employee benefits, training, and education, and more opportunities for upward mobility
- Expanded offerings to existing customers
- Geographic relocation for employees
- Access to capital to grow the business (This is key for sellers who have an earn out)
- An opportunity for owners who stay with the company to focus on their strengths (e.g., sales, business development, technical, operations)
A buyer who is in multiple geographies can bring additional opportunities as well. At my former employer, we were able to capitalize on these things and build a lot of positive momentum with companies we acquired, as they wanted to be aligned with a fast-growing, profitable, and well-capitalized publicly traded entity.
Long-term enhanced valuation. There’s a saying that goes “2+2=5 or something greater.” In addition to the potential of “buyer synergies” and the presence of any performance-based earn- outs, there is a realistic opportunity for the seller to make further gains. If stock appreciation is a component of the deal, and the seller can have a material impact on the combined company’s performance going forward, there could be significant upside. In addition, if the buyer one day becomes the seller, the current seller as a stockholder could benefit in the upside of a future transaction that includes a stock-for-stock component, plus stock options (if the acquiring company is a public entity with stock options).
Removal of personal guarantees. Through an acquisition, the seller no longer has to sign personally and pledge personal assets to borrow money to grow their business. Being a part of a well-capitalized organization removes that kind of daily pressure and allows the seller to focus on growing the existing business. Any business owner who has had the issue of bumping up against their credit lines can appreciate this.
Pursuit of other interests. If discussed up front and a succession plan is put in place, the seller can exit the business on good terms and pursue other interests. As long as it is executed effectively and the employees and customers are being served properly this can be a positive experience for all parties.
Security. Finally, if the seller’s business is struggling and under pressure from the banks, then being acquired is probably the best option. It protects the interests of the seller’s employees and customers, gets the seller out from under debt, and gives the seller an opportunity to take some money off of the table. It can even improve their valuation via the earn-out. As a former buyer/acquirer and now as a buyer and seller representative, I have seen too many companies wait “until it is too late,” and everyone suffers as the seller scrambles to liquidate the business or they just shut their doors without notice. Even a “selected asset” purchase by the buyer allows the seller to salvage something for their business.
A merger or acquisition does indeed bring benefits to the buyer. But, there are also many benefits to be achieved for the seller as well. Oftentimes what’s needed is a seasoned M&A expert to navigate the negotiations and acquisition to ensure the seller is put in the best possible position, now and going forward.
Steve Pomeroy is the founder of Big Change Advisors, a unique M&A consulting firm in Los Angeles that helps businesses achieve big goals while making a big impact on society. To request a free consultation, contact us.
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