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Beyond the Magic Number – What to Plan for When Anticipating an M&A

Apr 22, 2022

Many business owners find themselves focusing primarily on the value of their business or the magic number they want to sell for when the transition finally happens. However, 80% of business owners report that they are less than satisfied with the resulting transaction, and it is not always about the money. There are many complexities that go into the sale or acquisition of a business. Our hosts, Lisë Stewart and Alan Wink will share some of the important elements of making sure the transaction is successful, for all parties involved.


Lisë Stewart:Hello, everybody. Thank you so much for watching today. My name is Lisë Stewart, and I'm a Partner here at EisnerAmper. And welcome to the EisnerAmper Private Business Services Selling Your Business Series. Whew, that's really a mouthful. It's a mouthful, but it's a very important topic. And I've got two great guests with me today to talk a little bit about this. We're going to be discussing an aspect that we think is very important and it is beyond that magic number. You know, many of us kind of get a number in our mind when we think we're going to sell the business or maybe we want to buy a business. So we're going to be stretching that conversation a little bit today and talking about some of the other aspects you need to pay attention to. And to do that, I've asked my colleague Alan Wink to join us, and one of my favorite clients, Jack Doyle. So I'm going to start out, Alan, would you like to just introduce yourself really quickly so everybody knows who you are?
Alan Wink:Thank you so much. My name is Alan Wink. I'm the Managing Director of Capital Markets at EisnerAmper, a long career doing mergers and acquisitions. Prior to Eisner, I was actually on Wall Street for about 12 years leading corporate finance transactions. Probably have done about $3 or $4 billion of deals in my career. At EisnerAmper, as I said, I'm the Managing Director of Capital Markets, get involved with clients in three-broad areas, capital formation, helping them to raise debt equity, mezzanine capital, corporate finance, helping clients with mergers, acquisitions, divestitures, strategic alliances, joint ventures, et cetera, and helping clients to build and execute growth strategies for their companies. Great to be here today.
Lisë Stewart:Great. Thanks, Alan. That's really helpful. And we're going to hear about that long career here in just a few minutes. So thank you. And Jack, could you let our audience know, well, who you are and tell us a little bit about Doyle Security.
Jack Doyle:Of course. So I am Jack Doyle. I am the President of Integrated Systems and Support Services at Doyle Security Systems based in Rochester, New York. I've been doing this for almost eight years. I am part of the fifth generation of family ownership of the business. We go back to 1919, so we're going on 103 years old. We're extremely proud of our business. We've been on the buying side of a number of acquisitions in the last seven to eight years. And we specialize in commercial and residential security systems. So burglar detection, video surveillance, access control, and fire alarm solutions. And it's great to be here. Thank you.

Great. Thanks, Jack. And since we're going to be talking a little bit about that beyond the magic number, we specifically wanted Jack to join us because, as he mentioned, they've been growing through acquisitions, and we wanted to talk a little bit about how do we, when you go through an acquisition, if you have been acquired, what are some of the things that could happen and to help us to sort of think about that. Given that Jack, can you just tell me, or I guess, remind me how many acquisitions have you all made in the last few years?
JD:So since 2015, we've done 15 notable, I'd say sizable acquisitions, probably another five to 10 more minor acquisitions or account purchases. But quite a few for a company of our size in this area.
LS:That's what I thought. That is a lot. So that's great. You've got a lot of experience to draw on. So before we start to get down to kind of the nitty-gritty of some of your experiences and what you've seen as challenges, Alan thinking about your long career, tell us what are some of the things that you've seen when a business is, they want to sell and you've got business owners who are really thinking of about the future? What are some of the things that they should be considering besides just that magic number?
AW:You know, Lisë, even before we start addressing that question, to follow-up with Jack's comment, I mean last year was an unbelievable year for mergers and acquisitions. And actually, it was the first year ever in this country where M&A activity exceeded $2 trillion. There was about $2.6 trillion of acquisitions last year. So it's not only Jack's company, but there's a lot of businesses that are being inquisitive right now.

But getting back to your question, first of all, it's not always about the money. You know, it's not always about the price, whether you're a buyer or a seller. There are other issues that you certainly want to address. But I think when you're a buyer of businesses, I think you want to understand why are you doing the acquisition? What's it going to mean for your business? You know, how are you going to pay for it? How are you going to integrate that management team into your company? Are you going to just basically buy the gross profit of the other company and all the other operating expenses go by the wayside?

So I think you have to understand integration, how you're going to fund it. And I think I've always been told that there's three issues that you have to concentrate on; confidentiality, valuation, and the funding, how are you going to pay for it.

On the sell side, I think as a seller, I think you always have to be conscious of why are you doing it and is now the right time? You know, are you doing it because there's not another generation of a business to take it over? Are you doing it because now's the right time? As we all know, trying to time the market is almost impossible. You know, right now it's a pretty frothy market, but in March if interest rates go up dramatically, that might change and all of a sudden valuations might come down. You know, right now is a great time to fund an acquisition. Companies are flush with cash. Banks are giving companies liquidity. Will that change in the near future? Possibly.

So I think you have to understand why you're going into that deal and why now's the right time and how does that include your strategic plan for the future.
LS:Right. Those are really, really good points, Alan. You know, it's interesting. So I have to tell just a little wee story. Not too long ago, I got called into a business because they had a new owner. So somebody had come in and bought them. And I think that the family business that was selling, they got a really good deal and the buyers also. They were very happy with the sale. As they were negotiating this, they talked to the owner. This gentleman had been running the company for 35 years. It really was his life, but it was time for him to figure out what he was going to do with the rest of his life, his encore career at about the age of 75.

And I got called in because the family had negotiated for him to continue to be sort of a consultant, an advisor to the business for six months after that transaction occurred. Well, now two and a half years past that transaction, he was still coming in every day. And so the new owners gave me a call and said, "Look, we like the guy, but what's he doing? He's still here every day. We can't get rid of this guy." So I sat down and had a conversation with him. And bless his heart, what he said is he didn't have anything else to do. He didn't know where to go or how to spend his days. And that's the only thing he needed to do was to get up in the morning, have his breakfast, put his shoes on, and get back down there to the office.

So I think that when people are considering selling their businesses, I think it's really important to spend the time planning what your life is going to look like. To what degree are you going to be involved? Do you want to be involved or not? And if it's an or not, what that's going to look like, what that time is going to be. And I know a lot of our business owners really, really do worry about that. No matter how big that number is or how special or perfect it is, it doesn't actually buy you the hobbies or the quality of life that you might want after you make that sale.
AW:And Lisë, just to interject one thing, I think I've seen many cases just the opposite of that, where a business owner sells, for example, to a private equity fund. And part of the deal was that he or she was going to stay in the business for two or three years. And these business owners are so accustomed to running their own show that now they're reporting to someone else. And after a year of doing that, they say, "Well, maybe my buyout isn't that important, the earnout isn't that important. I think I'm going to go and do something else." So there is some change there.
LS:Right. Right. And they often leave that money on the table. It's really quite complex as you work through these, if it's a merger or an acquisition, as you work through this whole scenario. So Jack, I'm so pleased you're here to share with us from all of your experience. So many businesses that you all have acquired. What I'm really curious about is as you acquire them, what are some of the challenges? What are some of the things that you've seen? If you were going to sort of let people know perhaps things they've not considered before, what do you find?
JD:Well, first of all, I think you touched on a really interesting point from the seller's point of view. Doing some soul searching to really make sure that they're ready to cede control over their business operations. We've certainly seen that play out where former owners are just unable to extricate themselves from their existing way of doing business and being responsible for all of those decisions. And it can create a cultural problem if both parties are not fully on the same page as to what that role is going to be and how long that engagement is going to be and what that timeline ought to be. So I just wanted to point out, I thought that was a really interesting point. I completely agree. And we certainly learned those lessons.

Another would be to get to know the rest of the staff as early as possible, try to establish some connections with them. If you can find ways to immerse them into your culture, ease their fears as much as possible, there really is no way to overcommunicate. You know, we've learned that lesson the hard way a number of times. Even if you're in similar businesses, it's easy to lose sight of things that may seem obvious to you are not obvious to them. And they don't know these kind of maybe archaic business practices that have existed in the organization for 50 years and have just become second nature. If you don't communicate those things clearly, that can create a problem.

And the same is true on the customer side. We send a letter to, so being in the security business we deal with larger volumes of customers. And while we would like to and when it's practical to, we'll do some individual outreach to all of them. We'll definitely do outreach to any key customers or larger chain accounts or anything like that. But sending a letter, explaining the transaction, having the seller send a letter right before yours, having online FAQ pages, changes to procedures, changes to phone numbers, what's going to change, what's not going to change. And you'll also do your own staff a service by trying to head off some of those questions at the pass when they first get notified of that. If they haven't heard from you directly, there's already going to be some level of concern, some level of suspicion. You want to put those minds at ease as early and as often as you can.

And one other piece of advice, I'd just say your lending partners, your other financial partners, if you're on the buying side, develop those relationships nice and early. You know, if you don't have a potential lending partner in mind or several of them in mind right now, you're probably doing yourself a disservice. You should always give yourself as many options as you can so that you have them when you need them.
LS:Gosh, Jack, you make some really good points, things that I don't think that a lot of people may be even considering. You know, I'm curious though, your experience in acquiring businesses, what should owners do to prepare their internal staff for this kind of change? Particularly, I'm interested in organizational culture. You know, you've got to try to come in and integrate their systems, but you've also got to integrate their culture into your culture. And I know that that can sometimes be just a real challenge. What do you find and what would you like to find?
JD:Yeah, that's a really interesting question, Lisë. You know, aside from encouraging them to keep an open mind, it's always smart if they can loop in some of their leadership team ahead of time from the extent they feel like they're able to do that. I realize that's not always possible. Maybe an NDA would be required. But any opportunity there is to have some bilateral meetings with key individuals, including the owner, prior to the acquisition would be great.

If we can get an LOI signed and get a selling owner comfortable with the notion, we'll start pre-acquisition taskforce meetings every six months in anticipation of that transaction, making sure we're just checking off every box, making sure that any data migration is in order. Just really understanding the personalities, their culture, what their expectations are, and put their minds at ease.

If that's not possible, then just try to prepare them mentally and try to express all the... maybe provide a statement or a key profile of each individual employee or key employee that you can with the new ownership group so that they can start to digest that and understand where these key people might fit in in the consolidated group once the transaction's completed.
LS:Right. Yeah. No, that's good. I like that idea about having kind of a profile of people because I do know it can be very challenging just to get in there. And you don't have a lot of time to build trust. And we want to try to make sure that people know who you are and what this all means for them. So again, lots of things that companies and owners should be thinking about as they're working toward this transition, how can they think about the integration part of that. So thank you.

Alan, I know as you're listening to this, and you and I have had numerous chats about how companies should be preparing, what are some of the things that they need to be doing. So I think that we were going to talk a little bit about, well, really just what are some of the key questions you need to address to avoid disaster? Because sometimes, as businesses merge together, it is a real disaster. So what are your words of warning for our people out there who are considering this?
AW:You know, it's funny because a lot of it has to do with financing. You know, the first disaster is if you're a seller and you've been dealing with a buyer or you have an investment banker who's introduced you to several buyers and people have made offers, you want to make sure they can afford to do the deal, that they have funding available. You don't want to do a deal that's contingent upon a buyer having capital to complete the transaction.

I'm in the middle of a transaction now actually representing a buyer, and the seller as we were negotiating our LOI wanted to see proof of funds from the buyer. You know, it's a $15 million transaction. They wanted to ensure that the buyer had funds in the bank or had commitments from financial institutions that would allow the deal to close. So financing is certainly an area.

I agree with Jack, the integration of people is really, really important. Culture becomes very, very important. And sometimes in the beginning stages of a deal, it's really hard to determine what the culture of the organization you're acquiring is.

You know, one of the other issues is from a seller's perspective. A seller has to ensure that their key people are in line, that they want the deal to happen, that they're going to go with the buyer because they were a key part of management. And as Jack I'm sure sees in most of his deals, part of the acquisition's acquiring people who were very key to the success of the business.

So I think you have to look at people, you have to look at financing, you have to look at culture. And I think if you can get those things right, you have a high probability of being successful.
LS:Right. Yeah. I agree. And I'd like to put in a little plug, just a little plug for tax planning. I was in a meeting last year with a company that does some consulting and they told me a rather sad story. I just love my stories. But they told me about a gentleman. He was a manufacturer in the Midwest and he had an offer to buy his business. And he had that magic number in mind. He was very excited about it. The consultant suggested at the time that maybe he reach out and work with a strong accounting firm that had a background in this and that he make sure that he was working with attorneys that had a tax background, was really getting information about what that number really meant.

And he kept saying, "No, no. This is great. I've got this handled. I'm on top of it." Come to learn that after the sale of the business and he found out what his takeaway was, it was nothing. He literally sold his business and due to the tax consequences he walked away with virtually nothing. And of course, he was one of those business owners that was really counting on the value of his business to fund the rest of his life, which was a very sad story.

So the moral, the moral to my friends out there who are watching this is make sure that you get a good understanding, good advice about what the financial picture really looks like, not just what you're being offered but all the other elements to this that you really need to be paying attention to. You don't want to be that person that walks away with nothing after you had such an exciting opportunity in front of you, right?
AW:And Lisë, to add to that, and you said it well, and it's not what you sell your business for, it's what you keep.
AW:And you cannot emphasize enough the importance of surrounding yourself with experienced advisors, whether it's investment bank, an accounting firm that has done transactions, a law firm that has done transactions. It's money well spent and you'll get a great return on that investment in your advisors. It's going to pay you back in spades. It really will.
JD:If I could interject, one thing I would advise a company, even if they're not considering selling yet is to make sure they're doing everything possible in their day-to-day operations to maximize the future value of their business. You never know when you're going to need to leverage that or if you decide you're going to sell someday.

In our line of work, contracts are incredibly important to shield a security company from liability. We've seen owners make the mistake of having invalid contracts or contracts that were not up to an industry standard or maybe not having contracts with their customers at all. And to do such a thing and to let that spin out of control and continue on in your business for years, can crater the value of your business today or in the future.

So yeah, my advice would be talk to your advisors, your consultants and your attorneys, and make sure you're doing everything possible to protect the value of your business, even if you're not thinking about selling it.
AW:And I think that really gets into the topic of being diligence-ready for a transaction. And I know we encourage all our clients no matter how big or small to really be ready for a transaction at any point in time. You never know when a strategic or a financial buyer might knock on your door and have a level of interest in buying your business. And the more ready you are for a transaction, probably even the higher the price you'll get for your business.

So it's not that difficult to be diligent and ready from a financial accounting, operational standpoint. And it really is good corporate governance to do that.
LS:You two have been just wonderful in terms of really adding the extra information that people need to have. So I know that we're coming to the end of our special time together. And I just want to see if you have any one final little bit of advice that you'd like to share. Jack, anything you want to really make sure people know?
JD:Always budget conservatively if you're preparing for an acquisition. Even with the benefit of experience and a bounty of knowledge on the business you're about to acquire, comprehensive due diligence, the unforeseen always arises. So budget for the unexpected.
LS:Perfect. Thank you. Alan, last words.
AW:You know, I think Jack said it best, be prepared for surprises. If you are a seller, be prepared for the rigors of due diligence. It's not for the faint of heart, but every seller has to go through it. And hopefully, you'll have a very productive outcome on the other side.
LS:That's good advice. Alan, Jack, thank you so much for joining us today. I really appreciate it. And to all of you that are out there watching and listening to this, please feel free to reach out. If you'd like some more information, just go to

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Beating the Odds – Achieving Post-Transaction Satisfaction

Lisë Stewart and Alan Wink discuss some of the important steps—such as conducting prior planning and having the best transaction team possible—to achieve that selling some or all of your business is a positive experience.

Hitting the Right Number on an M&A Deal

All owners of private companies want to maximize the value of their equity. Understanding the key elements of value creation will certainly help a company achieve the right number upon exit. Appropriate planning and execution will achieve superior results for the business owner.

What's on Your Mind?

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Alan Wink

Mr. Wink assists clients with capital budgeting, capital structuring and capital sourcing. He has worked with many tech and life science companies on developing the appropriate capital structure for their position in the business life cycle.

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